UPDATED: PwC says be on the lookout for 'transformational' med tech deals

Medical device companies have traditionally sought out "tuck-in type" products via acquisition, but "there's potential for transformative deals as well," James Woods, deals director for PricewaterhouseCoopers, told FierceMedicalDevices.

According to PricewaterhouseCoopers' quarterly report on life sciences deals, there were 19 M&A transactions in Q1 2014 worth $4.7 billion, similar to the previous quarter when 16 deals worth $4.76 billion were conducted.

But two deals announced in Q2 could be trend setters. Zimmer's ($ZMH) mega $13.4 billion purchase of Biomet fits the bill of a transformative deal. Although he could not talk about individual deals, Woods said orthopedics is an area with potential for consolidation, which could also happen in niche areas. As examples, he pointed to past activity in the market for hypertension, neurovascular and atrial fibrillation devices.

Device companies can benefit from the trend (most evident in Big Pharma) toward shedding noncore assets, Woods said.
One such example of this trend is the recent announcement of Boston Scientific's purchase of Bayer's interventional division for $415 million. Woods doesn't expect the streamlining of companies' business areas to end any time soon.

The diagnostics industry completed $18.6 billion worth of deals in the quarter on the back of 5 total deals--a literally infinite increase over the zero conducted in the previous quarter--on the strength of the huge $15.5 billion purchase of Life Technologies by Thermo Fisher Scientific ($TMO).

Woods said that diagnostics activity can be spotty, but expects the drive toward personalized medicine and increased emphasis on R&D productivity to power the diagnostics deals of the future.

Looking at a wider frame makes it clear that activity is already on the uptick. In Q1 2013 there were only three small diagnostics deals and 9 device transactions. Overall, there were 49 life sciences deals worth $44.9 billion in Q1 2014, a strong increase over the previous quarter. Year-over-year aggregate deal value increased 122.6% and volume was up 40%.

PwC says the increase in deals and deal values reflects increased business confidence. "The first quarter of 2014 began where 2013 left off with the continuation of robust M&A activity in the PLS industry," said Dimitri Drone, PwC's U.S. pharmaceutical and life sciences deals leader, in a statement. "CEOs are increasingly optimistic about their companies' prospects and are seeking opportunities to grow their businesses through adopting new technologies, optimizing shareholder value and diversifying their portfolios."

Significant device and diagnostics deals completed in Q1 2014 include:

  • Thermo Fisher's acquisition of Life Technologies for $15.5 billion
  • GE Healthcare's ($GE) acquisition of Thermo Fisher's cell culture, gene modulation and magnetic beads businesses for $1.1 billion
  • KKR's acquisition of 80% of Panasonic Healthcare for $1.7 billion

Also during the quarter, the Carlyle Group announced that it will buy Johnson & Johnson's ($JNJ) Ortho-Clinical Diagnostics unit for $4.2 billion, and Smith & Nephew ($SNN) agreed to purchase ArthroCare for $1.8 billion.

"Acquirers in the medical device sector have largely sought out mid-size, tuck-in acquisitions to complement existing product portfolios, but they are also evaluating opportunities to make an even more dramatic impact on their businesses," PwC wrote.

- here's the release

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