Ernst & Young forecast growth in medical technology market

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Private investment in the U.S. medical technology industry has remained strong over the past 18 months, despite a precipitous drop in public equity funding this year due to the global credit crunch, according to a report from income advisory firm Ernst & Young.

At the same time, the 301 U.S.-headquartered, publicly traded medical technology (medtech) companies produced solid growth in revenues and earnings, driven by continued innovation and heightened demand brought by emerging medical and demographic trends.

“While the credit crunch has depressed public equity financing, venture capital and deal activity remain solid,” said Richard Ramko, Ernst & Young’s U.S. medical technology leader. “The industry is poised for growth in the years ahead due to aging populations, the wider prevalence of chronic diseases, and an expected surge in demand for companion diagnostics to accompany new generations of targeted therapies.”

The report noted that the U.S. medtech industry had its second consecutive strong financing year in 2007, led by solid investment on the venture capital (VC) and public equity fronts. U.S. companies raised nearly $10.7 billion, a 2 percent increase over 2006 and a 165 percent increase over capital raised in 2005.

However, in the first half of 2008, capital raised by the industry fell to $3.2 billion, largely because of declining funding from public investors.

Through June 2008, the industry raised approximately $1.7 billion in venture capital, putting it on track to equal or surpass the average from the two previous years.

Through the first half of 2008, the total value of mergers and acquisitions (M &A) in the sector was approximately $19 billion, a slightly lower pace than 2007, but still strong relative to years prior.

While medtech-medtech mergers still represent the bulk of deals (through June 2008, these deals represented 81 percent of all M &A deals, or 54 percent of total deal value) mid-tier medtech buyers have become increasingly visible, supplementing the large cap medtech firms that have traditionally dominated.

Total revenue for all publicly traded medtech companies in the U.S., including medtech divisions of conglomerates, reached more than $180 billion in 2007, according to the report.