The inflationary pressures and high interest borrowing affected the medical device mergers and acquisitions (M&A) landscape in 2023 as the value of the top 10 deals shrunk compared to the previous year. Analysis done by the Medical Device Network team found that the total value of the top 10 M&A deals completed in 2023 was less than half of the previous year.

“There was a big uptick in M&A activity in 2021, followed by a sharp decrease in 2023, which can be attributed to the general economic downturn and companies exercising more caution” explains GlobalData medical device analyst Andrew Thompson. Adding, “areas such as in vitro diagnostics and healthcare information technology (IT) seemed to be more resilient.”

M&A deal value saw a steep decline

The total value of the top 10 M&A deals completed in 2023 was $38.2bn, down by 54.7% compared to 2022 of $84.3bn. The 2023 top 10 M&A deal value was comparable to 2019 and 2020 of $35.5bn and $32.9bn, respectively. For the analysis, the data included M&A deals that were completed in each year, regardless of the year of announcement.

The deal value for M&A deals was down significantly as well. The average deal value for the top 10 deals in 2023 was down by 54.8% from an average value of $8.4bn in 2022 to $3.8bn in 2023. Although inflation saw a sharp increase in 2022, a downturn in Medtech M&As started in late 2022. Thompson explained that the Medtech sector is late to feel the inflationary pressures, as hospitals only cut medical device funding after other cost-cutting measures such as downsizing. He also cautioned that the sector may also see a delay in recovery due to the delayed effect.

Most of the top 10 M&A deals each year were acquisitions, with only one merger making it into the top 10. In September, the musculoskeletal solutions company, Globus Medical merged with NuVasive, a spine technology company. The all-stock transaction was valued at approximately $3.1bn.

The top spot for the highest-value M&A was secured by primary care telehealth provider VillageMD’s acquisition of medical practice Summit Health, the parent company of urgent care clinic chain CityMD.  The deal closed on 3 January and was valued at $8.9bn.

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Another high-value M&A included the controversial $5.7bn acquisition of Abcam by Danaher. Jonathan Milner, former CEO, and founder of Abcam, took to LinkedIn to publicly voice his opposition to the sale. In November, Milner announced on his campaign website that he had decided to abandon his efforts after “extensive feedback from the majority of Abcam’s shareholders” that suggests they will vote in favour.

Thermo Fisher Scientific was on a buying streak in 2023. In January, the company acquired diagnostics company, The Binding Site Group in an all-cash transaction valued at £2.3bn ($2.8bn). In August, Thermo Fisher completed the acquisition of data intelligence company CorEvitas for $912.5m in cash. In October, Thermo Fisher announced a $3.1bn acquisition of proteomics solutions company Olink. Thermo Fisher paid $143m in upfront cash payment in addition to acquiring all of Olink’s shares. As of the end of business on 14 December, approximately 97.1% of Olink’s outstanding shares had been tendered by the company.

Partnerships instead of acquisitions

Thompson highlighted that due to the challenging economic climate companies have shifted to partnerships instead of acquisitions to develop and license devices and technologies. This is viewed by companies as a safer bet and the trend is most evident in digital healthcare, including healthcare IT and telehealth.

In October, Roche, Ibex Medical Analytics and Amazon Web Services (AWS) partnered to enable pathology laboratories to access Ibex’s AI-powered decision support tools to aid in the diagnosis of breast and prostate cancer through Roche’s navify Digital Pathology software platform, with the technology hosted on the AWS platform.

“Companion diagnostics prove how successful partnerships can be,” said Thompson. The use of companion diagnostic tests has contributed to the increased market for oncology tests from $1.9bn in 2022 to $3.1bn by 2030, as per GlobalData analysis. Last month, Foundation Medicine collaborated with Pierre Fabre Laboratories to develop companion diagnostics for the latter’s non-small cell lung cancer therapy.

This year also saw the end of the long-contested $8bn acquisition of cancer test manufacturer Grail by Illumina. The US-based genomic and molecular diagnostic company is expected to divest Grail in 2024. Both the US Federal Trade Commission and the European Commission opposed the deal stating that Illumina could leverage its position as one of the only companies equipped to process the tests to prevent competition in the space.

Thompson stated that instrument companies like Illumina acquiring gene testing companies such as Grail to gain potential monopoly has been a point of concern for many years. Adding, an increase in the popularity of gene therapies and international regulatory agencies plan to regulate laboratory-developed tests (LDT) as medical devices can potentially act as a barrier to M&A activity in the sector.

AI is still a big trend

The increased demand on healthcare services along with investment from global health bodies has led to  increased partnerships and M&A activity in the digital health space, especially healthcare IT and artificial intelligence (AI) says Thompson.

In recent months, big technology companies such as Google have partnered with medtech companies to develop healthcare technology. In August, Huma partnered with Google Cloud to streamline its disease-management digital product – a Software as Medical Device (SaMD) platform. The partnership aims to leverage Google’s generative AI platform to automate the generation of clinical summary reports from incoming data. In October, Google partnered with VertexAI to use its large language model system Med-PaLM 2 to allow clinicians to find answers to medical questions directly from a patient’s medical records.

Thompson noted that the use of AI will increase in the coming years as it is still an emerging area. However, he cautioned that AI is still a buzzword, and the industry will see some high-profile failures in the future. Thompson  cited the case of Theranos, where a theoretically revolutionary diagnostic instrument failed to ultimately materialise. However, the saga had a silver lining as it highlighted the need for regulation around lab-developed tests.