If you’re looking for two medtech pioneers who have “seen it all,” Fogarty Innovation board members Tom Krummel, MD, and Casey McGlynn come to mind, given their longevity and deep roots in the industry.
Tom is board chairman of Fogarty Innovation and co-director of the Stanford Byers Center for Biodesign; serves on multiple scientific advisory boards and boards of directors; has helped orchestrate four successful exits and has 20 more early- to late-stage companies in his portfolio; and has received two Smithsonian Information Technology Innovators Awards for his work—all in addition to a distinguished career as a pediatric surgeon.
And Casey has had an illustrious 40+-year career at Wilson Sonsini Goodrich & Rosati (WSGR), where he was responsible for the formation of its life sciences group. Today, as a partner, he leads one of the largest practices in the country focused on medtech, healthtech and biotech companies. Casey has formed, represented, sold and taken public many of the most important medical device companies founded over the last 30 years.
Recently we had a lively discussion about how 2020 shook out, and what they predict for 2021.
Q: Let’s start with a brief look back: How did the medtech industry do overall in 2020 and who were some of the “winners”?
When I reviewed the capital raise for 2020, I discovered it was a pretty staggering year in many ways. Despite the pandemic, healthcare venture capitalists raised more than ever before – over $17 billion, and new healthcare investments surged nearly 50% to $51 billion. The industry continues to complete deals in every sector—bio, device, tools, healthtech—they all reached record numbers in what turned out to an amazing year.
But I want to temper that with what we saw for early-stage companies. It was hard for young companies in the medical device industry to get in front of the venture capitalists. They could still send information about their technology and even have a conversation if the device was interesting, but VCs were less willing to pull the trigger and make an investment than they were with proven companies. With startups, there are a lot of risks, and the venture capitalists weren’t quite ready to take action.
From what I saw, it was like “A Tale of Two Cities”: It was the best of times, and it was the worst of times. On the one hand, as Casey outlined, we saw record IPOs, valuations, deals and dollars, and yet four of the startups I’m involved with have gone belly up in the past year. It was very tough in Q2 if you were trying to do a clinical trial or an animal study, and if you were lucky enough to do so in Q3 or Q4, it was still hard.
On the flip side, a number of significant financing deals completed. These included two companies I’m involved with, PROCEPT BioRobotics, a company in the urology space; and Avail, a procedural telemedicine company, that closed a $100 million Series B. So indeed I’ve seen both sides and there is a vast difference between the two.
Q: Let’s look ahead to your predictions for 2021, starting with the industry overall.
This pandemic has highlighted healthtech in a way it never has before. Applications to medical school are up because kids want to be like Dr. Fauci, and there’s been a lot of excitement around biotechnology, in particular with the unprecedented rapid development of the vaccines.
Ever since I was a kid, I’ve been interested in the growing convergence between healthtech and information technology, and now it’s coming to fruition and making our world much more connected and efficient. We are also seeing great progress in image guidance and robotic autonomy, which are being used for the removal of tissue. Historically, the public wasn’t ready for autonomous robots, and now we see autonomous cars everywhere, evidencing growing acceptance of this great technology. Lastly, through the popularity of wearables and other devices, we’re seeing a vast “consumerization” of technology.
And these trends also intersect, which creates a whole new HR game for companies that are hiring. Suddenly you’re competing with Google and Apple for talent no matter where you live. You can be working worldwide with smart people who are in a different time zone because you don’t all need to be sitting in the global headquarters.
As an optimist, I am hoping that the good news in terms of this increased flow of capital into medical devices and the ability of these medical device companies to go public at an earlier stage continues after the pandemic. I’m also hopeful for the early-stage companies – the investors are there and they have capital and want to invest, even though it may still be hard for them to get comfortable with brand new investments. That should ease as things open back up.
To add to Tom’s point, it’s going to be interesting to see how the valuation and the fundraising cycle for medtech changes over the next few years as you see regular tech investors beginning to look at healthcare as a place they want to play and becoming more comfortable with it. This is potentially a very transformational period.
Q: What do you see in terms of prospects for early-stage startups in 2021?
It’s a tough environment, and it’s not that people aren’t starting new companies because we continue to see some brilliant ideas, but there’s some hibernation going on. The key is getting the company far enough along and then getting the investors comfortable enough to make an investment during this difficult time. While there are a lot of investors and a lot of good ideas, it’s harder to get them together today because due diligence is a little different— people still really want to know the inventor, the team, and the technology in a way that’s hard to accomplish through a screen.
With that said, technology will continue to get better and so will this “talking through the screen,” which may eventually open new avenues—like bringing investors from other countries and introducing them to new innovative ideas they previously didn’t know about and/or couldn’t “see.” It can overcome the challenge of assembling different key components of a company, and I think we’ll see people forming transcontinental startups to develop solutions. These kind of events are going to happen much faster, and it will rely on an ability to overcome those initial trust issues.
Building on Casey’s comment about trust: I think that is the essential element — you have to earn that trust when you are a newer company or have a new technology, which often comes through recommendations of people who are well-known and respected in the industry. Leaders who figure out how to do that will thrive in the coming years and ultimately it will make things more efficient because they can start new endeavors anywhere in the world.
Q: What are some trends you see, especially regarding unmet needs that still need to be addressed?
When you think about healthcare, there are more needs in this field than almost any other, and everything we’re doing today can still be vastly improved. For example, we took a company public this year that is focused on home dialysis, but there’s so much yet to be done in that particular area. Before, there was a significant lack of money, and while I think this public offering is going to renew interest, there is much more that can be done to transform this field.
I think there are a lot of needs in healthcare in almost every sector, even in the ones where there has been significant innovation over the last 40 years like cardiology. Just think about what we might be able to accomplish by focusing on neurons and the brain, for example.
And then there are new companies looking into the eye and finding they can actually detect early-stage Alzheimer’s and other diseases through this organ. While today these are diagnostic companies, eventually there will be therapeutic companies as well. I believe there’s no place where there are bigger needs than healthcare because we would all like to live longer, healthier lives. Aside from that, the next big question will be: How can we clean the environment and save our planet?
That’s one topic I will spin off of here…I just joined the board of NewGen Surgical, which has observed that healthcare is one of the most polluting industries, largely due to its reliance on single-use plastics.
Their premise is that you could use sugar cane pulp as a source, just like in the cafeterias where you find compostable plates, for basins bowls and other single-use devices in the operating room. NewGen initially started looking at a plastic stapling device, but then realized that the bulk of the waste comes from simple supplies. They believe that by changing the source of the material, you can turn a basin bowl from something that lives forever in a landfill to something that would break down in less than a year.
I see this as one of the future drivers of our industry. It’s serious issue and I believe addressing it can eventually be transformational for hospitals. We aim to save human lives — why not the environment, too?