Mergers, Acquisitions and Partnershipsin the Medical Devices Industry - Inorganic Growth Driven by the Strategic Need to Hold a Diversified Portfolio

20 Jul 2010 • by Natalie Aster

Investments in the global medical devices industry exceeded $73 billion in 2009. In the same year, $18.7 billion worth mergers & acquisitions (M&A) including asset transactions were carried out. While the industry actually witnessed a decline in the value of investments and M&As in 2009, the last couple of years had been startlingly dynamic for the global medical devices industry. One trend that was clearly visible was Big Pharma’s increasing interest in medical device companies. Abbott’s acquisition of Advanced Medical Optics (AMO), Johnson & Johnson’s (J&J) acquisition of Mentor Corporation are some key examples. GlobalData’s report, “Mergers, Acquisitions and Partnershipsin the Medical Devices Industry - Inorganic Growth Driven by the Strategic Need to Hold a Diversified Portfolio” provides key data, information and analysis on the intra and inter-industry consolidation activity involving medical device companies. The report is supplemented with data and insight on key mergers, acquisitions, strategic partnerships and licensing agreements carried out in the last few years. The report also provides information on the strategic rationale behind each deal, the post-deal impact analysis and what could it mean to the industry and the competitive landscape. This report is built using data and information sourced from proprietary databases, primary and secondary research and in-house analysis by GlobalData’s team of industry experts.

The Large Pharmaceutical Companies are Diversifying through Inorganic Growth

Although pharmaceutical companies have been interested in diversifying into medical devices for some time, it has never been as apparent and significant as it has been in recent years as the industry has witnessed mega deals.

With many blockbuster drugs such as Lipitor losing their patents and consequent reduced profitability, pharmaceutical companies have been looking to diversify and add stability to their portfolios by acquiring medical device companies. Specialty medical devices offer higher margins and have shorter product development times which makes them the ideal choice for pharmaceutical companies trying to cope with pressures from declining bottom lines.

The most significant deal in the year 2010 is Novartis’ acquisition of Alcon. For a purchase consideration of approximately $28.1 billion, a significant ophthalmic device product portfolio was added to Novartis’ existing contact lens and eye care pharmaceutical product base. Through this acquisition, Novartis plans to create a new global eye care division, accounting for more than 70% of all products in the global vision care market. Likewise in the year 2008, Johnson & Johnson acquired Mentor, a world leader in breast implants, and strengthened its surgical portfolio with the addition of medical aesthetic devices. Abbott acquired Advanced Medical Optics (AMO) in the year 2009 for a purchase consideration of $2.8 billion to add ophthalmic devices products to its existing pharmaceutical and diagnostics portfolio.

Consolidation in the Electrophysiology Market

The atrial fibrillation market has become attractive with the growing prevalence of atrial fibrillation cases. Moreover, currently the market is vastly underserved, with only 30% of the electrophysiologists performing ablation regularly. This provides an opportunity for the cardiovascular giants to tap into the market through the acquisition of small companies with niche technologies in the cardiac ablation market.

Thus, the cardiovascular devices market has seen consolidation in the electrophysiology segment with major companies such as Medtronic, St Jude and Boston Scientific acquiring companies to strengthen their atrial fibrillation product portfolios.

Boston Scientific acquired CryoCor for a value of $17.6m; Medtronic acquired CryoCath and Ablation Frontiers for $13.3m and $225m respectively whilst St. Jude added EP Med Systems to its basket for a purchase consideration of $91m.

Cardiovascular Device Companies Foraying into the Neurology Market

Neurostimulation, with its vast potential for applications in various indications and a high growth interventional neurology devices market, have attracted cardiovascular companies into the neurology devices market. Companies including Medtronic, Boston Scientific and ev3 have acquired companies to add neurology devices to their product base.

ev3 acquired Chestnut Medical for a value of $150m and completed its neurovascular portfolio by adding products such as the Pipeline Embolization Device (PED) for the treatment of cerebral aneurysms and the Alligator Retrieval device for foreign body retrieval. Similarly, Medtronic acquired NDI medical for $42m and added the latter’s neurostimulation device for incontinence care to its portfolio whilst St. Jude Medical strengthened its neurology devices portfolio by adding Northstar Neurosciences for $2m.

Top Three of Diagnostic Imaging Companies, GE Healthcare, Philips Healthcare and Siemens Healthcare, Looking at Holding a Diversified Portfolio

Diagnostic imaging companies have been trying to diversify from their core capabilities and to not get restricted to the capital equipment business segments. The year 2007 was a significant year for companies such as Siemens and Philips which changed the way diagnostic imaging companies operate.

Siemens acquired Dade Behring as an extension to its earlier entry into in-vitro diagnostics with Bayer Diagnostics. Siemens acquired Dade Behring for a purchase consideration of $7 billion thus strengthening its diagnosis value chain by being able to offer both the complete range of in-vivo and in-vitro diagnostics products.

Philips acquiring Respironics was one of the significant deals in the medical device industry, which made the company a leader in the home healthcare devices market that included devices for diagnosis and the treatment of sleep apnea. The Phillips – Respironics deal was worth $5.1 billion, following which Respironics has become an indirect wholly owned subsidiary of Philips.

GE Healthcare Acquired Vital Signs for a value of $990.3m, with the company’s product portfolio including primarily single-use medical products for the anesthesia, respiratory/critical care, interventional cardiology/radiology and sleep/ventilation markets.

Spinal Surgery Companies Acquiring Companies with Non-Fusion Technologies

Driven by ageing populations and rapid technological innovation, the spinal surgery market has been undergoing changes that have resulted in spinal non-fusion and motion preservation technologies gaining greater importance in recent years. A reflection of this phenomenon is the number of acquisitions taking place in this market. NuVasive acquired Cervitech for a purchase consideration of $81m and strengthened its artificial disc replacement product portfolio. Integra Spine acquired Theken along with its other group of companies for $47m to gain the existing and valuable pipeline product portfolio of Theken, thus strengthening its position in the spinal surgery market. Synthes acquired N Spine, a manufacturer and marketer of devices to treat lumbar spinal disorders, for a total purchase consideration of $77m to expand its core pedicle screw business.

Medical Device Companies Focusing on Diversifying into Home Health Care

Rising healthcare expenditure and the ageing population have increased the focus on the importance of shifting to home healthcare like never before. Also, the lack of proper patient care personnel at home has highlighted the importance of remote patient monitoring which is a segment of the home healthcare market. The home healthcare market is a high growth market and this is why several medical companies are entering into this market.

Medical giants, such as GE healthcare, have strengthened their product base by acquiring companies with home care solutions. GE acquired the Living Independently Group and followed it with an alliance with Intel to invest $250m in the development of new technologies to assist independent living for seniors.

Teijin acquired Braden Partners L.P, Home Therapy Equipment Inc and Associated Healthcare systems to establish a foothold in the US home healthcare market. Teijin is already one of the prominent players in the home healthcare market in Japan.

Bayer Healthcare acquired iSense Corporation which manufactures minimally invasive continuous glucose monitoring systems and added to its portfolio devices which can be used both at home as well as in professional settings.

Robert Bosch acquired Health Hero networks which has technology solutions for remote patient monitoring and management. Remote patient monitoring is an essential platform for enhancing home healthcare services and is gaining importance with an increased focus on the home healthcare market.

Anesthesia and Respiratory Device Companies Entering the Sleep Apnea Diagnostics Market through Strategic Acquisitions

The sleep apnea treatment as well as the sleep diagnostics market has been gaining attention from major medical device manufacturers since the current market has a great growth potential and is under-penetrated. Anesthesia and respiratory device companies, who are most likely to have synergies given their complementary product offerings, have thus realized the potential in the sleep apnea diagnostic device market.

Ambu acquired Sleepmate Technologies for a purchase consideration of $6.9m. Sleepmate Technologies provides diagnostic sensors for obstructive sleep apnea and Ambu, being a market leader in neurology sensors, has been able to capitalize through sales and distribution synergies in the US to market the newly acquired sleep apnea diagnostic portfolio.

Nihon Kohden acquired Neurotronics Incorporated, a company engaged in developing sleep analysis devices and software. With this acquisition Nihon Kohden gained polysomnography testing devices, the market for which is on the rise owing to the increase in awareness and screening activities for sleep apnea and other sleep related disorders across geographies.

Medical Equipment Giants Focus on Emerging Markets with Acquisition of Companies in China and Brazil

The past few years has seen the rise of Asian and Latin American countries in the healthcare and medial devices market. Driven by new government reforms and facilities and the increase in purchasing power of their population, emerging markets including China, India and Brazil have become the focal point for major medical device companies to set up their base and benefit from the cheap cost of manufacturing.

Philips Medical Systems acquired VMI Sistemas Medicos and Dixtal Technologia in Brazil, Shenzhen Goldway in China and Meditronics in India. These acquisitions helped Philips to expand its presence in these three countries providing immediate cost advantages over global competitors with local manufacturing facilities. VMI Sistemas and Meditronics added diagnostic imaging products whilst Shenzhen Goldway and Dixtal Technlogia strengthened Philips’ patient monitoring product offerings. On the same lines FUJIFILM acquired Tianjian Medi Tech and entered into Hospital Information Systems (HIS), Electronic Medical Records (EMR) and other medical IT systems markets in China.

Medical Device Companies Looking at Health Care Information Technology to Strengthen Core Business through Partnerships and Acquisitions

Implementation of information technology, the lack of adequate healthcare personnel, government regulations and a need to differentiate their products and services from the competition have forced medical device companies to partner with information technology companies and other healthcare information technology companies to develop and enhance products. Information technology companies also are responding well by customizing their service offerings and attracting medical device companies to enter into partnerships and alliances.

Hill-Rom has partnered with Cerner to offer smart beds that will reduce the time taken by nurses to collect vital details of the patient. Fresenius Medical Care acquired HIT Services Group in order to offer nephrology solutions to its chain of dialysis centers. Through this acquisition the company also has been able to cash in on the need of physicians to maintain Electronic Medical Records (EMR) which will be mandatory in the US shortly.

Elekta acquired CMS Inc, a company engaged in the development and support of radiation treatment planning and workflow solutions, which helped to position Elekta as a major provider of oncology informatics and management solutions. Allscripts also entered into an alliance with Cardinal Health to sell Allscripts MyWay Electronic Health Record to Cardinal Health’s physician customers.

Cardiovascular Companies Consolidating their Peripheral Vascular Disease Portfolios

The peripheral vascular devices market is one of the fastest growing segments in the cardiovascular business and major companies have begun concentrating on this market. The peripheral vascular devices market was estimated to be worth $3.9 billion in 2009 and is expected to grow at a rate of 6% annually. The market for treating peripheral vascular diseases is being driven by the increase in the diabetes population, the ageing population, and other factors including the increased smoking population that predisposes people to diseases such as venous reflux disease and Deep Vein Thrombosis (DVT).

Given the high potential for profitability in this market, Medtronic acquired Invatec S.p.A, for a purchase consideration of approximately $500m to expand its product base in the peripheral vascular disease segment as well as gaining important products in the coronary devices segment.

Covidien acquired VNUS for approximately $440m and Bacchus, a privately held company, to enhance its peripheral vascular devices portfolio and establish a global business unit for vascular surgery.

In Vitro Diagnostic Companies Focus on Acquiring Companies with Molecular Diagnostic Testing Products

Molecular diagnostics has grown rapidly in the past few years driven by factors including the increase in prevalence rates of cancer and AIDS, improved technology with enhanced automation and reduced test time-lines, the growing number of players in the market and, most importantly, increased screening and testing. Human Papilloma Virus (HPV) testing for cervical cancer has seen a significant increase in volumes due to greater awareness about both the disease and the importance of testing. Consequently, many companies are busy consolidating their portfolios in this niche segment.

Becton Dickenson acquired HandyLab Inc for a purchase consideration of $275m and strengthened automation in the molecular assay systems.

Qiagen acquired Digene for a purchase consideration of $1.6 billion to strengthen its molecular diagnostics business with Digene’s HPV diagnostic testing for cervical cancer.

Hologic, which has a significant presence in diagnostics of women’s health, acquired Third Wave, for a purchase consideration of approximately $591.2m to add HPV testing and strengthen its overall molecular diagnostics portfolio.

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