Mergers and acquisitions in the medical device industry

Merger and acquisition is a high-frequency word in the medical device industry in recent years. The medical device industry as a whole has announced new deals at an alarming rate this year. According to EY data, in the first half of this year alone, the medical device industry generated 33 mergers and acquisitions, which is already more than the full year of 2020 record. It is worth noting that in the global wave of medical device mergers and acquisitions, Chinese enterprises are very active.

In the past, due to insufficient volume and limited management capabilities, domestic medical device companies were not active in overseas acquisitions. In recent years, the competition in the medical device industry is fierce, the collection policy has made the mature business of the enterprise face growth pressure, coupled with the acceleration of product iteration in the medical device field, various factors have brought huge survival pressure to medical device enterprises. Mergers and acquisitions can quickly break the corporate ceiling, seize high-potential market segments, and become the fast track for the development of medical device companies.

M&a is about expansion and survival

In the development process of medical device enterprises, mergers and acquisitions is one of the basic paths. From the perspective of product characteristics, the medical device industry has fragmented and discrete manufacturing attributes, not only the differences between various segments are large, but also the speed of product technology change is faster, and the impact of new technology on old technology is often disruptive. From the market point of view, the ceiling of the medical device segment is obvious, if it can not further expand its market share, fierce external competition will quickly pull down the market share.

This year, the reasons for accelerated mergers and acquisitions of domestic and foreign medical device companies are different. Globally, corporate mergers and acquisitions are mainly driven by ample cash flow in the wake of the COVID-19 pandemic. From the report of the first half of 2021 announced by the global medical device giants, the revenue of the world's top 10 medical device companies has achieved growth, in addition to the rapid growth of the diagnostic business closely related to epidemic prevention and control, the high-value consumables business has also rebounded strongly, and the development of the industry has gradually returned to the normal track.

The reasons for mergers and acquisitions in the domestic medical device industry from cold to hot are different from overseas. Previously, mergers and acquisitions of medical device companies in China were not the norm. It is believed that the main reason for the infrequent mergers and acquisitions in the past is that the domestic medical device market has maintained a growth rate much higher than that of the international mature market, and can maintain rapid development only by relying on endogenous growth. Moreover, due to business habits, asset prices and capital market environment, the merger and acquisition of high-quality assets in China is relatively difficult, a large number of projects seek independent listing, and the merger and integration of listed companies is even more difficult. In addition, the capital market's recognition of mergers and acquisitions is not high.

Although the size of China's medical device market still maintains a high growth trend, the collection policy has put pressure on high-value medical consumables enterprises. At present, one of the market segments most affected by the high-value medical consumables collection policy is cardiovascular consumables. The earliest type of national high-value medical consumables collection is coronary stent, and enterprises with coronary stent as their main business are generally under pressure. Under this, medical device companies have to open up a new battlefield. In many mergers and acquisitions, cardiovascular intervention high-value medical consumables enterprises are quite active, and frequently.

The solution of intervention without implantation is favored by domestic enterprises

This year, China's medical device enterprise mergers and acquisitions events mainly present three characteristics.

First, mergers and acquisitions are active in the cardiovascular sector. Cardiovascular high-value consumables enterprises began to expand the industrial chain in an all-round way, expand the product line, the focus of corporate mergers and acquisitions is to seize the market share of the track, and strive to cooperate with the existing channels in the choice of merger targets. Take Blue Sail Medical as an example, the company invested in OCT (optical coherence tomography equipment) company Nanjing Wolfman this year. OCT imaging can accurately guide PCI (percutaneous coronary intervention) surgery. In the past, Bluefan Medical's products in the cardiovascular field were mainly focused on the treatment link, and after investing in Wolfman, Wolfman's new diagnostic technology was grafted on the existing cardiovascular sales platform to expand its business territory.

Secondly, in terms of target preference, in the cardiovascular circuit where domestic enterprises frequently strike, intervention without implantation solutions have become the "darling". The commercial potential of interventionless implantable solutions has been verified by the market. According to the report of Lepu Medical in the first half of 2021, the revenue of its interventionless implantable product portfolio (including degradable stents, drug balloons, cutting balloons, etc.) was 364 million yuan, an increase of 1951.55%, which has become a new pillar of growth for Lepu Medical. The reason why interventionless implantation has become a new track favored by medical device companies is that the therapy can restore the blood supply function of the blood vessels without inserting permanent metal implants into the patient. Representative products in the field of intervention-free implantation include shock wave balloons, drug balloons, bioabsorbable stents, volume reduction devices, etc. Judging from the trend of domestic mergers and acquisitions this year, the most popular product is the shock wave balloon.

Shockwave Medical is the world's first shockwave balloon company. Its C2 catheter for the treatment of coronary artery calcification has shown great clinical value in a series of clinical studies, and was approved by the US FDA in February this year. In March this year, Shockwave's shock wave balloon was acquired by HealthFit Medical - HealthFit Medical and Shockwave entered into a partnership with the two sides to jointly establish a joint venture company controlled by HealthFit Medical to introduce intravascular shock technology to China. On the basis of the joint venture, HealthFit Medical will establish a production line in China for the conversion and production of Shockwave products. Advantage Medical device circuit has never been no shortage of competitors, shock wave ball circuit players have more than Shockwave, FastWave Medical has also joined the competition, and in August this year, the broad medical strategic investment. At present, there are also domestic enterprises to enter the field of shock wave balloons, it is expected that this product will face fierce competition in the domestic market in the future.

Finally, with the traditional business ceiling highlighted, some medical device companies began to try cross-track mergers and acquisitions to break through the industry ceiling. On the one hand, domestic mature high-value medical consumables enterprises test the field of consumer medical products; On the other hand, the field of domestic high-value medical consumables has also begun to usher in more diverse participants. Such as Lepu Medical is the overall layout of the dental industry, this year to more than 200 million yuan acquisition of Bosi Mei, into the invisible orthodontic circuit. In addition, it has entered the fields of digitalization and professional 3D scanning (intra-oral scanning) through mergers and acquisitions, and independently developed dental implants. Qiming Medical, a leading heart valve company, has entered the field of interventional treatment for hypertension with Israeli high-tech company Healium Medical Ltd. Formed a joint venture company, Renaly Ltd., to introduce Healium's next-generation renal sympathectomy (RDN) related medical devices and develop, manufacture and commercialize RDN products worldwide.

At present, in the overseas mergers and acquisitions and cooperation of domestic medical device enterprises, the medical device "authorized introduction (Licensein) + independent research and development" is a very active business model, which has also had a certain impact on the domestic medical device innovation pattern. For medical device companies, first-mover advantage is very important. In the market environment where domestic enterprises frequently introduce overseas products, the competition between enterprises will intensify in the future. After the License-in model becomes the norm, the time left for domestic enterprises to innovate the Me-too model will be shorter, which is a great test for the innovation strength and innovation differentiation level of enterprises. This requires domestic medical device companies can not stay in the imitation stage, with forward-looking thinking and strategic vision is the key to healthy development. It is foreseeable that with the intensification of competition, some enterprises will be left behind in the competition, and mergers and acquisitions in the medical device industry will occur frequently in the future.

Overseas giants are optimistic about the ear, nose and throat market

Whether it is in the direction of selling enterprises or selling, the trend of mergers and acquisitions in the domestic medical device industry is generally greatly affected by the collection policy. In contrast, the mergers and acquisitions of overseas giant enterprises are less affected by China's policies, mainly from the judgment of products and markets.

The direction of mergers and acquisitions of overseas medical device companies reflects the perception of giants for market changes. From the perspective of acquisition trend, with the improvement of industry concentration, there are not many mergers and acquisitions between giants, and large enterprises mostly consolidate their market position in segments through acquisitions, improve product solutions, and occupy emerging high-growth market segments. Through the statistical analysis of the arterial network, the ENT medical device market is most favored by overseas giants. Ear, nose and throat diseases such as allergic rhinitis, vocal cord polyps, tinnitus, snoring, etc., are common diseases, ear, nose and throat medical devices are subdivided, including ear endoscopes, nose and throat endoscopes, hearing AIDS and ablation, laser equipment, etc., some markets have not been fully developed.

The field of patient monitoring is also receiving attention from overseas giants. For example, Philips acquired Capsule Technologies, a provider of medical device integration and data technology for hospitals and healthcare facilities. Boston Scientific has acquired Preventice, a heart health management solutions company that includes a wearable remote heart monitor.

Mergers and acquisitions can help companies quickly break the ceiling, and are an important path for the development and growth of medical device companies. For medical device companies, mergers and acquisitions are not only expansion but also survival, fierce external competition may make the market share decline rapidly, mergers and acquisitions can bring rapid breakthroughs. But not all mergers and acquisitions are successful, and there is no shortage of failures in the medical device sector. With the coming of M&A era, consolidating endogenous growth ability is the basis of successful M&A.

(Author's unit: arterial network)