Minnesota health care startups see investment rebound after lackluster 2023
Second-quarter venture capital investments are up nearly 85% compared to last year, a recent low for funding of med-tech companies in the U.S. Burl Gilyard Star Tribune August 5th at 2:31 PM CDT Endogenex CEO Stacey Pugh holds the ReCET medical device, a catheter used for treatment of Type 2 diabetes, at the company’s Plymouth headquarters. (Renée Jones Schneider / Star Tribune) Minnesota med-tech and health care companies are seeing a healthy increase in startup investments so far this year as the industry recovers after financing took a nosedive in 2023. But investors still remain selective about what they will support. “If you talk to the [venture capitalists] I’m talking to, what you hear is, ‘It’s feast or famine.’ There’s multiple offers on certain things and then none on a lot of other things,” said Stacey Pugh, CEO of Plymouth-based Endogenex. Endogenex has a lot to celebrate. In the largest Minnesota med-tech financing deal of the year, the company announced in June it raised $88 million and will use the funds to complete a pivotal clinical trial for its ReCET device, which uses pulsed electric fields as a treatment for Type 2 diabetes. Pugh said a future initial public offering (IPO) is a possibility. “Given the pressure on funding, I think people are going to be looking hard at not only ‘is your market attractive?’ but ‘what’s the confidence level that people can execute in this environment?’” Pugh said of potential financial funders. Pugh said Endogenex offers transformational technology for an underserved medical need, an attractive combination for investors. In the U.S., there are 38 million patients with diabetes, and Type 2 diabetes accounts for most cases. In its analysis of first-quarter U.S. med-tech financing, J.P. Morgan found “early signs of recovery” this year following 2023, a recent low point for the sector. Medical investments have been in decline since 2021. The sluggish pace of IPOs in the sector has also been a concern. There was a total of $5.5 billion of med-tech venture investments in the first quarter of this year, an increase of 45% from a year ago. Endogenex CEO Stacey Pugh holds the ReCET medical device, a catheter used for treatment of Type 2 diabetes. (Renée Jones Schneider / Star Tribune) A report by PitchBook and the National Venture Capital Association tracked $226.9 million in second-quarter venture capital investments in Twin Cities medical and health care companies, an 83.7% increase from a year ago. It’s the strongest second-quarter showing in PitchBook records back to 2019. Maple Plain-based Integrity Orthopaedics raised $20.6 million in a Series B financing round co-lead by Piper Sandler Merchant Banking, a new investor to the company. Integrity has developed a system to reduce re-tears after rotator cuff surgery. “We felt going into it that the market was tough,” said Thomas Westling, CEO of Integrity. Existing investors were bullish. “Our Series A investors, almost 100% of them reinvested in Series B,” Westling said. Westling said investors saw his previous experience with Rotation Medical as an asset. Rotation Medical developed a collagen scaffold for rotator cuff disease. UK-based Smith & Nephew later acquired Minnesota-based Rotation Medical in 2017 in a deal worth up to $210 million. Investors are also noticing a similar uptick in business. “We are seeing more opportunities. Our pipeline is more full today. I’d say that’s very positive,” said Amrinder Singh, a partner with Edina-based Vensana Capital, a venture firm focused on med-tech and health care investments. Vensana co-led a $42.5 million financing round for Eden Prairie-based Elucent Medical, a surgical tracking firm, and led a $27.5 million deal for Roseville-based iVEAcare, which is developing neuromodulation, electrical stimulation technology that targets specific neurological sites. “I do think there’s more capital available. We are starting to see an uptick in [mergers and acquisitions] and, I also think, the IPO markets,” Singh said. Mergers and IPO deals attract investors as they can be “exits” that bring returns on investments. San Francisco-based HM Venture Partners has invested in several Minnesota medical startups. Robert Luo, founding and managing partner of HM, previously worked for the Mayo Clinic. “In terms of deal flow … it’s busier. More deals are available,” Luo said of the investment climate this year. Smaller companies are also benefiting from revived interest in med-tech and health care-related investments. “We found plenty of interest,” said Steve Pontius, CEO of Minnetonka-based HealtheMed, of the company’s recent bid to raise financing. However, some potential backers found the company too small to support, Pontius said. HealtheMed raised $7 million. The health tech firm allows Medicaid waivered patients better access to home health care through its telemedicine platform. “I think people are very cautious about their investments,” Pontius said. Venture capitalists won’t work for every company. “If you’re a true startup, you’re way better off looking for angel investors to start,” Pontius said. Medical Alley estimates that, at any given time, there are approximately 1,000 health-related startups in the state. The path to securing approval for new products from the U.S. Food and Drug Administration is time-consuming, expensive and sometimes unpredictable. Without FDA approval, companies have nothing to sell and no money coming in the door. Medical Alley said it’s too early to say if encouraging signs in the market are here to stay. “The increase in private capital and [mergers and acquisitions] activity in [the second quarter] is a promising sign that the market is beginning to recover,” said Roberta Antoine Dressen,chief executive of Medical Alley, in a statement. “We must continue to attract funding to sustain this momentum.” Burl Gilyard Medtronic/medtech reporter Burl Gilyard is the Star Tribune’s medtech reporter.
Integrity Orthopaedics Announces Closure of Series B Financing
Integrity Orthopaedics Announces Closure of Series B Financing Minneapolis, MN (April 30, 2024) – Integrity Orthopaedics, Inc., a company pioneering next generation solutions for soft tissue repair, has successfully closed on a Series B financing of $20.6 million. The financing was co-led by Piper Sandler Merchant Banking and an undisclosed existing investor. The company intends to use the capital to expand the US commercial launch of its initial product in the rotator cuff repair market. This milestone advances the company’s vision of revolutionizing soft tissue repair with its patented technology, aiming for stronger surgical repair and enhanced long-term healing. Integrity Orthopaedics was co-founded in 2020 by Thomas Westling, a veteran executive in medtech and previously Founder and CEO of Rotation Medical, David Crompton, Chief IP and General Counsel, and distinguished orthopaedic surgeons Dr. Patrick Connor, Dr. Howard Harris, and Dr. Marc Labbe. “We are pleased to co-lead the Series B financing,” said Tom Schnettler, Managing Director, Piper Sandler Merchant Banking. “Tom Westling is a proven entrepreneur and outstanding biomedical engineer. We see significant opportunities for Integrity Orthopaedics to transform the rotator cuff repair space, with the potential for this system to become a platform technology with broad applicability for soft tissue repairs across the human body.” “We are grateful for the support of our shareholders, who we view as a strategic asset,” stated Thomas Westling, Co-Founder and Chief Executive Officer of Integrity Orthopaedics. “We have been blessed with an extraordinary set of investors, many with deep health care expertise and connections throughout the health care ecosystem, and they have consistently given us valuable counsel since our founding.” The Integrity Orthopaedics system is designed to address the biggest unmet need in rotator cuff repairs, reducing the occurrence of cuff re-tears following surgical repair. Current surgical techniques have a structural failure rate that typically averages 20-40%, with rates ranging from 8-94% in specific studies (Young, et al., 2023). The Integrity Orthopaedics system was FDA cleared in early 2023 and initially utilized by a small group of surgeons in a limited launch. This system uses patented micro-anchors, a continuous, locking stitch, a patented instrument for anchor installation and unique operative techniques to enable physicians to dramatically improve the fixation and healing of torn tendons. The Company has begun a paced expansion of its field sales team, with the goal of working with innovative orthopedists in select markets throughout the country. This roll out is expected to broaden over time, as the Company ramps up its staffing, production volumes and physician education resources. “The keys to maximizing the environment for rotator cuff healing are a strong initial repair coupled with a technique that allows the tendon access to the patient’s biology for long-term healing,” said Dr. Patrick Connor, orthopaedic shoulder surgeon at OrthoCarolina in Charlotte, Chief of Sports Medicine and Shoulder & Elbow Surgery at Atrium Health, and Co-Founder of Integrity Orthopedics. “This technology achieves both goals with more fixation points than any other solution on the market. My experience using this device has shown that it not only creates a more consistent and efficient repair than other techniques, it also uniquely improves both the strength and the overall healing environment at the time of surgery. Based on the substantial increased strength of the repair and restoration of the entire rotator cuff footprint, surgeons may be more comfortable reducing postoperative sling immobilization for their patients which will lead to their faster and more complete recovery.” About Integrity Orthopaedics Integrity Orthopaedics is committed to redefining the landscape of soft tissue repair. Its initial focus is on revolutionizing the approach to rotator cuff repair, overcoming limitations of traditional techniques by enabling robust initial repair strength while fostering an optimal environment for healing. The company was founded in 2020 and is headquartered in Maple Plain, MN. http://www.integrity-ortho.com About Piper Sandler Merchant Banking Piper Sandler Merchant Banking (PSMB) is the growth equity investment arm of Piper Sandler Companies (NYSE: PIPR). The PSMB team strives to partner with founders and CEOs of growing, commercial stage businesses that can benefit by leveraging Piper Sandler’s knowledge, experience, capital and relationships to build market leading enterprises. PSMB provides investment advisory services through the affiliated registered investment adviser, PSC Capital Partners LLC. Learn more about Piper Sandler Merchant Banking. References: Young BL, Bitzer A, Odum S, Hamid N, Shiffern S, Connor PM. Healthcare costs of failed rotator cuff repairs. JSES Rev Rep Tech. 2023 Apr 25;3(3):318-323. Contact: Michael Rodriguez Director of Marketing & Sales Operations MRodriguez@integrity-ortho.com
