Article preview reprinted from Medtech Insight - February 2010
This article was excerpted from "Top Device Stories of 2009: A Year of Economic Revival and Regulatory Risk," IN VIVO, January 2010. Read more...
Dealmaking in 2009: A Look Back and A Glance Ahead
Article preview reprinted from Medtech Insight - February 2010
While pundits and commentators debated, more broadly, whether the decade of the 2000s was the worst in history, there's little doubt that 2009—the long 2009 that began in the fourth quarter of 2008—was the most taxing year the medical device industry has faced in a long time. Short of a handful of executives at a handful of companies that saw big deals—Medtronic CoreValve LLC/Medtronic Inc., Evalve Inc./Abbott Laboratories Inc., Acclarent Inc./Johnson & Johnson, to name only three—most device executives found the going tough as public and private investors grew nervous and corporate acquirers sat back, for the most part, waiting to see what the year would bring. And in Washington, regulators were accused of being too soft on 510(k) clearances while health care reformers proposed the sweeping influence of comparative effectiveness studies and a controversial tax on the device industry—controversial at least to device companies; did anyone else really care?
In any other year, that confluence of events would have felt like a lot, but it seemed particularly harsh given that the rest of the decade, up to around mid 2008, was actually pretty good to the device industry. Venture capital investment in the industry flowed back after a very dry spell in the late 1990s, leading up to several record-breaking years in a row between 2005 and the first half of 2008, while mergers and acquisitions (M&A) remained strong—though the players seem to have changed a bit—with billion-dollar-plus deals almost routine by the middle of the decade. Drug-eluting stents emerged as a clear blockbuster product category and if artificial discs didn't quite live up to expectations, still they heralded a boom in venture-backed spine companies that even today continues, if somewhat abated. Ophthalmology, neurostimulation, structural heart disease, NOTES (Natural Orifice Translumenal Endoscopic Surgery)—all emerged in the 2000s as clinical and technology spaces of enormous promise, both clinical and commercial.
Those areas remain no less promising today, as you look at where venture dollars are going, and at least a few companies seemed to have had a good year in 2009: Covidien Ltd. and Medtronic Inc., for example, and perhaps most notably Abbott Laboratories Inc., which not only bought and built on a major new franchise in ophthalmology, but also placed its first bet in structural heart, with its acquisition of Evalve and, perhaps most significantly, emerged as the front-runner in the huge drug-eluting stent sweepstakes with the successful launch of its Xience V stent.
But there's no doubt that, driven largely by the global economic meltdown, 2009 felt like a very difficult year. Anecdotally at least, private-company CEOs reported that it had never been more difficult to raise money, while venture capitalists (VCs) countered that returns from their device investments simply weren't materializing the way they had hoped just a few years before when a frothy device market led to those record investment levels. And it's clear why: the initial public offering (IPO) market remained tightly shut until the very end of the year—and who wants to argue that AGA Medical Holdings Inc.'s October IPO represents a door-opening—while M&A activity was at its lowest level in years, by almost any measure: number of deals, total volume of deals, average returns for investors, number of billion-dollar-plus deals.
The glass-half-full types might reasonably look to the end of 2009 with some hope that the economic crisis is at least letting up, if not over—M&A levels were strong in the fourth quarter, leading some to think (perhaps hope is a better word) that corporate acquirers will start buying again. But the other big story of 2009 remains to play out: the impact on the device industry of health care reform in all of its manifestations—comparative effectiveness and a tax on medical devices—as well as pressure to make more stringent the product approval process.
- Stephen Levin
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Companies mentioned in this article:
AGA Medical Holdings Inc.
Abbott Laboratories Inc.
Abbott Medical Optics Inc.
Visiogen Inc.
Evalve Inc.
Archus Orthopedics Inc.
Ardian Inc.
Atritech Inc.
Baylis Medical Co. Inc.
Beckman Coulter Inc.
CardioPolymers Inc.
Coherex Medical Inc.
Covidien Ltd.
Aspect Medical Systems Inc.
Bacchus Vascular Inc.
Vnus Medical Technologies Inc.
Facet Solutions Inc.
Flex Biomedical Inc.
Hologic Inc.
Cytyc Corp.
Insulet Corp.
Integrated Diagnostics Inc.
Johnson & Johnson
Ethicon Inc.
Acclarent Inc.
Kimberly-Clark Corp.
I-Flow Corp.
Medtronic Inc.
Medtronic Ablation Frontiers LLC
Medtronic CoreValve LLC
Medtronic CryoCath LP
Moximed Inc.
Neuronetics Inc.
Olympus Corp.
Gyrus Group PLC
On-Q-ity Inc.
ProUroCare Medical Inc.
Pulmonx Corp.
Qiagen NV
DxS Ltd.
ReGear Life Sciences Inc.
Relievant Medsystems Inc.
SetPoint Medical Corp.
Syneron Medical Ltd.
Candela Corp.
Zimmer Holdings Inc.
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