Medtech experts say despite “schizophrenia,” the industry’s prognosis is good

The investment climate for the medtech industry has become more cautious, more focused on short-term results, and wary of increased government regulation. At the same time there are still plenty of opportunities for growth and success, a panel of CEOs and entrepreneurs said recently.

The panel discussion was part of the MedTech Investing Conference, which took place last week in Minneapolis. In the discussion, “The Seduction of Medtech: Despite Challenges, Serial Entrepreneurs and CEOs Discuss Medtech’s Allure,” the panelists described an industry that was battered by recession and increased regulation but is, at the same time, regaining its stride.

“I see a degree of schizophrenia in the market,” said Ben Pless, CEO of Autonomic Technologies, a Redwood City, Calif.-based device maker. Pless noted that it has been a struggle for some investors and companies to adjust to the new realities of the medtech industry, where high regulation and low reimbursement have combined to slow growth. However, he added the climate is improving.

“Our product has great value,” he said. “We’re not there yet, but there are some good trends.”

Panelists agreed that investors are more cautious and that deals take longer to put together. Capital is harder to come by, and investors can be gun-shy of products that don’t have a short timeline for producing returns, they said. “We need to be smarter in how we manage our cash,” said Greg Barrett, president and CEO of DFINE, a San Jose, Calif.-based device manufacturer.

“There are going to be opportunities for big ideas, but there is a higher bar for showing results,”he said.

Another panelist was Danny Sachs, MD, a physician entrepreneur based in the Twin Cities, who in recent years has co-founded four companies that have raised $118 million in venture capital. He agreed that there is more pressure to find quicker payoffs for investments.

“Before, I didn’t care about how much money it takes to get across the finish line,” he said. “Now, I care.”

The panelists said they were dismayed by the amount of regulation created by reforms such as the Affordable Care Act and by the hurdles they face with the Food and Drug Administration. According to Barrett, “The government doesn’t understand the role medtech plays in our economy.”

Bill Facteau, president and CEO of EarLens, a Menlo Park, Calif.-based manufacturer, was a bit more restrained in his criticism of the feds.

“We’d like to have a lightly-regulated industry,” he said.

However, he was optimistic about the long view. Despite the climate of caution, he said, a new generation of innovators and investors are waiting in the wings.

“I may not sign on for a 15-year deal, but there is somebody who will, and 15 years from now, they’ll be up here,” Facteau said. “I don’t think anyone in this industry is going to focus on incremental change. The demographics are just too favorable — money will flow.”

Taking questions from the audience, the panelists gave some advice: don’t rush to commercialize (a company can burn through a lot of cash that way), hire the best talent (“Don’t settle,” Facteau said), and Sachs’ recommendation, “Hire a really, really, good patent attorney.”

“This is a long-term relationship — like a marriage,” Sachs said.

But overall, the panelists said that companies and investors must find a Goldilocks-type balance between caution and chasing the next great investment.

“If you worry too much about how long it’s going to take and how much it’s going to cost, you’re going to talk yourself out of some really good ideas,” Pless said.

[Image of happy and sad cookies from flickr user Jay Cox]