Maria Shepherd, President and Founder, Medi-Vantage06.04.24
Last year was discouraging for worldwide medtech M&A. According to McKinsey, in the life sciences sector, there were 745 transactions in 2023. Ninety-one percent had a value below $1 billion, and 54% fell below $100 million. Biotech and pharma deals were in the majority of deal volume—61% and 23%, respectively.1
In medtech, 2023 notable acquisitions included Globus Medical’s purchase of NuVasive in a $3.1 billion, all-stock deal. ThermoFisher also announced its intention to buy Olink Holding for its high-throughput protein analysis technology—a $3.1 billion deal as well.
The uncertainty of economic forecasts and interest rates was a headwind for M&A in 2023. There was not as much activity as expected, probably due to the combined effects of interest rates and inflation. Acquirers grappled with higher funding costs while negotiating the valuations calculated by sellers.
However, as noted, M&A activity was not completely hampered. There was enthusiasm from well-capitalized medtech strategic buyers. The year showed activity in the corporate sector, with continued appetite for deals and carve-outs that transform portfolios, as well as portfolio acquisitions and divestments more focused on the mid-market.
We believe 2024 M&A is going to accelerate after the slowdown of the past two years, as startup medtech companies launch new products, achieve regulatory clearances or reach other milestones, and macroeconomic conditions recover. According to McKinsey, life sciences deals grew by 23% in 20231—a trend we expect to continue based on some of the 1Q24 M&A activity we’ve seen, and the pent-up demand from large medtech companies for new technologies. At the same time, according to McKinsey, smaller medtech transactions delivered 29% of the deals in 2023, but only 15% of deal value.1 We think this will change and grow in 2024.
The FTC hasn’t made this easy. There is additional FTC scrutiny on more than a few high-profile transactions due to more stringent antitrust regulations, causing many medtech companies to be much more cautious in the acquisitions they select. The internal costs of the acquisition process are quite large, and no company wants a foul to be called to end the game early.
These factors continue to be of concern for the medtech space, but we believe conditions will start improving. 2023 was poised to be the comeback year, but market conditions and volatility were not sufficiently improved enough to support a vigorous dealmaking environment.
A medtech adjacency that addresses the ecosystem—hospital-acquired infections (HAI)—was developed by TYRX, a company acquired by Medtronic on Dec. 30, 2013. According to Medtronic, the technology is the only completely absorbable antibacterial envelope that can be wrapped around cardiac implantable electronic devices (IEDs)—including ICDs and pacemakers—designed to stabilize the implant and decrease infection risk. The absorbable surgical mesh envelope contains two antibiotics—minocycline and rifampin.2
Before TYRX, HAIs were diagnosed in approximately 1% to 4% of all IED implantations, resulting in a 50% patient mortality rate at three years (Table 1). This translated into an average treatment cost of €36,722 ($39,213). In clinical trials, the envelope was shown to decrease infection risk by 70% to 100% in high-risk patients.2
Medtronic was so certain of the healthcare value provided by TYRX, it offered pioneering, risk-sharing contracts with providers and insurance companies. Medtronic would pay the cost of removing an infected Medtronic device as well as the cost of implanting a second one, under conditions where the TYRX was implanted but did not ward off infection.3
Another example involves Globus Medical, an orthopedic company that acquired NuVasive on Sept. 1, 2023. NuVasive had launched the less invasive XLIF procedure, clinically established in more than 500 peer-reviewed articles. The XLIF procedure was proven to deliver better outcomes as compared to conventional open spinal fusion and demonstrated several benefits. It boasted fusion rates as high as 100%; up to a 90% decrease in blood loss; lower operative time by up to 15%; less time under anesthesia; 50% shorter length of hospital stay (LOS); up to 20% improved overall case efficiency; and 10% reduction in hospital costs (Table 2).4
References
Maria Shepherd has more than 20 years of experience in marketing in small startups and top-tier companies. She founded Medi-Vantage, which provides marketing and business strategy for the medtech industry. She can be reached at mshepherd@medi-vantage.com. Visit her website at www.medi-vantage.com.
In medtech, 2023 notable acquisitions included Globus Medical’s purchase of NuVasive in a $3.1 billion, all-stock deal. ThermoFisher also announced its intention to buy Olink Holding for its high-throughput protein analysis technology—a $3.1 billion deal as well.
The uncertainty of economic forecasts and interest rates was a headwind for M&A in 2023. There was not as much activity as expected, probably due to the combined effects of interest rates and inflation. Acquirers grappled with higher funding costs while negotiating the valuations calculated by sellers.
However, as noted, M&A activity was not completely hampered. There was enthusiasm from well-capitalized medtech strategic buyers. The year showed activity in the corporate sector, with continued appetite for deals and carve-outs that transform portfolios, as well as portfolio acquisitions and divestments more focused on the mid-market.
We believe 2024 M&A is going to accelerate after the slowdown of the past two years, as startup medtech companies launch new products, achieve regulatory clearances or reach other milestones, and macroeconomic conditions recover. According to McKinsey, life sciences deals grew by 23% in 20231—a trend we expect to continue based on some of the 1Q24 M&A activity we’ve seen, and the pent-up demand from large medtech companies for new technologies. At the same time, according to McKinsey, smaller medtech transactions delivered 29% of the deals in 2023, but only 15% of deal value.1 We think this will change and grow in 2024.
Why Was 2023 So Bad for M&A?
Market volatility was one of the biggest obstacles to M&A in 2023. In an uncertain economy, companies wishing to be acquired want the highest valuation possible, and many acquiring companies are divesting to improve operating costs. These companies include J&J’s consumer health business, GE Healthcare, and 3M. In 2022, Medtronic announced the spinoff of its patient monitoring and respiratory units into a new venture (although they’ve since rescinded that idea).The FTC hasn’t made this easy. There is additional FTC scrutiny on more than a few high-profile transactions due to more stringent antitrust regulations, causing many medtech companies to be much more cautious in the acquisitions they select. The internal costs of the acquisition process are quite large, and no company wants a foul to be called to end the game early.
These factors continue to be of concern for the medtech space, but we believe conditions will start improving. 2023 was poised to be the comeback year, but market conditions and volatility were not sufficiently improved enough to support a vigorous dealmaking environment.
Developing Adjacencies Outside Core Industries
There’s an opportunity for medtech firms to generate product-enabled services that create a customer-success mindset to assist them in tackling bigger clinical challenges. These could be services that supplement core products and increase the medtech organization’s value proposition. Value-added services that enhance patient experience can help medtech increase their field of influence throughout the patient’s health journey. Alternatively, medtech companies can create or join an ecosystem that addresses the complicated needs of healthcare segments by supporting partner collaboration to work out complex problems.A medtech adjacency that addresses the ecosystem—hospital-acquired infections (HAI)—was developed by TYRX, a company acquired by Medtronic on Dec. 30, 2013. According to Medtronic, the technology is the only completely absorbable antibacterial envelope that can be wrapped around cardiac implantable electronic devices (IEDs)—including ICDs and pacemakers—designed to stabilize the implant and decrease infection risk. The absorbable surgical mesh envelope contains two antibiotics—minocycline and rifampin.2
Before TYRX, HAIs were diagnosed in approximately 1% to 4% of all IED implantations, resulting in a 50% patient mortality rate at three years (Table 1). This translated into an average treatment cost of €36,722 ($39,213). In clinical trials, the envelope was shown to decrease infection risk by 70% to 100% in high-risk patients.2
Medtronic was so certain of the healthcare value provided by TYRX, it offered pioneering, risk-sharing contracts with providers and insurance companies. Medtronic would pay the cost of removing an infected Medtronic device as well as the cost of implanting a second one, under conditions where the TYRX was implanted but did not ward off infection.3
Another example involves Globus Medical, an orthopedic company that acquired NuVasive on Sept. 1, 2023. NuVasive had launched the less invasive XLIF procedure, clinically established in more than 500 peer-reviewed articles. The XLIF procedure was proven to deliver better outcomes as compared to conventional open spinal fusion and demonstrated several benefits. It boasted fusion rates as high as 100%; up to a 90% decrease in blood loss; lower operative time by up to 15%; less time under anesthesia; 50% shorter length of hospital stay (LOS); up to 20% improved overall case efficiency; and 10% reduction in hospital costs (Table 2).4
The Medi-Vantage Perspective
There’s so much pent-up demand and so much dry powder. 2024 should see a resurgence of deal-making, although maybe in the form of partnerships and joint ventures alongside M&A. The takeaway here is if you are an entrepreneur, get your ducks in a row and offer your acquirer a unique value proposition, like TYRX or NuVasive. If you are acquiring, be sure the claims entrepreneurs are making are sound and complete, and meet the needs of the acquirer and end user. The takeaway for acquirers is even a slight deviation from these claims affects the valuation, which is something you need to know.References
Maria Shepherd has more than 20 years of experience in marketing in small startups and top-tier companies. She founded Medi-Vantage, which provides marketing and business strategy for the medtech industry. She can be reached at mshepherd@medi-vantage.com. Visit her website at www.medi-vantage.com.