Reports by analysts have shown a significant uptick in mergers and acquisitions in medical device and life science companies in the past six years. Since 2005 diagnostic, orthopedic, and cardiovascular devices have enjoyed the largest investments while the surgical and vascular devices sectors saw the highest mulitples versus dollars deployed. MPMN spoke with Johnathan Norris managing director of Silicon Valley Bank and author of “Continued Rebound: Trends in Life Science M&A" about the trend.
Norris sees two factors driving medical device merges and acquisitions:
"From my perspective, there are two different factors at play here. One is cost-effectiveness. Does the merger or acquisition opportunity really reduce the overall cost of medical procedures or the medical device itself? Another huge driver is the increasing prevalence of minimally invasive surgeries. Minimally invasive devices are replacing drugs."
He cautions however that the economic downturn has slowed M&A activity a bit and that the effects are just now beginning to show. However he is also confident that any downturn will only be temporary in the face of so much innovation coming from the medical device industry
"Innovation is still alive and well. However, right now, venture has been hampered by a difficult-to-read FDA environment. A large number of early-stage focused device firms are out raising new funds, and the majority of the firms that are out fundraising typically do not make many new investments. However, many of the firms that are out fundraising at this time have a proven record of getting exits over the goal line, and I think that many of them will end up raising funds. But it’s just taking a lot longer than people had predicted. Because of that, many noteworthy venture firms are out of the market in terms of doing a lot of new investments. Over the next year, most of these funds will raise monies, and they’ll go to the market and invest. Therefore, while innovation is going to continue to be supplied by the life science venture community, at this point, we’re experiencing a temporary lull."
Ulimately, though the pace of the market may change, the attitude is that merges and acquisitions will continue within the medical device industry. Ultimately, medical device mergers and acquisitions could also have a salutary effect on suppliers and contract manufacturers as the industry’s bigger fish gobble up the little fish and expand medical device commercialization efforts.
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