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JPM: For med tech startups, fundraising hinges on proving value

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Tryton Medical CEO Shawn McCarthy said his company's fundraising success is based on both its device's innovation and marketability.

SAN FRANCISCO--Raising money in the cash-strapped world of medical device venture funding is no easy task, as deals are shrinking in size and volume quarter after quarter.

But some startups are still hauling in big tranches and rounds for their technologies, relying not just on clinical data and unmet needs but more and more on the economic value of their pipeline devices.

On Monday, Tryton Medical announced it had pulled in $24 million to pay its way through the FDA process for the Side Branch Stent. CEO Shawn McCarthy told FierceMedicalDevices in an interview that the days of wooing investors with a device that's simply safe and effective have passed; today's VCs want to know that a tech is also reasonable and necessary.

"It's not just about being the easiest product to use," McCarthy said. "Now, all of the stakeholders need to see a benefit--patients, doctors, hospitals and, of course, payers."

GlySure CEO Chris Jones said success in fundraising means convincing investors your device can satisify multiple stakeholders--courtesy of GlySure.

Chris Jones, CEO of GlySure, has a similar story, as his company closed a $13.6 million Series C late last year, money that will support the development of the company's continuous blood glucose monitoring system for hospital ICUs.

In an interview, Jones said GlySure made its case to investors by citing the mountains of data showing that maintaining tight glycemic control can reduce patient mortality and repeat hospitalization, leading to direct savings for hospitals and providers.

"These days, you've got to have patient benefit, obviously; make it easy to use, so that the nurses keep it in the hospital; and then it has to make the CFO happy," Jones said. GlySure's disposable sensor can be made for under $200, Jones said, and, with the reduction in length of hospital stay it offers, the tech more than pays for itself. 

Looking at the numbers, Tryton and GlySure are more exception than rule. In the third quarter of 2012, med tech investments dropped 37% in dollar value and 27% in volume, according to PricewaterhouseCoopers, and while some analysts predict an upswing in 2013, no one expects money to start flowing at a pre-2008 clip any time soon.

But the two devicemakers mark a trend among successful startups, and the drive to craft technologies that have a market awaiting them post-approval appears to have trickled up. CEOs from Medtronic's ($MDT) Omar Ishrak to Stryker's ($SYK) Kevin Lobo have said again and again that, before they throw millions in R&D at a pipeline project, they too want to know how it will fare in the world of commercialization and reimbursement.

"We have health economists on our innovation teams now saying, 'So if you add this, who's going to pay for this?'" Lobo told the Cleveland Clinic's Medical Innovation Summit in October. "That wasn't even a thought 5 or 6 years ago."

Special Report: Top 10 VC device deals of Q3 2012

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