The volatility of the stock markets last year was mirrored in the venture capital arena, according to Mark Heesen, president of the National Venture Capital Assn.
"Be prepared for a roller coaster ride here, because that’s where we’ve been for the past year – and that’s where we’re going," Heesen told Xconomy.
Even as the industry contracted – 1,022 firms dropped $99 billion on startups in 2000, compared with 462 firms spending $20 billion in 2010 – they’re raising more cash from their limited partners, according to the website. The $18 billion raised in 2011 was up 28.6% over the prior year, but was still $10 billion shy of the amount VCs invested last year.
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VC backing of new life science startups is in decline due to an uncertain regulatory climate, according to Heesen. First-funding deals in the sector fell by nearly 43% last year, to 153 deals from 268 in 2006, he said.
"We’re hearing a lot of concern from VCs about the FDA time-to-market approval," Heesen told Xconomy’s Bruce Bigelow. "And we’re hearing a lot from the limited partners about length of time it takes for them to see a return on their investment."
More and more companies are setting up their own, in-house VC shops, according to Heesen.
"If there is 1 area where you’re seeing a lot of activity, it is in corporate venture capital," he told Bigelow.
PE climate "schizo"
If the VC landscape was a roller coaster last year, it was positively schizoid for
the private equity market.
Although the PE industry is likely to try and raise a boatload of new funds this year, there’s still an estimated $400 billion "overhang" of committed capital to invest.
That means that "a lot of firms with a lot of uncommitted capital will be trying to raise new funds anyway," according to Buyouts Magazine editor Bernard Vaughan. Read more
Leerink Swann sees upside in health care market
Predicting above-average performance for the overall stock market this year, analysts at Leerink Swann say the health care sector is primed for growth in 2012.
Mid-cap health care stocks are particularly attractive, according to a research note from the investment bank, "based on relative valuation and attractiveness to potential acquirers."
Leerink rates 2 medical device makers among those ranks as "outperform:" Hologic (NSDQ:HOLX) and Thoratec (NSDQ:THOR). Income stocks will remain popular, they add.
"Even in a strong overall market, we expect continued interest in income health care stocks. Our Income Healthcare Index grew by 8.6% in 2011, as investors seeking income came to large pharma and integrated health care stocks with high yields and low payout ratios. With rates likely to remain low, we don’t see interest abating much," the analysts write.
As for the larger political climate, the investment bank is betting that the U.S. Supreme Court will uphold President Barack Obama’s landmark health care reform law.
"Supreme Court arguments are set for March, and a decision will be handed down in June or so. Based on lower-court rulings and opinions as well as our assessment of the court’s strategic options, we expect the Affordable Care Act to be upheld. Unless oral arguments change investors’ current expectations, we don’t expect this outcome to much affect healthcare stocks," they write. "Our conclusion: don’t miss the ride. With the economic backdrop improving, interest rates low, earnings growth impressive, stock valuations attractive and equities an under-owned asset class, we see stocks as a good bet this year. We think there are areas of the health care stock market that can meet or beat even a positive broader stock market this year. We encourage investors to have a full allocation to the stock market including high-beta healthcare subsectors in 2012."
Bullish on St. Jude Medical?
If Covidien (NYSE:COV) is med-tech’s under-appreciated and overlooked story, Stryker (NYSE:SYK) is the quality story and Medtronic (NYSE:MDT) is the “yeah, growth has slowed, but not that much” story, St. Jude Medical (NYSE:STJ) is the "rebound and pipeline story, a story that arguably deliver better growth than the Street presently expects," according to Seeking Alpha blogger Stephen Simpson.
Although St. Jude’s cardiac rhythm management business is struggling along with the rest of the crowd in that space (the CRM market on the whole is on pace for a 5% sales decline in 2011, Simpson writes), its cardiology, atrial fibrillation and neuromodulation businesses are posting double-digit growth rates.
And products in STJ’s pipeline – including quadrapolar leads, fractional flow reserve devices, patent foramen ovale repair products acquired with AGA Medical, renal denervation technology, deep brain stimulation for Parkinson’s and migraine and a transcatheter heart valve – could prove a significant boost for the St. Paul-based company.
"If these products work out, they could add literally billions to St. Jude’s addressable market," according to Simpson. "Now for the bearish rebuttal. PFO repair attempts have never shown much efficacy, DBS for Parkinson’s and migraines has been slow to develop (and Medtronic and Boston Scientific (NYSE:BSX) are also there), renal denervation is starting to look crowded (again, Medtronic and others), and St. Jude may have trouble breaking the Medtronic-Edwards Lifesciences (NYSE:EW) duopoly in transcatheter heart valves." Read more
Analysts’ ups and downs
- 3M Co. (NYSE:MMM): Jefferies raises price target to $102, "buy" rating.
- Amgen (NSDQ:AMGN): BMO Capital raises estimates, sets $64 price target.
- Baxter (NYSE:BAX): Leerink Swann raises price target to $64, maintains "outperform" rating; Barclays Capital maintains "equal weight" rating, $60 price target.
- Covidien (NYSE:COV): Leerink Swann maintains "outperform" rating, $60 price target.
- Edwards Lifesciences (NYSE:EW): Barclays Capital maintains "equal weight" rating, $80 price target.
- HeartWare (NSDQ:HTWR): Leerink Swann initiates coverage with "outperform" rating, $95 target.
- Hill-Rom (NYSE:HRC): Morgan Stanley cuts estimates through 2013, sets "overweight rating," new $38 price target.
- NuVasive (NSDQ:NUVA): Barclays Capital maintains "overweight" rating, $25 price target.
- ResMed (NYSE:RMD): Deutsche upgrades from "hold" to "buy," sets $32 price target.
- Stryker (NYSE:SYK): Barclays maintains "equal weight" rating, $58 price target.
- Zimmer (NYSE:ZMH): Leerink raises price target from $61 to $65, sets "market perform" rating; BMO Capital raises estimates through 2013, maintains "market perform" rating, sets new $63 price target.
