One remarkable thing about this year's Wall Street Journal 's list of the 50 top venture capital-backed start-ups is that Castlight Health, an innovative medical technology company that was first on the list in 2011 was dropped entirely in 2012.
"Venture capitalists, long the lifeblood of medical technology firms are growing cautious on the sector after seeing their returns squeezed in a time of growing cost pressures for healthcare," Reuters reported today, based on findings in a report by Ernst & Young.
Although venture capital funding levels for this sector have remained steady over the past five years, the article stated, most of the funding was acquired before the financial crisis. Start-ups in particular are having a harder time finding funding as investors opt for less-risky, more profitable, mature companies.
Amidst pressures to lower health care costs and improve the value of treatment, "medical device makers can no longer count on getting funding or reimbursement for technologies that provide only marginal improvements to the existing standard of care," Glen Giovannetti, head of Ernst & Young's global life sciences practice, said in an interview, as reported by Reuters.
"To get funded, companies with new technologies will need to show they can both improve health outcomes and reduce payer costs," he added.
The quarterly Silicon Valley Venture Capitalist Confidence Index® for the first quarter of 2012 also reported a lag in the life sciences, with one survey respondent stating "Med tech investing remains sluggish; regulatory headwinds remain in place," and another adding that "Internet companies' IPOs surely are encouraging. But start-ups in IT and medical devices' funding are questionable."
According to the Ernst & Young report, venture capitalists invested $4.34 billion in U.S. and European medical technology companies in the 12 months ended June 2012, up from $4.03 billion the prior year but below the 2006-07 peak of $5.40 billion. Venture capital investment in the US medtech industry was up 11 percent for the same period, representing a 10 to 15 percent drop from 2005 to 2010. Europe saw a five-year decrease to US $5.9 billion.
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