Chris Newmarker

October 9, 2014

4 Min Read
Greed Is Good for Medtech, or Is It?

Why is the medical device industry experiencing a slew of multibillion-dollar megamergers of late? Depending on whom you ask, it comes down to corporate greed, cost pressures under Obamacare, or regulatory hurdles.

Those were the major themes emerging from dozens of Qmed/MPMN reader responses to an online survey asking why the huge mergers are taking place.

Check out this word graph of the 69 responses from readers:

Qmed Survey Megamergers Word Graph

While big medtech merger deals in the past few years have been in the billions of dollars, there are a number of purchases in 2014 that have been industry-transforming mega deals in the tens of billions. They include Medtronic's proposed $43 billion acquisition of Covidien, Zimmer Holding's planned $13.35 billion purchase of Biomet, and Becton Dickinson's intentions to merge with CareFusion to the tune of $12 billion.

In May, Thermo Fisher Scientific completed its $13.6 billion acquisition of Life Technologies Corp. (Carlsbad, CA), a move that will provide lab products leader Thermo Fisher with access to the DNA sequencing market.

So is greed good for medtech? A few people thought so, espousing a Gordon Gekko-esque take: "Obamacare is a land of opportunity to those that see it that way," wrote one reader. A couple of readers pointed to the "synergy" created by the mergers. Another said that the mergers would enable the firms to be more competitive globally. Another wrote that the consolidation would help top firms make a greater return on their investment in new products.  

Many readers, however, clearly weren't so happy with either the execs at medtech firms or Obamacare. Here are several comments in that vein (lightly edited for spelling, punctuation, etc.). All of these are replies to the question: "Why is the medtech industry consolidating?":  

  1. "Ego of CEO"
     

  2. "Pure tax evasion and greed"
     

  3. "Obamacare sucks, along with the administration's overbearing regulations on business coupled with the global developed economies' worst tax burden."
     

  4. "Due to the increasing regulatory and other impositions being placed on many smaller businesses, it makes it very cost prohibitive for smaller players to continue to be profitable."
     

  5. "Large companies need to do large acquisitions to insure growth because they are so large and internally clogged no new development is really feasible on their own."
     

  6. "Regulatory challenges (medical device tax) making it harder to leverage profits from sales... it's easier to cut personnel/functions from combined companies, let alone have the tax advantages of a potential MDT and Covidien deal. Too hard to find billions of dollars of leverage in the existing firm!"
     

  7. "High U.S. corporate tax rates forcing companies to keep cash overseas and not repatriate the money. They need to use the cash, so acquisition makes sense."
     

  8. "Lack of growth due to the economic pressures placed on med-tech to develop state of the art products and sustain growth, because of the lack of understanding of the Obama administration including but not limited to ACA plan which is a failure on all accounts. The pure lack of understanding of running the business of America."
     

  9. "Just like the airline industry, the lack of competition translates to medtech firms feeling they have free rein to rip customers off. The state of the airline industry prevents you from finding any discounted deals any more. All the airlines agree to keep prices up and bang! No more cheap flights. I think it sucks. A monopoly was not suppose to happen in U.S. It is their way of pushing out competition and charging higher prices. I think it sucks and was not suppose to happen in the USA!"
     

  10. "R&D is too risky per FDA regulations and taxes, so the only way to grow a product portfolio is to buy someone. There is also a false assumption that shared services (legal, regulatory, post market, etc.) can reduce overhead. It is true until a company reaches a certain size."
     

  11. "Worldwide health economy is requiring full package solution."
     

  12. "Shareholders want bigger profits."
     

  13. "Small and medium companies can't be as flexible as it used to be because of the changes under President Obama. Innovation is being driven to other parts of the world. In order to compete in the sales and marketing, large companies are eating up the big competition or adding onto their sales bags instead of usually eating up small to medium companies for their novel innovations or enhanced me-too devices."
     

  14. "Device manufacturers need scale to be profitable and boast efficiencies in this new ACA healthcare market. Unfortunately consolidation will continue both on the provider and supplier side as we deal with less resources from the government and insurance companies."
     

  15. "Whenever the economy is doing well, these mergers take place. Why? Simple greed."

Refresh your medical device industry knowledge at MD&M Chicago, October 15-16, 2014, and MD&M Minneapolis, October 29-30, 2014.

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The Multibillion-Dollar Deals Reshaping Medtech (Infographic)

4 Medtech Companies Making a Comeback in 2014

The Worst Performing Medical Device Companies of 2014

Chris Newmarker is senior editor of Qmed and MPMN. Follow him on Twitter at @newmarker.

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