A huge wave of consolidation crashed over the MedTech industry in 2014 and early 2015. While megamergers are still occurring, with luck the immediate future will bring a steady stream of smaller tuck-in M&A deals too. In combination with an increase in FDA approvals for innovative devices, these trends should reward the companies developing the best and most useful technologies.

The global MedTech market, with sales at USD 375.2 billion in 2014 is expected to reach USD 477.5 billion by 2020, growing at an annual rate of 4.1 percent over the coming 5 years.

In vitro diagnostics industry will be the number one device sector in 2020, achieving sales of USD 67.3 billion or a 14.1 percent share of the medical device industry. Interestingly, in addition to being the top area, it is also the second fastest-growing industry in the top 15, with a 5.1 percent CAGR between 2014 and 2020.

Neurology takes the top spot as the fastest-growing device area, with sales set to expand at an annual rate of 6.9 percent between 2014 and 2020, reaching USD 9.5 billion in 2020.

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Worldwide MedTech Sales in 2014: Top 20 Companies

In 2014, Johnson & Johnson remained the number one company in the MedTech industry, achieving medical devices sales of USD 27.5 billion, a 7.3 percent market share. The company's sales actually decreased, dropping 3.4 percent over the year, largely due to the disposal of its in vitro diagnostics business Ortho Clinical Diagnostics to private equity.

Medtronic took second place with sales of USD 20.3 billion, representing a 5.4 percent market share. Medtronic's sales in its fiscal year ending April 2015 grew an impressive 19.1 percent over the previous year due to the consolidation of three months of sales from Covidien, which it acquired in January 2015.

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Baxter also displayed strong growth - 18.5 percent - between 2013 and 2014 as it consolidated a full year of Gambro's sales for the first time.

WW MedTech Sales in 2020: Top 10 Companies

Medtronic will be the number one MedTech company in 2020, with revenues of USD 34.9 billion, a 7.3 percent share of the entire medical device market. Following the acquisition of Covidien in January 2015 for USD 49.9 billion, Medtronic has knocked Johnson & Johnson from the top spot, a position it had held every year in recent memory.

The megamergers of 2015 are likely to shake up the company rankings in 2020 further with Becton Dickinson jumping seven places to number five following its acquisition of CareFusion in March 2015. Zimmer Biomet ranks 13th in 2020, following the merger of the two companies in June 2015. This is a rise of seven places from Zimmer's position in 2014.

Excluding those companies involved in significant M&A activity, most companies' forecasts in 2020 have fallen in dollar terms compared with the values in last year's World Preview. This can largely be explained by the depreciation of the euro against the dollar in 2015.

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WW MedTech R&D Spend (2007-20)

Globally, MedTech companies are expected to spend a combined USD 29.5 billion on R&D in 2020, forecasts Evaluate. The annual growth rate from 2014 to 2020 will be 3.5 percent as noted in last year's World Preview. This is a lower growth rate than that forecast for MedTech sales. This means that the R&D investment rate will fall from 6.4 percent in 2014 to 6.2 percent in 2020.

Following its acquisition of Covidien in January 2015, Medtronic is expected to take the number one spot from Johnson & Johnson in terms of R&D spend in 2020. Medtronic's R&D expenditure is forecast to reach USD 2.5 billion in 2020, growing at 7.2 percent CAGR between 2014 and 2020.

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Of the top 20 R&D spenders, bioMérieux is expected to invest the most into R&D as a percentage of sales, with an R&D investment rate of 13.9 percent in 2020. Essilor, the eye glass lens specialist, is forecast to invest the least into R&D as a percentage of sales in 2020, with an R&D investment rate of just 3.8 percent.

In Vitro Diagnostics (IVD) Market in 2020

The in vitro diagnostics market is set to grow at 5.1 percent per year, reaching USD 67.3 billion in 2020.

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Representing a market share of 17.6 percent, Roche is expected to generate global sales of USD 11.9 billion in 2020. The fastest growing company in the top ten companies is Sysmex with a CAGR of 10.5 percent between 2014 and 2020. Consequently, the company is expected to jump two places in the rankings to sixth in 2020.

Cardiology Market in 2020

The cardiology market is expected to grow at 4.4 percent (CAGR) to USD 54.2 billion in 2020.

Medtronic will remain the world's number one cardiology company, with global sales estimated to reach USD 11.6 billion in 2020. This represents a 21.4 percent market share, almost double that of St. Jude Medical in second place with 11.7 percent. The acquisition of Covidien strengthened Medtronic's position, as pre-merger Covidien recorded USD 1.2 billion in cardiology sales in 2013.

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Other large players include Boston Scientific, Edwards Lifesciences, Abbott Laboratories, Johnson & Johnson, Getinge, Terumo, WL Gore & Associates, and Lepu Medical Technology.

Orthopedics Market in 2020

The orthopedics market is set to grow at 3.2 percent per year (CAGR) to USD 42.0 billion in 2020.

Johnson & Johnson is expected to remain the world's leading orthopedic company, with sales expected to reach USD 10.5 billion in 2020. However, with a compound annual growth rate of 2.4 percent between 2014 and 2020, lower than the expected market growth rate, J&J will see its market share fall from 26.1 percent in 2014 to 25.0 percent in 2020.

Following the completion of its merger with Biomet in June 2015, Zimmer Biomet is forecast to achieve USD 8.1 billion in sales in 2020, leapfrogging Stryker to attain second position. Stryker itself is expected to achieve sales of USD 7.2 billion in 2020.

Other large players include Medtronic, Smith & Nephew, Arthrex, NuVasive, Globus Mediacal, Wroght Medical Group, and Tornler.

Diagnostic Imaging Market in 2020

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Siemens is likely to remain the number one company in diagnostic imaging in 2020 with sales of USD 10.8 billion, flat across the six years from 2014. General Electric, which is forecast to grow by 3.1 percent per annum, is expected to catch up with Siemens, becoming a close second with sales of USD 10.1 billion. Siemens's forecast sales in 2020 have declined by over USD 3 billion over the last 12 months in dollar terms but this can largely be attributed to the depreciation of the euro against the dollar in 2015. When viewed in euros, Siemens's diagnostic imaging sales are forecast to grow by 3 percent per annum compared with General Electric's 6 percent.

Other large players include Philips, Toshiba, Carestream Health, Hitachi Medical, Konica Minolta, Agfa-Gevaert, Varian Medical Systems, and Hologic.

M&A Analysis: 2010 to H1 2015

EvaluateMedTech found that the total value of all the MedTech M&A deals closed in the first half of 2015 came to an enormous USD 84 billion, a rise of 166 percent from the USD 32 billion seen in H1 2014. This immense leap was mainly the result of the closure of the biggest ever deal seen in the medical devices industry, namely, the acquisition of Covidien by Medtronic for USD 49.9 billion in January 2015. Other megamergers which closed in the first half of 2015 included the acquisition of Biomet by Zimmer for USD 14 billion and the acquisition of CareFusion by Becton Dickinson for USD 12.2 billion.

Despite the increase in total deal value, the total number of deals fell by 18 percent to 93 in H1 2015.

Key M&A Deals

  • H1 2015: Medtronic - Covidien (USD 49.9 billion); Zimmer - Biomet (USD 14.0 billion); Becton Dickinson - CareFusion (USD 12.2 billion)
  • 2014: Thermo-Fisher - Life Technologies (USD 13.6 billion); Carlyle Group (PE) - J&J's Ortho Clinical Diagnostics unit (USD 4.2 billion)
  • 2013: Valeant Pharmaceuticals - Bausch+Lomb (USD 8.7 billion); Baxter - Gambro (USD 3.9 billion)
  • 2012: Johnson & Johnson - Synthes (USD 19.7 billion); Hologic - Gen-Probe (USD 3.7 billion)
  • 2011: Sanofi - Genzyme (USD 20.1 billion); Novartis - Alcon (USD 9.6 billion); Danaher - Beckman Coulter (USD 6.8 billion); Apax Group (PE) - Kinetic Concepts
  • (USD 6.1 billion); Thermo-Fisher - Phadia (USD 3.4 billion)
  • 2010: Novartis - Alcon (USD 28 billion)
  • Venture Financing Analysis: 2010 to H1 2015

    A significant decrease in both the value and number of venture financing deals in H1 2015 was observed compared with H1 2014. The total amount of venture cash raised by device makers fell by 14 percent to USD 1.9 billion, whilst the number of venture- financing deals declined 13 percent to 199.

    There were no standout rounds in the first half of 2015 with the top five rounds only separated by USD 7 million. The largest was conducted by EndoChoice, a gastroenterology company, which raised USD 57 million in a series E financing in March. All of the top ten financing rounds were done by US-based companies.

    IPO Analysis: 2013 to H1 2015

    A significant drop in IPO activity in the MedTech space in H1 2015 has been observed compared with the apparent outlier of H1 2014. By the end of the first half of this year, USD 800 million had been raised in total, a 41 percent decline from the USD 1.4 billion in H1 2014. However, this still signals an overall upward trend from 2013 where only USD 877million was raised across the entire year.

    Switzerland-based Biocartis, a company developing molecular diagnostics, had the largest IPO in H1 2015, raising USD 109 million in April. Just behind was Glaukos, an ophthalmics company developing treatments for glaucoma, which raised USD 108 million in June.

    Enterprise Value and Focus Analysis: 2015 Latest vs 2014

    US conglomerate General Electric was the largest company operating in the MedTech space. With an enterprise value of USD 477 billion as of August 31, 2015, GE is in a league of its own; the second ranked company, Roche, comes in at USD 258 billion.

    The majority of the top companies have additional non-MedTech operations. The highest-ranking pure-play MedTech company is Medtronic, benefiting greatly from its merger with Covidien to climb all the way to number seven in the rankings, with an enterprise value of USD 119 billion.

    This is based on an EvaluateMedTech Report, "World Preview 2015, Outlook to 2025"

     

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