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Top 10 VC device deals of Q3 2012

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For the 2012 third quarter, the top venture capital funding rounds for medical device and equipment companies are anything but big. Noticeably, they're relatively small, peaking at just over $35 million and running far lower than that. Most are supplemental rounds.

In years past, those numbers would represent the lower end of a wide funding spectrum. It is sobering to see them representing the high range of funding during the quarter, as compiled by the National Venture Capital Association and PricewaterhouseCoopers in their latest MoneyTree report (from Thomson Reuters data). Why such a drop? We asked Wende Hutton, a general partner with the investment firm Canaan Partners, and an active NVCA member. She blames, in part, a lethal combination of continued FDA regulatory delays, struggles to gain reimbursement for innovative technology and retrenchment on the corporate side because of the looming medical device excise tax.

"We're still seeing a base level of support for existing portfolio companies in medical devices but the head winds have been significant," Hutton told FierceMedicalDevices.

As the report notes, medical device investing fell for the third consecutive quarter, dropping 37% in dollars and 27% in deal volume. Just 65 medical device companies attracted $434 million in funding, which the report says is the lowest dollar investment since 2004. First-time medical device financings stayed at a low 17 rounds. During the 2012 second quarter, medical device companies drew $700 million in funding in 84 deals.

The news is much better for biotech, which FierceBiotech Editor-in-Chief John Carroll outlines in detail in a dual report (click here to access the details). Biotech investment surpassed $1.2 billion for 116 companies, soaring 64% in dollars and 22% in deals, likely due, in part, to large follow-on rounds, analysts have noted. (But funding for life sciences as a whole continues to decline. Combined with medical devices, investment in the sector dropped 19% overall during the first three quarters of 2012 in terms of dollars compared with the same period in 2011, and deals dropped 12%.)

Hutton said the medical device numbers aren't all bad. Despite the obstacles, she said, the medical device industry in which she has long invested continues to see scientific gains, and she added that the funding decline has started to slow. But there is now a long-term de-emphasis on "the kind of robust funding we saw 5 or 6 years ago" before the economic crash.

In the new environment, Hutton said she sees lower financing reflecting the cold reality of fewer companies being funded because of a lack of "robust returns across the board." And Hutton argues that there's now a greater focus on making new device and equipment companies capital-efficient. What this means is that entrepreneurs and VCs continue to look for new funding sources, and they're also launching fewer device and equipment startups with the idea of making them independent successes down the line. Instead, Hutton sees a massive change. Like biotech and pharma startups, device companies, in the wake of fewer funding opportunities, are being run for acquisition rather than as independent entities, in part because of far few opportunities for IPOs to gain a return on investment.

That said, venture funding for devices is still a vital part of the process, Hutton argues.

"We are still optimistic and very active in the space," she said, "and will continue to be."

(Note: The NVCA tracks money received by the companies during the quarter, and those numbers can be lower than the company-announced rounds.)

-- Mark Hollmer (email | Twitter)

Who: iWalk

What: Maker of the BiOM bionic ankle system, which emulates calf muscles and Achilles tendons

                    How much: $13.26 million

Who: NeuWave Medical

What: Maker of the Certus 140 microwave tissue ablation device, which ablates soft tissue

                  How much: $14 million

Who: CardioSolutions

What: Developer of a percutaneous system to treat patients with moderate to severe mitral valve regurgitation

                  How much: $14.4 million

Who: Radisphere National Radiology Group

What: Provider of radiology devices technology and services

                  How much: $15 million

Who: Intact Vascular

What: Developer of the Tack-It Endovascular Stapler System for peripheral artery disease

                  How much: $15.5 million

  

Who: Telcare            

What: Maker of a cellular-enabled glucose meter and related iPhone and Android apps

                  How much: $25.4 million

Who: IlluminOss Medical

What: Maker of the Photodynamic Bone Stabilization System for bone surgery

How much: $28 million

Who: OmniGuide

What: The company is pursuing expanded adoption of its BeamPath CO2 laser system for minimally invasive surgeries, and it combines cutting, ablation and coagulation.

               How much: $30 million

Who: Torax Medical            

What: Maker of a laparoscopic implant that uses magnetic beads to augment the esophageal sphincter and treat gastroesophageal reflux disease

               How much: $30 million

Who: Tandem Diabetes Care

What: Maker of the credit card-sized t:slim touch-screen insulin pump, which integrates with the company's software so patients and physicians can monitor readings and health data

              How much: $35.2 million