Business

Excess Medtech Cash Leading to More Acquisition, Less IPO

2 Mins read

Based on a recent JP Morgan analysis of year end 2011 SEC filings, the top ten medtech companies have roughly $57 billion in cash.  This translates to principally one thing: acquisition.  Such is the case with Medtronic’s $755 million acquisition of China Kanghui Holdings and Boston Scientific’s $265 million buy of Rhythmia Medical, two acquisitions that highlight key areas of focus for medtech companies.

Based on a recent JP Morgan analysis of year end 2011 SEC filings, the top ten medtech companies have roughly $57 billion in cash.  This translates to principally one thing: acquisition.  Such is the case with Medtronic’s $755 million acquisition of China Kanghui Holdings and Boston Scientific’s $265 million buy of Rhythmia Medical, two acquisitions that highlight key areas of focus for medtech companies.

The first is medtech companies’ interest in strengthening their positions in emerging markets.  Medtronic’s acquisition of China Kanghui will give the company valuable access to orthopedic markets in China due to China Kanghui’s product and distribution focus. Medtronic has proven time and again that it is uniquely successful at expanding its presence geographically in growth markets and the Kanghui acquisition should serve as a model for medtech companies with global interests.

The second are of focus is gaining breadth and depth serving areas of existing clinical focus. Like Medtronic, Boston Scientific is also proficient at identifying acquisitions to serve this end.  The company’s $265 million acquisition of Rhythmia Medical will bolster BSCI’s position in electrophysiology and arrhythmia management, two areas of profitable opportunity that complement the company’s existing portfolio in cardiology markets. Similarly is J&J’s acquisition of Synthes, Royal DSM’s acquisition of Kensey Nash, Covidien’s acquisition of superDimension Ltd, Maya Medical, and CNS Therapeutics, and others.

A predictable cycle is apparent here. The institutional investment that led to a proliferation of medtech companies was ultimately pinched by the credit crunch and accompanying deep recession begun in 2008.  Companies founded immediately before or during this time frame, if even able to survive development stage cash flow challenges, have inevitably had to face a daunting 7-10 year regulatory approval process that turned them into cash-poor technology innovators.  Meanwhile, large cap medtech companies with long-term views recognized that several years of very modest market growth coupled with conservative management of their assets has led to cash reserves that now beg to be spent filling out these companies’ product and technology portfolios.

All of this leads one to expect that the uncertain market for IPOs in medtech is clearly undercut by the potential for private harvesting. Companies with excess cash and specific technology or emerging market interest will displace the opportunity for public offerings.

 

 

    

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I serve the interests of medical technology company decision-makers, venture-capitalists, and others with interests in medtech producing worldwide analyses of medical technology markets for my audience of mostly medical technology companies (but also rapidly growing audience of biotech, VC, and other healthcare decision-makers). I have a small staff and go to my industry insiders (or find new ones as needed) to produce detailed, reality-grounded analyses of current and potential markets and opportunities. I am principally interested in those core clinical applications served by medical devices, which are expanding to include biomaterials, drug-device hybrids and other non-device technologies either competing head-on with devices or being integrated with devices in product development. The effort and pain of making every analysis global in scope is rewarded by my audience's loyalty, since in the vast majority of cases they too have global scope in their businesses. Specialties: Business analysis through syndicated reports, and select custom engagements, on medical technology applications and markets in general/abdominal/thoracic surgery, interventional cardiology, cardiothoracic surgery, patient monitoring/management, wound management, cell therapy, tissue engineering, gene therapy, nanotechnology, and others.
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