Where's the Love?

Medical device VCs, when asked what sectors and technologies intrigue them the most, often cite aesthetics and neurostimulation among the two more fascinating and game-changing opportunities.

But IPO buyers don't appear to be as fascinated by the potential, at least not yet.

Over the past day, we heard of the EnteroMedics Inc. disappointing IPO and Reliant Technologies Inc. reluctance in trying to go public at all.

EnteroMedics is developing an implantable device to stimulate (or modulate) the vagus nerve to suppress a person's appetite. The technology has other gastrointestinal applications as well, but the combination of obesity AND neurostimulation convinced VCs to invest $45 million in the company just last year.

The proceeds of the IPO--now only $46 million--will go toward funding clinical trials to prove the device works. So public investors might be pardoned for backing off an early-stage company without a product to sell.

But Reliant Technologies is selling its Fraxel laser systems. It's got FDA clearance to treat several skin conditions from lesions to wrinkle reductions. The company reported total net revenue of $57.5 million in 2006, albeit with a net loss of $20.9 million. In 2005, the company reported a net loss of $18.2 million on total net revenue of $33.8 million. The company had hoped to raise $62 million through the sale of 4.7 million shares.

It's always difficult to understand the appetites of IPO buyers, but these aren't the only disappointing stock stories in these sectors. Shares in Thermage Inc., another aesthetics company, still hover below the $7 price tag buyers paid in its own IPO last November. Thermage shares did spend a few winter months in the double-digit neighborhood earlier this year before sinking back down.

Meanwhile, shares in Northstar Neuroscience Inc., one of the more ballyhooed neurostimulation companies, sunk back into the single digits, partly due to some disappointing communications with the FDA over its cortical stimulation device that might someday help people recover from stroke.

Northstar shares did go out at $15 in its May 2006 IPO, but they haven't been able to hold onto that value. The news that the company will have to delay its PMA filing by a couple of quarters isn't going to help things.

No doubt, VCs have to consider longer horizons than those folks buying into IPOs, and the potential in neurostimulation and aesthetics markets is huge. But it will be nice when (and we suppose if) public markets could give just a little of validation to their belief in these two promising sectors.