Med tech IPOs- Can become a trend 2015-2016

By 2016 IBs will be scrambling to get the attention of medical device CEOs.
The IPOs surge for med tech companies has just started it may not be a trend yet but can become a trend very soon, Presbia has a CE mark. Companies like Trivascular, Lumenis, Lombard medical, are just examples in the Q1 of 2014. Kips bay medical is an early stage medical device now public, company like Dario is targeting diabetes monitoring, we may see very early stage IPOs with solutions to humongous markets (no pun intended) like diabetes and obesity
Institutional investors, private buy side investors are now realizing Med device is a good opportunity, this is low investment, quick exit sector and can make more on the upside of milestones. VCs are discouraging IPOs because they will lose the opportunity to dominate this sector. They already lost biotech and pharma.

Super-Sized Obesity

Medical Device Market Ready for M&A and IPO Transaction

March 8, 2014

American Medical Association recognized Obesity as a Disease. This triggered all countries to explore obesity treatment options as a front line treatment for obesity. Obesity is no more a stigma. Its a everyday concern. Obesity is the route cause of Diabetes and Heart disease and is associated with 29 known medical conditions including cancer and infertility. The new disease cost countries like US over $150 Billion. 
Question is, despite of this unmet need why were the device makers and investors sitting on the side lines?
#1 Reason: Companies were worried about FDA approvals. Recently, FDA has changed its tone to make it priority to expedite approvals for obesity and products addressing unmet needs
#2 Reason: Some technologies had large profile devices which would perform the function of stapling or sewing the gi tract, these were associated with greater risks than benefits, there were concepts that would  anchor large balloons in the abdomen which were hard to adopt from a clinical perspective resulting in failures. Also, some of these technologies  were focusing on endoscopic interventions or procedures which involve extensive gastroenterology training which is a sub-specialty training or program. Bariatric surgeons are not GI doctors, they are very good with laparoscopic techniques, general surgery and not extensively trained in  gastroenterology specific endoscopic procedures.

Obesity is a multi-hundred billion dollar market ready and waiting for device developers to catch up to fill an enormous unmet need. Between the low risk, low benefit drug options for overweight patients, and the high risk, high benefit surgeries for the morbidly obese, there's a huge gap in terms of therapies. 

This sweet spot covers a segment of over 70 million patient in the US and about the over 100 million obese patients outside US without weight loss options. Companies with devices like Apollo Lap Band, J&J (Realize band), Enteromedics (waiting FDA approval), Reshape (Duo), Onciomed (GVS), Obalon, Gi Dynamics (endobarrier) are some of the players to watch out in the near future. 

US spends $160 B in direct cost to obesity treatments. See image above. The $56 B medical device market for obesity in the US has now expanded  to become a $120 B worldwide, companies today, don't have to wait for FDA to be successful they do very well if they will serve the obese population in EU and emerging countries like Brazil, India, Turkey, Mexico, Australia, Russia, Korea and Eastern EU countries; the market is existing and under-served, reimbursement risk is eliminated since many patients will pay out of pocket to have weight loss procedures so the remaining risk revolves around technology.

Cost of Lap-band  procedures in US ranges from $1500.
Outside US the band procedure cost anywhere from $8000 to 12,000 
Gastric surgery cost up to $20000-35000 in the US. Outside gastric surgery cost varies from $12,000 to $18,000. 

Intra-gastric balloons can cost anywhere between $8000 to $16000 the problem is that these balloons have to be removed in 3 to 6 months. Patient then have to explore surgical treatments or alternative long term implants like lap band.

Exit strategies are tremendous for young device makers in this space. Large device makers are exploring to get into the space and ready to pay premium for the right technology. Experts believe that once one medical device deal happens, it will trigger a acquisition spree.

 Allergan acquired Inamed maker of lap band for over $3 Billion in late 2005 early 2006. The stock jumped to ~$114 from ~$90 with company like Allergan with 300M outstanding shares it appears like it was a great deal. Lap band was number 1 seller in obesity products until more aggressive treatments like sleeve gastrectomy came along.
Lap band is a portion restriction device only and with its limited mode of action it did very well.
In late 2013, Allergan announced sale of lapband. After  announcing the deal its stock  jumped from ~$90s to ~$113 to $127 highest in years. With outstanding Shares of approx~300 M.

Allergan  made a very smart deal with Apollo to make the best of the tail end of lap-bands life cycle. Some experts look at this transaction one of the smartest strategic transactions in medical device industry.
 


As surgical procedures get adopted worldwide and more staplers and suturing devices will be used by general surgeons,more evidence of  adverse events like leaks and bleeding will occur which will entice surgeons to use minimally invasive and reversible procedures. Some of the new minimally invasive and reversible technologies  look very promising, one of these next gen technologies is Onciomed's GVS a long term implant which was presented at Cleveland Clinic Medical Innovation Summit, Gi Dynamic's endobarrier which is a sleeve inserted by a GI doctor in the intestine for diabetes resolution, the device is placed for 6-9 months and removed. Reshape's Duo balloon which is a short term implant to promote feeling of fullness and Obalon's balloon which has a gas filled balloon in the stomach to promote satiety recently commercialized in UK.

2014: Rise in global obesity and diabetes makes institutional investors hungry for startups and IPOs

Rise in global obesity and diabetes makes institutional investors hungry for start-ups and IPOs

SAN FRANCISCO  Feb 15, 2014- Startups focused on treatments for obesity and metabolic disorders - one of the key contributing factors in diabetes and heart disease- have raised significant sums of venture capital in recent months.

Obesity, Diabetes and Heart Disease cost over $800 B annually. There are several companies in the diabetes diagnostic and insulin therapy and saturated cardiovascular market. Obesity is the new unmet need. The new start ups are focused on consuming less food, controlling the calories and about focusing on the metabolic action that regulate how the body uses food. These technologies are supposed to treat the root cause of diabetes and heart disease.

At the 2014, JPMorgan Health Care Conference in San Francisco, Orexigen presented its information that excited the investors on the drug side. Boston-based Rhythm Pharmaceuticals, have a drug to pursue in the obesity space. MPM Capital and New Enterprise Associates have invested in these technologies. Vivus and Arena have an approved drug on the market and capturing market share on the drug side.

Medical device are hot because they can deliver significant long term weight loss in obese patients without the risk of surgery or the adverse effect of drugs.  Today the only devices in the market that are approved by the FDA are the lap-band and J&J’s Realize band. This year, there was buzz about a new entrant Onciomed which is working on the next generation device to treat obesity and diabetes. Onciomed based in Irvine, California, presented at the Cleveland Clinic Medical Innovation Summit and looked very promising according to MedCity News. Onciomed name is derived from Latin word for unit of measure “Ounce”. The company is quite about it progress and conducting clinical activities for its medical device outside US to be ready for EU and rest of the world market. The company is supported by undisclosed investors. 

"Obesity investment have been greatly ignored in the past because some companies failed to meet FDA milestones or the regulatory constraints in the past, now after a decade of unprecedented obesity rates in emerging countries, American Medical Association (AMA) and FDA has changed their outlook on obesity and this sector is inevitably in super demand, we are looking at some new technologies because we think the large strategic players want to dominate this space or enter this space, this opens the opportunity for imminent success for young medical device entrants either by M&A or IPO. Medical device sector was ignored by Wall Street for the last few years, now investors realize that the drug and biologic products take longer to get to market and regulatory pathway is not well defined for many new drug or biologic therapies. Suddenly, the device sector looks more lucrative and makes more sense” said an investor who did not want to be named as he was exploring new obesity technologies to invest. “Since obesity and diabetes together are such dire unmet needs and have room for new technologies. We are very bullish on this sector. Given the high and growing global incidence of obesity, it's no surprise that startups developing new treatments are seeing interest from private and institutional investors. The medical device investing is evolving , getting in early is important, nobody is going to wait or follow a lead investor, those days are gone, we will see if the deal makes sense to us and we will invest”

GROSS STATISTICS ON GLOBESITY

The World Health Organization projects that by 2015, about 2.3 billion adults will be overweight and more than 700 million will be obese. As of 2005, the WHO estimated that at least 400 million adults worldwide were obese, defined as having a body mass index (BMI) of more than 30. (BMI equals weight in kilograms divided by the square of height in meters.)

2008-12 saw a “weeding out process” in the obesity sector. Medical technologies that did not make sense to the clinical community were weeded out. 2013-14 showcased the emergence of most promising medical device technologies in clinical evaluation: Gi Dynamics “endo barrier” in clinical trials, Enteromedics (ETRM) vagal stimulation device is awaiting FDA approval, Reshape Medical’s Duo balloon technology completed enrollment in the US, Obalon’s balloon technology initiated commercialization in UK for its temporary balloon implant, Onciomed’s GVS system is starting clinical studies to evaluate it long term implant which is a minimally invasive device to imitate gastric surgery without cutting any portions of the stomach or intestines, Baronova’s shuttle technology raised capital last year to evaluate its shuttle technology and Valentx endoluminal technology is working  on its temoporary endoluminal device.  Amongst all the above technologies Enteromedics and Onciomed are the only companies that have a long term implant to treat obesity and targeting bariatric surgeon as a user base.  Reshape, Obalon, Gi Dynamics, Vallentx and Baranova boast safe, short term medical implants which require removal in 6-9 months and rely on the Gastroenterologist or GI doctors Vs bariatric surgeons to perform the procedures more effectively. Bariatric surgeons are general surgeons who are specially trained to perform small incision laparoscopic gastric surgery to treat obesity. Bariatric surgeons are the doctors who see obese patients first and based on their BMI decide whether the patient goes to GI doctors or get a laparoscopic surgery. Lap Band and Realize band are popular long term devices that are implanted by bariatric surgeons worldwide using laparoscopic technique.

US has 70 million individuals who are obese, 15 million individuals are super obese or need to lose 50lb or more often close to 100lb and suffer from one or more co-morbidities, these patients are qualified to get surgery immediatly. UK has 1.3 million individuals in line for treatment for obesity. Countries like India and China are seeing obesity in epidemic proportions. India has 64million diabetic patients another 70 million obese and 12 million super obese that need immediate treatment. The medical device market for obesity is expected to exceed $139.5 Billion by 2017 according to MDDI (Medical Device & Diagnostic Industry).

Gi Dynamics, based in Lexington, Massachusetts, is listed on Australian Stock exchange. The company backers which include Advanced Technology Ventures, Johnson & Johnson Development Corp., Domain Associates, Medtronic Inc., Polaris Venture Partners, Catalyst Health and Technology Partners and Technology Partners and Cutlass Capital. Gi Dynamics has created a trend for international IPOs. Australia is becoming a breeding ground for young medical device companies wanting to list the companies on the Australian stock exchange.