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September Executive Outlook - Funding the Medtech Pipeline

This edition is sponsored by Renishaw and KMC Systems. SPONSOR MESSAGE New miniature encoder is the building block of motion systems Renishaw launches ATOM™ — an innovative non-contact optical linear and rotary incremental encoder system that combines miniaturization with leading-edge dirt immunity, signal stability, and reliability. ATOM is the world's first miniature encoder to use filtering optics. The same advanced technology is found in Renishaw's proven TONiC(TM) incremental encoder. Learn more >> Funding the Medtech Pipeline Recent reports offer scant hope of improved funding support for medtech entrepreneurs Steve Halasey, Contributing Editor Among medical device and diagnostics companies, deals and dollars are rarely so plentiful that they can support more than a single strong market trend. As a result, investment flows in one area have a tendency to overpower alternatives, making it hard for investors to learn about or get interested in approaches that buck the trend. There's little room for a minority report. That seems to be at least part of the story told by the recent PricewaterhouseCoopers (PwC) Pharmaceutical and Life Sciences Deals Insights Quarterly for the second quarter of 2014. In this view of the investment universe, medtech start-ups and emerging growth companies barely rate a blip on the radar. It's all about the big boys. And what are those large companies doing? According to the authors, who are leaders in PwC's deals practice, medtech companies across all sectors are consolidating to gain market power, divesting non-core businesses and product lines to focus their portfolios, and exploring the market potential of new geographic regions. One outcome of such activities may be increased competition among acquiring companies. "The volume and pace of M&A activity seen in the first quarter is also likely to create heightened competition among buyers and may lead to an increased number of hostile takeover attempts due to the relative scarcity of acquisition targets," write the authors.   Figure 1. Total acquisition deal value by industry segment (Q2 2013–Q2 2014). Credit: PricewaterhouseCoopers/Thomson Reuters. According to the Deals report, there were 11 medical device M&A transactions during the second quarter, representing a total value of $5.6 billion—an increase of five deals and $3.5 billion over the second quarter of 2013. (See Figure 1) Activity in the device realm promises to continue at a high level for some time, as announced deals totaling $60 billion are already in the works—including Medtronic's acquisition of Covidien ($42.9 billon) and Zimmer's acquisition of Biomet ($13.4 billion). Meanwhile, for the diagnostics industry, the Deals report lists just one transaction during the second quarter, but it was a biggy—the $4.0 billion private equity takeover of Johnson & Johnson's Ortho-Clinical Diagnostics by the Carlyle Group. By comparison, the two diagnostics transactions recorded for the second quarter of 2013 had a total value of just $400 million. For diagnostics, the authors write, "the seven deals closed so far in 2014 equal the volume of all deals closed in 2013." "The trend of consolidation will likely have a number of impacts on how companies deploy capital going forward," says Dimitri Drone, report coauthor and PwC pharmaceutical and life sciences deals leader. "For those that have recently acquired or merged, there may be a reduced level of M&A activity (in terms of volume) on a combined basis, leaving additional resources to commit to internal R&D efforts. However, companies that have struggled with internal product development and innovation in the past will likely continue to look outside for growth." SPONSOR MESSAGE "When you want it done right the first time — take it to KMC." Partner with KMC Systems to leverage 30+ years of engineering and manufacturing excellence. Tap into proven expertise in medical systems development, design, and manufacturing. Learn more »   VCs to the Rescue? While medtech's top dogs are engaged in pursuing strategic mergers and acquisitions, it may be some time before they once again turn their attention to expanding their product development pipelines. "Companies are likely to continue to reevaluate their business portfolios and asset mix, particularly in light of recent acquisitions," says Drone. "This may lead to a wave of divestitures as companies seek to unlock value, creating potential acquisition opportunities. The technological and economic risks associated with developing new products will likely drive large medtech players to continue to look externally for innovation, and acquisitions will be a key source of growth." In the meantime, medtech entrepreneurs might have better luck capturing the attention of venture capitalists with specialized understanding of the medtech space. But unfortunately, so far as medtech start-ups and emerging growth companies are concerned, PwC's Life Sciences MoneyTree report of venture capital activity for the second quarter of 2014 tells a story not unlike that of the Deals report. Produced in conjunction with the National Venture Capital Association using data provided by Thomson Reuters, the report celebrates VC investments of $2.5 billion in 195 life sciences deals during the quarter, compared with $2.0 billion in 197 deals during the second quarter of 2013. Medical device firms completed 73 deals during the quarter (compared with 77 in the second quarter of 2013), representing 26% of the life sciences financings. Year over year, the total value of the medical device deals increased by 23% to a total of $649 million. But in the second quarter, medtech investors overwhelmingly placed their bets on late-stage medical device fundings. According to the MoneyTree report, compared with the second quarter of 2013, investment in early-stage device companies decreased by 10% to $169 million for 24 deals, while investment in late-stage companies increased 41% to $479 million for 49 deals. (See Figure 2) In line with those findings, the report also notes that first-time life sciences fundings decreased year-over-year by 20%, to $267 million and 32 deals; while the number of follow-on life sciences deals increased year-over-year by 34%, to $2,221 million for 163 deals. For the biotechnology industry in particular, writes coauthor Greg Vlahos, life sciences partner at PwC, the "high growth potential of the industry has increased the confidence of VCs in their current investments, resulting in the high level of follow-on investments and portends well for the industry." The same may also be true for medtech investors—and especially those with somewhat short-term horizons. It's certainly easier to place a bet on a late-stage company that has already achieved key milestones such as regulatory approval and reimbursement coverage. Firms that are generating revenue and have profitability looming on the horizon are natural acquisition targets for established medtech investors, enabling confident VCs to exit gracefully—and profitably. "While there are a number of interesting, early-stage technologies in the marketplace, acquirers continue to look for acquisition targets that have been 'derisked,'" says Drone. "Uncertainty related to commercialization or reimbursement may give potential buyers pause. Figure 2. Medical device venture capital funding by stages (Q2 2012–Q2 2014). Credit: PricewaterhouseCoopers/NVCA/Thomson Reuters MoneyTree Report. "Acquirers continue to utilize innovative deal structures such as earnouts and step-acquisitions to bridge these types of gaps in the negotiation process," he adds, "and these may be the key to increased deal activity for earlier stage companies." Angel investors have also stepped up to meet some of industry's need for early-stage funding. According to the Halo Report issued by the Angel Resource Institute, Silicon Valley Bank, and CB Insights, angels invested a total of $228 million for 170 deals during the first quarter of 2014. But not all of these deals were for medtech companies—or even in the life sciences. According to the first-quarter report, angel investments in Internet-related companies increased during the quarter, while investments in mobile and healthcare companies dropped. Medtech entrepreneurs may have some options for funding left in their playbook, but the dominant trends guiding industry investors are not clearly favorable. Supporting industry's long-term need for a strong pipeline filled with innovative devices will require a great deal more investor activity than is currently taking place. To ensure that medtech's product pipeline remains healthy, stronger investment trends favoring start-ups and early-stage medtech companies will be essential. Steve Halasey is a contributing editor of Medical Design Briefs, and a specialist in executive and business development issues for the medical device and diagnostics industry. Currently chief editor of Clinical Lab Products, and a long-time correspondent and editor on health technology and policy issues, he has more than 20 years of experience as a leader of publications and educational programs for medtech executives, researchers, and investors.

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Coming Soon - Accurate Finite Element Simulation of Conductors and Coils

Simulation of electromagnetic systems relies on the accurate and efficient representation of electrical conductors and coils. This Webinar reviews the ways conductors and conducting materials can be represented using the industry leading Opera Simulation Software Suite from Cobham. The methods explored include various bulk approximations useful for multi-turn windings and explicit methods for including current redistribution due to proximity, geometry and skin effects. The methods are demonstrated using a variety of examples from the fields of accelerator physics, medical physics and power systems design as well as validation examples from a variety of sources.

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Coming Soon - Design Engineer's Guide to Circuit Protection for Critical Applications

Send a text message. Check the appointment calendar on your smartphone. Use the on-board GPS in your car to find your next destination. Flip the switch to turn on your outdoor LED lighting. Don’t think these devices are critical applications? Try living without them. In our daily lives, we’re increasingly dependent upon electronics technologies. Failure is not an option. Whether you develop consumer electronics, LED lighting or automotive electronics, proper circuit protection helps ensure operational reliability and longevity for critical applications.

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Coming Soon - Shape Sensing Using Multi-core Optical Fibers with Distributed Fiber Bragg Gratings

Fiber optic sensors are being used for sensing everything from chemicals, to pressure, to structural loads, and temperature. Recently, multi-core optical fiber has enabled a new type of fiber optic measurement known as fiber optic shape sensing. While bonded fiber optic strain gages can be used to track shape changes of fairly rigid structures, their use in highly flexible structures such as inflatable vehicles or morphing flaps is limited due to the impracticality of bonding to such mediums. Multi-core fibers can sense structural shape changes and do not require bonding. A multi-core fiber optic cable embedded with distributed low-reflectivity Fiber Bragg Gratings can be interrogated using an Optical Frequency Domain Reflectometry system in order to measure local bending along the entire length of the fiber, which enables a position measurement of the multi-core fiber in three dimensions. Such fibers are being investigated for uses beyond aerospace, including undersea towed instrument position tracking, tether monitoring in tethered satellites, underground drill position tracking, and surgical catheter path monitoring. In this Webinar, the process of transitioning distributed strain measurements of multi-core fiber into a three-dimensional shape determination of the fiber is explained and the methods for including twisting and stretching measurements of the multi-core fiber into the solutions will be detailed. In addition to showing actual results, simulation methods relevant to the technique will be covered.

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Are rechargeable battery modules viable?

Our lead story in today's INSIDER revealed engineers' attempts to power an electric car with removable, rechargeable battery modules. The potentially game-changing technology, however, faces challenges. The modules weigh 20 to 30 pounds, and no infrastructure currently exists for users to lease or purchase the rechargeable devices, for example. The engineers, however, say that they expect the battery technology to mature and shrink in size, and that exchange stations could easily be gradually deployed. What do you think? Are rechargeable battery modules viable?

Posted in: Question of the Week

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Coming Soon - Vincent Systems Prosthetics Give Patients A New Feel For Life

The human hand is a biomechanical marvel and therefore hard to replace. Being ready to take up this challenge the Vincent Systems GmbH builds ultra-sophisticated prosthetic hands and partial hand systems since the founding in 2009. Ever since the Company attempts to mimic the range of the human hands natural capabilities by combining mechanical performance with an anatomically correct sized soft-shell design and an intuitive usage. This Webinar gives the audience a brief introduction to the daily work at the Vincent Systems GmbH and on how their products affect the life of prosthesis wearers. Precision, functionality and control have to go hand in hand with aesthetic design and natural feel. Vincent Systems masters all these challenges within PTC’s Creo 3D CAD system and the computing power of the HP Z420 workstation. You will get an overview about how these systems work and on how they are designed and build.

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Researchers Control Surface Tension of Liquid Metals

Researchers from North Carolina State University have developed a technique for controlling the surface tension of liquid metals by applying very low voltages, opening the door to a new generation of reconfigurable electronic circuits, antennas and other technologies. The technique hinges on the fact that the oxide “skin” of the metal – which can be deposited or removed – acts as a surfactant, lowering the surface tension between the metal and the surrounding fluid.The researchers used a liquid metal alloy of gallium and indium. In base, the bare alloy has a remarkably high surface tension of about 500 millinewtons (mN)/meter, which causes the metal to bead up into a spherical blob. “But we discovered that applying a small, positive charge – less than 1 volt – causes an electrochemical reaction that creates an oxide layer on the surface of the metal, dramatically lowering the surface tension from 500 mN/meter to around 2 mN/meter,” says Dr. Michael Dickey, an associate professor of chemical and biomolecular engineering at NC State and senior author of a paper describing the work. “This change allows the liquid metal to spread out like a pancake, due to gravity.”The researchers also showed that the change in surface tension is reversible. If researchers flip the polarity of the charge from positive to negative, the oxide is eliminated and high surface tension is restored.  The surface tension can be tuned between these two extremes by varying the voltage in small steps.SourceAlso: Learn about Gradient Metal Alloys Fabricated Using Additive Manufacturing.

Posted in: Electronics & Computers, Electronics, Power Management, Materials, Metals, RF & Microwave Electronics, Antennas, News

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