Fragmented medical device sector opens doors for M&A

Industry leaders predict increased mergers and acquisitions activity will form the backbone of the medtech sector

The CMS Global Lifesciences Forum, which took place in Frankfurt, featured a dedicated panel discussion on M&A activity in the medical device and pharmaceutical markets

The panel referred to M&A as ‘the lifeblood of the industry’ and stressed that consolidation and partnerships are vital to continued growth and success.

According to Dr Max Gisbert Kley, Member of the Management Board at the Freudenberg Medical Group, a family company that produces medical devices and components, the deal environment for medical devices, which has been recovering since it was hit by insecurity surrounding the Affordable Care Act in 2011, looks to be increasingly favourable.

Major opportunities can be found in the fragmented medical devices sector as it consolidates to achieve scale and counter balance consolidation on the healthcare provider side.

Market leader Medtronic holds an estimated 8% market share, followed by Johnson & Johnson. While a handful of companies take a market share of 1%-3% each, the remaining share of about 45% was shown to be held by thousands of smaller firms. Companies are also looking to expand their footprint and break into emerging markets.

In her presentation, Dr Birgit Reitmaier, Director Global Business Development at Merck, a leading global pharmaceutical company headquartered in Germany, showed that the pharmaceutical market has seen an overall decline in M&A since the financial crisis. Oncology, however, has been an area of continued strength, with deals remaining at the 8-9 per year mark. The strength of the oncology sector has encouraged companies to spend more on early stage assets. This dynamic is leading the market towards earlier deal making and greater risk taking, albeit for better rewards.