The medical device industry's biggest players spent billions in 2016 snapping up smaller companies and shuffling business units. These transactions are shifting the medtech landscape but, in some cases, haven't proceeded as planned.

This was yet another year filled with mergers and acquisitions in the medical device industry, with several mega-deals valued well over $1 billion. Many of these transactions are rearranging the order of top players in various device sectors or entirely remaking a technology field. In addition to some of these evolutions, a couple of transactions haven't moved forward as expected. All of this has added up to exciting and fast-paced changes in the medtech industry.

Controversy Comes Calling

Uncertainty about the future of mergers with significant corporate tax advantages continued to loom over the medical device industry in early 2016. In November 2015, Pfizer and Allergan announced plans to tie the knot in an approximately $160 billion deal. In early April, the U.S. Treasury announced temporary and proposed regulations that would complicate corporate inversions. A couple of days later, the two companies called off the merger and Pfizer paid Allergan a $150 million termination fee.

In March, Canon announced its planned purchase of Toshiba Medical Systems Corporation for approximately $6 billion (1.7x sales of $3.5 billion). That deal brought Canon a top medical imaging business, which Toshiba reportedly sold as it dealt with a corporate accounting scandal. Leading up to the sale, Canon and Toshiba undertook exclusive negotiations, a move that reportedly upset rival bidder Fujifilm. Canon also reportedly paid Toshiba the agreed-upon sale price before regulatory approval was granted, The Wall Street Journal reported, a move that Japanese regulators criticized while allowing the deal to proceed.

Announced in February, Abbott's $5.8 billion (2.3x sales of $2.5 billion) planned acquisition of Alere soon started to go off script. In March, Alere announced a grand jury subpoena from the U.S. Department of Justice (DOJ) related to the U.S. Foreign Corrupt Practices Act. In late April, Alere announced that Abbott had asked the company to agree to terminate the transaction for a termination fee between $30 million and $50 million because of Abbott's worries about "the accuracy of various representations, warranties and covenants made by Alere in the parties' merger agreement." More bad news followed, with the DOJ looking into Alere's billing records and a recall of the company's blood clot monitors and test strips being designated a Class I recall by FDA. Alere sued Abbott in late August to complete the transaction. In October, Alere's shareholders approved the deal, but in November, Abbott filed a lawsuit alleging breach of contract by Alere. In early December, Abbott filed a complaint to end the deal, according to a press release.

Abbott's Other Big Buy

Abbott didn't shy away from another mega-transaction just a couple of months later, announcing a $25 billion (4.5x sales of $5.5 billion) acquisition of St. Jude Medical. Expected to close by the end of 2016, that purchase should vault Abbott to the top of the cardiovascular and neuromodulation industries. The healthcare giant is expected to enjoy No. 1 or No. 2 positions in several cardiovascular products, such as transcatheter mitral valve repair/replacement, coronary stents, cardiac rhythm management, and percutaneous coronary intervention optimization, among others.

Abbott also indirectly picked up one of the two major left ventricular assist devices (LVADs) players, since St. Jude Medical acquired Thoratec, maker of the HeartMate LVAD portfolio, in 2015. The other major commercial LVAD company, HeartWare, was scooped up by Medtronic in an approximately $1.1 billion (4.0x sales of $276 million) transaction announced in late June. These purchases are likely to have a lasting impact on the LVAD field.

As part of their merger, St. Jude Medical and Abbott both sold parts of their businesses to Terumo in October. The $1.12 billion agreement in principle included Abbott's Vado Steerable Sheath and St. Jude Medical's Angio-Seal and Femoseal vascular closure products, according to a release.  

Separately, Abbott sold its medical optics business to Johnson & Johnson for $4.325 billion (3.9x sales of $1.1 billion) in September. The deal gives the Tylenol maker products in the consumer eye health, cataract surgery, and laser refractive surgery spaces. 

Ortho Companies Diversify

Orthopedic companies Stryker and Zimmer Biomet were both busy this year expanding their range of products through acquisitions. Stryker purchased Physio-Control International from Bain Capital Private Equity for $1.28 billion (2.5x sales of $503 million), adding products like CPR-assist devices, monitors, and automated external defibrillators to its Emergency Medical Services portfolio. Stryker also acquired Sage Products from Madison Dearborn Partners for $2.775 billion (6.5x sales of $430 million). That transaction added disposable products focused on preventing "never events" like hospital-acquired infections to the Kalamazoo, MI-based company's offerings. 

Zimmer made big plays of its own, announcing a $1 billion acquisition (6.0x sales of $165 million) of LDR Holding, a company founded in France. The purchase added to Zimmer Biomet's spine portfolio, most notably with the Mobi-C cervical disc replacement (CDR) device. At the time of the acquisition announcement in June, Mobi-C was the only device that had FDA approval for both one- and two-level treatment indications. In July, Zimmer announced its purchase of another French company, Medtech SA. That acquisition allowed Zimmer Biomet immediate entry into the surgical robotic market, since Medtech's Rosa Brain system for robotic-assisted neurosurgery has CE Mark and FDA clearance.

Dealmaking in Diagnostics

Well-known diagnostics companies entered into large mergers that are expected to transform the field. In September, Cepheid and Danaher agreed to merge, with Danaher paying approximately $4 billion (7.4x sales of $539 million) to acquire the molecular diagnostics company. That purchase was expected to amplify Danaher's $5 billion Diagnostics business., bringing with it double-digit sales growth 

Thermo Fisher Scientific was another big spender in the lab testing and diagnostics arena this year. In the early days of 2016, the company announced an approximately $1.3 billion (3.7x sales of $350 million) acquisition of Affymetrix, a buy that brought with it added cellular analysis, genetic analysis, and scale. In May, Thermo Fisher announced a $4.2 billion (4.5x sales of $930 million) acquisition of FEI Co., an electron microscopy leader. That transaction was completed in September, a faster timeline than initially expected.

A purchase that ThermoFisher didn't undertake? In August, there was report of a rumored $30 billion offer for Illumina, but that speculation did not culminate in a deal. 

What Will 2017 Bring?

Given the shakeup expected with the incoming Trump administration, it's harder than usual to predict the outlook for M&A in 2017. That means that the medical device industry, like so many others, will be one to watch in 2017.

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