The medical device industry is experiencing a wave of mergers and acquisitions

The medical device industry is experiencing a wave of mergers and acquisitions
Source: China Medical News
Mergers and acquisitions have been a frequent term in the medical device industry in recent years. Since the beginning of this year, the speed at which the entire medical device industry has announced new transactions has been astonishing. According to Ernst&Young data, in the first half of this year alone, the medical device industry generated 33 merger and acquisition transactions, exceeding the record for the entire year of 2020. It is worth noting that in the global wave of medical device mergers and acquisitions, Chinese enterprises are highly active.
In the past, due to insufficient size and limited management capabilities, domestic medical device companies were not active in overseas acquisitions. In recent years, the competition in the medical device industry has been fierce, and the centralized procurement policy has put growth pressure on mature businesses of enterprises. In addition, the acceleration of product iteration in the medical device field has brought enormous survival pressure to medical device enterprises. Mergers and acquisitions can quickly break through the ceiling of enterprises, seize high potential niche markets, and become the fast lane for the development of medical device enterprises.
Mergers and acquisitions are both for expansion and survival
In the development process of medical device enterprises, mergers and acquisitions are one of the basic paths. From the perspective of product characteristics, the medical device industry has fragmented and discrete manufacturing attributes. Not only are there significant differences between different sub sectors, but product technology also changes rapidly. The impact of new technologies on old technologies is often disruptive. From a market perspective, there is a clear ceiling in the segmented field of medical devices. If we cannot further expand our market share, fierce external competition will quickly lower our market share.
This year, the reasons for domestic and foreign medical device companies accelerating mergers and acquisitions are different. Globally, the main reason for M&A is the sufficient cash flow after the COVID-19. According to the first half of 2021 reports released by global medical device giants, the top 10 medical device companies worldwide have achieved revenue growth. In addition to the rapid growth of diagnostic business closely related to epidemic prevention and control, high-value consumables business has also rebounded strongly, and industry development is gradually returning to a normal track.
The reasons for the transformation of 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. Some argue that the main reason for the infrequent mergers and acquisitions in the past was that the domestic medical device market maintained a growth rate far higher than that of mature international markets, and relying solely on endogenous growth could also maintain rapid development. Moreover, due to commercial habits, asset prices, and the capital market environment, it is relatively difficult to acquire high-quality assets domestically. A large number of projects seek independent listing, and the integration of mergers and acquisitions between listed companies is even more difficult. In addition, the recognition of mergers and acquisitions in the capital market is not high.
Although the scale of China’s medical device market still maintains a high growth trend, the centralized procurement policy puts pressure on high-value medical consumables enterprises. Currently, one of the most affected sub markets by the policy of centralized procurement of high-value medical consumables is cardiovascular consumables. The earliest variety of national high-value medical consumables to be purchased was coronary stents, and enterprises mainly engaged in coronary stents are generally under pressure. Under this, medical device companies have to open up new battlefields. Among numerous mergers and acquisitions, high-value medical consumables companies involved in cardiovascular intervention are quite active and frequently take action.
Interventional non implantable solutions favored by domestic enterprises
This year, there are three main characteristics of mergers and acquisitions by medical device companies in China:
Firstly, mergers and acquisitions in the cardiovascular field are active. High value cardiovascular consumables enterprises have begun to expand their industrial chain and product lines in all aspects. The key goal of corporate mergers and acquisitions is to seize market share in this field, and strive to coordinate with existing channels in the selection of merger targets. Taking Lanfan Medical as an example, the company invested in OCT (Optical Coherence Tomography Equipment) company Nanjing Wofoman this year. OCT imaging can accurately guide PCI (percutaneous coronary intervention) surgery. In the past, Blue Sail Medical’s products in the cardiovascular field mainly focused on the treatment aspect. After investing in Waffman, Waffman’s new diagnostic technology was grafted onto existing sales platforms in the cardiovascular field to expand its business footprint.
Secondly, in terms of target preferences, non-invasive solutions have become a favorite among domestic enterprises in the cardiovascular industry. The commercial potential of non-invasive solutions has been validated by the market. According to the 2021 first half report of Lepu Medical, its non-invasive product portfolio (including biodegradable stents, drug balloons, cutting balloons, etc.) generated a revenue of 364 million yuan, a year-on-year increase of 1951.55%, becoming a new pillar of Lepu Medical’s growth. The reason why non-invasive therapy has become a new trend favored by medical device companies is that it can restore the blood supply function of blood vessels while not implanting permanent metal implants in the patient’s body. Representative products involved in the field of non implantation include shockwave balloons, drug balloons, bioabsorbable stents, volume reduction devices, etc. From the trend of mergers and acquisitions in China this year, the most popular product is the shockwave balloon.
Shockwave Medical in the United States is the world’s first company to launch shockwave balloons. The C2 catheter, which is used to treat coronary artery calcification, has shown significant clinical value in a series of clinical studies and was approved for market by the US FDA in February this year. In March of this year, Shockwave’s shockwave balloon was acquired by Health Healthcare – Health Healthcare and Shockwave reached a cooperation agreement to jointly establish a joint venture company controlled by Health Healthcare to introduce intravascular shockwave technology to China. On the basis of establishing a joint venture, Jianshi Medical will establish a production line in China for the conversion and production of Shockwave products. The advantage medical equipment track has never lacked competitors, and the players in the shockwave balloon track are no longer just Shockwave. FastWave Medical has also joined the competition and received strategic investment from Evergrande Pharmaceuticals in August this year. At present, there are also domestic enterprises entering the field of shock wave balloons, and it is expected that this product will face fierce competition in the domestic market in the future.
Finally, as the traditional business ceiling becomes more prominent, some medical device companies are beginning to try cross track mergers and acquisitions to break through the industry ceiling. On the one hand, mature domestic high-value medical consumables enterprises are exploring the field of consumer medical products; On the other hand, the domestic high-value medical consumables field is also beginning to attract more participants. Lepu Medical is currently laying out its overall layout in the dental industry, and this year it has acquired Bosimei for over 200 million yuan, entering the invisible orthodontic field. In addition, we have also entered the fields of digitalization and professional 3D scanning (intraoral scanning) through mergers and acquisitions, and independently developed dental implants. Qiming Medical, a leading heart valve enterprise, has entered the field of interventional therapy for hypertension and established a joint venture with Israeli high-tech company Healium Medical Ltd., Renally Ltd., to introduce Healium’s new generation of renal denervation sympathetic nerve surgery (RDN) related medical devices and conduct research and development, production, and commercialization of RDN products worldwide.
At present, in the overseas mergers and acquisitions and cooperation of domestic medical device enterprises, the business model of “licensed introduction+independent research and development” for medical devices is very active, which has also had a certain impact on the domestic medical device innovation pattern. For medical device companies, the first mover advantage is very important. In the market environment where domestic enterprises frequently introduce overseas products, competition among enterprises will intensify in the future. After the License in model becomes the norm, the time left for domestic enterprises to innovate in the Me too model will become shorter, which will greatly test the innovation strength and differentiation level of enterprises. This requires domestic medical device enterprises to not stay in the imitation stage, and having forward-looking thinking and strategic vision is the key to achieving healthy development. It can be foreseen that with the intensification of competition, some enterprises will fall behind in the competition, and mergers and acquisitions in the medical device industry will occur frequently in the future.
Overseas giants are all optimistic about the ear, nose, and throat market
The overall trend of mergers and acquisitions in the domestic medical device industry is greatly influenced by the centralized procurement policy, both in terms of the target companies and the target direction. Compared to that, the mergers and acquisitions of overseas giants are less affected by China’s policies, mainly based on the judgment of products and markets.
The direction of mergers and acquisitions by overseas medical device companies reflects the perception of giants towards market changes. From the perspective of acquisition trends, with the increase of industry concentration, there are not many mergers and acquisitions between giants. Most large enterprises consolidate their market position in segmented fields, improve product solutions, and occupy emerging high growth segmented markets through acquisitions. Through arterial network statistical analysis, the ear, nose, and throat 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 equipment is divided into multiple categories, including ear endoscopes, nasopharyngeal endoscopes, hearing aids and ablation, laser equipment, etc. Some markets have not yet been fully developed.
The field of patient monitoring has also received attention from overseas giants. Philips acquired Capsule Technologies, a provider of medical equipment integration and data technology for hospitals and medical institutions. Boston Science has acquired Preventice, a heart health management solution enterprise that includes a wearable remote heart monitor.
Mergers and acquisitions can help companies quickly break through the ceiling and are an important path for the development and growth of medical device enterprises. For medical device companies, mergers and acquisitions are not only for expansion but also for survival. Intense external competition may lead to a rapid decline in market share, and mergers and acquisitions can bring rapid breakthroughs. But not all mergers and acquisitions can be successful, and there are also many failed cases in the medical device field. With the advent of the era of mergers and acquisitions, consolidating endogenous growth capabilities is the foundation for the success of enterprise mergers and acquisitions.