Early Stage Therapeutics and Medical-Device Investors Are Often One and the Same

16 Oct

By Michael Quigley, Director of Research, LSN

mike-2Developing therapeutics differs in many ways from developing medical devices. Therapeutics tend to have longer paths to commercialization and are more capital intensive, but they also usually deliver larger exit payouts. Interestingly, more investors are currently looking for opportunities in both of these sectors than in only one of them. An analysis of approximately 600 investment mandates gathered by our research team over the past year shows the percentage of investors interested in only medical devices, only therapeutics, or both. (See Figure 1.)

Figure 1

Figure 1

More than 50% of the investors we spoke with are looking to invest at some level in both therapeutics and medical devices. While portfolio blends may vary from investor to investor, with some looking more heavily into devices and vice versa, the bottom line is many investors are looking more opportunistically. They see great potential for ROI in these two spaces, so they leverage their networks and expertise to diversify their portfolios in hopes of capturing the upside in both. Many investors have partners or team members who are focused on therapeutics and medical devices, and other investors have vast networks of experts and industry executives to help them during the vetting process if they are unfamiliar with a particular technology.

As the therapeutics approval path is a much more capital- and risk-intensive process than that of medical devices it appears logical that more investors are looking only or additionally into the medical device space. It seems that those investors are looking to diversify their portfolios and cover their bets to generate a more positive outcome. We analyzed investment mandates by investor type for only therapeutics, only devices, or both. (See Figure 2.)

Figure 2

Figure 2

It is interesting to compare mandates from the various investor types; the differences could have a number of forces driving them. Private equity groups, for example, tend to look at later-stage opportunities, such as devices that are about to reach commercialization or that have been recently approved and have begun shipping. Therapeutics at this stage, however, tend to be partnered with large pharma or biotech companies to finalize approval and distribution, making those opportunities much rarer. Given their smaller investment size compared with other investors, angel groups look to invest in companies where they can get more significant equity positions, which makes early stage devices a more viable option, compared with therapeutics that are often seeking multimillion dollar seed rounds. The corporate venture capital groups that LSN tracks also tend to favor devices because of the numerous IT and tech-based companies that are now leveraging that expertise to expand into the healthcare sector.

The most important point that can be drawn from this data is that most investors in the space are looking at both therapeutics and medical devices for new investments, and their allocations will be a function of the deals that they are presented with. As a fundraising executive, you are doing a great disservice to your company by not getting in front of investors simply because you believe they don’t invest in medical devices. Although past investment data can tell you a lot about investors, in the rapidly changing life science space, the key is uncovering which areas investors are exploring going forward. Ultimately, investors are most interested in compelling and innovative opportunities with strong teams that solve a significant problem. If you have all three things, the sheer number of high-potential investors may surprise you.




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