Full article reprinted from "The Gray Sheet" - November 2, 2009
The most desirable acquisition candidates for established medical technology firms in the current economic climate are those in advanced stages of development with good comparative effectiveness data, according to panelists at the recent Investment In Innovation (IN3) Medical Device Summit. Read more...
Full article reprinted from "The Gray Sheet" - November 2, 2009
Ideal Acquisition Candidates Are Advanced-Stage With Good Data - IN3 Panel
The most desirable acquisition candidates for established medical technology firms in the current economic climate are those in advanced stages of development with good comparative effectiveness data, according to panelists at the recent Investment In Innovation (IN3) Medical Device Summit. "We're looking for companies that are later-stage, [with] near-term revenue, maybe not two years [old] but three-to-five years out," and those firms with "human data, clinical comparative effectiveness data," and "cost comparative data," said panelist Wendelin Maners, VP, business development/strategy at Boston Scientific. Maners was one of four panelists at an Oct. 19 session of the IN3 meeting in San Francisco that addressed the topic: "What are the Large Device Companies Shopping For?" Also participating were panelists Chad Cornell, VP, corporate development at Medtronic; Ted Davis, VP. business development at Wright Medical; and Albert Lauritano, director, business development at Becton Dickinson. In the wake of the recent economic downturn, with health care reform looming and anticipated changes in the regulatory and reimbursement climate, established device firms are demanding more from their acquisition targets, the speakers suggested. Boston Scientific in particular is looking for firms that "start with a quality system from the get-go," Maners said. Having reimbursement codes already in place "would sure be nice," she added. "We're still looking at $100 million to $200 million acquisitions," despite continuing to use cash for debt repayment, Boston Scientific CEO Ray Elliott also noted during the firm's recent Q3 earnings call. "We could do pretty much what we want" in that price range for the time being, he said. Medtronic Wants Post-Approval Comparison Data Medtronic's Cornell noted that his company values firms with clinical data, and particularly post-approval studies that are "head-to-head," such as "stent versus stent" or "valve versus valve." Due to the increased emphasis on comparative effectiveness data under the health care reform bills currently under consideration, "you're going to need to show not only equivalency to something that's already out there, you're going to have to show superiority, and you're going to have to show cost-superiority," added Wright Medical's Davis. Davis noted that for small firms seeking to be acquired, "you can have a product that costs more, but you'll have to show a massively better benefit" to support reimbursement efforts. While the panelists agreed that it is important for start-ups to prove device effectiveness in clinical trials, they differed on the extent to which potential partner firms should be involved in the trial process. BD's Lauritano noted that in some cases when partner companies ran clinical trials themselves, "we have not been satisfied with how they were performed." Therefore, "we do our own clinical trials, for anybody, whether it's for a big partner, whether it's for a small partner or not, I'd probably recommend that ... take control of the process." Boston Scientific, on the other hand, "would rather have small companies do their own trials," Maners said, even if "we have [the] essential infrastructure" to conduct the trial ourselves. "It's more expensive when we do it," she added, so if it's a "well-controlled trial," a prospective acquisition target will see its valuation go up as a result. Looking For Cheap Deals In A Down Market Amid adverse economic conditions, many small start-ups may be willing to sell themselves for less, but it should not change buyers' need to look them over carefully, Wright's Davis suggested, adding that right now "there's a lot of value out there." "We see distressed deals, for cheap, but if they don't have the fundamentals ... we still won't buy it," Maners concluded. According to a recent report by Ernst & Young, medical technology merger and acquisition activity declined 33% to $41 billion in 2008. In the first half of 2009, the total was a lackluster $6.7 billion, based on only 44 deals (The Gray Sheet' Oct. 19, 2009). [ Editors' note: The IN3 meeting was sponsored by Elsevier Business Intelligence, publisher of "The Gray Sheet."] - Sue Darcey
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