A new leader for the medtech industry thanks to mega M&A

Medtronic has been the largest pure-play medtech company for many years, and this year it became the biggest overall. And it is to extend its dominance even further: EvaluateMedTech’s World Preview 2015 shows that it will occupy 7% of the worldwide medical device market in 2020, with sales of $35bn (see tables below).

The Minnesota group has been buying smaller medtech companies at a furious pace. The former industry leader, Johnson & Johnson, has been doing the opposite, divesting units to sharpen its focus. As the report shows, there are many trends at play in the sector, and there are three in particular that are key to understanding its future.

Global medtech sales by company 
      Sales ($bn) Market share
Company 2014 2020 CAGR Change 2014 2020
Medtronic 20.3 34.9 9% 12.9 5% 7%
Johnson & Johnson 27.5 29.7 1% -3.1 7% 6%
Siemens 18.2 16.1 -2% -7.9 5% 3%
Roche 11.8 14.2 3% -1.0 3% 3%
Becton Dickinson 7.3 13.6 11% 4.2 2% 3%

The first trend apparent in the medtech sector is of course consolidation. Medtronic’s new place at the top of the rankings is due to the completion of the largest acquisition in the sector’s history – that of Covidien for nearly $50bn – and it has arranged 11 other acquisitions since the Covidien deal was announced.

And Medtronic is not the only company to have leapfrogged its fellows thanks to an acquisition. Becton Dickinson will in 2020 be the fifth-largest medtech company in the world thanks to its $12.2bn purchase of CareFusion a year ago (BD to buy CareFusion in third biggest deal this year, October 6, 2014). Becton has jumped an impressive seven places to make the top five.

Top 5 medtech M&A deals closed in 2015
Target Acquirer Completion date Value ($bn)
Covidien Medtronic 26 January 49.9
Biomet Zimmer Biomet 24 June 14.0
CareFusion Becton Dickinson 17 March 12.2
Audiology Solutions business of Siemens EQT VI (private equity) 15 January 2.7
Siemens Health Services Cerner 2 February 1.3

In 2014 the total value of mergers closed was $42bn, up from $29bn the year before. But 2015 has been the real attention-grabber, with total medtech M&A deal values already at $84bn at the half-year point, a 166% increase over the first half of 2014. This is larger than any full year ever, and total for this year will almost certainly exceed $100bn.

Specialisation

While the sector will not see a deal the size of Medtronic-Covidien again for many years, consolidation is still very apparent. The second trend at work, seemingly paradoxically, is specialisation.

Companies such as J&J, Siemens and Philips are hiving off non-core units to concentrate on areas of high growth or to focus on a particular area. In fact, J&J will shrink even more in time; the current forecasts do not take account of its divestment of its Cordis interventional cardiology business as this $2bn transaction has only just closed.

And in August, American Medical Systems, the medtech arm of Endo Pharmaceuticals, sold its men’s health business. Boston Scientific acquired the unit for $1.7bn, so this deal neatly illustrates both strategic moves at once: one company shrinks so it can play to its strengths, and another bulks up to compete better with what it considers its peers, many of which offer a diverse product portfolio.

Liberalisation

The third main story of the past year, which seems highly likely to continue, is the increased willingness of the US FDA to grant approvals and clearances to innovative medical products. EvaluateMedTech’s report shows that, while the rate of supplementary approvals and 510(k) clearances have both ticked up at a rate of 5% from 2013, the agency has granted rather more first-time approvals.

First-time premarket approvals (PMAs) and humanitarian device exemptions (HDEs) are granted to high-risk devices that are unlike anything that already exists – in other words, they are truly new technologies. In 2014 the FDA awarded 29 PMAs and four HDEs, an increase of 43% on the combined number in 2013.

FDA approval count, 2013-14
Year 2013 2014 Change
1st Time PMA/HDE/PDP 23 33 43%
Supplementary PMA/PDP 2,328 2,455 5%
510(k) 3,084 3,244 5%
Total 5,435 5,732 5%

This same rate of increase has carried on since. In the first eight months of this year the FDA has granted 30 PMAs and three HDEs – at 33 this is the same total number as was granted in all of 2014.

This is a good sign for the industry, rewarding efforts to produce game-changing devices that address unmet needs. The sector is forecast to have total worldwide sales of $478bn in 2020, and the advent of new devices will be a crucial part of achieving this goal.

To contact the writer of this story email Elizabeth Cairns in San Diego at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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