At the Musculoskeletal New Ventures Conference (MNVC) in October, investors with varying perspectives offered a glimpse at what they look for in a company that seeks funding and support.
Smart tools and technologies that increase efficiencies—from both a logistics and an operating room standpoint—are on investors’ shortlists for deploying capital in the musculoskeletal space.
Moderated by Gary Stevenson, Managing Partner of MB Venture Partners, the panel comprised:
- Seth Nash, Vice President, Business Development & Marketing, Mend Medical
- Milen Todorov, Managing Director, HealthpointCapital
- Anthony Viscogliosi, Principal, Viscogliosi Brothers
- Wayne Wallace, Co-Founder, Mutual Capital Partners
Here’s what they had to say.
In What and Who are Investors Investing?
Todorov: We only invest in companies with commercially available products that are already cleared and that have passed with FDA. Obviously, we believe that there are great companies and great products and great investments, and those aren’t always the same thing.
Sometimes in our industry, the path between idea and ultimate clearance can be very long and in many cases, can destroy returns for investors. That’s why we try to find those companies that have reached the right stage commercially that need that extra oomph in terms of commercial scale-up and operational expertise. We’re on the lookout for great ideas that are commercial and available across the musculoskeletal space.
Viscogliosi: We’ll carve out a product that we know has worked in certain types of patients, and we’ll deeply study those patients to figure out why that product worked and what the inclusion criteria would be for those patients. We then develop a clinical study that meets that exact situation. By doing so, we know in advance what the outcome is going to be.
We largely seek to pursue unmet clinical needs by selecting something that’s not getting attention and putting capital, people and strategy together to create that focus and transform the value. Most of the time, we decide on a trend before it’s a trend and look for business opportunities in that direction; then we’ll go knock on doors.
We try to find something that’s got clinical use, that’s in an underserved situation, and that has had good outcomes. Typically, it’s not in the U.S. yet, or hasn’t received Premarket Approval or 510(k) clearance.
Nash: We have absolutely narrowed our focus. We see our sweet spot in two areas, right now. One is in companies and technologies that are focused on driving efficiency and eliminating waste in the delivery of orthopedic care. This business model hasn’t really changed in 30 to 40 years. We think that now is a time that is particularly ripe. Folks who are distribution model disruptors focused on logistics efficiency at the hospital, and on those things that can drive more care to the ASC environment, are particularly interesting to us.
The second area that we hope to focus on in the future is in serving underserved or unserved patient populations. Innovators that are particularly focused on the really tough cases remain interesting to us and are where we want to place our bets.
We recently made a small investment in Pristine Surgical. We think that Bryan Lord and that team are doing some really compelling work. Their single-use scope we think meets that target area of driving cost efficiency, logistics efficiency and elimination of a hassle for the end-user while potentially reducing infection—that’s the sweet spot.
Wallace: We love the broad dynamics of healthcare. You talk about the aging population, innovation and technology, the expanding middle class and emerging markets with increasing access to healthcare—it’s a wonderful place to be spending our time and investment dollars.
What Technologies are Gaining Investment Interest?
Wallace: We are interested in any type of smart tool that allows surgeons to be more confident in what they’re doing. Robotics is making a big buzz right now, but the last time I checked, robots didn’t go to medical school. What you really want is a consistently great outcome. I think there’s some [opportunity] between a surgeon who, when left alone, is going to mess up about 30% of the time, and a robot that didn’t go to medical school. There is a spot where those things come together with smaller smart tools, and that’s where we’re going to spend a lot of time.
Todorov: Healthpoint is a growth-equity-stage investor. We stay disciplined. It’s important to live by a set of criteria and be able to defend them in your work. As we look at smart tools, they strike us as an area of opportunity and great potential, yet one where we are going to have to diverge a little from our investment criteria and potentially have to pay a little more or take on a little more risk in order to get the right asset. It is an amazing space with a lot of potential. In 10 to 15 years, I see it as an area that will be much more mature and much more dominant in our lives. It certainly is an area where we spend a lot of time and where we expect to potentially invest in the future.
Viscogliosi: We will continue along the pathway of focusing our attention on carve-outs that relate to a set of 15 themes that we’ve decided to invest our family capital around, including minimally invasive surgery, smart tools, compromised bone solutions, pain management and redefining the athlete. There’s a very big opportunity with smart tools, because these make surgery easier, safer and more consistent, and that results in better outcomes.
Viscogliosi Brothers is also very active in the field of orthobiologics. Regenerative orthopedic medicine is another one of our 15 themes. We classify orthopedic as 10 of the architectural tissues of the body: skin, teeth, bone, ligament, tendon, muscle, cartilage, brain, spinal cord and peripheral nerves. If it’s one of those tissues that the mesenchymal cell differentiates into, we’re interested in looking at an investment opportunity in that space. We’re actively pursuing several opportunities in the regenerative medicine/biologics world.
What is the Health of the M&A and Investment Market?
During MNVC, J.P. Peltier, Global Head - Healthcare Investment Banking at Piper Jaffray, highlighted a positive M&A outlook for investors and startups. The exit environment quality is healthy. He noted that we are currently in the longest-running bull market in U.S. history, and that big orthopedic companies are pursuing M&A as the main use of their capital.
Other takeaways from the M&A and investor presentations, included:
- Deal volumes and purchase prices are increasing as values are rising.
- High growth medtech valuations are near peak levels, having trended up for the past three consecutive years.
- Boston Scientific and Stryker are the most active in M&A activity since 2018.
- A record 3,000+ funds are in the medtech market, deploying ~$950 billion in capital.
- The cadence of M&A activity in orthopedics is going to pick up in 2020.
- 5+ IPOs are predicted for 1H20; this is a record.
- 43% of economists predict a recession in 2020.
- 47% of economists predict that a Republican wins the presidency in 2020.