2006 in Review

As years go, 2006 was not the watershed year that 2005 was for the neurotechnology industry, nor was it the depressing time that we saw in the early years of this decade. We witnessed a number of promising technology and market developments, and a few disappointments. But overall, the neurotechnology industry is, in our view, on a stronger footing now than it was a year ago.

From a financial standpoint, there were no multi-billion dollar mergers in 2006, or anything even coming close. But the deals that were consummated, including Cyberkinetics’ purchase of Andara, Natus Medical’s purchase of Bio-logic Systems, Encore Medical’s purchase of Compex, and Bioness’ purchase of NESS Ltd., point out the continuing viability of the $100 million and under segment of the industry.

And while the only significant IPO activity of 2006 was Northstar Neuroscience, which fetched over $100 million, at least two public neurotech companies, VSM MedTech and Encore Medical, went private during the year. Venture capital investment in neurotech startups continued to be robust in 2006. VC firms were particularly generous to firms in the obesity stimulation market segment, with EntereoMedics, IntraPace, and GI Dynamics securing $87 million total. Other noteworthy fundings during the year included IntElect Medical’s $3 million seed round, NBI Development’s $5.5 million round, Intelligent Medical Implants’ €15 million round, and Posit Science’s $24 million round.

On the technology front, one of the most exciting developments was a dramatic increase in understanding of the mechanisms of action of deep brain stimulation, not just for treating movement disorders, but psychiatric disorders as well. Transcranial magnetic stimulation got a considerable bit of attention during the year, particularly after Neuronetics presented promising clinical trial data at the American Psychiatric association meeting in Toronto. The year was also a good one for neurorehabilitation, with several new devices from Bioness, Innovative Neurotronics, Victhom, and Otto Bock achieving some form of regulatory approval, and with new government initiatives such as the DARPA Advanced Prosthetics Program.

But challenges remain for the industry, and probably the biggest one pertains to reimbursement. Slowness and difficulty in getting CMS coverage decisions is affecting nearly every segment of the neurotechnology industry. Cyberonics, which otherwise would be riding high from its 2005 FDA approval of VNS for treatment-resistant depression, saw limited growth in this market, and the problem was a factor in the management shake-up that afflicted that company in 2006.

Despite these problems, it remains our belief that the neurotech industry continues to offer significant growth potential in the years ahead.

James Cavuoto
Editor and Publisher