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This time, 'cautious optimism' at the J.P. Morgan Healthcare Conference

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Mark Hollmer Damian Garde

By Mark Hollmer and Damian Garde

SAN FRANCISCO--Lounging in a seating area at the Villa Florence off of San Francisco's Union Square, John McDonough contemplated how far the J.P. Morgan Healthcare Conference had come since the dark days of 2009. The cliché that fits here: To him, it is the difference between night and day.

"Boy, you want to talk about a negative environment, not only were the people dour but there were not a lot of people here," recalled McDonough, president and CEO of diagnostics/MRI tech developer (and 2012 Fierce 15 winner) T2 Biosystems. But now?

There is "more optimism than I have seen in the last couple of years," McDonough said.

As this year's J.P. Morgan event got underway in the dampness and sporadic sunshine of San Francisco, that was the common theme among many of the medical device and diagnostic executives. Things aren't ideal by any means. Many noted that the venture market for device and diagnostics may still technically exist, for example, but that funding opportunities continue to shrink. But McDonough, among others, expressed optimism that the IPO window for device companies would crack open at least a little bit in 2013.

Broadly speaking, as far down as the industry tumbled with the economic crash a few years back, folks are starting to see brief bits of sunshine and are hoping for more.

Jeff Jonas, president of Shire's ($SHPG) regenerative medicine division, told us that the level of industry optimism this year "depends on what side of the table" you're on (investor, startup or larger company), but that "the opportunities for regenerative medicine are profound in 2013." The division sells Dermagraft, a skin substitute that treats diabetic foot ulcers, though the company is now seeking to expand its indication and also looks for licensing and partnering opportunities in other areas.

Byron Hewett, chairman and CEO of BioBdx, which makes a computer diagnostic tool for ADHD, came to this year's JPM to meet with possible strategic partners who could help expand the company's market reach. And he came away with a much different tone than he did from the 2012 event.

"People are cautiously optimistic more than last year," he said. "Having the election behind us helps."

But looser capital and larger VC budgets aren't the sole reasons for the industry's sudden sunny side. Devicemakers and investors learned the hard lessons of the downturn, and today's successful startups are just as focused on ROI as innovation. As Tryton Medical CEO Shawn McCarthy told us, fundraising in 2013 means convincing potential backers that your device is both effective and economically sound. And he should know: Last week, Tryton closed a $24 million round to support its novel stent through the FDA process.

"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."

Same goes for the U.K.'s GlySure: CEO Chris Jones told us that his company has made its case using not just clinical data on its in-hospital continuous glucose monitor, but also presenting investors with page after page of studies showing how glycemic control can reduce stay times and hospital mortality, saving money for everyone involved. Now, GlySure is using its latest fundraising haul of $13.6 million to start a trial for a CE mark.

That's not to say the industry is betting on smooth sailing in 2013. The device tax promises to eat into revenue for companies large and small, and the markets for old standbys like pacemakers and replacement hips are expected to stay flat or worse. But, with the uncertainty of the U.S.' Affordable Care Act in the rearview, money is starting to move around in the worlds of devices and diagnostics, and the new focus on economic viability can only portend easier-to-market products for the most innovative companies.

As McCarthy said, we're by no means back to the heady days of pre-2008, but "great ideas and great businesses still get funding." -- Mark Hollmer (email | Twitter) and Damian Garde (Twitter | email)