ATLANTA — If the present landscape of hefty investments and good returns from medical device companies could be described in terms of a weather forecast, then it would most definitely be sunny — but with a few storm clouds forming on the horizon that need to be watched carefully.

That’s the message delivered by Howard Palefsky, general partner and managing member of Montreux Equity Partners to those attending a panel at the Georgia Life Sciences Summit 2007 on Wednesday at the Georgia World Congress Center.

Palefsky is active in an arena where an estimated $4 billion will be invested in medical devices alone by year’s end, an amount more than double that of 2001, he said.

If anyone should know the state of the industry it’s Palefsky, sporting an extensive resume of success in the sector. From 1978 to 1997 he served as CEO of Collagen before it was sold to Inamed (Santa Barbara, California) in 1991. He has been a general partner and managing member of Montreux since 2002, and he was a venture partner in the company from 1999 to 2002.

“If you’re an entrepreneur looking to make money, then you can’t go wrong with medical device companies, “Palefsky said. “The exits are hard-hitting and getting better and better. It’s an exciting business, and the prospects have never been better.”

But to continue down this path and be able to leverage those better prospects, medical device companies and investors need to be cognizant of several potential looming clouds, he said.

The first he pointed to was too many companies putting too much reliance on winning FDA 510(k) clearances, without pushing further to develop evidence of product efficacy.

“Use that 510(k) to get great clinical data,” he said. “Clinical trials have been an area that has been tremendously underserved in the medical device arena.”

“The data provides a clear and present need for the device,” he said. “In some cases, with a 510(k) approval, you’ve got a device that nobody has to use.”

The second storm cloud he pointed to relates to public and media perceptions of industry-physician relationships, those perceptions not particularly good right now.

To illustrate Palefsky cited last week’s federal settlements with a group of major orthopedic players that agreed to pay $311 million to settle charges of fraud, essentially kickbacks to doctors for using their products.

The companies were Biomet (Warsaw, Indiana); DePuy Orthopaedics (Warsaw, Indiana), a unit of Johnson & Johnson (J&J; New Brunswick, New Jersey); Smith & Nephew (S&N; London); Zimmer Holdings (Warsaw, Indiana); and Stryker (Kalamazoo, Michigan). Besides the dollar settlements, the companies agreed to various reforms and 18 months of federal monitoring (Medical Device Daily, Sept. 28, 2007).

“Not being in the New York Times every six months would help,” he quipped.

The third storm cloud, he said, is FDA reliability for getting products out at the right time. And he cited a lack in-between time for products to work through the FDA’s regulatory hoops and hurdles getting to market, a frustration shared by many companies and their equity backers.

“FDA on average gets it right,” he said. “But they’re either too slow or too fast in approvals.”

Despite these looming threats, Palefsky said he doesn’t really see anything that could severely hinder this once-again booming market. Although investors were quick to jump ship at the turn of the century and fueled the dot-com boom, he noted that venture capitalists are returning to med-tech companies aggressively.

“It’s cyclical, but the long-term trend is up,” he told Medical Device Daily, in an interview following the session.

The meeting attracted a crowd of hundreds, with many of the panelists — not surprisingly — emphasizing the emergence of Georgia as attractive to med-tech development and other healthcare ventures. Georgia’s climate for life sciences companies is robust, presenters said, and given time will be even better.

A parallel emphasis was frequent how-to advice on how George start-ups can attract investment dollars.

One recommendation was that fledgling companies should show some restraint in spending, early on.

“Start-ups need to be frugal with spending,” Henry Grage Jr., co-founder of Reperfusion Therapeutics (Alpharetta, Georgia) told MDD. “If you spend too much money early on, then investors are going to pass you by. The amount of money you spend has a lot to do with the value proposition of your company. The more money spent will make a company look less attractive in the eyes of investors.”