Things were not looking up for the med tech industry in 2013. A report released today by EP Vantage, "MedTech 2013 In Review," showed worsening market conditions for devicemakers last year, with mergers and acquisitions taking the biggest hit.
While 2009 marked an industry low for acquisitions, M&A deals decreased 16% in 2013 from 2012, the report said. Only $19.3 billion was spent last year on med tech deals, less than half of 2012's total. More companies are discovering the value of a public listing, and devicemakers are venturing out on their own rather than combining forces.
However, analysts expect some turnaround if companies are able to tighten their belts and cut back on costs during the coming year.
"A number of successful cost-containment programmes have been initiated, and companies are becoming leaner, reducing their expenses. In general, they have done better at containing costs than we expected," Jefferies analyst Ingeborg Øie said in the report. "Those companies that have made cost savings will have more cash--in general the sector is cash-rich--and then focus will be more towards growth. In that case it's natural to look outside to see what new technologies there are."
An increased focus on R&D could be exactly what companies need to rise out of a yearlong slump. Larger companies can develop devices in-house, but bought-in innovations can provide an additional boost. Case in point is Baxter ($BAX): EP Vantage cited the medical device giant as the biggest spender of 2013 with its $3.9 billion acquisition of dialysis-tech maker Gambro. As FierceMedicalDevices reported in its coverage of top med tech M&A deals for 2013, the companies first announced their deal in December 2012, completing the merger in 9 month. Baxter hopes to boost its global dialysis presence by capitalizing on Gambro's footholds in emerging markets.
"Together, we will advance the state of dialysis care for patients with kidney disease worldwide," Baxter CEO Robert Parkinson said in a statement when the deal closed last September.
Regulatory approval could also play a role in the disappointing numbers: According to the report, FDA approval rates were down 44% in 2013, with only 23 approvals as compared to 41 the previous year. Stringent FDA and European trials mean longer waiting periods, and risky or innovative products usually invest more time and money in the approval process. In particular, strict FDA standards make it difficult for smaller companies to move forward with product development.
Devicemakers might use European approval as a way to jump-start the process and move forward with critical business deals, said Øie. The CE mark system is generally easier to navigate and provides companies with a speedier route to approval.
"Maybe demonstrating the product's worth on the European market will become more important as a way of getting validation. A buyer may be willing to acquire the product--and the company--before FDA approval if it's shown to be very effective in Europe," she said.
- read the EP Vantage report (PDF)
Special Report: The top 10 med tech M&A deals of 2013 - Baxter and Gambro