Medical Devices

The US Medical Device industry saw revenues decline by 5% in the first half of 2020 due to the COVID-19 pandemic. This capital reduction is attributed to the imposed lockdowns forcing elective procedures to be postponed and the global supply chain being brought to a halt. Nevertheless, the US Medical Device market was still valued at $176 billion in 2020 and is expected to exceed $262 billion by 2028, registering a CAGR of 5%.

The aging US population continues to drive the sector’s positive outlook, with more people developing chronic diseases and opting for elective surgeries. Technological advancements in both the wearable medical devices and medical-grade equipment industries will drive growth within the field as well, with the wearable medical device market expected to exceed $89 billion in market capitalization by 2027. Exhibit 1 shows the performance of the Medical Device sector since 2016 relative to the overall economy, comparing sector revenue change to GDP growth from 2016-3Q2020.

Concerns over the strained supply chain due to COVID-19 increased government focus on the industry while simultaneously reducing regulation. The FDA approved over 250 emergency use authorizations throughout 2020 and eased requirements for new medical devices. This reduced the barriers to entry and stimulated sector growth. The COVID-19 pandemic also increased collaboration amongst competitors and outside industries, as the Federal Trade Commission and the US Department of Justice Antitrust Division announced that companies can “temporarily combine production, distribution, or service networks to facilitate production and distribution of COVID-19-related supplies.” Although it is unlikely such transparency will persist post-pandemic, it did introduce outsiders such as General Motors and Ford Motor Co who developed strategic partnerships with medical device players like 3M and Medtronic to help meet the demand for ventilators and other devices. Exhibit 2 shows the trends in investing activity from 2015-2020.

Mergers & Acquisitions (M&A) activity in the industry also declined due to the pandemic, with M&A spend falling from $67.6 billion (July 2018 to June 2019) to $27.1 billion in the same period (July 2019 to June 2020). Average deal size also shrank 41% over the same period, decreasing from $463 million to $167 million, respectively. The largest proposed M&A deal, Thermo Fisher Scientific’s acquisition of Qiagen for $12.5 billion, was rebuffed by Qiagen stockholders due to an 84% spike in Qiagen’s operating income throughout the first six months of 2020. Other transactions such as Laborie Medical Technologies’ acquisition of Clinical Innovations for $525 million, Align Technology’s acquisition of Exocad for $420 million, and Anika Therapeutics’ acquisition of Arthrosurface for $100 million did close successfully. M&A activity is projected to rebound significantly in the latter part of 2021. This increase in activity is expected to be stimulated by large medical device players taking advantage of funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the recent increase in debt recapitalization strategies to access more capital. In addition, small and medium-sized businesses appear to be uncertain about their longevity throughout the projection period and are likely willing to engage with a potential M&A suitor, thus stimulating M&A activity.

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