Auris acquisition could prompt more mega VC rounds

The J&J-Auris tie-up will yield a huge return for investors who went in big.

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The acquisition of surgical robotics group Auris Health for a total of $5.8bn by Johnson & Johnson last week is not the biggest deal concerning a privately-held medtech in history – that honour goes to Zimmer’s $15bn merger with Biomet. It is, however, the biggest of a venture-backed company.

In fact, it is the only venture funded target among the top 10 largest acquisitions of private device makers. And an acquisition of this size will do nothing to discourage the monster VC rounds that have been seen in the sector in recent years.

Auris has itself been the recipient of several such rounds. Since August 2017 it has raised two rounds each worth more than $200m, and the investors that administered those huge cash injections will be in line for a significant payday when the J&J deal closes.

Auris Health's VC funding
Date Round Investment ($m) Investors
Nov 2018 Series E 220.0 Partner Fund Management; D1 Capital Partners; Lux Capital; Mithril Capital Management; Senator Investment Group; Viking Global Investors; Wellington Management
Aug 2017 Series D 280.2 Coatue Management; Highland Capital Partners; Lux Capital; Mithril Capital Management; Partner Fund Management; Section 32; Viking Global Investors
Aug 2016 Series C 49.0 Undisclosed
Sep 2015 Series B 149.5 Mithril Capital Management and others
Mar 2014 Series A 34.4 Lux Capital and others
Source: EvaluateMedTech; media reports.

Mithril Capital Management, the investment firm founded by PayPal billionaire Peter Thiel, is believed to have the largest stake in Auris, according to the Wall Street Journal, with a stake of around 15%. Lux Capital has invested around $50m in all, according to its co-founder Peter Hébert, the largest investment Lux has made in a single company. Both Mithril and Lux could see returns of hundreds of millions of dollars.

Only 11 medtech groups have raised rounds worth more than $200m, and the vast majority of these massive deals were done within the last two years. Two of the exceptions to this rule, Liberty Dialysis and Devicor Medical, blazed a trail for Auris: they were bought by Fresenius Medical Care and Leica, respectively.

Fresenius paid $1.7bn for Liberty Dialysis in 2014, and though the value of the Devicor acquisition was not disclosed this too was probably in excess of $1bn. Both will be put in the shade by the $3.4bn upfront portion of the J&J-Auris deal, let alone the full price if subsequent milestones are hit (J&J’s Auris buy looks like a Verb swerve, February 13, 2019).

Medtech VC rounds worth more than $200m
Date Round Company Investment ($m)
Jan 2019 Undisclosed Verily Life Sciences 1,000.0
Mar 2017 Series B Grail 900.0
Jan 2017 Undisclosed Verily Life Sciences 800.0
Sep 2017 Series A Shanghai United Imaging Healthcare 507.2
May 2017 Series E Guardant Health 360.0
Dec 2010 Undisclosed Liberty Dialysis Holdings 348.4
Apr 2010 Undisclosed Liberty Dialysis Holdings 315.0
Jan 2018 Series B (second close) Grail 314.7
May 2018 Series C Grail 300.0
Aug 2017 Series D Auris Health 280.2
Dec 2008 Undisclosed Devicor Medical Products 250.0
Sep 2018 Series D Butterfly Network 250.0
Feb 2018 Series E Heartflow 240.0
Nov 2018 Series E Auris Health 220.0
Aug 2015 Series H Mevion Medical Systems 200.0
Mar 2018 Series B Helix 200.0
Source: EvaluateMedTech.

Seven of the top 10 largest acquisitions of private medical technology companies were purchases from private equity companies. Biomet was taken private in 2007 by Blackstone, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts and TPG Capital for $11.3bn; Biomet's $14bn Zimmer merger seven years later was then the fourth largest M&A deal in the history of medtech.

Swedish private equity shop EQT has a particularly strong tradition of selling its portfolio companies to big medtech, with three sales in the $2-3bn range since 2012.

Top 10 acquisitions of private medtechs
Date announced Acquirer Target Total deal value ($bn) Focus Pre-acquisition ownership
Apr 2014 Zimmer Biomet Biomet 14.0 Endoscopy; general & plastic surgery; orthopaedics; wound management PE - Blackstone, Kohlberg Kravis Roberts and TPG Capital
Feb 2019 Johnson & Johnson Auris Health 5.8 Endoscopy; general & plastic surgery Venture investors
Jul 1998 Johnson & Johnson DePuy 3.5 Neurology; orthopaedics; physical medicine Roche owned majority stake via takeover of Corange 
May 2011 Thermo Fisher Scientific Phadia 3.4 In vitro diagnostics PE - Cinven
Nov 2018 Colfax DJO Global 3.2 Orthopaedics PE - Blackstone
Apr 2008 Philips Shenzhen Goldway Industrial 3.0 Patient monitoring Undisclosed
Dec 2016 Essity BSN medical 2.9 Orthopaedics; Wound Management PE - EQT
Jan 2016 Stryker Sage Products 2.8 General & plastic surgery; general hospital & healthcare supply PE - Madison Dearborn Partners
Mar 2011 Terumo CaridianBCT 2.6 Blood PE - EQT
May 17, 2012 Agilent Technologies Dako 2.2 In vitro diagnostics PE - EQT
PE = private equity. Source: EvaluateMedTech, company websites.

For a venture-backed company to find itself in this cohort is a step-change in the medtech industry. Industry watchers can expect an increase in nine-figure venture rounds as VCs aim to emulate Auris’s success with their own portfolios.

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