Pulse Medical Technology Report 2011

Pulse of t he indust ry
Medical technology report 2011

To our client s and friends:
Welcome to t he 2011 issue of Ernst & Youngs annual report on t he st ate of t he medical
technology indust ry. It is increasingly clear t hat medtech now faces a new normal wit h
a confluence of new risks f rom an uncert ain public policy environment to increased
regulatory and pricing pressures, a challenging f inancing climate and a rapidly changing
customer base.
Our opening art icle, Innovat ion and risk, looks at t hese risks and how companies are
responding to t hem. The way to sust ain innovat ion is for medtech f irms to innovate in
new ways not just develop and improve product s, but expand into ent irely new kinds of
offerings, including services, holist ic solut ions and more. If risk has moved beyond product
development , so too must innovat ion. Accompanying our analysis are guest cont ribut ions
f rom t wo leading execut ives, as well as a roundt able of indust ry veterans, providing a
variety of perspect ives on t hese challenges.
As always, Pulse of t he Indust ry provides an overview of key performance met rics, including
US and European f inancial performance, f inancing and mergers and acquisit ions. But t his
years report also represent s some innovat ion beyond t he product on our part . We have
revamped t he way we communicate our insight s for an era in which t ime is increasingly
scarce and blogs, iPads and Twit ter feeds are increasingly common. The indust ry
performance art icles are more succinct , highlight ing only t he most salient insight s f rom
each chart .
We hope you f ind t he analysis and t he new format usef ul, and we look forward to cont inuing
t he conversat ion wit h you.
Ernst & Young, Global Life Science Center
Content s
Innovat ion and risk
2 Int roduct ion
Innovat ion and risk
6 The new normal:
innovat ion at risk?
13 Learning from t he past t o guide us forward
Alex Gorsky, Johnson & Johnson
14 A proven pat h for growt h
Michael A. Mussallem, Edwards Lifesciences Corp.
Indust ry performance
16 Financial performance
A solid performance
26 Financing
Debt goes t hrough t he ceiling
38 Roundt able on mergers and acquisit ions
A fundament ally new deal environment
Kevin Davies, RBC Capit al Market s
Ali Sat vat , Apax Part ners
Aileen Stockburger, Johnson & Johnson
Bryant Zanko, St ryker Corporat ion
44 Mergers and acquisit ions
Let s make a deal
50 Scope of t his report
Defining medical t echnology
51 Acknowledgement s
52 Dat a exhibit index
54 Global medical t echnology cont act s
Innovat ion
and risk
2
Int roduct ion
Innovation and risk
Overview:
innovat ion and risk
Medtech is an indust ry based equally
on innovat ion and risk. Success in t his
business has always hinged on t he ability to
innovate f rom breakt hrough technologies
t hat shif t ent ire paradigms to t he steady
pace of iterat ive enhancement s t hat , over
t ime, add up to huge improvement s in
healt h outcomes.
To innovate, companies and investors
have to t ake on signif icant amount s of
risk. Wit h every new technology and every
generat ion of product enhancement ,
companies have inevit ably borne product
development risk t he possibility t hat a
new offering would not obt ain regulatory
clearance or would fail to gain market
t ract ion. And f inancing t hat innovat ion
has required risk capit al. From vent ure
capit alist s to t he public market s, investors
have put t heir f unds at risk as t hey sought
t he handsome ret urns t hat medtech
companies have historically delivered.
Today, t he indust ry faces new risks
f rom an increasingly diverse range of
sources not just f rom t he challenge
of product development , but also f rom
an uncert ain public policy environment ,
shif t ing regulatory requirement s and
growing pricing pressures driven by an
increasingly unsust ainable healt h care
system all of which are st raining medtech
innovat ion.
To respond, companies will need to
innovate in new ways. If risk has moved
beyond product development , so too must
innovat ion. The pat h forward will require
companies to apply t heir invent iveness
and creat ivity not just to developing and
improving t he product s t hey have long
focused on, but to expanding into ent irely
new kinds of product s, complement ary
services and more.
The new normal:
innovat ion at risk
Since t he onset of t he global f inancial crisis
in 2008 and t he economic downt urn t hat
followed, t he term new normal seems to
have become increasingly popular not
just among pundit s and prognost icators,
but also in t he common parlance. The
term has been used to describe everyt hing
f rom t he deleveraging of capit al market s
to t he changing relat ionship bet ween
emerging and mat ure market s and even
shif t ing gender roles. And we have used
it ourselves in Beyond borders, our sister
publicat ion on t he biotechnology indust ry,
to refer to t he new realit ies facing t hat
indust ry.
It is now becoming increasingly clear
t hat medtech faces it s own new normal.
This is an environment where companies
face a confluence of risks and challenges:
heightened regulatory scrut iny and payer
pressure, a f undament ally different f unding
climate and a rapidly changing customer
base.
Regulat ory and pricing pressures. In
recent years, t he FDAs 510(k) process
for clearing cert ain classes of medtech
product s has come under considerable
scrut iny. Crit ics have charged t hat t he
510(k) process which, unlike t he
premarket approval (PMA) process used for
life-sust aining product s, does not require
clinical t rials needs to be changed. The
FDA responded by init iat ing a review of t he
510(k) process and also asking t he Inst it ute
of Medicine (IOM) to conduct a separate
review. (For a f uller discussion of t hese
development s, refer to t he Int roduct ion
art icle in Pulse of t he indust ry 2010.)
In July 2011, t he IOM released it s report ,
Medical Devices and t he Publics Healt h:
The FDA 501(k) Clearance Process at 35
Years. The IOM report s recommendat ions
were cert ainly bold rat her t han proposing
reforms to t he exist ing system, t he
inst it ute recommended scrapping t he
510(k) process altoget her and replacing
it wit h an integrated premarket and
post market regulatory f ramework t hat
provides a reasonable assurance of safety
and effect iveness t hroughout t he device
life cycle. The FDA soon announced t hat it
does not intend to implement t his proposal,
while some policymakers cont inue to decry
t he agency for not considering it .
Pulse of t he indust ry Medical t echnology report 2011
Int roduct ion Innovat ion and risk
Regardless of how t his part icular issue
plays out , t he reality for medtech
companies operat ing in t he US and
investors in t hose f irms is t hat t he
regulatory environment has become
clouded wit h uncert ainty. Medtech
execut ives st ill adjust ing to t he coming
medical device excise t ax and t he move
toward comparat ive effect iveness research
imposed as par t of US healt h care
reform now face quest ions about t he
product approval process and t he fallout
on Medicare spending f rom policymakers
at tempt s to t ame t he count rys expanding
public debt . Wit h an increasingly polarized
and uncompromising environment on
Capitol Hill, clarity on t hese mat ters will
likely remain elusive for t he foreseeable
f ut ure.
The indust ry also faces an increasingly
challenging reimbursement environment
in developed market s. Payers bot h public
and private have seen t heir budget s
squeezed and are, in t urn, pressuring
medtech companies to demonst rate how
t heir product s improve healt h outcomes
for pat ient s and eff icient ly use healt h care
resources. Even if clinical t rials are not
required to get a product approved, payers
will increasingly focus on post-market ing
dat a on t he comparat ive effect iveness of
different intervent ions.
It is not surprising t hat a number of
execut ives in bot h t his years report ,
as well as t he 2010 issue of Pulse of
t he indust ry allude to t he uncert ain
regulatory and reimbursement
environment as one of t heir biggest
challenges. Despite t he fact t hat t he US
remains t he worlds largest market for
medtech product s, an out side US (OUS)
st rategy in which emerging companies
f irst obt ain market ing approval of new
product s in non-US market s has become
increasingly common in recent years.
While t his approach may allow a company
to obt ain regulatory clearance quicker, t he
challenge of obt aining reimbursement is
no easier in non-US market s European
count ries, for inst ance, are wrest ling
wit h sovereign debt crises t hat will only
exacerbate t he pressures.
Cust omer realignment . The convergence
of several t rends is creat ing a f undament al
realignment of t he customer base to which
medtech companies have t radit ionally sold
t heir product s increasing t he import ance
of some customer channels, while reducing
t he signif icance of ot hers.
As government s across major market s
move to rein in healt h care cost s, hospit als
are f inding t heir margins reduced,
exacerbat ing t he pressure t hey have
already been under in t he af termat h of t he
economic downt urn. In numerous market s,
payers are st art ing to experiment wit h
capit at ion approaches t hat allow t hem to
place a cap on t he amount t hey will pay out
per pat ient , effect ively t ransferring more of
t he f inancial risk to providers.
These pressures have, in part , driven a
spate of mergers among US hospit als in t he
last couple of years. As t hey face increasing
pressures, hospit als have also adopted a
slew of measures to cut cost s. They are
increasingly relying on mechanisms such
as technology assessment commit tees
and group purchasing organizat ions to
consolidate and st andardize purchasing
decisions. Surgeons and ot her physicians
who t radit ionally had free reign to pick t he
device t hey preferred are increasingly
f inding t hat f reedom curt ailed, as hospit als
limit t he number of opt ions in each product
category. In many cases, hospit als are
imposing price caps and/or reducing t he
number of vendors f rom which t hey will
purchase. And, as a growing number of
doctors abandon small private pract ices
and become employees of large hospit al
systems, more and more of t hem are
affected by t hese t rends.
3
4 Pulse of t he indust ry Medical t echnology report 2011
Source: Ernst & Young, Capit al IQ, Dow Jones Vent ureSource and Windhover
Char t shows capit al raised by US and European companies. Commercial leaders are def ined as companies wit h revenues in
excess of US$1 billion.
2007 2008 2009 2010
Commercial leaders Other companies
69% 64%
49%
27%
31%
36%
51%
73%
The rich get richer?
Large companies share of t ot al capit al raised has grown dramat ically
For medtech companies, which have
t radit ionally relied on close relat ionships
wit h individual physicians bot h to
sell t heir wares and to obt ain feedback
for f ut ure product enhancement s
t hese t rends represent a f undament al
realignment of t heir customer base. In
medtechs new normal, companies will
need to ret hink what t hey sell, how t hey
sell and even how t hey develop t hose
offerings in t he f irst place.
A new funding environment .
Compounding t he pressure on innovat ion,
t he long-st anding model for f unding
medtech is coming under increasing
pressure. While t he overall f unding
numbers in t he US and Europe have held up
well in 2010 and 2011, most of t he money
has gone t o a few mat ure companies,
while t he majorit y of emerging f irms face
a very different capit al environment .
Medical t echnology companies in t he US
and Europe raised more t han US$23.6
billion an ast ounding 66%increase over
2009s t ot al and t he highest annual t ot al
in t he six years t hat we have been t racking
medtech f unding numbers. However, t he
remarkable increase in capit al raised was
not driven by a f undament al improvement
in investor sent iment toward medtech and
it has not made t he f inancing environment
any easier for t he vast majority of
emerging medtechs. Instead, t he increase
in f unding was most ly concent rated in a
handf ul of mat ure companies t hat took
advant age of historically low interest rates
to raise debt f unds t hat were typically
used to rest ruct ure balance sheet s, f inance
acquisit ions or f und general operat ions.
5 Int roduct ion Innovat ion and risk
US medt ech financings, 2005-H1 2011
Dist ribut ion of US and European vent ure invest ment by round, 2005-H1 2011
Source: Ernst & Young, Dow Jones Vent ureSource
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
H1 2011 2010 2009 2008 2007 2006 2005
Late rounds Middle rounds Early rounds
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005 2006 2007 2008 2009 2010 H1 2011
Furt hermore, while t he explosion in
debt f inancing is a 2010 and 2011
phenomenon, it is just t he latest
manifest at ion of a longer-term t rend. Since
t he advent of t he f inancial crisis, t here
is a growing disparity in f unds raised by
est ablished and emerging companies. The
share of f unds raised by companies wit h
more t han US$1 billion in revenues has
increased steadily over t his period, to reach
a high of 73%in 2010.
Meanwhile, emerging, pre-commercial
companies faced a very different f unding
environment . Vent ure f inancing dropped
for t he t hird consecut ive year in 2010
falling by 13%relat ive to 2009 t hough t he
amount raised is st ill consistent wit h levels
seen in 2005 and 2006, before t he crest ing
of t he easy money era. The challenging
market condit ions faced by medtech
companies including growing regulatory
and pricing pressures and t he preference
of st rategic buyers for later-st age asset s
cont inue to delay exit s and squeeze ret urns
for VCs. Compounding t he challenge is an
IPO environment t hat remains weak. Af ter
more t han t wo years of sluggishness, IPO
act ivity picked up in 2010, but remains at
levels below t hose seen prior to t he global
recession.
The new normal:
innovation at risk?
Average 510(k) approval
t imes (mont hs)
January
February
March
April
January
February
March
April
May
2003-07 2010
3.1
4.5
Average PMA approval
t imes (mont hs)
January
July
February
August
March
Sept ember
April
Oct ober
May
November
June
December
January
February
March
April
January
July
February
August
March
Sept ember
April
Oct ober
May
November
June
December
January
February
March
April
January
July
February
August
March
Sept ember
April
Oct ober
May
November
June
December
2003-07 2010
15.5
27.1
Number of US hospit al
M&As announced
2006 2010
57
77
Number of PMA approvals
2006
2010 20
39
Capit al raised in medt ech
IPOs (US$b)
2005-07 2008-10
4.3
0.9
Number of 510(k) approvals
3,200
2,778
2006
2010
Devices receiving FDA invest igat ional
device exempticns after hrst review
76%
56%
32%
2006
2009
2010
Number of Class I product
recalls
2006 2010
65
426
Number of warning let t ers
issued by t he CDRH
2006 2010
154
204
US healt h expendit ures as percent
of GDP
2007 2009 2050
16
18
37
Capit al raised by US
vent ure funds
(all sect ors, US$b)
2007 2010
31.2
12.3
Percent age of US privat e pract ice
physicians
30
24
33
2005
2009
2013
Number of aest het ic procedures in t he US (millions)
11.7
9.3
2007
2010
US and European early vent ure rounds by product class and disease st at e
Source: Ernst & Young, Capit al IQ and Dow Jones Vent ureSource
Therapeut ic devices
Hemat ology/ renal
9%
Cardiovascular/ vascular
11%
Neurology
8%
Ort hopedic
7%
Respirat ory
6%
Research and
ot her equipment
2%
Therapeut ic devices Ot her
21%
Imaging
6%
Non-imaging
diagnost ics
25%
Ot her
5%
There is evidence t hat t hese challenges are
affect ing investor sent iment and behavior.
As investors seek more de-risked asset s
and as VCs carry t heir portfolio companies
longer because of challenging exit s,
t here has been a marked decline in t he
share of vent ure f unding going to early
rounds. Meanwhile, t he lit t le money t hat is
going to early rounds is being invested in
categories t hat carry less regulatory and
payer risk. In 2010 and t he f irst half of
2011, 25%of early vent ure rounds were
invested in non-imaging diagnost ics well
exceeding t his segment s current share
of medtech revenues likely because of
percept ions of an easier FDA clearance
and reimbursement process, as well as
growt h opport unit ies f rom t rends such as
personalized medicine.
The mult iplicity of challenges in t he new
normal also appears to have affected
investors out look on t he prospect s for
f ut ure revenue and earnings growt h by
public medtech companies. Our analysis
reveals t hat while t he median earnings per
A t ale of t wo t rends
While medt ech earnings have grown st eadily, P/ E rat ios have fallen
100%
0%
100%
200%
300%
400%
Median earnings per share Median price/earnings ratio
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Ernst & Young and Capit al IQ
Char t based on non-conglomerat es wit h 2010 revenues in excess of US$1 billion which exist ed for t he ent ire t ime
f rame shown. P/ E rat ios based on net losses are excluded f rom t he calculat ion.
share of t he largest US non-conglomerates
has grown steadily over t he last decade
including during t he global recession t he
median price to earnings rat io of t hese
companies has declined over t hat t ime, and
part icularly over t he last t hree years.
Taken toget her, t hese t hree issues are
placing increased pressure on medtech
innovat ion. Heightened regulatory and
payer scrut iny are making it harder to
bring new product s to market , while
t heir lingering uncert ainty is dissuading
investors. Sweeping changes in t he
hospit al sector, medtechs t radit ional
customer base, are squeezing margins
and increasing product scrut iny all of
which raises risk for investors and lowers
potent ial ret urns. As a result of t hese and
ot her factors, t he f unding environment has
become increasingly distorted as emerging
companies historically a key source
for new product s and technologies are
f inding it more difficult t han ever to f und
innovat ion.
The next new normal:
demonst rat ing healt h
out comes
Even while medtech companies st ruggle
wit h t he challenges of t he new normal,
some of t he same t rends are propelling
t he indust ry and indeed, all of healt h
care toward t he next new normal.
The increasingly urgent need to rein in
escalat ing healt h care cost s already
manifested in t he growing pressure on
prices, t he movement toward comparat ive
effect iveness research, and more is also
inexorably pushing us to a f ut ure where
companies success or failure will hinge on
t heir ability to demonst rate how t hey are
improving healt h outcomes for pat ient s
and for t he broader healt h system. Indeed,
t he incent ives for all of t he part icipant s in
t he healt h ecosystem f rom companies
to providers to pat ient s will be realigned
around t he ability to improve outcomes,
as payers increasingly demand proof of an
intervent ions eff iciency before agreeing to
pay for it . (For a f uller discussion of t hese
t rends, refer to our sister publicat ion on
t he pharmaceut ical indust ry, Progressions
2011: Building Pharma 3.0.)
This is a f ut ure t hat will also be enabled by
new informat ion technologies. Informat ion
technology has already reinvented scores
of indust ries in our lifet imes. Ret ail t rade
has become vast ly more eff icient and
t ransparent t hanks to e-commerce, along
t he way empowering consumers and
squeezing cost s out of t he system. The
business model of t he music indust ry has
been t urned on it s head by MP3 players
and Apples vast ly successf ul iTunes store.
Print news media is being shaken up by an
onslaught of websites, blogs and e-readers.
In each of t hese inst ances and many ot hers,
consumers have been empowered, while
long-ent renched companies have given
up cont rol and seen t heir business models
upt urned.
Today, t he healt h sector is on t he cusp of
a similar revolut ion. Making healt h care
sust ainable will require vast improvement s
in eff iciency across t he system, and will
require pat ient s to t ake more responsibility
for managing t heir healt h. Technology
can provide a big part of t he answer.
New technologies and platforms are
creat ing an explosion in t he quant ity and
types of dat a everyt hing f rom elect ronic
healt h records to social media discussion
t hreads to real-t ime dat a generated by
increasingly mobile devices and diagnost ics.
All of t his creates opport unit ies to mine dat a
for insight s on t he relat ive effect iveness and
eff iciency of different intervent ions.
Informat ion technology is also st art ing
to enable anot her f undament al shif t : t he
empowerment of t he pat ient . Just as new
technologies have empowered consumers
in t he indust ries we listed before, similar
development s in healt h care promise
to dramat ically empower individuals,
t ransforming t hem f rom t he passive
pat ient s of yesterday to t he educated,
engaged superconsumers of tomorrow.
And as incent ives change in t he new
ecosystem, pat ient s will have a greater
interest in act ively managing t heir healt h.
While sweeping changes inevit ably produce
winners and losers, medtech companies
are well posit ioned to benef it f rom t hese
changes. Their devices and diagnost ics
generate reams of real-t ime dat a t hough
most companies have not exploited t he f ull
potent ial of t his t reasure t rove in t he past .
The f ut ure we are moving toward is one in
which more and more healt h care will be
delivered out side t he hospit al or doctors
off ice. Just as generat ions of increasingly
mobile comput ing devices laptops,
net books, t ablet s, smart phones and
more have made access to informat ion
and comput ing power ubiquitous, new
waves of mobile healt h devices promise
to do t he same for t he delivery of healt h
care. Here, too, medtech companies are
well posit ioned to be t he innovators of new
technologies t hat will allow superconsumers
to manage t heir own healt h care.
A number of medtech companies are
recognizing t hese opport unit ies and
moving to seize t hem. In t he last year
alone, we have seen a proliferat ion of new
offerings to make healt h care delivery
more eff icient by giving providers real-t ime
informat ion and enabling bet ter decision
making at t he point of care. Medt ronic, for
inst ance, launched it s CareLink Pro 3.0
t herapy management software in December
2010 to offer advanced decision support
to healt h care professionals managing
diabetes. The program analyzes dat a f rom a
pat ient s insulin pump, cont inuous glucose
monitoring device and blood glucose meter;
ident if ies t he most import ant pat ient
informat ion in a single dashboard; and
suggest s relevant intervent ions. In February
2010, St ryker part nered wit h Capsule,
a leading provider of medical device
connect ivity, to connect pat ient dat a f rom
St ryker smart beds direct ly into hospit al
elect ronic medical records. And in March
2010, GE Healt hcare launched it s Qualibria
sof t ware in collaborat ion wit h Ut ah-based
Intermount ain Healt hcare. The program
cent ralizes pat ient dat a to allow providers
access to real-t ime informat ion, allowing
t hem to make bet ter decisions and monitor
performance against quality met rics.
Even more compelling, however, is t he
explosion of new offerings t argeted at
pat ient s, allowing t hem to bet ter manage
t heir own care. Boston Scient if ic, for
inst ance, has launched t he LATITUDE
Pat ient Monitoring system, a wireless
remote pat ient management system.
Pat ient s can have remote follow-ups, and
t heir heart and cardiac device st at us can
be monitored while t hey are at home.
Spanish st art-up Nuubo has part nered wit h
Telefonica to develop a smart T-shirt t hat
uses elect ro-conduct ive text iles to record
a medical quality elect rocardiogram and
detect a pat ient s respirat ion rate. A number
of companies have launched websites to
educate pat ient s about t heir condit ions
and/or build social net works connect ing
pat ient s wit h each ot her, while ot her f irms
are developing new technologies to boost
adherence to drug regimens.
The pat h forward:
business model innovat ion
In todays new normal, companies face
a slew of risks f rom policy uncert ainty
to regulatory const raint s and payer
pressures which are collect ively put t ing
unprecedented st rain on medtech
innovat ion. As discussed earlier, t his is
affect ing invest ment in t he sector, wit h
f unding gravit at ing toward later-st age and
mat ure companies. As t hey face a f ut ure
clouded by uncert ainty and risk, medtech
companies have seen t heir price to earnings
rat ios fall. Yet despite t hese challenges and
t heir impact on overall market sent iment ,
medtech st ill has signif icant growt h
opport unit ies ahead.
To realize t hese opport unit ies, companies
will need to do several t hings. First and
foremost , emerging companies will need to
ensure t hat t hey can survive and sust ain
innovat ion t hrough t he lean f unding
climate. For many emerging companies,
t his will involve searching more broadly
for f unding opt ions beyond vent ure
capit al, to include est ablished medtech
companies, government grant s and disease
foundat ions. Companies of all sizes will need
to cont inue exploring ways to leverage
OUS market s to offset challenges in t he
US f rom emerging market s t hat offer
higher growt h potent ial to European
count ries t hat could provide quicker and
easier routes to product launch and cash
f lows. And as t he pressures f rom payers
and providers cont inue to grow, it will be
crit ical for companies to ret ain t heir focus
on operat ional eff iciency.
But t he biggest opport unit ies will be seized
by t hose who can realign t hemselves for
t he next new normal t he consumer
and payer-cent ric f ut ure where proving
outcomes will be paramount . This will
involve innovat ion t hat extends beyond
t he product . Among ot her t hings, it will
require companies to reinvent various part s
of t heir business models, including what
t hey sell (t he offer), how t hey sell it (sales
and market ing) and even how t hey develop
t hose new offerings (R&D). While product
innovat ion may be at risk in t he current
environment , t he answer to long-term
sust ainability will likely come f rom business
model innovat ion.
The offer. Medtech companies have
historically focused on developing
innovat ive product s. In t he new
outcomes-focused ecosystem, however,
companies will also need to demonst rate
how a part icular intervent ion improves
pat ient outcomes and enhances t he
ellciency ol Lhe healLh care sysLem.
Firms may consider expanding t heir offer
f rom product s alone to include dat a and
services as parL ol a lullledqed soluLion.
They should be asking t hemselves if
t here are ot her opport unit ies to monet ize
t he value of what t hey know for
instance, pat ient monitoring dat a rat her
t han just what t hey manufact ure. For
some categories of product s, business
models may even evolve to discount ing
or giving away t he product in order to sell
an informat ion-based service of real-t ime
pat ient diagnost ic dat a.
12 Pulseof t he indust ry Medical t echnology report 2011
Sales and market ing. As described
above, t he sales st rategy is shif t ing
f rom one based on t arget ing individual
physicians to approaches t hat
simult aneously focus on customer
segment s t hat are becoming relat ively
more import ant payers, hospit als and
pat ient s. Medtech companies will need to
revamp t heir sales, market ing and market
access f unct ions to address t he different
needs of each of t hese customer
segment s. In dealing wit h payers,
companies will need t he ability to argue
for t heir product s based on compelling
dat a part icularly in a world where
ot hers may be conduct ing comparat ive
effect iveness research on t heir product s.
Sales forces and market ing st rategies
will be sLrucLured Lo relecL how Lhe
customer is organized, as opposed to
t he ways in which medtech sales forces
have historically been st ruct ured. As
hospit als look to reduce t he number of
vendors, medtech companies will need to
bet ter art iculate t heir value proposit ion,
including across broad product
categories. Last ly, selling to increasingly
empowered and informed pat ient s
will require companies to underst and
t heir needs. To succeed wit h a less
scienLilcally aware cusLomer base Lhan
highly t rained physicians, companies
may need to increase t he levels and
form of informat ion and educat ion t hey
provide. And interact ing wit h stakeholders
in new channels such as social media will
require meaningful engagement from
companies not just pitching t heir wares,
but being fort hcoming and t ransparent ,
and providing relevant informat ion at t he
right t ime.
R&D. Medtech innovat ion has of ten been
out side-in. Iterat ive innovat ion has of ten
originated at t he bedside, as physicians
provide feedback t hat sows t he seeds for
t he next generat ion of product . Today,
sunshine laws, which effect ively limit
companies access to physicians, could
potent ially put some of t his process at
risk. But t he new healt h ecosystem, wit h
it s rapidly emerging technologies and
more widely dist ributed informat ion,
could also provide opport unit ies to cast
a wider net . Medt ronic, for inst ance,
has begun crowdsourcing some of it s
innovat ion wit h t he November 2010
launch of Medt ronic Eureka, a European
web-based port al t hat allows physicians
and medical technology innovators to
submit product ideas.
Conclusion:
seeking sust ainabilit y
Even as t he medtech indust ry grapples
wit h t he challenge of sust aining
innovat ion, it is wort h keeping in mind
t hat sust ainability is now a global issue
spanning many indust ries and ent ire
economies. Government s, for inst ance,
are st ruggling wit h put t ing t heir f iscal
affairs on a sust ainable course, and
payers across major market s are
looking for ways to sust ain healt h care
spending. These pressures may, over
t ime, provide some of t he answers t hat
medtech companies are seeking. As
pressure builds on healt h care cost s,
policymakers, payers and regulators
will increasingly be pushed to realign
incent ives around improving healt h
outcomes.
The companies best posit ioned for
success will be t hose t hat develop
t he new offerings and solut ions most
relevant to t his changing ecosystem.
Medtech companies have always t aken
on risk to innovate new product s and
technologies. Going forward, one of
t he biggest risks may be t he failure
to innovate beyond t he product and
develop new offerings in new ways.
Learning from the past
to guide us forward
Alex Gorsky
Johnson & Johnson
Vice Chairman, Execut ive Commit t ee
Having spent t he bulk of my healt h care career in t he
pharmaceut ical indust ry, it s been a wonderf ully enriching
experience for me to have now spent t he past several years
focused on t he medtech space. There are many similarit ies
bet ween t he t wo indust ries t he t remendous impact t hat bot h
have on peoples lives, for example. But t here are differences, too,
such as t he much faster pace of innovat ion in medtech compared
wit h t he 15 years of R&D (not to ment ion t he more t han $1 billion)
t hat it now t akes, on average, to bring a new drug to market .
As medtech companies wrest le wit h an increasingly complex and
difficult business environment , t here are some lessons we can
learn f rom t he pharma indust ry, which began dealing wit h many
of t he same issues about 10 years ago not always successf ully.
While pharma seems to be on t he mend t hese days, medtech
companies should t ry to avoid a similarly painf ul and lengt hy
learning curve.
Medt ech can learn t hree lessons from pharmas experience:
1. Change is here t o st ay embrace it . As I write t his, concerns
are growing over a double-dip recession in t he US, t he
lnancial crisis in Lurope is LhreaLeninq Lo enqull several more
counLries and world sLock markeLs are down siqnilcanLly lrom
t heir 52-week highs. Will t he global economy always be so
volat ile? Hopef ully not , but it s likely t hat many of t he changes
wrought during t he current crisis t ighter regulat ion, lower
prices, st ricter ut ilizat ion st andards are here to st ay. While
I remain very opt imist ic about our f ut ure, given demographic
Lrends, scienLilc and Lechnoloqical advances and qeoqraphic
expansion opport unit ies, it s import ant for us to underst and
t he challenges we are facing and to lean forward into t hem
rat her t han to hunker down and wait for t hem to pass.
2. Reinvent our business model soon. As t he pharma
indust ry began to st ruggle, t here was lot s of t alk about t he
need to move to a new business model. But more of ten t han
not , companies simply moved to smaller versions of t he old
model smaller sales forces, smaller R&D budget s and so
on. There is no need for t he medtech indust ry to discard our
current business model overnight . It has worked well for a
long t ime, and many element s will cont inue to be essent ial
as we move forward. But we must accelerate t he pace of
experiment at ion wit h t ruly novel approaches to t he way we
do business new R&D, commercial and customer service
models, for example and we must quickly and broadly adopt
t hose t hat prove most effect ive instead of hanging on to t he
st at us quo for too long.
3. Pay at t ent ion t o how we are perceived. We recent ly met wit h
a group of fait h-based inst it ut ional investors, whose concerns
in Lhe pasL have cenLered on pharmaspecilc issues, such as
access to HIV medicines in t he developing world. This t ime
around, t hey asked us several quest ions about t he safety,
ellcacy and allordabiliLy ol our medical devices. How we
address t hese quest ions which are increasingly being asked
by ot her stakeholders will go a long way toward determining
how we are perceived. Will we be seen as a faceless, uncaring
indusLry LhaL places prolLs ahead ol people? Or will we be seen
as an indust ry t hat get s it t hat is helping to improve t he
lives of tens of millions of people every day and understands
t he need to do our fair share in order to bring our product s
and services to even more people in t he years ahead? Im not
suggest ing t hat we abandon our principles or accede to every
demand t hats made of us. But if we are seen as part of t he
problem rat her as part of t he solut ion society will deal wit h
us as a problem, wit h unpleasant long-term consequences.
Despite t he challenges we face, I cont inue to be excited by our
potent ial to t ransform peoples lives and to grow our businesses.
By learning f rom ot hers, we can realize our f ull potent ial even
sooner.
Michael A. Mussallem
Edwards Lifesciences Corp.
Chairman and Chief Execut ive Of f icer
Healt h care reform and ot her light ning rod issues, increased
regulatory scrut iny, pressures on reimbursement and a weak
economy now shrouded in fog have all cont ributed to slower
growt h in t he medical technology indust ry, especially in t he US.
Many companies are seeking t he sunshine of emerging market s,
such as China, India and Brazil, where wealt h is increasing and
healt h care is a rapidly rising priority. This t rend cont inues to gain
moment um wit h mult inat ional companies as regional expansion
grows in importance.
Yet I propose our indust ry not overlook t he excit ing opport unit ies
we have to innovate technologies to address t he signif icant unmet
needs in core market s. Innovat ion remains a compelling value
proposit ion and, in my opinion, is t he pat h to successf ul outcomes
for pat ient s, healt h care providers and medtech companies.
Slower growt h in market s such as t he US, Europe and Japan does
not mean opport unit ies dont exist . It just means t hat we have
to be savvy and work harder to f ind t hem. Despite signif icant
advancement s in medical t reat ment s and technologies, t here
are st ill many unmet clinical needs in t hese regions. Millions of
pat ient s are relying on our indust ry to innovate t he technologies
t hat will enable t hem not just to live longer, but also to lead
healt hier and higher-quality lives.
In t he current environment , where f iscal discipline is of ten
necessary, I believe it is becoming more import ant for our
indust ry to focus resources on innovat ing technologies t hat
build on our exist ing core competencies. St akeholders across
t he board are demanding clinically superior product s t hat add
proven economic value and markedly improve quality of life for
pat ient s. Because of t his, our indust rys burden of proof is rising
dramat ically. Companies are f inding t hat t hey need to invest in
more dat a driven clinical t rials and pat ient regist ries t hat prove
A proven path for growth
t he value of new technologies t hat will impact t he pract ice of
medicine. When adding t his factor into t he value equat ion, t he
cost of pursuing me too technologies of ten becomes
insurmount able. Therefore, now may be t he t ime for us to
examine our portfolios and consider shif t ing invest ment toward
t he disrupt ive core technologies, leaving t he non-st rategic
technologies to companies more focused in t hose areas. Simply
put , I believe a focused approach will result in greater pat ient
benef it s and increase t he likelihood of value creat ion.
Cert ainly, t here is no one-size-f it s-all solut ion to t he current
challenges facing our indust ry. I can say, however, t hat focusing
on innovat ion in core areas has produced a consistent t rack record
of successes for our company for more t han 50 years, sust aining
us t hrough many economic storms. It has also helped us to
develop t he life-saving technologies we offer today. For example,
in our recent history, we have intensif ied our focus on heart
valves and crit ical care technologies, areas in which we are global
leaders. This focus has led to t he evolut ion of heart valves and
t he commercializat ion of t he game-changing t ranscat heter heart
valve. This technology enables t he replacement of a failed nat ive
valve via a cat heter, while t he heart cont inues to beat , rat her
t han by open-heart surgery, t hereby offering cert ain pat ient s a
t reat ment opt ion where previously none existed. It also holds
great potent ial to reduce morbidity, mort ality and lengt h of
hospit al st ay all of which are considerable wins for everyone.
While t he current healt h care environment is dynamic and
punct uated by uncert ainty, t here are t wo unwavering const ant s:
t he needs of pat ient s and t he passion of t hose in our indust ry to
help t hem. I am confident t hat if we use t hese guidepost s to lead
us along t he pat h of innovat ion, we will succeed and improve t he
quality of pat ient s lives around t he world a goal we all seek to
achieve.
15 Sect ion Page name
Financial performance
The big pict ure
Publicly t raded medtech companies
in t he US and Europe t urned in a solid
performance in 2010, wit h growt h in each
of t he major f inancial indicators out pacing
2009 growt h rates a sign t hat t he impact
of t he recession may have lessened.
Revenue growt h was led in large part
by conglomerates t hat rebounded af ter
declining in 2009. The net income of non-
conglomerates grew by 43%t he second
consecut ive year of double-digit growt h.
(After adjust ing for t he impact of large, one-
t ime charges in 2009, net income growt h
was 9%st ill a very solid growt h rate).
Companies increased t heir spending on R&D
by 7%an improvement over t he anemic 1%
increase in 2009. Cash holdings grew at a
double-digit rate for t he second year in a row.
However, more worrisome was t he fact t hat
nearly one out of every two non-cash-flow
posit ive companies had less t han one year of
money remaining in bot h t he US and Europe.
Looking ahead, t he indust ry cont inues
to grapple wit h mount ing pressures and
faces considerable uncert ainty. GDP and
unemployment numbers remain weak in
much of t he developed world. Western
government s are faced wit h unprecedented
levels of debt and some are t aking ext reme
measures to slash budget s. In t he US,
ent it lement programs such as Medicare are
expected to see payment reduct ions t hat
will t rickle down to providers, physicians
and, ult imately, medtech companies.
Meanwhile, considerable uncert ainty
remains around US healt h care reforms
most not ably wit h respect to comparat ive
effect iveness and t he medical device
excise t ax and t he f ut ure of t he 510(k)
clearance process. Last ly, a changing
customer environment marked by hospit al
consolidat ion, physicians becoming hospit al
employees and hospit als and healt h systems
implement ing value-based pricing and
gain-sharing arrangement s, as well as
technology assessment commit tees are all
put t ing pressure on t he growt h of medtech
companies. (For a f ull discussion of t hese
t rends, refer to t he Int roduct ion art icle.)
Furt her expansion into emerging and
underserved market s, aging Western
populat ions, longer life expect ancies and a
gradual improvement in t he global economy
are expected to posit ively impact medtechs
long-term growt h. However, to sust ain
growt h in t he immediate f ut ure, companies
will need to address t he pressures listed
above.
Financial performance
A solid performance
Public company dat a 2010 2009 %change
Revenues $315.9 $303.6 4%
Conglomerates $122.3 $116.5 5%
Non-conglomerates $193.7 $187.1 4%
R&D expense $12.4 $11.6 7%
Net income $17.4 $12.2 43%
Cash and cash equivalent s and short-term invest ment s $42.0 $35.8 17%
Number of employees 764,355 739,531 3%
Number of public companies 436 443 -2%
Medical t echnology at a glance, 2010
(US$b, dat a for non-conglomerat es except where indicat ed)
Dat a shown for US and European public companies.
17 Financial performance A solid performance
US public medt ech cash index
European public medt ech cash index
Char t excludes companies t hat are cash f low posit ive.
Less than 1 year 2-3 years 1-2 years More than 5 years 3-5 years
2009 2010
0%
20%
40%
60%
80%
100%
18%
9%
9%
22%
42%
17%
6%
9%
19%
49%
Char t excludes companies t hat are cash f low posit ive.
Less than 1 year 2-3 years 1-2 years More than 5 years 3-5 years
2009 2010
0%
20%
40%
60%
80%
100%
31%
9%
3%
12%
45%
31%
8%
3%
11%
47%
Unit ed St at es
The revenues of all US publicly t raded
medtech companies increased by 4%in
2010, af ter having declined by 0.1%in
2009. Wit h st rong top-line growt h at
companies such as Danaher and Agilent
Technologies, conglomerate revenues
grew by 7%, an improvement over t he
0.9%drop in 2009.
As in prior years, more det ailed analysis
of f inancial performance is only possible
for non-conglomerates, since conglomerates
do not report separate f inancial result s
for t heir medtech divisions. At t hese
companies, revenues increased by
US$3.8 billion (3%). R&D expense
increased by US$0.7 billion (8%) and
SG&A by US$0.8 billion (2%). Net income
increased by signif icant ly more t han t he
Revenues $204.9 $196.7 4%
R&D expense $9.8 $9.1 8%
SG&A expense $41.4 $40.6 2%
Net income $12.4 $7.9 57%
US medt ech at a glance, 2010
top line, growing by US$4.5 billion (57%).
However, t his is largely because 2009 net
income had been lowered by large merger,
impairment and lit igat ion related charges
incurred by Hologic, Medt ronic and Hill-
Rom. If t hese charges were not included,
net income would have increased by
approximately 8%.
Region
Number of public
companies
Market
capit alizat ion
30 June 2011 Revenue R&D Net income
Cash and cash
equivalent s Tot al asset s
Massachuset t s
38
-3%
$84,180
6%
$39,891
2%
$2,574
2%
$1,223
-201%
$6,304
-6%
$89,070
3%
Minnesot a
19
-10%
$59,482
-10%
$22,188
8%
$2,252
10%
$4,155
33%
$4,731
85%
$41,541
25%
Sout hern California
37
3%
$53,066
33%
$17,069
12%
$1,612
12%
$1,244
-7%
$5,177
23%
$32,381
9%
Nort hern California
33
6%
$31,772
12%
$8,471
13%
$979
10%
$840
78%
$4,619
31%
$12,492
19%
New Jersey
16
0%
$29,632
6%
$11,182
4%
$681
6%
$1,892
9%
$2,558
-7%
$15,158
13%
Michigan
2
-33%
$21,463
6%
$7,380
9%
$397
16%
$1,271
15%
$4,404
48%
$11,266
24%
Indiana
3
0%
$13,414
-7%
$6,051
3%
$283
38%
$736
120%
$1,134
17%
$9,859
5%
Pennsylvania
11
0%
$9,611
3%
$4,922
4%
$154
53%
$426
3%
$871
13%
$7,984
6%
Texas
11
-8%
$5,912
18%
$2,833
5%
$176
2%
$395
39%
$672
27%
$4,363
8%
New York
23
0%
$4,985
16%
$2,701
4%
$195
22%
$101
1,164%
$554
22%
$4,618
5%
US medt ech non-conglomerat es, public company financial highlight s by region, 2010
(US$m, percent age change over 2009, except market cap over 30 June 2010)
The revenues of companies in t he
Therapeut ic devices segment increased
by 3.3%(US$2.5 billion) in 2010,
compared to an increase of 1.9%in 2009.
Twelve of t he 16 disease categories saw
t heir top lines increase, versus only 8 t he
year before. Of t he six largest disease
segment s by revenue, mult iple and
ort hopedic saw t he largest top line
expansion, growing by 4.9%(US$1.6
billion; t hree-quarters of which came f rom
Medt ronic) and 6.4%(US$896 million;
t wo-t hirds f rom St ryker), respect ively. The
Cardiovascular/ vascular and Womens
healt h segment s saw revenues decline in
2010 due to t he acquisit ion of companies
in t hese segment s. Adjust ing for t hese
acquisit ions, bot h segment s would have
seen top-line increases in 2010.
Each of t he six segment s improved t heir
bot tom lines in 2010. Medt ronic was
responsible for more t han half of t he
US$1.8 billion increase in t he mult iple
categorys net income, while t he US$2.2
billion increase in t he net income of
womens healt h was almost exclusively
t he result of a US$2.3 billion goodwill
impairment charge t hat had lowered
Hologics net income in 2009.
Change in US t herapeut ic device companies revenue and net income
by disease cat egory, 200910
Source: Ernst & Young, Capit al IQ, BMO Capit al Market s, Dow Jones Vent ureSource and Windhover
Orthopedic Multiple Oncology Dental Cardiovascular/
vascular
Womens
health
$-0.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5

C
h
a
n
g
e

(
U
S
$
b
)
Revenue Net income
While acquisit ions are a signif icant driver
of growt h in t he medtech indust ry, it is
notewort hy t hat t he t hree fastest growing
(and six of t he ten fastest-growing)
non-conglomerates expanded t heir top
lines organically, wit hout t he assist ance
of a signif icant acquisit ion. On t he
conglomerate side, however, all of t he
fastest growing medtech divisions were
signif icant ly aided by mid-to-large scale
acquisit ions of ot her companies.
While medtech is const ant ly being
altered by mergers and acquisit ions, it is
encouraging to see t hat t he indust ry is
dynamic enough to consistent ly replenish
t he loss of seasoned companies wit h
new generat ions of leaders. So while
large companies such as Advanced
Medical Opt ics, Applied Biosystems and
Respironics have been acquired, ot hers
such as Alere, CareFusion and Hologic
have been added to t he billion dollar club.
Select ed fast -growing medt echs by revenue growt h, 200510
(US$m)
Non-conglomerat es 2005 2010 %growt h
Illumina $74 $903 1,128%
NuVasive $62 $478 671%
Int uit ive Surgical $227 $1,413 522%
Hologic $288 $1,680 484%
Alere $422 $2,155 411%
Thermo Fisher Scient if ic $2,633 $10,789 310%
Masimo $108 $405 276%
Life Technologies $1,198 $3,588 199%
Integra LifeSciences $278 $732 163%
ResMed $426 $1,092 157%
Conglomerat es 2005 2010 %growt h
Danaher: Medical Technologies $1,182 $4,123 249%
Abbot t Diagnost ics and Vascular $2,942 $6,988 138%
Agilent Technologies: Bio-analyt ical $1,421 $2,660 87%
Corning Life Sciences $282 $508 80%
Telef lex Medical $831 $1,433 72%
Non-conglomerat es in it alics have made signif icant acquisit ions bet ween 2005 and 2010.
The billion dollar club, 200610
Source: Ernst & Young
Char t shows non-conglomerat es segment ed by t ot al revenues in each year.
2007
26 companies
2006
25 companies
2008
31 companies
2009
30 companies
2010
30 companies
15 companies
5 companies
4 companies
1 company
1 company
3 companies
3 companies 3 companies
5 companies
3 companies
3 companies
4 companies
4 companies
4 companies
6 companies
5 companies
16 companies
21 companies
18 companies 18 companies
US$1-2.5b US$2.5-5b US$5-10b US>$10b
US market capit alizat ion, 2009H1 2011
US market capit alizat ion by size, 2009H1 2011
2009 2010 2011
-50%
-25%
0%
+25%
+50%
+75%
+100%
Jan Feb Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Mar
EY US medtech industry Dow Jones Industrial Average NASDAQ Russell 3000
2009 2010 2011
-50%
-25%
0%
+25%
+50%
+75%
+100%
Micro cap (<US$250m)
EY US medtech industry
Large cap (market cap >US$5b) Mid cap (US$1-5b) Small cap (US$250m-1b)
US medt echs have kept pace wit h broader indices
wit h mid caps leading t he charge, and micro caps lagging well behind.
Europe
The European indust ry grew slight ly
slower t han it s US counterpart in 2010.
Wit h t he except ion of headcount and non-
conglomerate revenue, t he US out paced
Europe in every ot her indicator.
In 2010, t he top-line growt h of publicly
t raded European companies was very
similar to t hat in 2009. All European
public companies grew by 4%, essent ially
replicat ing t he growt h experienced in
2009. For conglomerates, led by Roche
Diagnost ics and Philips Healt hcare, t he
growt h rate was 3%, compared to 2%a
year earlier, while non-conglomerates saw
revenues improve by 5%(compared to a
2.4%increase in 2009). The net income of
non-conglomerates grew by 17%in 2010,
down f rom t he 22%increase seen in 2009.
This second consecut ive year of
European medt ech at a glance
Revenues $111.1 $106.9 4%
R&D expense $2.6 $2.5 3%
Net income $5.1 $4.3 17%
European medt ech non-conglomerat es, public company financial highlight s by region, 2010
(US$m, percent age change over 2009, except market cap over 30 June 2010)
Region
Number of public
companies
Market
capit alizat ion
30 June 2011 Revenue R&D Net income
Cash and cash
equivalent s Tot al asset s
Germany
22
-4%
$41,897
16%
$20,832
8%
$449
10%
$1,537
24%
$527
1%
$29,390
7%
France
14
17%
$23,436
27%
$8,008
10%
$477
2%
$820
3%
$695
3%
$10,022
15%
Swit zerland
9
0%
$13,215
-18%
$3,508
8%
$181
1%
$557
-10%
$1,033
23%
$5,119
29%
United Kingdom
24
-11%
$11,978
-10%
$4,812
-3%
$218
-8%
$646
38%
$310
0%
$5,886
5%
Sweden
28
0%
$11,495
49%
$4,681
7%
$205
5%
$385
-4%
$502
4%
$6,897
1%
Israel
23
5%
$1,930
35%
$650
41%
$75
32%
$(34)
-20%
$173
33%
$1,063
26%
double-digit expansion was spearheaded
by st rong organic growt h at Smit h &
Nephew and Sonova. Af ter a 2%drop in
2009, R&D spending bounced back in
2010 as year-over-year tot als were up
by 3%. Medtech payrolls cont inued to edge
up for t he second consecut ive year.
While not separately disclosed by
companies, headcount growt h has
been gravit at ing towards high-growt h
geographies, part icularly in emerging
market s.
23 Indust ry performance A solid performance
In 2010, t he revenues of Therapeut ic
devices companies increased by 6%to
US$53 billion down slight ly f rom t he 8%
growt h rate in 2009. Of t he f ive largest
t herapeut ic devices disease segment s, all
but one (Mult iple) experienced year over
year growt h in 2010. Fresenius Medical
Care was solely responsible for t he
Hematology/ renal 7%jump (US$829
million) while Essilor helped spur t he
expansion in Opht halmic. Each of t he
f ive largest segment s improved t heir
bot tom lines in 2010.
Change in European t herapeut ic device companies revenue and net income
by disease cat egory, 200910
0
0.2
0.4
0.6
0.8
1.0
C
h
a
n
g
e

(
U
S
$
b
)
Revenue Net income
Non-disease-
specic
Hematology/renal Orthopedic Multiple Opthalmic
Similar to t he US, six of t he ten fastest-
growing non-conglomerate medtechs in
Europe have seen t heir top lines swell
predominant ly t hrough organic means
and wit hout t he assist ance of large
acquisit ions. Among conglomerates,
Philips, Roche and Siemens have used
signif icant acquisit ions to bolster t heir
top lines, while Carl Zeiss and Draeger
Medical have grown largely t hrough
organic means.
Select ed fast -growing medt echs by revenue growt h, 200510
(US$m)
Non-conglomerat es in it alics have made signif icant acquisit ions bet ween 2005 and 2010.
Non-conglomerat es Locat ion 2005 2010 %growt h
Shamir Opt ical Indust ry Israel $52 $158 204%
Ion Beam Applicat ions Belgium $170 $513 202%
Qiagen Net herlands $398 $1,087 173%
Sonova Holding Swit zerland $539 $1,440 167%
ELEKTA Sweden $438 $1,027 135%
Ossur Iceland $161 $359 123%
Syneron Medical Israel $87 $190 118%
Get inge Sweden $1,590 $3,081 94%
Given Imaging Israel $87 $158 81%
Q-Med Sweden $131 $202 54%
Conglomerat es Locat ion 2005 2010 %growt h
Carl Zeiss Meditec Germany $412 $953 131%
Siemens Healt hcare Germany $9,698 $16,380 69%
Roche Diagnost ics Swit zerland $6,628 $9,998 51%
Philips Healt hcare Net herlands $7,897 $11,394 44%
Draeger Medical Germany $1,378 $1,950 42%
European market capit alizat ion, 2009H1 2011
2009 2010 2011
-50%
-25%
0%
+25%
+50%
+75%
+100%
EY European medtech industry DAX FTSE 100 CAC 40
2009 2010 2011
-50%
-25%
0%
+25%
+50%
+100%
+75%
+125%
+150%
Micro cap (<US$250m)
EY European medtech industry
Large cap (market cap >US$5b) Mid cap (US$1-5b) Small cap (US$250m-1b)
European medt echs have out performed t he broader European market s
as small caps expanded by more t han 125%, while micro caps st ruggled.
European market capit alizat ion by size, 2009H1 2011
26
Financing
Debt goes through the ceiling
The big pict ure
Medical technology companies in t he US
and Europe raised nearly US$23.6 billion
in 2010 an astounding 66%increase over
2009s tot al and t he highest annual tot al
in t he six years t hat we have been t racking
medtech f unding numbers. The t rend
cont inued in t he f irst six mont hs of 2011,
wit h f inancing tot als generally keeping pace
wit h t hose seen in 2010.
However, t he remarkable increase in capit al
raised was not driven by a f undament al shif t
in investor sent iment toward medtech and
it has not made t he f inancing environment
any easier for t he vast majority of emerging
companies. Instead, t he increase in f unding
was most ly concent rated in a handf ul of
mat ure companies t hat took advant age of
historically low interest rates to raise debt
f unds t hat were typically used to rest ruct ure
balance sheet s, f inance acquisit ions or f und
general operat ions.
Meanwhile, emerging, pre-commercial
companies faced a very different f unding
environment . Vent ure f inancing dropped
for t he t hird consecut ive year in 2010
falling by 13%relat ive to 2009 t hough
t he amount raised is st ill consistent wit h
levels seen before t he crest ing of t he
easy money era. The challenging market
condit ions faced by medtech companies
including growing regulatory and pricing
pressures and t he preference of st rategic
buyers for later-st age asset s cont inue to
delay exit s and squeeze ret urns for vent ure
capit al f irms. Compounding t he challenge
is an IPO environment t hat remains weak.
Af ter more t han t wo years of sluggishness,
IPO act ivity improved in 2010, but not at
t he pace seen prior to t he global recession.
Over t ime, t he indust ry faces t he prospect
t hat t he challenging f unding environment
for R&D-st age companies will place medtech
innovat ion at risk somet hing t hat is
discussed in greater det ail in t his years
Int roduct ion art icle, as well as in last years
report .
Type 2005 2006 2007 2008 2009 2010 H1 2011
Vent ure $3,214 $4,423 $5,108 $5,043 $4,809 $4,204 $2,211
IPO $988 $1,445 $1,816 $125 $103 $568 $329
Follow-on public offering $733 $1,060 $1,828 $1,435 $1,537 $961 $1,301
Debt $1,306 $10,341 $6,061 $4,506 $7,073 $17,030 $6,020
PIPE $702 $2,309 $1,095 $389 $655 $824 $201
Tot al $6,943 $19,578 $15,908 $11,498 $14,177 $23,587 $10,062
Capit al raised in t he US and Europe, 2005H1 2011 (US$m)
Pulseof t he indust ry Medical t echnology report 2011
27 Indust ry performance Financing
Unit ed St at es
US medtech companies at t racted more
t han US$16.7 billion in f inancing in
2010, a 37%increase over 2009 and t he
highest annual tot al since at least 1999.
Debt f inancing cont ributed US$11.4
billion (68%) of t he 2010 tot al, surpassing
t he prior record of US$6.8 billion raised in
2009. This t rend cont inued t hrough t he
f irst half of 2011, when debt const it uted
59%(US$4.9 billion) of t he US$8.3 billion
in medtech f inancing.
Wit h interest rates hovering near historic
lows, several large companies issued
corporate debt . Alt hough many of t hese
companies had healt hy cash posit ions,
t hey took advant age of t he low interest
rate environment to ref inance exist ing
debt , undert ake stock buybacks and
pursue acquisit ions.
Non-conglomerates t hat issued signif icant
amount s of debt over t he past 18 mont hs
include Medt ronic (US$4 billion),
Thermo Fisher Scient if ic (US$2.9 billion),
Life Technologies (US$2.3 billion),
Becton Dickinson (US$1 billion) and
St ryker (US$1 billion).
U
S
$
b
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2006 2005 2007 2008 2009 2010 H1 2011
Venture nancing Debt PIPE Follow-on public offering IPO
US medt ech financings, 2005H1 2011
Ind I
The pict ure was dramat ically different
for non-debt financings. Af ter excluding
debt f rom t he numbers, t he amount of
capit al raised by US medtech companies
act ually declined by 3%. While t his
represent s t he fourt h consecut ive year
of decline in t he amount of non-debt
f unding, we should note t hat t he decline
in 2010 was relat ively modest and t hat
t he f unding levels are st ill consistent
wit h t hose seen in years prior to t he
easy money era.
US medt ech financings wit hout debt offerings, 2005H1 2011
U
S
$
b
$0
$1
$2
$3
$4
$5
$6
$7
$8
2006 2005 2007 2008 2009 2010 H1 2011
Venture nancing PIPE Follow-on public offering IPO
As in prior years, companies in California,
Massachuset t s and Minnesot a at t racted
t he lions share of invest ment over t he
past 18 mont hs US$17.5 billion or 70%
of t he US tot al. However, t he nat ure of
f unding was quite different across t hese
clusters.
In Minnesot a, a remarkable 95%of t he
f unding was comprised of debt offerings
by just t wo mat ure companies Medt ronic
and St . Jude Medical. Consequent ly,
Minnesot a led t he nat ion in tot al capit al
raised, wit h a tot al of US$5.2 billion,
coming out ahead of Sout hern California
(US$4.6 billion) and Massachuset t s
(US$4.5 billion). However, t he number
of rounds in Minnesot a was much lower
t han in t he ot her leading clusters and was
more in line wit h t he number of rounds in
second-t ier clusters.
Conversely, in t he t hree ot her leading
f unding clusters Nort hern California,
Sout hern California and Massachusett s
f unding was more broadly dist ributed
in a larger number of relat ively small
rounds. Nort hern California dominated t he
vent ure capit al scene in bot h t he amount
raised (US$2.0 billion) and t he number of
f inancings (125).
Capit al raised in 2010 and H1 2011 by leading US regions
T
o
t
a
l

c
a
p
i
t
a
l

r
a
i
s
e
d

(
U
S
$
b
)
$0 $500 $1,000 $1,500 $2,000 $2,500
$0
$1
$2
$3
$4
$5
$6
Venture capital raised (US$m)
Minnesota
Southern California
New Jersey
New York
Maryland
Northern California
Massachusetts
Size of bubbles shows relat ive number of f inancings per region.
Not surprisingly, vent ure capit al which
represent s t he largest share of non-
debt f inancings also declined in 2010.
Vent ure f unding fell by 15%to US$3.5
billion, and t he average US$9.0 million
round size was t he lowest since 2004.
St ill, t he amount of vent ure capit al raised
in 2010 easily surpassed t he annual
averages seen before t he easy money
years. Through t he f irst half of 2011,
t here has been a slight upt ick in t he
medtech vent ure market , wit h about
US$1.9 billion (US$13.1 million per
round) invested.
US vent ure capit al, 2005H1 2011
T
o
t
a
l

a
m
o
u
n
t

r
a
i
s
e
d

(
U
S
$
b
)
A
v
e
r
a
g
e

d
e
a
l

s
i
z
e

(
U
S
$
m
)
$0
$1
$2
$3
$4
$5
2006 2005 2007 2008 2009 2010 H1 2011
Total amount raised
$0
$3
$6
$9
$12
$15
Average deal size
Five US medtech companies completed init ial public offerings
in 2010 and grossed a tot al of US$501 million. These f igures
surpassed t he combined tot als for 2008 and 2009 (4 IPOs for
US$206 million), but st ill fell well behind t he levels seen in 2007
(when 13 IPOs raised US$1.2 billion). In t he f irst half of 2011,
anot her t hree US companies went public, raising US$142 million.
It is wort h not ing t hat t he majority of t he companies t hat
have gone public since January 2010 have been in t he
Research and ot her equipment or Non-imaging diagnost ics
segment s. The relat ive scarcity of t herapeut ic device companies
may be one more sign t hat private and public investors are
increasingly interested in companies t hat are bet ter posit ioned to
avoid t he pitfalls of FDA approval and reimbursement .
US IPOs, 2010H1 2011
Company Ticker Locat ion Product t ype (disease) Gross raised (US$m) Quart er
DynaVox DVOX Pit t sburgh, Penn. Ot her 141 Q2 2010
GenMark Diagnost ics GNMK Pasadena, Calif. Non-imaging diagnost ics 28 Q2 2010
Pacif ic Biosciences PACB Menlo Park, Calif. Research and ot her equipment 200 Q4 2010
REVA Medical REVA San Diego, Calif. Therapeut ic devices (cardiovascular/ vascular) 78 Q4 2010
Complete Genomics GNOM Mount ain View, Calif. Research and ot her equipment 54 Q4 2010
Fluidigm FLDM Sout h San Francisco, Calif. Research and ot her equipment 86 Q1 2011
BG Medicine BGMD Walt ham, Mass. Non-imaging diagnost ics 40 Q1 2011
Kips Bay Medical KIPS Minneapolis, Minn. Therapeut ic devices (cardiovascular/ vascular) 16 Q1 2011
Source: Ernst & Young, BMO Capit al Market s, Capit al IQ and Windhover
The majorit y of US IPOs priced below t heir desired ranges...
...and most were down in subsequent t rading.
$0
$5
$10
$15
$20
$25
P
r
i
c
e

(
U
S
$
m
)
Range Offer price
DVOX GNMK PACB GNOM FLDM BGMD KIPS
Source: Ernst & Young and Renaissance Capit al
Only four members of t he current IPO
class DynaVox, Fluidigm, Kips Bay
Medical and Pacific Biosciences were
able to go public at a price wit hin t heir
desired range. In addit ion, more t han half
of all t he companies saw t heir share prices
fall below t heir launch prices as of 30
June 2011.
Wit h four medtech IPOs pulled since t he
fourt h quarter of 2010, and only four
more companies in t he queue as of 30
June 2011, we expect t he environment
for medtech IPOs will cont inue to be
challenging over t he coming mont hs.
Given t he recent market volat ility,
investors are likely to become more risk
adverse and t hose companies t hat do
find a posit ive recept ion by investors
will likely have to be mat ure businesses
wit h a clear pat h to profitability. Should
t he performance of t his recent batch
of IPOs improve, and overall public
medtech valuat ions begin to recover,
investors may be more willing to consider
platform/ technology companies t hat
have modest revenues as potent ial IPO
candidates. Unt il t hen, we may see more
US companies looking to go public on
overseas exchanges, like REVA Medical
and GI Dynamics, which went public on t he
Aust ralian Securit ies Exchange in recent
mont hs.
-60%
-40%
-20%
0%
20%
40%
60%
3
0

J
u
n
e

2
0
1
1

c
l
o
s
i
n
g

p
r
i
c
e

r
e
l
a
t
i
v
e

t
o

o
f
f
e
r
i
n
g

p
r
i
c
e
DVOX GNMK PACB RVA GNOM FLDM BGMD KIPS
Europe
European f inancing t rends were very
similar to t hose seen in t he US. As in
t he US, f unding rose to t he highest
level since at least 1999 in t his case,
surging by a remarkable 251%year over
year to US$7.0 billion. Once again, t his
was largely driven by corporate debt ,
which accounted for US$5.6 billion
an astounding 80%of all f unds raised.
This t rend cont inued in t he f irst half
of 2011, when debt accounted for
US$1.1 billion out of t he US$1.7 billion
in tot al f inancing.
As was t he case in t he US, debt f unding
was driven by a handf ul of companies.
Germanys Fresenius Medical Care f loated
t he largest cumulat ive amount of debt
(US$3.7 billion) during t he 18-mont h
period ending in June 2011. Fresenius
used t he proceeds for general corporate
purposes, working capit al needs, to repay
indebtedness and for acquisit ions.
European medt ech financings, 2005H1 2011
U
S
$
b
$0
$2
$4
$6
$8
2006 2005 2007 2008 2009 2010 H1 2011
Venture nancing Debt PIPE Follow-on public offering IPO
Af ter removing debt f inancing f rom
t he tot al, t he pict ure is very different .
While tot al f unding increased by 251%,
non-debt f inancing declined by 19%.
Europes f inancing performance was
even weaker because, unlike t he US,
public offerings (IPOs and follow-ons
combined) yielded a meager US$112
million in 2010. However, 2010 did see
a slight upt ick in vent ure invest ment , as
well as st rong growt h in PIPEs. Looking
at 2011, t he market s for bot h follow-
ons and PIPEs were ext remely weak
t hrough t he f irst six mont hs of t he year,
while vent ure f inancing showed some
encouraging year-over-year growt h.
However, given t he ongoing European
debt crisis, t he f unding environment
may become more difficult for some
public companies and IPO candidates.
European financings wit hout debt offerings, 2005H1 2011
U
S
$
b
$0
$1
$2
$3
2006 2005 2007 2008 2009 2010 H1 2011
Venture nancing PIPE Follow-on public offering IPO
Primarily driven by a series of large debt
offerings by Fresenius Medical Care,
Germany (US$4.2 billion) raised 48%
of tot al capit al in Europe, while t he UK
(US$1.5 billion) and t he Net herlands
(US$468 million) rounded out t he top
t hree. The UKs tot al was primarily t he
result of a debt offering by Smit h &
Nephew, whereas t he Net herlands tot al
was driven in part by Europes largest
medtech IPO, Tornier.
Israel (US$265 million) once again led
Europe in vent ure capit al raised. For
t he second consecut ive period, Israeli,
French, Brit ish and German medtechs
all raised more t han US$100 million of
vent ure capit al.
Capit al raised in 2010 and H1 2011 by leading European count ries
Size of bubbles shows relat ive number of f inancings per region.
T
o
t
a
l

c
a
p
i
t
a
l

r
a
i
s
e
d

(
U
S
$
b
)
$0 $50 $100 $150 $200 $250 $300
$0
$1
$2
$3
$4
$5
Venture capital raised (US$m)
Germany
United Kingdom
Israel
France
Sweden
Switzerland
Netherlands
Source: Ernst & Young, BMO Capit al Market s, Capit al IQ and Windhover
Company Ticker Locat ion Product t ype (disease) Gross raised (US$m) Quart er
Aposense APOS Israel Imaging 16 Q2 2010
Carmat ALCAR France Therapeut ic devices (cardiovascular/ vascular) 21 Q3 2010
CellCura CELL Norway Research and ot her equipment 3 Q4 2010
Stentys STNT France Therapeut ic devices (cardiovascular/ vascular) 30 Q4 2010
Tornier TRNX Net herlands Therapeut ic devices (ort hopedic) 166 Q1 2011
Tekka ALTKA France Therapeut ic devices (dent al) 16 Q1 2011
Biosynex ALBIO France Non-imaging diagnost ics 4 Q1 2011
European IPOs, 2010-H1 2011
After two years of virt ually no act ivity, t he European IPO market
began to show some signs of life as four companies went public in
2010, followed by anot her t hree in t he first half of 2011. However,
out side of t he Dutch ort hopedic company Torniers US$166 million
IPO, t he average IPO size for t he ot her six companies was only
US$15 million, well below t he average seen in t he US.
European vent ure invest ment was
up 4.7%to US$707 million in 2010,
compared to a 15%drop in t he US, and
t he amount raised in t he f irst half of
2011 was on pace to equal 2010 tot als.
Once again, despite t he drop relat ive to
t he height s achieved in 2007, vent ure
f unding compares favorably to levels seen
in 2005 and before (prior to t he easy
money years).
The average vent ure round in Europe
was roughly two-t hirds it s US counterpart
in 2010 (US$5.8 million vs. US$9.0
million). Unlike t he US, where seven of t he
ten largest vent ure capital rounds were
invested in eit her research and ot her
equipment or non-imaging diagnost ic
companies, only two of t he ten largest
rounds in Europe went toward t hese types
of companies. The five largest rounds
were raised by t herapeut ic device and
imaging companies.
European vent ure capit al, 2005H1 2011
T
o
t
a
l

a
m
o
u
n
t

r
a
i
s
e
d

(
U
S
$
m
)
A
v
e
r
a
g
e

d
e
a
l

s
i
z
e

(
U
S
$
m
)
$0
$200
$400
$600
$800
$1,000
2006 2005 2007 2008 2009 2010 H1 2011
Total amount raised
$0
$2
$4
$6
$8
$10
Average deal size
Unlike t heir US counterpart s, t he majority
of European IPO companies were
successf ul in pricing wit hin t heir desired
f iling ranges. By 30 June 2011, four of
t he seven were t rading up relat ive to t heir
IPO prices (wit h one company French
heart prost hesis company Carmat SA
seeing it s price increase by an astonishing
845%). As in t he US, a number of European
companies have pulled planned offerings
and t he mid-2011 IPO pipeline is very t hin.
European IPO performance class of 2010 and H1 2011
-100%
3
0

J
u
n
e

2
0
1
1

c
l
o
s
i
n
g

p
r
i
c
e

r
e
l
a
t
i
v
e

t
o

o
f
f
e
r
i
n
g

p
r
i
c
e
APOS ALCAR CELL STNT TRNX ALTKA ALBIO
0%
100%
200%
900%
Source: Ernst & Young, Renaissance Capit al and Google f inance
Kevin Davies
RBC Capit al Market s
Managing Direct or,
Head of Healt hcare Group
Ali Sat vat
Apax Part ners
Principal
Aileen St ockburger
Johnson & Johnson, Inc.
Vice President , Worldwide
Business Development
Bryant Zanko
St ryker Corporat ion
Vice President ,
Corporat e Business
Development
Medical t echnology has always been a deal-driven indust ry. Aft er
reaching loft y height s in 2006 and 2007, M&A act ivit y plummet ed
in t he wake of t he financial crisis and bot t omed out in 2009.
While we have seen a significant rebound in t ransact ion act ivit y
since t he beginning of 2010, a host of ot her challenges cont inue
t o cloud t he long-t erm prospect s of M&As, product innovat ion,
t radit ional business models and t he indust ry as a whole.
To bet t er underst and t he current M&A environment , we sat
down in July 2011 (prior t o t he market volat ilit y t hat occurred
in August ) wit h four vet erans of t he medt ech deal environment .
These include business development execut ives from t wo of
t he indust rys most act ive acquirers Johnson & Johnson and
St ryker. Our panel also includes insight s from an invest ment
banker from RBC Capit al Market s and a principal from t he privat e
equit y firm Apax Part ners who made a big splash in July when it
announced it s planned acquisit ion of Kinet ic Concept s.
Ernst & Young: Medt ech M&A act ivit y seems t o have rebounded
in 2010 and t he first half of 2011. What s driving t his upt ick?
Zanko: I believe we have a perfect confluence of factors. Wit h
st rong balance sheet s and lot s of cash, companies are looking to
M&A to boost growt h. Were also in a period of historically cheap
and, unt il most recent ly ,available credit and t here is pent-up
demand f rom mot ivated sellers who are looking to exit f rom t he
invest ment s t hey made before t he recession in 2008.
Davies: I agree wit h all of Bryant s comment s. Sust aining growt h
has been a challenge, as have a host of uncert aint ies surrounding
t he FDA approval process, healt h care reform in t he US and a
changing sales environment where payers and providers have more
inf luence over physician choices. Now t hat medtechs are beginning
to come to terms wit h t hese uncert aint ies and general economic
condit ions have improved companies are more confident about
conduct ing M&As.
Roundt able on mergers and acquisit ions
A fundamentally
new deal environment
39
This is not just about an upt ick in t he
number and size of t ransact ions it s
about a fundament ally different deal
environment .
Kevin Davies
Indust ry performance Mergers and acquist ions
This is not just about an upt ick in t he number and size of
t ransact ions it s about a f undament ally different deal
environment . Not too long ago, t he sector t raded at a premium
relat ive to t he S&P 500 because it s growt h typically exceeded
such benchmarks. That is no longer t he case, because t he growt h
rates of t he largest medtechs have slowed. To really boost revenue
growt h and price to earning mult iples, companies will need to go
beyond run-of-t he-mill t uck-in acquisit ions. Indeed, t he large
medtechs are looking for big breakt hrough technologies or seeking
to st rengt hen t heir posit ions in growing, mult ibillion-dollar market s.
In order to do t hat , acquirers need to do somet hing t hat s eit her big,
like Johnson & Johnsons acquisit ion of Synt hes, or t hey need to
t ake a calculated risk on new technologies. Even if a new technology
cost s hundreds of millions of dollars, it may be wort h making a bet
to enter a new mult ibillion-dollar market .
St ockburger: Even in t he downt urn, J&J never really stopped
looking for acquisit ions. However, smaller medtechs were
unwilling to sell because t heir valuat ions had nosedived and many
were unwilling to accept t he new market values due to market
uncert ainty. Today, people feel t he market is pret ty st able and t hey
are much more comfort able accept ing a reasonable acquisit ion
price for t heir company.
Ernst & Young: The indust ry faces increasing const raint s on
increment al product innovat ion and growing requirement s
t o demonst rat e healt h out comes for product approval and
reimbursement . How are t hese challenges affect ing medt ech
M&A st rat egies?
St ockburger: While t he development cycle in t he US is becoming
longer and more expensive, t hese pressures arent necessarily
affect ing our M&A st rategy. However, t he uncert ainty around t he
US product approval process and t he higher bar to demonst rate
outcomes to gain reimbursement is cert ainly impact ing emerging
companies. We are seeing fewer emerging companies focused on
early-st age R&D because t he pool of vent ure capit al isnt get t ing any
bigger. So while t he current impact on acquirers like J&J may be
minimal, t he ability of emerging companies to weat her t he current
environment may ult imately impact t he way we evaluate t he market
in t he long term.
Zanko: Five years ago, st rategic acquirers were pursuing riskier,
early-st age t ransact ions wit h signif icant cont ingent payout s,
milestone payment s and ot her risk-sharing mechanisms. In todays
heightened regulatory/ payer risk environment , t hey are instead
more likely to focus on de-risked deals. This may include larger,
later-st age t arget s, f irms t hat are profit able or cash f low-posit ive or,
at t he very least , generate signif icant sales.
To pay top dollar for a company in todays environment, it s product s
must have out standing healt h care economics, deliver superior
pat ient outcomes and make a meaningful difference for surgeons.
The target also needs to meet financial t hresholds not only long-
term payback, but also short-term earnings per share.
Davies: These pressures are cert ainly changing t he way acquirers
look at t arget s. In recent years, emerging companies wit h PMA
devices typically seek to f irst gain European approval and some
European reimbursement before t hinking about clinical t rials in t he
US. In t he current regulatory environment , large st rategic buyers
considering acquiring such emerging companies are increasingly
asking t rusted clinicians and sales reps to gauge t he need for and
clinical ut ility of t he t arget s device, as well as t he likelihood of
securing approval and reimbursement . If t he device passes t his
review, t he st rategic acquirer has more confidence t hat it can
demonst rate a st rong value proposit ion to payers.
Sat vat : I have a somewhat different perspect ive. As Bryant pointed
out , buyers are now moving to later-st age, de-risked asset s.
However, wit h t he t radit ional early-st age f unding model under
f ire, t here is more need t han ever for st rategic investors to acquire
f irms sooner in t he development cycle to avoid any potent ial gaps
in product innovat ion. While some buyers are acquiring early-st age
companies, t hey are proceeding wit h signif icant caut ion. They
are more willing t han ever to kill deals quickly if t he regulatory or
commercial hurdles become too cumbersome. I hope t hat st rategic
buyers remain cognizant of t he t remendous potent ial upside f rom
early-st age deals and balance t he potent ial upside along wit h t he
increased risks and any necessary hassles and headaches.
Ernst & Young: Today t here is a much great er emphasis on
selling t o payers and providers, in addit ion t o physicians. How
will t his change t he way medt echs look at pot ent ial t arget s
bot h companies and t echnologies?
Sat vat : Companies must ensure t hat t hey are sensit ive to t he
different requirement s of t heir many const it uent s physicians,
payers and providers who are all involved in t he purchasing
process. Each const it uent will have different needs and ment alit ies
and will be asking different quest ions. While we expect t hat many
product s will ret ain t heir exist ing physician preference st at us, it
is now more import ant t han before to spend t ime during bot h
t he diligence and t he post-t ransact ion periods to underst and t he
approach of payers whet her public or private given t he reality of
cost consciousness. Asset s t hat provide t ruly different iated clinical
outcomes in a cost-effect ive manner for t he healt hcare system will
become increasingly relevant t arget s.
St ockburger: This greater focus on payers and providers is
affect ing how we evaluate potent ial sales force and go to market
synergies. Tradit ionally, we have looked for synergies bet ween t he
t arget and ourselves wit h respect to t he sales force, t he product s
and t he interact ions wit h t he doctor. If a sales rep is calling on a
cardiologist , what else can we put in her bag? But now, if my sales
rep is no longer visit ing only a cardiologist , but also needs to see t he
purchasing agent , t hat is a much different sales st rategy.
As always, t he most at t ract ive product s are t hose t hat are wanted
by doctors, are cost effect ive and signif icant ly improve pat ient
outcomes. To succeed, companies will need to sat isfy all of t hese
requirement s. Unfort unately, we st ill see many small companies
only focused on one set of requirement s t hose of t he doctors.
They come up wit h great new technologies, but t heir bubbles are
burst when we st art asking about t heir reimbursement st rategy and
t hey havent formulated one yet . Well, t hat s a pret ty big omission
no mat ter how revolut ionary t he product is.
Zanko: I would argue t hat we have always sought to acquire asset s
t hat not only improve clinical outcomes but also deliver value to t he
system. We also t hink about regulatory pat hways, healt h economics
and how long it might take to secure reimbursement . Theres always
an element of risk and a t ime value of money, so we have to weigh all
of t hose in terms of how much were willing to pay for an opport unity,
how we might st ruct ure t he t ransact ion, t he risk profile, etc.
That being said, I do agree wit h Aileen. It is no longer enough
for companies to merely place a great product in t he hands of a
surgeon. All of t he st akeholders physicians, payers, providers and
even pat ient s play an import ant part in t he system and need to be
aligned. But we have to be caref ul in overst at ing t he decline in t he
physicians role in purchasing. I believe physicians whet her t hey
are employees or running t heir own pract ices will cont inue to play
a signif icant role in ident ifying t he best product s, procedures and
clinical approaches.
In t odays height ened regulat ory/ payer
risk environment , [st rat egic acquirers]
are inst ead more likely t o focus on de-
risked" Iarer, Iater-stae tarets, hrms
that are prchtabIe cr cash Bcw-pcsitive
cr, at the very Ieast, enerate sinihcant
sales.
Bryant Zanko
41 Indust ry performance Mergers and acquist ions
Ernst & Young: Recent ly, a number of medt ech companies have
been diversifying t heir operat ions by eit her acquiring services
capabilit ies or forming joint vent ures wit h non-t radit ional
players. Do you see t his t rend cont inuing?
St ockburger: We are always looking for opport unit ies t hat will
make our offerings more comprehensive. While t he idea of a holist ic
solut ion sounds great in t heory, in pract ice such arrangement s are
ext remely complicated. You need to come up wit h an offering t hat is
unique and you need to determine if your organizat ion will be bet ter
at delivering t hat offering t han ot hers.
I remember an example of an operat ing room consult ing company
we bought about 15 years ago. We ended up selling it t wo years
later because we could not make it a viable offering. Our customers
t hought t he services were great but t hey werent willing to pay for
t hem. It s one t hing to go out and buy a services company, but it s
anot her to determine how youre act ually going to use it to enhance
your offering or value proposit ion. You need to make sure you can
ident ify, underst and and communicate t he economics of such a
part nership.
Zanko: It s a misconcept ion t hat medtech manufact urers are not
already service-driven organizat ions. Medtech service cost s tend to
be baked into t he device price, but f rom supply chain management
to physician t raining and clinical support , service is a cornerstone of
t he medtech businesses.
That said, we are cert ainly commit ted to exploring new
opport unit ies to make our service offerings more comprehensive.
Wit h t he acquisit ion of Ascent , now St ryker Sust ainability Solut ions,
we not only focused on improving our relat ionships wit h surgeons,
but just as import ant ly, we demonst rated to hospit al CFOs and
procurement off icers t hat we were commit ted to delivering
out st anding product s at a lower cost . In short , I t hink anyt hing we
can do as an organizat ion to broaden our appeal wit h our varied
const it uent s, including service-related act ivit ies, should be essent ial
moving forward.
Sat vat : Like Aileen and Bryant, I t hink t hat combining a service
element wit h a product offering is ext remely important, as it
furt her enhances t he value t hat a medtech company can deliver. I
also believe t hat medtech companies will cont inue to look for ways
to incorporate technology into standard product s to make t hem
smarter. For example, component s such as sensors, which can t rack
and communicate informat ion in real t ime, add value for t he pat ient,
t he physician and t he payer. However, managing such complex,
real-t ime data is typically beyond t he exist ing core competencies of
most medtech companies. So, t hey will need to eit her acquire t hese
capabilit ies or to part ner wit h out side part ies to gain access to t hem.
Of course, as Aileen stated, t he real challenge for medtech companies
in developing t hese new service capabilit ies is finding ways for payers
to act ually pay for t hem. Theres a huge wasteland of ideas t hat
sounded great at t he out set but for which companies were unable to
obtain reimbursement.
Ernst & Young: How are vent ure funding challenges affect ing
medt ech innovat ion?
Davies: In t he current environment , VCs are already challenged
to invest in PMA-type clinical t rials. While t he t ime frames and t he
amount of capital needed have increased almost to t he levels
of clinical t rials for drugs ret urns and mult iples have not . VCs
and t heir portfolio companies can st ill earn huge ret urns wit h
a breakt hrough product and in t he right market , but t he risks
associated wit h a long, uncertain FDA approval pat h are too large for
many investors.
Companies must ensure t hat t hey are
sensit ive t o t he different requirement s
of t heir many const it uent s physicians,
payers and providers who are now
involved in t he purchasing process.
Ali Sat vat
Zanko: Kevin is right . There is no doubt t hat t he current US medtech
regulatory environment has clearly shifted t he VC invest ment
paradigm. VCs play a crit ical role in fostering indust ry innovat ion, but
t he addit ional risks associated wit h longer product approval t imes
are requiring t hem to invest more capital per company. By plowing
more of t heir money into t heir exist ing portfolio companies, VCs
are earning severely diluted rates of ret urn on t he back end and it is
also leaving t hem wit h less money to invest in ot her opport unit ies.
If VCs are not willing or able to fund clinical t rials for disrupt ive
technologies in t he fut ure, indust ry innovat ion will be hindered. And
unfort unately, I dont see corporates or t he US government filling in
t he funding gap. So t here is a real danger of diminished innovat ion.
Sat vat : Wit h t he aforement ioned challenges hindering t he ability
of VCs to invest in early-st age companies, I t hink t hat we may see
VCs increasingly move into t he growt h equity landscape. VCs may
t ake t heir product knowledge and sector expert ise to invest in later-
st age, revenue-producing companies. So, I t hink t hat t here may be
some morphing of t he exist ing VC model because t he overall market
challenges wont be going away anyt ime soon. This change in focus
could pose a subst ant ial problem for early-st age product innovat ion
and also make t he later-st age landscape more compet it ive.
Ernst & Young: A number of large companies have divest ed non-
core asset s over t he past several years. Are t here any common
t rends around t hese divest it ures? What st eps should companies
t ake t o maximize value in divest it ures?
Zanko: I dont believe t hese divest it ures are eit her a t rend or a
t heme. Rat her, t hey ref lect t act ical portfolio management . When
St ryker sold it s Physiot herapy business, t here wasnt necessarily a
change in t he companys overall st rategy. Rat her, we believed t hat
we werent t ruly maximizing t he value of t hat asset and t hat new
owners could possibly do a bet ter job.
St ockburger: A divest it ure is of ten viewed as a failure on t he part
of t he seller but , as Bryant st ated, t hey are really about portfolio
management moving asset s to opt imize a book of business. I
would rat her invest in an asset t hat is st rategic to t he company t han
one t hat is not core to our mission.
I cert ainly see more and more companies performing or considering
divest it ures. Corporate business development teams are openly
t alking about divest it ures, and private equity investors are inquiring
about asset s t hat might potent ially be spun off. I t hink t his level of
interest in divest it ures by potent ial buyers and sellers is good for
everyone.
Sat vat : From my experience, management teams f rom spun-out
companies are of ten very support ive of a divest it ure. Generally,
t hese propert ies havent received much focus f rom t he parent
company, and t hey arent able to properly reorganize or revit alize
t heir operat ions unt il and unless t hey are spun out .
In order to maximize value as an acquirer of divested asset s, we
have to go t he ext ra mile in performing due diligence, part icularly
around regulatory issues. Is t here anyt hing about t his asset t hat
I dont underst and? Is t here anyt hing about a system t hat Im
inherit ing t hat might be challenging? Also, am I buying just an asset
or instead a platform t hat can be developed and grown f urt her?
Can I integrate it wit h t hose t hat I already own? Finally, and most
import ant ly, it s import ant to focus on asset s t hat are market
leaders t hat st ill have an opport unity to grow whet her t hat s
wit h an inf usion of addit ional capit al and resources or t he backing
of an exist ing management team wit h renewed focus or a new
management team t hat can bring f resh ideas.
It s one t hing t o go out and buy a
services company, but it s anot her t o
det ermine how youre act ually going t o
use it t o enhance your offering or value
proposit ion. You need t o make sure you
can ident ify, underst and and communicat e
t he economics of such a part nership.
Aileen St ockburger
Ernst & Young: How is t he uncert aint y around US healt h care
reform and t he FDA approval process affect ing deals? Has t his
driven you t o focus more on acquisit ion t arget s out side t he US?
Zanko: While weve historically seen US companies pursue t he route
of developing out side US (OUS) dat a and commercial experience
before earning product approval in t he US, we are now seeing
somet hing new US-based medtechs building t heir ent ire business
case overseas and bypassing t he US altoget her. As a large company,
we would st ill prefer to see a pat hway to US approval before
acquiring a company. The US is st ill t he most import ant healt h
care market in t he world, and to just ify t he values t hat t heir vent ure
investors want , companies have to show a st rategy for entering
t he US.
Of course, t he bigger issue is t hat we need to ensure t hat innovat ive
product s can f irst be commercialized in t he US so t hat pat ient s here
can benef it sooner. Unfort unately, unt il posit ive regulatory reform
occurs in t he US, medtech innovat ion will cont inue to shif t overseas.
St ockburger: I dont believe t he lack of visibility in t he US has
changed our M&A st rategy at all. We cert ainly see many US-based
medtechs avoiding t he FDA approval process and going to Europe.
While it may offer a quicker and cheaper alternat ive to product
approval and reimbursement , we st ill would like to see a US product
as well. Like Bryant , we also like business plans t hat t ake t he US into
considerat ion.
The ability of a potent ial t arget to event ually receive US product
approval and reimbursement is very import ant . Yes, t he US FDA
approval process is long and expensive, but it is also necessary.
Davies: While I agree wit h Bryant and Aileen t hat t he US is st ill an
ext remely import ant market , emerging companies OUS st rategies
may act ually open up greater opport unit ies elsewhere. If a device is
being paid for in Europe, why couldnt a company also make money
in underpenet rated market s such as China, India and Brazil? Also,
wit h a lot of t heir cash sit t ing offshore, large medtechs are very
interested in using t hat cash for more non-US t ransact ions.
Sat vat : The lack of clarity in t he US product approval process has
increased our spending on external advisors to ensure t hat we have
as complete an underst anding as possible of issues around asset s
t hat we purchase and a means of remedying challenging regulatory
sit uat ions. Also, as a global private equity f irm, we have t he ability
not only to leverage learnings f rom one geography to anot her, but
also t he f lexibility to invest in asset s across various geographies.
Ernst & Young: Aft er a brief hiat us, privat e equit y (PE) appears
t o have reignit ed it s int erest in medt ech. What is your view on
PEs ret urn t o t he market ?
Zanko: As long as t he cost of capit al remains low and companies
cont inue to produce good corporate earnings, I t hink PE is going
to be a player in t he medtech market . That being said, we dont
typically run into PEs on our deals, especially for t arget s t hat have
signif icant synergies wit h our exist ing core business. However, if we
were to look at an ent ire new platform, where we dont really have
synergies, I can cert ainly see PE becoming a compet itor.
St ockburger: Private equity definitely seems to be back in force.
I seem to receive a phone call a day f rom PEs asking if J&J is
selling anyt hing. In fact , we know t hat PE f irms were interested in
Synt hes an acquisit ion on which we are spending about US$21
billion! Consider t hat if you t hink private equity doesnt have serious
sums of money to spend. More import ant , t hey have banks lined up
t hat are willing to f inance medtech-related t ransact ions. It looks like
t he medtech deal environment is about to get even more interest ing
in t he mont hs ahead.
Mergers and acquisit ions
Let s make a deal
The big pict ure
Type 2007 2008 2009 2010 H1 2011
Number of M&As 309 238 171 201 135
Tot al value of M&As $61,968 $30,709 $15,725 $30,624 $47,340
Average deal size $348 $274 $175 $243 $351
Number of M&As more t han US$1 billion 15 6 2 7 7
M&As in t he US and Europe, 2007H1 2011 (US$m)
Average deal size calculat ed using deals wit h announced values.
The appet ite for medical technology asset s
rebounded in 2010. A year af ter t he market
for medtech mergers and acquisit ions
bot tomed out , M&As involving US and
European medtech companies tot aled nearly
US$31 billion, almost double t he amount
seen in 2009. Taking advant age of st rong
balance sheet s, healt hy cash f lows, pent-up
demand, historically low interest rates and
steady valuat ions, buyers used acquisit ions
to boost revenues or diversify. There was
also evidence t hat more acquirers were
get t ing back into t he game af ter sit t ing on
t he sidelines for t he bet ter part of t wo years,
as t he number of M&As increased f rom
171 in 2009 to 201 in 2010. This upt ick
cont inued t hrough t he f irst half of 2011,
when more t han US$47.3 billion wort h of
t ransact ions were announced.
M&As ranged from riskier, long-term bet s on
breakt hrough technologies to st rategic t uck-
in acquisit ions. There was also a notable
increase in t he number of large takeovers.
The number of M&As valued at more t han
US$1 billion ret urned to pre-recessionary
levels and t he t hird-largest M&A (Johnson
& Johnson/ Synt hes) of t he last decade
occurred during t he first half of 2011.
Private equity (PE) ret urned to t he scene in
medtech M&A. In a number of recent cases,
PE f irms were act ively involved in pursuing
high-prof ile t arget s such as Synt hes,
Beckman Coulter and Ast raZenecas dent al
division Ast ra Tech even t hough ot her
buyers ult imately prevailed. In July 2011,
Apax Part ners (Apax) and t wo Canadian
pension f irms revealed t heir intent ion to
acquire Kinet ic Concept s (KCI) for US$6.3
billion. Meanwhile, TPG made waves by
announcing a US$2 billion buyout of
Immucor. Should t he Apax/ KCI deal go
t hrough (in late August , private equity-
owned ConvaTec reportedly made an offer
to buy KCI), it would be t he largest leveraged
buyout since t he collapse of Lehman
Brot hers in 2008. As accessing subst ant ial
amount s of capit al has become easier, PE
f irms are expected to cont inue t heir push
into medtech, at t racted by t he sectors
sound f undament als, perceived low public
valuat ions and internat ional expansion
opport unit ies.
As we go to press in September 2011,
concerns around sovereign debt and a
potent ial double-dip recession has resulted in
some t ightening of t he credit market s. While
t his will not affect large st rategic acquirers, it
will make access to capital more challenging
for small to midsize companies. In t he
longer term, an unpredictable regulatory
environment, part icularly in t he US,
increased pricing pressures, changing sales
models and impending healt h care reforms
could drive more indust ry consolidat ion.
Acquirers will likely cont inue to shy away
from riskier, early-stage t ransact ions in favor
of deals t hat t hey perceive to have less risk
acquisit ions of later-stage firms t hat produce
revenue and, in many cases, t urn a profit.
Source: Ernst & Young, Capit al IQ, Windhover and BMO Capit al Market s
S
h
a
r
e

o
f

t
o
t
a
l

d
e
a
l

v
a
l
u
e
2000-01 2002-03 2004-05 2006-07 2008-09 2010-Jun 2011
Other Pharma Private equity Medtech Conglomerate
0%
20%
40%
60%
80%
100%
US and European M&As by t ype of buyer, 2000H1 2011
S
h
a
r
e

o
f

t
o
t
a
l

d
e
a
l

v
a
l
u
e
2000-01 2002-03 2004-05 2006-07 2008-09 2010-Jun 2011
Other Pharma Private equity Medtech Conglomerate
0%
20%
40%
60%
80%
100%
The value of M&As involving US medtech
companies surged 84%to US$27.1 billion
in 2010, driven by healt hy balance
sheet s and cash reserves, recept ive
and inexpensive capit al market s, st able
company valuat ions and pent-up demand
f rom buyers looking to accelerate
revenue growt h. Headlined by t he
announced US$21.3 billion purchase of
Synt hes by Johnson & Johnson, t he deal
environment remained heated t hrough
t he f irst half of 2011. While average deal
sizes have spiked in t he years cont aining
mega deals, median deal sizes have
remained largely consistent over t he past
decade. The median deal size in 2010
was US$53 million.
US mergers and acquisit ions, 2000H1 2011
Total deal value Average deal size Total deal value of mega deals (>US$10b)
2008 2009 2010 H1 2011 2006 2005 2002 2000 2001 2003 2004 2007
T
o
t
a
l

d
e
a
l

v
a
l
u
e

(
U
S
$
b
)
$0
$200
$400
$600
$800
$1,000
$0
$20
$40
$60
$80
$100
A
v
e
r
a
g
e

d
e
a
l

s
i
z
e

(
U
S
$
m
)
European medtech M&As bounced back
wit h renewed hope in 2010. The value
of M&A t ransact ions surpassed 2009s
abysmal result s by more t han US$10
billion (327%), wit h more t han half of t he
years tot al being driven by Germanys
Merck KGaAs acquisit ion of Millipore.
Mercks t ransact ion enabled t he company
to f urt her diversify it s material science
and t herapeut ic portfolio by incorporat ing
Millipores life science tool product s. M&A
act ivity cont inued to grow in t he f irst half
of 2011, wit h t he value of deals on pace
to exceed t he 2007-2010 aggregate
average.
European mergers and acquisit ions, 2007H1 2011
T
o
t
a
l

d
e
a
l

v
a
l
u
e

(
U
S
$
b
)
0
10
20
30
2008 2007 2009 2010 H1 2011
A
v
e
r
a
g
e

d
e
a
l

s
i
z
e

(
U
S
$
m
)
0
$130
$260
$390
$
Total deal value Average deal size
There has been a signif icant upt ick in
t he number of M&As valued at more
t han US$1 billion. There were 14 such
t ransact ions bet ween January 2010 and
June 2011, compared to only 4 during
t he prior 18-mont h period. A wide variety
of acquirers were behind t hese sizeable
purchases. There were indust ry st alwart s
making t heir f irst large purchases in
years, big pharmas and conglomerates
looking to f urt her diversify t heir
portfolios and even a PE f irm making
t he f irst US$1 billion-plus PE-backed
purchase since t he onset of t he global
recession.
Acquiring company Locat ion Acquired company Locat ion Value (US$m)
Merck KGaA Germany Millipore US $7,200
Covidien US ev3 US $2,600
Thermo Fisher Scient if ic US Dionex US $2,100
St ryker US
Boston Scient if ic
(neurovascular division)
US $1,500
St . Jude Medical US AGA Medical US $1,300
Galderma Swit zerland Q-Med Sweden $1,200
Cinven UK Sebia France $1,100
3M US Arizant US $810
Medt ronic US Ardian US $800
Novart is (Alcon) Swit zerland LenSx Lasers US $744
Select ed M&As, 2010
Acquiring company Locat ion Acquired company Locat ion Value (US$m)
Johnson & Johnson US Synt hes Swit zerland $21,300
Danaher US Beckman Coulter US $6,800
Thermo Fisher Scient if ic US Phadia Sweden $3,500
Endo Pharmaceut icals US American Medical Systems US $2,900
Terumo Japan CaridianBCT US $2,625
Dent sply Internat ional US
Ast ra Tech (division of
Ast raZeneca)
UK $1,800
Forest Laboratories US Clinical Dat a US $1,200
Shire UK Advanced Biohealing US $750
Select ed M&As, H1 2011
St rategic acquirers are increasingly
relying on milestone payment s and
st ruct ured earn-out s to help pass some of
an acquisit ions risk to t he seller. Bet ween
2008 and 2010, t he percent age of US
and European M&As wit h milestone
provisions t ripled, f rom 5%to 15%. At
t he same t ime, milestones account for
more of t he tot al potent ial value of M&As,
growing f rom 9%to nearly 40%in t he
f irst half of 2011. Boston Scient if ic, in
part icular, has act ively used milestone
payment s in it s acquisit ions (e.g.,
Ast hmat x, At ritech and Sadra Medical),
as well as when it sold it s neurovascular
division to St ryker.
Wit h buyers cont inuing to have more
bargaining power part icularly wit h cash-
st rapped early-st age medtechs
we expect t hese t rends to cont inue in t he
immediate f ut ure.
An increasing share of medt ech M&As have milest ones ...
and t hey represent a larger share of t ot al deal value in t hese M&As.
N
u
m
b
e
r

o
f

M
&
A
s
2008 2007 2009 2010 H1 2011
0
4
8
12
16
20
P
e
r
c
e
n
t
a
g
e

o
f

M
&
A
s

w
i
t
h

m
i
l
e
s
t
o
n
e

p
a
y
m
e
n
t
s
0%
6%
3%
9%
12%
15%
Number of M&As with milestones Number of M&As with milestones/total number of M&As
P
o
t
e
n
t
i
a
l

v
a
l
u
e

(
U
S
$
b
)
2008 2007 2009 2010 H1 2011
$0.0
$0.4
$0.8
$1.2
$1.6
$2.0
S
h
a
r
e

o
f

t
o
t
a
l

v
a
l
u
e
0%
20%
10%
30%
40%
50%
Total value of M&As with milestones Total value of milestones/
total value of all M&As with milestones
Ort hopedic, Research and ot her equipment and
Cardiovascular/ vascular companies received t he largest share
of M&A dollars in 2010 and t he first half of 2011, while Non-
imaging diagnost ics companies were most in demand. Since
t he beginning of 2007, Research and ot her equipment and
Non-imaging diagnost ic companies have accounted for
a large port ion of t he total value of M&A deals. Given t heir
general insulat ion from complex FDA regulat ions and st ringent
reimbursement pressures, it is not surprising t hat acquirers are
increasingly att racted to t hese two product categories.
US and European M&As by segment
20072009 2010H1 2011
Segment Number of deals Value (US$m) %of t ot al deal value Number of deals Value (US$m) %of t ot al deal value
Therapeut ics devices 179 $47,246 43.6% 86 $44,995 57.7%
Mult iple 14 $9,099 8.4% 1 $14 0.0%
Opht halmic 11 $8,820 8.1% 3 $746 1.0%
Cardiovascular/ vascular 36 $8,153 7.5% 26 $8,803 11.3%
Ort hopedic 30 $7,652 7.1% 11 $22,578 29.0%
Respiratory 9 $5,215 4.8% 3 $734 0.9%
Wound care 11 $2,391 2.2% 3 $831 1.1%
Aest het ics 10 $1,688 1.6% 7 $1,582 2.0%
Ear, nose and t hroat 6 $1,496 1.4% 2 $142 0.2%
All ot hers 52 $2,732 2.5% 30 $8,566 11.0%
Non-imaging diagnost ics 82 $34,734 32.1% 39 $5,772 7.4%
Research and ot her equipment 45 $14,365 13.3% 31 $25,410 32.6%
Ot her 55 $8,444 7.8% 20 $2,252 2.9%
Imaging 19 $3,577 3.3% 11 $536 0.7%
Char t only shows deals where deal values were publicly disclosed.
Scope of t his report
Defining medical technology
In t his report , medical technology (medtech)
companies are def ined as companies t hat
primarily design and manufact ure medical
technology equipment and supplies and are
headquartered wit hin t he United St ates or
Europe. For t he purposes of t his report , we
have placed Israels dat a and analysis wit hin
t he European market , and any grouping
of t he US and Europe has been referred to
as global. This wide-ranging def init ion
includes medical device, diagnost ic, drug
delivery and analyt ical/ life science tool
companies but excludes dist ributors and
service providers such as cont ract research
organizat ions or cont ract manufact uring
organizat ions.
By any measure, medical technology is an
ext raordinarily diverse indust ry. Medtech
companies run t he gamut f rom vent ure
backed, pre-revenue st art-ups to mat ure
global conglomerates. The product s of t hese
companies range f rom relat ively inexpensive
component s to complex, mult imillion-dollar
magnet ic resonance imaging (MRI) systems.
Any meaningf ul analysis of t he indust ry
must t herefore measure performance not
only across t he ent ire indust ry but also
wit hin individual segment s.
While developing a consistent and
meaningf ul classif icat ion system is
import ant , it is anyt hing but st raightforward.
Exist ing t axonomies somet imes segregate
companies into scores of t hinly populated
categories, making it difficult to ident ify
and analyze indust ry t rends. Furt hermore,
t hey tend to combine categories based
on product s (such as imaging or tools)
wit h t hose based on diseases t argeted by
t hose product s (such as cardiovascular
or oncology), which makes it harder to
analyze t rends consistent ly across eit her
dimension. To address some of t hese
challenges, we have categorized medtech
companies across bot h dimensions
product s and diseases t argeted. All publicly
t raded medtech companies were classif ied
as belonging to one of f ive broad product
groups:
Imaging: companies developing product s
used to diagnose or monitor condit ions
via imaging technologies, including
product s such as MRI machines,
computed tomography (CT) and X-ray
imaging and opt ical biopsy systems
Non-imaging diagnost ics: companies
developing product s used to diagnose
or monitor condit ions via non-imaging
technologies, which can include pat ient
monitoring and in vit ro test ing
equipment
Research and ot her equipment :
companies developing equipment
used for research or ot her purposes,
including analyt ical and life science tools,
specialized laboratory equipment and
f urnit ure
Therapeut ic devices: companies
developing product s used to t reat
pat ient s, including t herapeut ic medical
devices, tools or drug delivery/ inf usion
technologies
Ot her: companies developing product s
LhaL do noL lL in any ol Lhese caLeqories
were classiled in Lhis seqmenL
In addit ion to product groups, t his
report t racks conglomerate companies
t hat derive a signif icant part of t heir
revenues f rom medical technologies.
While a conglomerate medtech divisions
technology could technically fall into one of
the product groups listed above (e.g., General
Elect ric into imaging and Allergan into
t herapeut ic devices ), all conglomerate
dat a is kept separate f rom t hat of t he non-
conglomerates. This is due to t he fact t hat ,
while conglomerates report revenues for
t heir medtech divisions, t hey typically do
not report ot her financial result s for t heir
medtech divisions, such as research and
development or net income.
Conglomerat e companies:
Unit ed St at es
3M Healt h Care
Abbot t Diagnost ics & Vascular
Agilent Technologies: Life Sciences
Allergan: Medical Devices
Baxter: Medical Product s
Corning Life Sciences
Danaher: Medical Technologies
Endo Pharmaceut icals: Devices and
Services
GE Healt hcare
Hospira: Medicat ion Management
Systems and ot her devices
Johnson & Johnson Medical
Devices & Diagnost ics
Kimberly-Clark Healt h Care
Pall Life Sciences
1elelex Medical
Europe
Agfa-Gevaert
Alcon Surgical
Ast raZeneca: Ast ra Tech
Beiersdorf: Hansaplast
Carl Zeiss Meditec
Drger Medical
Philips Healt hcare
Roche Diagnost ics
Siemens Healt hcare
51 Achnowledgement s
Project leadership
Gaut am Jaggi and Glen Giovannet t i once again acted as
co-editors-in-chief for Pulse of t he indust ry. Their st rategic and
t hemat ic guidance were invaluable in t he product ion of t his report
and t hey ensured t hat it s ent ire content f rom cover to cover
was clear and concise, and properly touched upon each of t he
major t hemes t hat have been impact ing t he indust ry. Gaut am was
also responsible for writ ing t he Innovat ion and risk int roductory
art icle, as well as co-aut horing t he t hree indust ry performance
art icles.
John Babit t provided st rategic vision for t his report and brought
his years of experience to t he ident if icat ion and analysis of indust ry
t rends. John was also inst rument al in lining up and conduct ing
interviews for t he A f undament ally new deal environment panel.
As t he project manager for Pulse of t he indust ry, Jason Hillenbach
had responsibility for t he ent ire content and quality of t his
publicat ion. He was also account able for t he collect ion and analysis
for much of t he report s dat a, and co-aut hored t he t hree primary
art icles wit hin t he Indust ry performance sect ion. In addit ion,
Jason conducted t he interviews for, and was t he editor of, t he A
f undament ally new deal environment panel.
St rat egic direct ion
Special t hanks to Heinrich Christ en, Les Clifford and
Dave DeMarco, who each played a key role in t he development
of t his report . They provided invaluable insight s and f irst-hand
experience t hat was used as t he foundat ion for t he report s key
t hemes and focus.
Dat a analysis
The research, collect ion and analysis of f inancing dat a and
European f inancial performance dat a was conducted by
UIrike Traut h, Nina Hahn and Eva-Marie Hilgart h. Ulrike also
provided addit ional analysis for a number of t ables and chart s
t hroughout t he report . Namrit a Negi was responsible for pulling
much of t he dat a used in t he Under pressure t ables. Chris
Dumelle and Jimmy Zhong also assisted wit h dat a collect ion for
many of t he chart s and t ables t hroughout t he publicat ion.
Connie Aust in, Samir Goncalves, Susan Jones, Kim Medland and
Namrit a Negi helped wit h t he fact-checking and quality review of
t he dat a t hroughout t he publicat ion.
Writ ing and edit ing assist ance
Russell Colt on brought his incomparable skills as a copyeditor
and proof reader to t his publicat ion. His pat ience, hard work and
at tent ion to det ail were unparalleled. Richard Roback applied his
proof reading expert ise t hroughout t he report .
Design and layout
This publicat ion would not look t he way it does wit hout t he
diligence and creat ivity of Oliver Voigt . As lead designer, Oliver was
responsible for managing and implement ing t he publicat ions design
and layout . Addit ional design assist ance was provided by Robert
Fernandez (chart illust rat ions).
Market ing and support
Public relat ions effort s related to t he report and it s launch were
led by Susan Jones. Greg Kelley f rom t he PR f irm Feinstein Kean
Healt hcare served as an integral part ner as well.
Acknowledgment s
Dat a for t he chart s on pages 6 and 7 were obt ained f rom
t he following sources: Ernst & Young, Centers for Disease
Cont rol and Prevent ion, Accent ure, Healt h Affairs, Centers for
Medicare and Medicaid Services, Dow Jones Vent ureSource,
Windhover, Nat ional Vent ure Capit al Associat ion and US Food
and Drug Administ rat ion.
Data exhibit index
The rich get richer? 4
Dist ribut ion of US and European vent ure invest ment by round, 2005-H1 2011 5
US and European early vent ure rounds by product class and disease st at e 8
A t ale of t wo t rends 9
Medical t echnology at a glance, 2010 16
US public medt ech cash index 17
European public medt ech cash index 17
US medt ech at a glance, 2010 18
US medt ech non-conglomerat es, public company f inancial highlight s by region, 2010 18
Change in US t herapeut ic device companies revenue and net income by disease cat egory, 200910 19
Select ed fast -growing medt echs by revenue growt h, 200510 20
The billion dollar club, 200610 20
US market capit alizat ion, 2009H1 2011 21
US market capit alizat ion by size, 2009H1 2011 21
European medt ech at a glance 22
European medt ech non-conglomerat es, public company f inancial highlight s by region, 2010 22
Change in European t herapeut ic device companies revenue and net income by disease cat egory, 200910 23
Select ed fast -growing medt echs by revenue growt h, 200510 24
European market capit alizat ion, 2009H1 2011 25
European market capit alizat ion by size, 2009H1 2011 25
Capit al raised in t he US and Europe, 2005H1 2011 26
US medt ech f inancings, 2005H1 2011 27
53 Dat a exhibit index
US medt ech f inancings wit hout debt offerings, 2005H1 2011 28
Capit al raised in 2010 and H1 2011 by leading US regions 29
US vent ure capit al, 2005H1 2011 30
US IPOs, 2010H1 2011 31
The majorit y of US IPOs priced below t heir desired ranges... 32
...and most were down in subsequent t rading. 32
European medt ech f inancings, 2005H1 2011 33
European f inancings wit hout debt offerings, 2005H1 2011 34
Capit al raised in 2010 and H1 2011 by leading European count ries 35
European IPOs, 2010-H1 2011 35
European vent ure capit al, 2005H1 2011 36
European IPO performance class of 2010 and H1 2011 37
M&As in t he US and Europe, 2007H1 2011 44
US and European M&As by t ype of buyer, 2000H1 2011 44
US mergers and acquisit ions, 2000H1 2011 45
European mergers and acquisit ions, 2007H1 2011 46
Select ed M&As, 2010 47
Select ed M&As, H1 2011 47
An increasing share of medt ech M&As have milest ones ... 48
and t hey represent a larger share of t ot al deal value in t hese M&As. 48
US and European M&As by segment 49
Global Life Sciences Cent er
Bost on Glen Giovannet t i glen.giovannet t i@ey.com +1 617 585 1998
Connie Aust in connie.aust in@ey.com +1 617 585 1912
Gaut am Jaggi gaut am.jaggi@ey.com +1 617 585 3509
Jason Hillenbach jason.hillenbach@ey.com +1 617 375 1244
New York/ New Jersey Carolyn Buck Luce carolyn.buck-luce@ey.com +1 212 773 6450
Zrich Pat rick Flochel pat rick.flochel@ch.ey.com +41 58 286 4148
Aust ralia
Brisbane Winna Brown winna.brown@au.ey.com +61 7 3011 3343
Melbourne Don Brumley don.brumley@au.ey.com +61 3 9288 8340
Sydney Gamini Mart inus gamini.mart inus@au.ey.com +61 2 9248 4702
Aust ria
Vienna Erich Lehner erich.lehner@at .ey.com +43 1 21170 1152
Belgium and t he Net herlands
The Hague Andrea Vogel andrea.vogel@nl.ey.com +31 88 40 74070
Brazil So Paulo Frank de Meijer frank-de.meijer@br.ey.com +55 11 2573 3383
Canada
Mont ral Paul Karamanoukian paul.karamanoukian@ca.ey.com +1 514 874 4307
China Beijing St anley Chang st an.chang@cn.ey.com +86 10 5815 3628
Czech Republic Prague Pet r Knap pet r.knap@cz.ey.com +420 225 335 582
Denmark Copenhagen Benny Lynge Srensen benny-lynge.soerensen@dk.ey.com +45 35 87 25 25
Finland Helsinki Timo Virkil t imo.virkila@fi.ey.com +358 207 280 190
France Paris Virginie Lefebvre-Dut illeul virginie.lefebvre-dut illeul@ey-avocat s.com +33 1 55 61 10 62
Germany Mannheim Siegfried Bialojan siegfried.bialojan@de.ey.com +49 621 4208 11405
Munich Elia Napolit ano elia.napolit ano@de.ey.com +49 89 14331 13106
India Mumbai Murali Nair murali.nair@in.ey.com +91 22 61920000
Hit esh Sharma hit esh.sharma@in.ey.com +91 22 61920620
Ireland Dublin Nick Redmond nick.redmond@ie.ey.com +353 1 221 2322
Israel Tel Aviv Yoram Wilamowski yoram.wilamowski@il.ey.com +972 3 623 2519
It aly Milan Lapo Ercoli lapo.ercoli@it .ey.com +39 02 7221 2546
Japan Tokyo Hironao Yazaki yazaki-hrn@shinnihon.or.jp +81 3 3503 2165
New Zealand Auckland Jon Hooper jon.hooper@nz.ey.com +64 9 300 8124
Norway Trondheim/ Oslo Willy Eidissen willy.eidissen@no.ey.com +47 918 63 845
Global medical
technology contact s
55 Global medical t echnology cont act s
Poland Warsaw Mariusz Wit alis mariusz.wit alis@pl.ey.com +48 225 577950
Russia Moscow Dmit ry Khalilov dmit ry.khalilov@ey.com +7 495 755 9757
Singapore Singapore Swee Ho Tan swee.ho.t an@sg.ey.com +65 6309 8238
Sout h Africa Johannesburg Sarel St rydom sarel.st rydom@za.ey.com +27 11 772 3420
Sweden Uppsala Bjrn Ohlsson bjorn.ohlsson.uppsala@se.ey.com +46 18 19 42 22
Swit zerland Zrich Heinrich Christ en heinrich.christ en@ch.ey.com +41 58 286 3485
Basel Jrg Zrcher juerg.zuercher@ch.ey.com +41 58 286 84 03
Unit ed Kingdom London Les Clifford lclifford@uk.ey.com +44 20 7951 8600
Reading Ian Oliver ioliver@uk.ey.com +44 11 8928 1197
Unit ed St at es Bost on Joseph Bruno joseph.bruno@ey.com +1 617 585 1944
Kevin Casey kevin.casey1@ey.com +1 617 585 1817
Michael Donovan michael.donovan1@ey.com +1 617 585 1957
Frank Mahoney francis.mahoney@ey.com +1 617 585 6800
Chicago Jo Ellen Helmer joellen.helmer@ey.com +1 312 879 5262
Houst on Carole Faig carole.faig@ey.com +1 713 750 1535
Michigan David Hoogendoorn david.hoogendoorn@ey.com +1 616 336 8299
Minneapolis William Miller william.miller@ey.com +1 612 371 6984
Ajay Gupt a ajay.gupt a@ey.com +1 612 371 8325
New York/ New Jersey John Babit t john.babit t @ey.com +1 212 773 0912
Dave DeMarco dave.demarco@ey.com +1 732 516 4602
Orange Count y Dave Copley david.copley@ey.com +1 949 437 0250
Kim Let ch kim.let ch@ey.com +1 949 437 0244
Philadelphia St eve Simpson st ephen.simpson@ey.com +1 215 448 5309
Raleigh Michael Const ant ino michael.const ant ino@ey.com +1 919 981 2802
San Diego Dan Kleeburg daniel.kleeburg@ey.com +1 858 535 7209
San Francisco Bay Area Richard Ramko richard.ramko@ey.com +1 650 802 4518
Scot t Morrison scot t .morrison@ey.com +1 650 802 4688
Chris Nolet chris.nolet @ey.com +1 650 802 4504
Ernst & Young
Assurance | Tax | Transact ions | Advisory
About Ernst & Young
Ernst & Young is a global leader in assurance, t ax,
t ransact ion and advisory services. Worldwide, our
141,000 people are unit ed by our shared values and
an unwavering commit ment t o qualit y. We make a
difference by helping our people, our client s and our
wider communit ies achieve t heir pot ent ial.
Ernst & Young refers to t he global organizat ion of
member firms of Ernst & Young Global Limited, each
of which is a separate legal ent ity. Ernst & Young Global
Limited, a UK company limited by guarantee, does not
provide services to client s. For more informat ion about
our organizat ion, please visit www.ey.com.
2011 EYGM Limit ed.
All Right s Reserved.
EYG no. FN0008
1107-1271824_SF
Ernst & Young is committed to reducing it s impact
on t he environment . This document has been printed
using recycled paper and vegetable-based ink.
This publicat ion cont ains informat ion in summary form
and is t herefore int ended for general guidance only. It
is not int ended t o be a subst it ut e for det ailed research
or t he exercise of professional judgment . Neit her
EYGM Limit ed nor any ot her member of t he global
Ernst & Young organizat ion can accept any responsibilit y
for loss occasioned t o any person act ing or refraining
from act ion as a result of any mat erial in t his publicat ion.
On any specific mat t er, reference should be made t o t he
appropriat e advisor.
www.ey.com/ medt ech

Pulse Medical Technology Report 2011

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Pulse Medical Technology Report 2011

Uploaded by

Copyright:

Available Formats

Pulse of t he indust ry

Medical technology report 2011

You might also like