Sluggish M&A stifles U.S. medtech sector growth

LONDON, BOSTON and TOKYO – The U.S. medtech sector was on course for its worst year in a decade in terms of M&A activity, EP Vantage concluded last fall in its Half Year Review 2013 report. In it the follow-up report, “Medtech 2013 in Review”, Vantage find that the second half of the year showed little sign of improvement.

According to Medtech 2013 in Review, FDA approval rates were down 44% from 2012, with only 23 approvals in 2013 compared to 41 in the previous year.

Although economic conditions as a whole are improving, hospitals, insurers and patients continue to exercise prudence, and large firms are avoiding risky acquisitions of early-stage companies. Venture capitalists are following suit, with most awarding investments cautiously to companies with approved products. This poses a challenge in and of itself considering the lack of recent FDA approvals.

While 2013 failed to match 2009 in being the worst year in a decade in terms of acquisitions, M&A deals were still down 16 percent from 2012.

"The medtech industry has lost its sense of adventure," said Elizabeth Cairns, EP Vantage medtech reporter and author of the report. "Demoralized by pricing pressure and the increasing demands of regulators, the large companies are taking refuge in safe purchases rather than taking a chance on something new."

The value of all medtech acquisitions totaled $19.3 billion – less than half the amount spent in 2012 – with Baxter International the year’s biggest spender with its $3.9-billion acquisition of dialysis-tech maker, Gambro

Only 25 funding rounds were completed last year, making 2013 the worst year since 2008 on financing count. Device makers raised just over $3.6 billion in venture capital investments in 2013, only $42 million more than 2012.