Medical Devices

Accelerating medical device innovation & globalization in a changed world

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Key Points

  • COVID-19 is accelerating innovations in areas where the MedTech sector was already investing.
  • New technologies are changing product development, manufacturing and how practitioners deliver patient care.
  • Diagnostic wearable devices allowing for less episodic, non-invasive, real-time continuous care.
  • Sector is experiencing increased traction for patient triage solutions that limit one-to-one human interactions in a hospital setting.
  • Pre-COVID, the MedTech sector was trading at a high – investors are hungry to see if a value dislocation is going to happen.
  • Cross-border M&A remains a long-term strategic imperative to achieve scale and growth.
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Healthcare is on the frontline of the COVID-19 pandemic, a fast-moving and complex crisis that has impacted every facet of the industry in multiple ways.

For the MedTech sector, there’s been a soaring global demand for PPE equipment and ventilators, as well as diagnostic tools to detect coronavirus or its antibodies. At the same time, elective procedures have plummeted, albeit signs of recovery are afoot. Prior to very recent re-opening initiatives, Healthcare providers delayed treatments like orthopedic implants to save capacity for viral care and emergency care, while social distancing mandates restricted many other treatments.

Strong for the Long Term

But much of what is still being delayed right now are treatments that must happen to restore patients to good health. There’s still a real need for people to have their eyesight restored, a heart valve fixed or a new hip so they can live without pain. The fundamentals of the sector remain strong, and the current downturn in activity should represent only a short-term retrenchment, even with localized re-flares of COVID-19.

Since the global financial crisis in 2008, MedTech has been one of the best-performing sectors in Healthcare. Share prices were appreciating. Relative valuations were high, with double digit multiples for even the largest of large companies. Encouragingly, many of the changes that are being made right now to empower health services to respond to patient needs post-COVID will only accelerate existing innovations we’ve seen the MedTech industry invest in.

Accelerating Technology Transformation

When we think about transformations in MedTech, we’re seeing fundamental technological change being driven in two ways. The first is the proliferation of a new breed of standalone technology-driven companies creating innovative MedTech products that change the way Healthcare practitioners communicate with each other and the way patient care is delivered. In creating these companies with digital technology at their core, many have been able to catapult to leading positions in fields such as Artificial Intelligence (AI), tele-monitoring and robotics.

The second change – occurring at no less a revolutionary pace – is incumbent MedTech players adopting and integrating digital technology solutions into their existing business practices and products. These range from the way they go about novel product development, to the way they manufacture, to, ultimately, the way end-users interact with their devices in more patient-centric ways.

As the pandemic exerts pressure on Healthcare systems to improve efficiency, and measures such as social distancing make one-on-one interactions inadvisable, we expect both of these digital technology solutions to rapidly accelerate. For example, in many areas of chronic care, MedTech companies increasingly are tapping into novel ways to monitor, diagnose and communicate with their patients to ensure compliance, ultimately reducing treatment costs to the system.

Even before COVID-19, diagnostic wearable devices for patient monitoring and therapy were allowing for less episodic, non-invasive, real-time continuous care centred around the home. iRhythm’s Zio patch for the detection of potentially fatal arrhythmias and Dexcom’s Continuous Glucose Monitoring (CGM) devices, used for diabetes diagnosis and treatment, are easy examples of wearable technologies that should see even further adoption for highly accurate remote patient monitoring, with physician participation.

“In many areas of chronic care, MedTech companies increasingly are tapping into novel ways to monitor, diagnose and communicate with their patients to ensure compliance, ultimately reducing treatment costs to the system.”

- Mark Page

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We are likely to see more traction for technology solutions in MedTech that either reduce hospital visits and, if admitted, length of stays, as well as technologies that will limit one-to-one human interactions in a hospital setting.

Software solutions that allow for rapid patient triage will help acute care facilities. With the additional pressure of today’s pandemic, any technology that can play a key role in getting people out of a hospital setting more quickly will protect patients and benefit the system.

Even before the pandemic, a lot of people revisited hospitals because of hospital-acquired infections. COVID-19 is simply accelerating a move to different specialised procedure settings, from greater focus on home dialysis to movement of surgical procedures to ambulatory surgical centers.

When it comes to reducing risk, robotics will have increased role to play. The minimally invasive procedures, faster recovery times, reduced wound complications, and lower infection rates that robotic surgery delivers will be even more acutely important in today’s climate. As well as reducing risks, they increase cost efficiencies and deliver higher quality experiences. With the advent of remote robotic surgery now in our sights, robotics offers providers an interesting solution to attracting patients in a competitive environment.

Value Dislocations Open Up Investment Opportunities

MedTech is an industry that’s very resilient. Because of that resilience, investors are hungry to see if a value dislocation is going to happen. Before COVID-19, the sector was trading at such a high that it was difficult for both larger strategic and private equity firms to justify M&A given prohibitive valuation levels. But if there is a correction – despite the V-shaped stock market recovery for MedTech stocks we’ve recently observed – bargains could appear in the next few months.

Investors are also recognizing the digital innovations that are accelerating in the pandemic. Sub-sectors that have a technology focus, such as telemedicine and diagnostics, are starting to become more interesting to private equity firms. We will probably see a lot more investment going into businesses that are either technology-driven, or that implement technology solutions, as a core part of how they run their business.

The key question is, as everything settles down, will MedTech valuations actually be lower? And will they be materially low enough for private equity investors to understand that they can actually make a return?

“Investors are hungry to see if a value dislocation is going to happen.”

- Mark Page

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A Global Perspective Continues, Despite COVID-19

As innovation continues to push the envelope of healthcare technology, a new generation of mid-sized MedTech leaders is emerging globally, with cross-border M&A an existing and indelible long-term strategic imperative to achieve scale and growth.

A few recent mid-sized MedTech deals, for which RBC served as financial advisor, underscores this investment strategy.

The sale of Dutch Ophthalmic Research Center International BV (D.O.R.C.) – a leading provider of ophthalmic vitro-retinal surgery systems – by Montagu Private Equity to Eurazeo Capital attracted significant interest from private equity firms globally. D.O.R.C. now serves a fully global customer base including surgical centers, hospitals and physicians across the US, Europe, the mid-East, Asia and South America.

Montagu - Eurazeo deal visual

Boston-based Beaver-Visitec International’s (BVI’s) purchase of Belgium-based ophthalmic company PhysIOL is another good example. BVI makes ophthalmic microsurgical products while PhysIOL makes a complete range of intraocular lenses and ophthalmic surgical equipment. The deal reflects how demand for premium intraocular lenses has surged in recent years, allowing both companies to become a global, comprehensive ophthalmic platform.

Connecting the cross-border expertise of our UK and APAC teams, we also helped Canberra-based software and services company Citadel Group acquire UK-based Wellbeing Software Group, a UK-based software solutions provider that manages radiology and maternity patient workflow and data. The deal highlights the increasing demand for information and work-flow optimization, supporting Citadel’s strategy to expand into “high quality software based recurring revenue streams” and transform itself into a global healthcare software company.

Finally, previous to its sale to 3M, San Antonio-based Acelity, a leading woundcare company, purchased UK-based Crawford Health to bolster both its product portfolio and broad range in the global advanced wound dressing markets.

While the impact of COVID-19 has already been significant, we do not see the pandemic as denting the pre-COVID longer term need for technology innovation and global footprint, but instead accentuating the need for both.

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