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The Multibillion-Dollar Deals Reshaping Medtech (Infographic)

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.

Some single out Obamacare in the United States as the main driver of this trend. According to this line of thinking, healthcare reform favors big entities in that it incentivizes health providers to become more efficient, while taxing most medical devices at the same time. In addition, the medical device tax is disproportionately hard on small to medium-sized firms, which can't compete with industry giants in terms of scale. Plus, there is the sheer scale needed to compete globally. Medical device companies need to be larger to thrive.

It is interesting to note that the consolidation of the medical device industry under Obamcare has been mirrored by a wave of hospital mergers.

Besides the strategic benefits, there is also one case--Medtronic's $43 billion purchase of Covidien--where there are specific and controversial tax benefits to be had from moving Medtronic's official headquarters outside of the United States to Ireland, where Covidien is based.

In fact, some industry experts think the sheer size of the Medtronic-Covidien deal--which would create the largest medical device company in the world--makes it a kind of Jupiter playing gravitational games in the rest of the medical device Solar System, spurring even more mergers to take place.

No matter what, the face of the medtech industry is changing. Here are four of the largest deals so far this year:

1. Medtronic Buying Covidien: $43 Billion

The merger, announced in June, would create the largest medical device company in the world--officially headquartered in Ireland but operationally run out of Minnesota. But for better or worse, the deal has also become a poster child for the so-called inversion deals criticized by President Barack Obama and other progressive American politicians because they provide a mechanism to shield overseas profits from U.S. taxes.

Officials at the two companies, though, are sticking to their guns--saying strategic benefits are reason enough to execute the deal. Medtronic--which had been reportedly looking to draw on its billions in foreign reserves to help pay for the deal interest-free--will instead use approximately $16 billion in external financing to complete the deal, the company announced last week.

"This proposed acquisition was conceived and undertaken for strategic reasons and is intended to create a company that can treat more patients, in more ways and in more places around the world," Omar Ishrak, chairman and CEO of Medtronic, said in a news release. "We believe our combination will be uniquely positioned to help advance the goals of the Affordable Care Act in the U.S. as well as the objectives of virtually all health systems - to drive access to high-quality, affordable health care for patients around the world."

The U.S. Treasury Department in late September announced that it is cracking down on many of the financial mechanisms--from so-called "hopscotch loans" to stock transaction mechanisms--that inverted companies use to access the overseas earnings of foreign subsidiaries of the U.S. company that inverts without paying U.S. tax. It is exactly such financial mechanisms that Medtronic was expected to utilize after merging with Covidien and moving its official headquarters to Ireland.

Read full Qmed story.

And read Qmed's timeline of the deal.

 

2. Thermo Fisher Buying Life Technologies Corp.: $13.6 Billion

Thermo Fisher Scientific in May 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.

"Our combined offering provides cutting-edge technologies, such as genomics and proteomics, to accelerate life sciences research and improve human health," Thermo Fisher Scientific CEO Marc N. Casper said in a news release.

The deal was first announced more than a year ago.

That is likely no idle boast. Genomic sequencing is poised to ultimately play an important role in healthcare, helping shift medicine away from a one-size-fits-all methodology to make it increasingly personalized. For now, however, genomic sequencing is a niche technology that has not been tested extensively in the real world. In addition, many of its benefits are often described in the context of an unspecified time in the future

 

3. Zimmer Holdings Buying Biomet: $13.35 Billion

The Wall Street Journal in April ran the headline, "The Deal That Shook Warsaw, Ind.," when Zimmer Holdings announced its plans for the $13.35 billion acquisition of Biomet, the other big ortho device company headquartered in the Indiana city.

The acquisition--expected to close early next year pending customary closing conditions--is expected to solidify Zimmer's position as the second-largest orthopedic company in the world.

Read Qmed's story about the deal.

 

4. Becton Dickinson Buying CareFusion: $12 Billion

Franklin Lakes, NJ-based BD is the 12thlargest medical device company globally by total annual revenue, while San Diego-based CareFusion is 25th, according MD+DI's "Top 40 Medical Device Companies" list. The new company would be in the top 10 after its planned closing during the first half of 2015.

This is certainly a pretty strategic acquisition where each company brings something to the table.

Medtech giant BD has a more bread-and-butter lineup of medical supplies, devices, laboratory equipment and diagnostic products. Its product lineup includes disposable needles, syringes and intravenous catheters. CareFusion's flagship product lines are more high tech and include patient identification systems, the Pyxis automated dispensing device, the Alaris IV device, ventilators, skin prep products, infection surveillance systems and surgical instruments.

BD chairman, president and CEO Vincent A. Forlenza, said in the statement that the acquisition would also allow BD to hasten its transition from a product-focused company to a customer-centric one that will expand its presence in medication management and patient safety.

CareFusion, though, comes with some baggage. CareFusion has also seen 10 serious recalls since the start of 2012. And early this year, it agreed to pay the federal government $40.1 million to settle allegations that it violated the False Claims Act by paying kickbacks and promoting its products for uses that were not FDA-approved.

Read full Qmed story.

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

Chris Newmarker is senior editor of MPMN and Qmed. Follow him on Twitter at @newmarker. Brian Buntz is the editor-in-chief of MPMN and Qmed. Follow him on Twitter at @brian_buntz

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