Vested Metals tracks the medical device industry closely because medical device makers are significant purchasers of specialty metals including titanium and stainless steel. Medical device makers use titanium especially because of its high strength and durability.
This post is intended to provide a summary of how the medical device start-up industry is doing during the pandemic.
Medical-device startups globally raised $4.4 billion in Q2 2020, up from $3 billion in Q1 according to the Wall Street Journal. According to the Minnesota-based Medical Alley Association the funding environment was “relatively normal” despite the pandemic in recent months.
A few highlights from the quarter include Conventus Orthopaedics which raised $65 million. Conventus uses self-expanding nitinol technology to improve fracture care.
HistoSonics raised $41 million In Q2 2020. The company specializes in non-invasive robotics platforms and sonic beam therapy.
Cardiva Medical completed a $45 million funding round to support the commercial expansion of its vascular closure systems.
Pandemic Trends
One sector of the medical industry that is seeing substantial growth as a result of the pandemic is in digital health. Now that patients are more cautious about in person health care appointments, technology devices that remotely collect data are growing in popularity. For example, wearable technology that collects a patients heart rate, blood pressure or sleeping patterns enables a more remote-oriented health care process.
This trend has caused a substantial surge in venture funding for medical technology companies. In the first six months of 2020 U.S. digital health companies raised a record $5.5 billion in venture funding.
Public Company Trends
Despite the strong funding conditions for medical technology companies, financial results for many large publicly traded medical device makers remain weak. Stryker net sales decreased by 24% in its most recent quarter. “Our second-quarter sales declined organically by 24%, reflecting the impacts of COVID-19 across all geographies and the majority of our product lines,” Kevin Lobo, Stryker and CEO said on a recent earnings conference call. Additionally, the company suspended guidance for next year due to uncertainty related to COVID-19.
Despite the weak short-term financial results, health care company stock prices generally imply a strong long-term outlook.
Financial Trends Impacting Medical Device Startups
Capital market conditions remain extremely favorable to medical device startups. First, the long-term demand fundamentals before COVID-19 were favorable due to many developed country’s aging demographics (U.S., European countries, Japan). This trend points to further spending growth in the years to come.
Second, interest rates globally remain exceptionally low and historically high PE ratios imply a high tolerance for financial risk. Both dynamics lower the opportunity cost of capital and push money into riskier investments.
Third, COVID-19 has created a net increase in demand for health care innovation due to the substantial number of changes to health care delivery procedures. Although it remains unclear which of these changes will become permanent the theme is likely to increase investor demand for narratives related to COVID-19 driven changes to the health care industry.