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Investment in medical device IP is surging

While pharma buyout activity remains sluggish after a difficult 2020, med-tech companies are snapping up innovative companies at an impressive rate this year.

Though deal-making in the sector is more fragmented than in biopharma – where oncology acquisitions predominate – diagnostic inventions are driving much of the resurgence, despite falling revenue from covid-19 testing.

The sale of IP-rich med-tech companies fell last year. EvaluatePharma figures (which define med-tech broadly, but only count deal closures) show that 118 buyouts were finished in 2020 – under half the 10-year average. Less than $30 billion worth of deals were completed, compared to $49.7 billion in 2019. This was hardly surprising, given the financial and clinical impact of the pandemic on the medical technology industry. The upheaval and uncertainty generated by covid-19 evidently reduced the willingness of companies to spend significant sums to bring new med-tech IP onboard.

This year, however, med-tech deal-making appears to be back with a bang. In the first half of the year, $31.5 billion worth of M&A deals were closed, according to EvaluatePharma, outstripping last year’s total in just six months.

With 62 agreements closing in the first part of this year, up from H1 2020’s 57 buyouts, the volume of acquisitions is on an upwards trend. This trajectory is more pronounced under EY’s med-tech M&A statistics (which are based on a narrower definition than Evaluate’sand count deals announced, rather than agreements closed), according to which 33 deals were struck in the first part of 2021, compared to just 25 buyouts in 2020 as a whole.

Deals have continued flow at a good rate in the second half of 2021, with several billion-dollar-plus acquisitions being announced.

Diagnostics IP has been a major focus of this year’s purchases, despite waning revenues from covid-19 testing. For example, Roche agreed to pay $1.8 billion for Genmark Diagnostics in March, while DiaSorin bought multiplex diagnostic technology leader Luminex for $1.8 billion. Hologic also decided to buy Mobidiag for $795 million, and one week after Quest Diagnostics sold off Q2 Solutions to IQVIA for $760 million.

This is not especially surprising given the longer-term trend in which diagnostics and precision/personalised medicine are becoming an increasingly important part of life sciences innovation. Before the pandemic, EY ranked non-imaging diagnostics as one of the biggest growth areas in med-tech, producing 11% annual growth in 2019. Indeed, the $2.4 billion acquisition of diagnostics innovator Foundation Medicine by Roche was the largest med-tech deal closure of 2018.

This is not to say diagnostics has been the exclusive focus of med-tech M&A this year. Cardiology innovations, especially cardiac wearables, have been the subject of a surprise spending spree. Boston Scientific has agreed to pay $1.75 billion for Baylis Medical’s cardiology business. It has also announced the purchase of cardiac monitoring company Preventice Solutions for $925 million. Cardinal Health was able to sell its Cordis Business (with significant cardiovascular assets) to Hellman and Friedman for $1 billion.

“Connected care” has made a big splash, too, being the focus of the largest deal of the year so far – Baxter’s $10.5 billion Hillrom buyout agreement in September. Meanwhile, Steris’ $4.6 billion purchase of Cantel Medical centred on infection prevention technology.

Yet, with so many diagnostics companies flush with cash following 2020, this is the area most likely to dominate deal-making in the coming months, and the sector where a med-tech mega merger is most likely to arise. IAM