Measuring Market Excitability

There is a wealth of good news in our report on the outlook for venture capital funding for neurotechnology firms. Our report indicates that VC firms actively involved with the healthcare and biomedical industries are very receptive to funding neurotech start-ups. Although the amount of funding for manufacturers of neurodiagnostic and neurostimulation firms has to date been dwarfed by the amount thrown at biotech, genomic, and pharmaceutical firms, there are finally signs that this situation is about to change.

Probably the most useful step this new industry can take to increase VC funding is to ask for it. As the number of neurotechnology device firms requesting funding increases, the likelihood of getting more attention from the financial community will rise significantly. This will hold true particularly as new clinical data supporting the efficacy of neurostimulation treatments becomes available over the next two to three years.

Still, it is worth examining some of the perceived disadvantages that neurotech devices have in the eyes of some VC firms, compared to bio/pharma technologies. One of the most salient drawbacks, the invasiveness of implanted devices, should be diminished as new forms of stimulation, new types of electrodes, and new procedures for installing devices emerge. A good example is Advanced Bionics’ BION stimulator, which can be injected by a clinician during a routine office visit.

Also promising are new microminiature electrode arrays being developed at a number of research institutions in the U.S. and Europe and new biopolymers that will further blur the distinction between live tissue and artificial devices within the central nervous system. As the density, compatibility, and selectivity of new neural-silicon interfaces continue to increase, the flexibility and functionality of new neurotech devices will expand beyond what is available today with any device or compound. And invasiveness is hardly an issue at all for the bulk of new neurodiagnostic products, particularly as new functions emerge from software and signal processing developments.

Perhaps harder to deal with is the lack of a recurring revenue stream for neurotech devices, an advantage bio/pharma approaches enjoy within the financial community. Vertis Neuroscience has made some headway here with the disposable electrodes used in its percutaneuous neuromodulation system. Other stimulation and recording device manufacturers may be able to look to software and firmware upgrades as a potential annuity stream, a strategy that has served Microsoft Corp. well over the years. Of course even if there’s no income to be made after a neurotech device is sold, a strong case could be made to medical insurers that the lack of a future revenue stream makes the device compellingly cost-effective in the long run, compared to drug treatment regimens that can cost insurers thousands of dollars per patient per year.

In the end, the strongest argument for expanded funding for neurotech start-ups may be that stimulation and recording technologies are not alternatives to, but in fact are adjuncts to, chemical, genomic, and molecular approaches to neurological disorders. To the extent that all nervous system activity is regulated by chemical messengers—and vice-versa—the question of which approach is better may someday soon be a moot point.


James Cavuoto
Editor and Publisher