Strategic Partnerships: Funding Source or Target for the Medtech Entrepreneur?

Big medical device manufacturers are highly motivated to discover new, innovative products, platforms, and technologies to bring to market. At the 2015 Redefining Early Stage Investments (RESI) meeting in Boston, Mass., medtech strategic partners from four large medical device companies local to the Boston area and one managing director of a healthcare investor fund presented to a standing-room-only audience of medical device entrepreneurs.

Why This Is Important
The dynamics of the medical device industry continue to change. The industry consists mainly of a few large companies that control the market and a large number of small startups. Blockbuster deals such as Medtronic’s $49.9 billion acquisition of Covidien, announced in 2014 and completed in January last year, was only the first in a string of mega-deals in the medtech industry.

The Big Exit Is the Ultimate Goal for the Medtech Entrepreneur
Although the transactions listed in Chart 1 are exciting for the entire industry, what the medtech entrepreneur seeks is the big exit for his/her own startup company. The panelists at the RESI meeting stated that their companies recognize the need to find and acquire disruptive devices with an enhanced value proposition and differentiation to meet the needs of an increasingly complex and growing number of healthcare decision makers. According to the RESI panelists, large medtech companies are continually on the hunt for different strategies and methods to sustain their market share.

The transactions in Chart 2 are nearer and dearer to the hearts of medtech startup leaders. This is because these are examples of medtech startup companies that have discovered the “secret sauce” that rounds out the product portfolios of large medical device companies, and offers value to the clinical and the economic buyer in the healthcare system.

Physicians have traditionally been the key influencers that impact medical device buying decisions. However, the shift to value-based healthcare has substantially increased the number of influencers. Hospital consolidation, driven by cost-containment programs to retain profit margins, has expanded the number of stakeholders involved in medical device buying decisions. As seen in Chart 1, hospital consolidation has driven medical device company consolidation.

The Number of Medtech Acquisitions
Counting the number of medtech acquisitions depends upon which source is used for the assessment, and the jury is still out for 2015. However, 2010-2014 saw a steady number of acquisitions, both in the mega deals seen in Chart 1, and the small entrepreneurial acquisitions seen in Chart 2.

What New Technologies Can Entrepreneurs Leverage?
Mergers and acquisitions are a critical strategic growth driver of many medtech companies. Large medical device companies seek acquisitions with a strategic fit to maintain market leadership, broaden their product portfolios, and diversify into domains with compelling long-term growth prospects. As evidenced by the number of transactions in Table 1, large medtech companies are very interested in acquiring startup companies with cutting-edge products and technologies. 

References

1. Medical Equipment and Supplies Report 2013, Kurmann Partners
2. Ibid.
3. Op cit. 1
4. http://clearwaterinternational.com/wp-content/uploads/2014/07/Global-Medical-Equipment-Report-2014.pdf
5. http://clearwaterinternational.com/wp-content/uploads/2015/08/Medical-Equipment-and-Supplies-Report-2015.pdf

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Maria Shepherd has 20 years of leadership experience in medical device/life-science marketing in small startups and top-tier companies. After her industry career, including her role as vice president of marketing for Oridion Medical, where she boosted the company valuation prior to its acquisition by Covidien/Medtronic, director of marketing for Philips Medical, and senior management roles at Boston Scientific Corp., she founded Data Decision Group, now re-branded as Medi-Vantage. Medi-Vantage provides marketing and business strategy and innovation research for the medical device industry. The firm quantitatively and qualitatively sizes and segments opportunities, evaluates new technologies, provides marketing services, and assesses prospective acquisitions. Shepherd has taught marketing and product development courses, and is a member of the Aligo Medtech Investment Committee (www.msbiv.com). She can be reached at 855-343-3100 ext. 102 or at [email protected]. Visit her website at www.medi-vantage.com.