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21st Century Business Herald reporter Wu Yinggang and intern Sun Hangxing report from Beijing

Edwards Lifesciences announced that it has signed multiple agreements with French company Affluent Medical, which are related to structural heart disease products, mainly covering Affluent Medical's Kalios adjustable mitral ring and related mitral valve technologies. According to the agreement, Affluent Medical will receive an advance payment of US$16.3 million.

At the same time, Stryker also announced the completion of its acquisition of Artelon, a developer of soft tissue fixation. Artelon's products are used in foot and ankle and sports medicine surgery, including the FlexBand Twist, FlexBand Solo, FlexBand Multi and FlexBand Fix systems. In fact, as early as June, Stryker announced an agreement to acquire all outstanding shares of Artelon.

The mergers and acquisitions of foreign-funded medical device companies seem to be in full swing. According to incomplete statistics from a reporter from 21st Century Business Herald, from 2024 to the present, foreign-funded medical device companies have completed 12 mergers and acquisitions, with a total amount equivalent to approximately RMB 168.59 billion, involving many fields such as cardiovascular intervention, stroke prevention, and AI technology.

A senior industry insider told 21st Century Business Herald that mergers and acquisitions have always been an important way for foreign medical device companies to expand their business and improve their competitiveness. There have also been periodic merger and acquisition booms in China, but perhaps due to domestic policies, market environment, industry development and other factors, the confidence of some medical device companies has decreased, and their enthusiasm for acquisitions and mergers has also declined. Foreign-funded enterprises generally have a global layout, and mergers and acquisitions can bring opportunities for corporate development in terms of technology iteration, corporate competition, system supply chain, etc.

Completed over 160 billion yuan in mergers and acquisitions

In this acquisition, Edwards Lifesciences stated in the agreement that it has obtained the exclusive right to purchase kalios-related products of Kephalios, a subsidiary of Affluent Medical, for US$5.44 million (EUR 5 million), and has also obtained a global general license for intellectual property rights related to bionic heart mitral valve replacement technology for EUR 5 million. Affluent Medical retains all patent rights for transcatheter valves, including its Epygon mitral valve.

Stryker has completed the acquisition of Artelon, using its technology to complement and expand its product range in the field of soft tissue fixation. Tim Lanier, president of Stryker's Trauma and Extremity Division, said that integrating Artelon's product portfolio into Stryker's products will enable it to provide best-in-class soft tissue fixation solutions.

In addition to the above two acquisitions, the enthusiasm of foreign-funded medical device companies for mergers and acquisitions has never diminished in the first half of 2024. According to incomplete statistics from the 21st Century Business Herald reporter, from 2024 to date, foreign-funded medical device companies have completed 12 mergers and acquisitions, including Johnson & Johnson, Becton Dickinson, Boston Scientific, Medline, Stryker, GE Healthcare, Edwards Lifesciences, etc. Excluding acquisitions with undisclosed specific amounts, the total amount of mergers and acquisitions exceeded US$23.23 billion, equivalent to about RMB 168.59 billion.

Source: 21st Century Business Herald reporter sorted out statistics

Among them, the M&A with the highest amount was Johnson & Johnson's acquisition of Shockwave, which reached US$13.1 billion, followed by Becton Dickinson's acquisition of Edwards Lifesciences' critical care business, which reached US$4.2 billion. Specifically, it involved many fields such as cardiovascular intervention, critical care business, urology products, stroke prevention, healthcare, and even image analysis and AI technology.

It is worth noting that, in addition to the medical device field, Johnson & Johnson has completed multiple mergers and acquisitions in 2024. In March, Johnson & Johnson announced the completion of the acquisition of all outstanding shares of Ambrx Biopharma, an innovative drug company in the United States, with a total value of approximately US$2 billion. On May 16, biotechnology company Proteologix announced that it had reached a final acquisition agreement with Johnson & Johnson, and Johnson & Johnson will acquire Proteologix for US$850 million in cash, with the possibility of additional milestone payments.

But it is precisely because of the frequent mergers and acquisitions that Johnson & Johnson has lowered its performance expectations. On July 17, Johnson & Johnson announced its second quarter 2024 results. Q2 sales were US$22.447 billion, a year-on-year increase of 4.3%, and adjusted net profit was US$6.84 billion, a year-on-year increase of 1.6%. However, considering the costs incurred by a series of recent acquisitions, Johnson & Johnson lowered its full-year profit forecast and expects adjusted operating earnings per share in 2024 to be US$10.05, lower than the forecast of US$10.68 per share released in April.

Multiple factors behind mergers and acquisitions

The frequent mergers and acquisitions are believed to be the development pressure faced by some foreign multinational medical companies. For example, it is reported that Johnson & Johnson's stock price has fallen by about 3.7% this year due to market concerns about its best-selling anti-inflammatory drug Stelara - which will soon face low-price competition in the United States and Europe, and Johnson & Johnson is also involved in the talcum powder baby powder incident.

In addition, Becton Dickinson is willing to borrow $3.2 billion to acquire Edwards' critical care business. The performance pressure behind this may be the primary factor. Its net profit has been declining continuously in the past two and a half years. In 2023, it achieved a net profit of $1.484 billion, a year-on-year decrease of 16.6%. In 2022, it achieved a net profit of $1.779 billion, a year-on-year decrease of 14.96%.

Optimizing the corporate layout through differentiated mergers and acquisitions may also be the purpose of mergers and acquisitions by foreign medical device companies. For example, Boston Scientific signed an acquisition agreement for Axonics, Inc. in January 2024 and a final acquisition agreement for Silk Road Medical, Inc. in June. The two acquisition decisions each took advantage of the advantages and differentiated technologies of the acquired companies in Axonics therapy and transcarotid artery revascularization (TCAR) to expand its own product portfolio and expand the methods and scope of clinical treatment.

It is also worth noting that the large-scale mergers and acquisitions of these multinational companies also reflect the future direction of the medical device field to a certain extent. For example, Shockwave, acquired by Johnson & Johnson, is in the field of cardiovascular disease treatment and has launched the world's first "shock wave balloon catheter".

It is understood that although centralized procurement in the domestic market has become normalized, the global cardiovascular market size still reaches US$56 billion, of which the domestic cardiovascular market size exceeds RMB 50 billion, ranking second in both the global and domestic medical device market sizes, second only to the in vitro diagnostic field. The global accessible market space for electrophysiology exceeds US$10 billion. Entering these fields may broaden the accessible market space for companies.

The above-mentioned senior industry insider analyzed to 21st Century Business Herald that there are multiple factors behind the frequent mergers and acquisitions of foreign medical device companies.

On the one hand, in terms of technology, especially in the medical device industry, product updates and iterations are very fast. In high-tech driven fields, capital needs to acquire new technologies and patents, thereby optimizing its own technology layout, which is beneficial to the company's development;

On the other hand, companies with a global layout rely heavily on acquisitions to expand overseas. At the same time, due to the constant mergers and acquisitions in the international market, corporate competitiveness is relatively fierce. Due to the limitations of the domestic market, many domestic medical device companies are currently "going out" to seek more development opportunities.

"Finally, there is the issue of supply chain, which is similar to the pipeline acquisition of other medical device companies. For example, whether there are points of compatibility with each other, or promoting the relatively complete upstream and downstream supply systems of certain companies, will help enrich the richness of the company's own system," the senior industry insider pointed out.

According to a research report by Guotai Junan Securities, in the medical device industry, the market is highly "fragmented", and the rapid replacement of product technology can easily lead to technological separation. Therefore, if companies want to become bigger and stronger, they need to integrate products and technologies. Mergers and acquisitions are a powerful and direct means. At the same time, the ceiling effect of the highly "fragmented" market requires companies to constantly enter new fields.

For domestic enterprises, on the one hand, the development of globalization encourages enterprises to continue to "go global"; on the other hand, enterprises are restricted to a certain extent by domestic policies and seek to develop outward. Mergers and acquisitions are more strategic, and integration to achieve synergy may be the highlight of medical device mergers and acquisitions.

For example, Medtronic completed the acquisition of AVE when the coronary stent market was active, becoming the world's largest stent manufacturer and establishing its own market position and competitiveness. The acquisition of MiniMed is a "diversified" integration of resources. Through its first-mover advantage and leading enterprises, Medtronic once again occupies an important position in the field of insulin pumps.

For domestic pharmaceutical companies, relevant research shows that more and more companies choose to acquire small and medium-sized pharmaceutical companies with strong R&D skills. Not only can they directly use the talents, equipment, patents and technologies of the company to reduce the initial R&D investment and R&D risks, but also reduce the operating cycle required to develop new products and new technologies. In addition, the acquisition of small and medium-sized pharmaceutical companies with strong R&D capabilities can also strengthen the collaborative development between enterprises and complement each other's advantages.

However, we need to be careful to avoid blind M&A. The study shows that in order to have strong and sustainable competitiveness in the market, pharmaceutical companies usually choose to carry out M&A in upstream and downstream industries. However, some pharmaceutical companies have unclear development strategies, cannot find M&A targets, do not understand the actual situation and actual needs, and do not integrate integration work into M&A behavior, thus blindly carrying out M&A. The lack of M&A experience and insufficient capabilities will reduce the performance of the acquirer. After the M&A, the company found that it could not be implemented when it started the business integration, or found it difficult to move forward when the M&A was halfway through, and ultimately all the previous efforts were wasted.