Takeover Talk: Should Multinational OEMs Consider Specialty Polymer Firms as Acquisition Targets?

If you asked a sample of medical device manufacturers what the most obvious industry trend was right now, there’s a good chance that supply chain consolidation would feature on most responses.

A lot of recent merger and acquisition activity has been OEMs buying other OEMs. The range includes large purchases—for example the sale of Bausch & Lomb to Valeant and Gambro to Baxter—and small, with countless examples of smaller deals being announced daily.

But activity has been bouyant in the outsourcing sector, for example the acquisition of RIWISA by contract manufacturing company Flextronics in August 2013, Nypro by Jabil (also a contract manufacturer) and the merger between Phillips and Medisize in 2012.

But what of manufacturers looking upstream to buy specialty materials expertise?

I dropped the question out to my editorial contacts. The responses, as usual, are very enlightening.

Former Baxter scientist Len Czuba, based in in Lombard, a town just outside of Chicago in Illinois, USA, provides a helpful example. “In the early 2000s, Boston Scientific bought Guidant and as part of the deal they acquired a small polymer manufacturing operation that was making a unique elastomer,” Len recounts.

He adds: “The elastomer was developed to be used on drug eluting stents (DES), a product evolution that was recently introduced to compete with bare metal stents. The elastomer was used to coat the nitinol stent into which the drug was imbibed (there are micropores in the metal that are filled with the drug medication).”

He goes on to say: “In use, the drug slowly elutes or comes out of the metal but only because the stents are coated with the elastomer which acts as a rate limiter in the elution. I mention this example because at a speech in 2005, the then CEO of Boston Scientific stated that the real jewel of the acquisition of Guidant was the small polymer manufacturing operation that gave them captive use of the polymer for their line of stents. Now almost ten years later, the value of DES products is unquestionably a big part of the the cardiovascular industry and will soon be challenged by the emerging bioresorbables.” 

Len explains the advantages gained by Boston Scientific: “In the example above the polymer manufacturing operation is very small and even though millions of the stents have been made, each one only contains grams of the polymer. So there is not a big volume of polymer needed. But in the early 2000s, just after the “dark ages” of polymer availability for implants when virtually all the major manufacturers of polymers were running from implantables, blood and tissue contact and then many other medical device applications, Boston Scientific was happy to control their own destiny with the polymer plant they owned and could use for their supply.”

Another respondent, Dr Jim Rancourt, CEO and founder of Polymer Solutions, a US independent chemical analysis and physical testing lab, sees more value in OEMs being served by licensing and consultancy. He explains: “If a unique type of polymer is needed to enable a specialised medical device, the OEM may want to obtain a license to the technology. The OEM does not need to own the entire polymer production process, equipment and expertise if their needs can be met by a client.”

George Cheynet, also of Polymer Solutions (he’s the director of sales), suggests an alternative viewpoint. He believes it would make more sense for contract manufacturers rather than OEMs to make these acquisitions in order to offer materials development. He says: “Contract manufacturers who provide materials development services would be able to offer truly one-stop services for the OEM and thus, enhanced value and service. This would align well with the strength of contracts and purchasing within OEMs and reduce their burden of managing vendors.”

Steve Duckworth of Clariant Masterbatches business unit adds another interesting angle. He said: “It is clear from our experience there are gaps about polymer materials and modifications of polymers,I would see that an OEM would gain quite a few advantages by an up-stream acquisition However, the problem is I don’t think they know what they don’t know, and probably not the questions they need to ask. This is not to disparage them, but the specialised and practical knowledge is not something taught or learnt is schools and colleges, and tends to be built by experience of encountering problems and learning how to fix them.  This is why the tendency in medical devices and pharmaceutical packaging material selection tends to be on ‘what worked in the past’, and this loses many opportunities.” 

Building on George’s comment about contract manufacturers, Steve adds insight from the electronics industry: “You can think about backward integrations, for example a device manufacturer deciding to buy a compounder of polymers. There are examples of contract manufacturing companies in electronics having their own compounding in-house such as Foxconn. However, unlike Foxconn and the electronics industry, it is unlikely that a medical device producer would consume the volumes produced in a compounding plant.”