Medical Device Top 8 Competition: Medtronic Leads the M&A Marathon

       EvaluateMedTech predicts that the global medical device market will reach \$477.5 billion by 2020. Despite this lucrative market, it's undeniable that the global medical device market is still dominated by several large international companies.

　　In mid-2019, major companies in the medical device field released their 2018/2019 fiscal year reports. Therefore, DMAIC conducted a comparison with the top 8 companies from Medical Design & Outsourcing's Top 100 Medical Device Companies list, creating a 'Top 8 Medical Device Companies' list.

　　It's worth noting that, reviewing the development history of these eight companies, most have followed a development model of starting with technology, expanding the market, and transforming through mergers and acquisitions. By examining the capital market activities of these eight companies, we attempt to answer why medical device giants invariably become 'shopping addicts' in their later stages of development.

Compiled by DMAIC based on each company's 2018 fiscal year report

　　What the Giants Are Buying

　　From the 2017/2018 fiscal year to the 2018/2019 fiscal year, many giants on the list have undergone more or less business adjustments (such as consolidating their main businesses, divesting from secondary businesses, etc.), and revenue has changed compared to the previous fiscal year or even initial expectations. These changes can be glimpsed in the giants' business activities from 2018 to the present.

　　Medtronic

　　• Leading medical device company, consistently ranked first

　　Even though Medtronic has recently divested some businesses, from 2017 to 2019, the company has still prioritized mergers and acquisitions. From several M&A transactions, on the one hand, Medtronic still focuses on orthopedics and surgery businesses, and consolidates them through acquisitions; on the other hand, Medtronic's entry into the surgical robotics field has become very clear.

　　Johnson & Johnson

　　• Entering AI medicine + surgical robots

　　Since 2017, Johnson & Johnson has been continuously expanding its list of acquisitions of medical device companies. By early 2019, Johnson & Johnson had completed nine acquisitions, the most striking of which was the \$3.4 billion acquisition of surgical robotics company Auris Health. Although Auris' currently commercialized products can only be used for lung cancer, Johnson & Johnson's primary goal for the acquisition was to supplement its previously acquired Orthotaxy orthopedic-assisted surgical robot.

　　While strengthening its device segment, Johnson & Johnson is also accelerating the divestment of other businesses, starting a major "sell-off" of devices.

　　Since 2017, Johnson & Johnson has successively announced the cessation of operations and exit from the Animas insulin pump business and the Codman neurosurgery business. To date, Johnson & Johnson has divested its diagnostics, cardiovascular stent, diabetes, and sterilization and disinfection businesses, leaving its device business in orthopedics, surgery, and ophthalmology, with a focus on developing surgical robot technology.

　　The above measures clearly show Johnson & Johnson's determination to Enter the AI medical devices, especially the surgical robots field.

　　Danaher

　　• Life sciences as the main focus

　　In 1969, Danaher's predecessor, DMG Real Estate Trust, was established; in 1986, the company changed its name to Danaher and achieved strategic transformation through mergers and acquisitions. Danaher's M&A strategy can be divided into four stages: financially driven, business driven, platform driven, and industry influence driven.

　　It is worth mentioning that in 2004, during the third stage, Danaher acquired Radiometer and Entered the medical diagnostics field. In 2005, Danaher acquired Leica Microsystems and Entered the life sciences field. Through these two acquisitions, Danaher established its own medical diagnostics platform and life sciences platform, preparing the engine for future rapid growth, and carried out a series of actions around these two segments.

　　Having completed 47 acquisitions from 1981 to 2019, Danaher is considered a master of acquisitions, even among medical device giants. In particular, the 2019 acquisition of GE Life Sciences' biopharmaceutical business (BioPharma) not only boosted Danaher's stock price but also put the company on track to achieve \$9.5 billion in revenue for the entire 2019, which will cause the life sciences platform to significantly surpass the medical diagnostics platform's revenue, becoming Danaher's most important business platform.

　　GE Healthcare

　　• Divestment + M&A, parallel development strategies

　　Compared to GE Healthcare's efforts in acquisitions, its divestment is even more noteworthy. At the beginning of 2019, Danaher announced that it would acquire GE Life Sciences' biopharmaceutical business (BioPharma) for \$21.4 billion. This business generated approximately \$3 billion in revenue in 2018. Stimulated by this news, GE stock opened more than 11% higher that day.

　　Regardless of whether it was the divested BioPharma business or the retained Pharmaceutical Diagnostics business, both were acquired by GE. Compared to GE's core business of medical diagnostic imaging, the life sciences business was only incorporated into GE Healthcare relatively recently. Therefore, the BioPharma business can form a strong alliance with Danaher's life sciences business; and the remaining business can continue to provide GE's imaging equipment with supporting contrast agents and molecular imaging consumables. GE Healthcare also benefited from this in the stock market.

　　Philips

　　• The advent of the digital health era

　　Since early 2017, Philips has made 18 medical technology acquisitions and is transforming into a technology provider in the healthcare field. Between 2017 and 2018, Philips' acquisitions, in addition to medical imaging technology, also focused on digital health (such as mobile medical app developers, remote home care monitoring platforms, etc.), big data medical management, and other comprehensive healthcare services.

　　Philips' transformation in healthcare has three characteristics: first, Philips gradually transforms and integrates product lines to form themes, this transformation makes operations more holistic and focuses on operational efficiency, operating around relevant themes; second, it has reduced its interest in non-healthcare businesses and is now fully recognized as a health technology company; third, Philips has transformed from a manufacturer focusing on equipment and hardware into a company that forms solutions for the entire patient care process and disease cycle based on existing advanced equipment.

　　Fresenius

　　• A medical device giant that reigns supreme in the dialysis field

　　Fresenius, located in Germany, boasts a long history, tracing its origins back to the 15th century. In 1912, Edward Fresenius, owner and pharmacist of the Hirsch Pharmacy, officially established the pharmaceutical manufacturing company Fresenius, primarily focused on producing specialized pharmaceuticals such as treatment solutions, serum reagents, and nasal ointments. Between 1933 and 1934, and into the 1950s, Fresenius established production lines for intravenous equipment.

　　From 1966 onwards, the company's dialysis equipment and dialyzers were sold to foreign manufacturers, securing a significant market share in this field. In the 1970s, Fresenius produced the world's first blood dialysis machine with capacity-balanced cavity-controlled ultrafiltration, which served as a springboard for its subsequent development. Currently, Fresenius is a leading global supplier of dialysis products and services.

　　From the 20th century onwards, Fresenius, like other medical device giants, embarked on a path of mergers and acquisitions. In addition to acquiring dialysis companies to consolidate its core business, it also began acquiringhospitalsand other integrated healthcare providers, preparing for a comprehensive transformation of the company.

　　Siemens

　　• Imaging business is the main revenue driver, diagnostic business has great potential

　　Siemens Healthineers, which started with medical imaging equipment, has an undeniable core position in its medical imaging department. Before its strategic adjustment, Siemens Healthineers had three major businesses: imaging diagnostics (including ultrasound diagnostics), advanced therapies, and medical diagnostics. The revenue from its imaging business was far higher than the other two departments.

　　In terms of clinical treatment, its achievements in the first quarter of 2019 decreased compared to the same period in 2018. Siemens Healthineers mainly focuses on cardiovascular and oncology treatments, but its current product line is not extensive. Considering the broad prospects of "integrated diagnosis and treatment," its capital investment may increase.

　　In addition, Siemens Healthineers has established a medical diagnostics product line through large-scale acquisitions, becoming the world's second-largest medical diagnostics company, second only to Roche. Although the revenue from medical diagnostics is not as large as that from imaging, the overall industry growth rate is comparable. Siemens Healthineers places additional importance on the Atellica solution and stated that it will optimize it in 2019 to reduce costs.

　　Cardinal Health

　　• A low-key diversified giant

　　Cardinal Health's business consists of four major parts: firstly, large-scalepharmaceuticalsupply and distribution business unit. Secondly, medical products and services department. Thirdly,pharmaceuticaltechnology and services department. Fourthly, automation and information services department. Among them, pharmaceuticals andmedical devicessales still account for over 95% of its total turnover.

　　At the same time, similar to the development methods of many medical device giants, Cardinal Health has also grown rapidly through the acquisition of numerouscompaniesand its Business Scope is wider than many companies known for their diversification.

　　Through mergers and acquisitions, Cardinal Health has transformed from a simple pharmaceutical and medical device wholesaler into a full-industry service provider, offering "surprise-inducing" services to all links in the industrial chain, and creating an unprecedented market through this service.

　　Why have giants become merger maniacs?

　　Looking at the development history of the top eight medical device companies, we will find that expansion in scale and business, along with several strategic development guidelines, are all intertwined and inseparable from mergers and acquisitions.

　　Taking Medtronic as an example, since the 1990s, Medtronic has completed nearly 100 mergers and acquisitions, with a disclosed total value exceeding US$73 billion. Several of these mergers and acquisitions have played a key role in Medtronic's development, leading to a qualitative leap in Medtronic's existing business.

　　Based on this, we can summarize the typical development path of medical device giants:

　　1. In the early stages of development, most companies rely on technological research and development as their main driving force;

　　2. After the successful implementation of technology and products, companies begin to achieve market marketing on a large scale;

　　3. For strategic considerations, companies embark on the inevitable path for medical device giants—mergers and acquisitions. Overall, technology-driven medical device companies must take the path of integration to become industry leaders.

　　For these giants, after undergoing the baptism of technology-driven development, the maturity of their own business, and market scaling, they will begin to focus on the market side, but face the situation of "a large ship being difficult to turn around" in research and development. In order to consolidate their position and avoid being disrupted by small and medium-sized innovative companies, mergers and acquisitions have become a direct means for traditional medical device giants to break down the segmentation of product technology.