Dive Brief:
- Venture capital investment in medtech rebounded in the first quarter, reaching the highest level since late 2022 even as deal counts remained historically low, according to a new report from market data research firm Pitchbook.
- Medtech M&A in the public market was subdued in the first quarter, with Boston Scientific’s $3.7 billion acquisition of neuromodulation maker Axonics standing out as one of the largest deals in the sector over the past year. Johnson & Johnson’s $13.1 billion purchase of Shockwave Medical, which closed last week, is now the industry’s largest deal of the year.
- The potential for steady or lower interest rates could help stabilize venture capital funding, which is on pace this year to post the highest average annual deal value since early 2022, the report said. On the public side, the Boston Scientific-Axonics merger “could be a green light for medtech acquirers to pursue other deals” if the Federal Trade Commission approves the transaction, the analysts predicted.
Dive Insight:
Medtech dealmaking slowed for two years following a burst of activity in 2021, when companies made up for lost time after the COVID-19 pandemic slammed financial markets. Now, M&A activity appears to be picking up again.
Johnson & Johnson’s acquisition of heart device maker Shockwave set the stage for greater activity in the second quarter, the Pitchbook analysts said. Another multi-billion-dollar deal has already been announced: On Monday, BD said it would buy Edwards Lifesciences’ critical care business for $4.2 billion.
The Pitchbook researchers think Boston Scientific’s plan to buy Axonics will serve as a “benchmark test” for regulatory scrutiny in the medtech sector because Boston Scientific has a competing product for urinary incontinence. They said the FTC’s second request for information on the purchase in April suggests “a possible effort to contest the deal.”
Boston Scientific extended its projected closing date for the acquisition as a result and now expects the merger to be completed in the second half of this year. Regulatory pushback has scuttled several deals over the past year, the report noted, including CooperCompanies’ proposed $875 million purchase of Cook Medical’s reproductive health business and Illumina’s acquisition of liquid biopsy maker Grail.
“Large deals will still have a high chance of scrutiny given the current administration’s aggressive approach to antitrust,” wrote the Pitchbook analysts.
The cardiovascular sector has been a focus of M&A activity over the past 18 months. In addition to the Shockwave buy, J&J closed its $16.6 billion acquisition of heart pump maker Abiomed in December 2022 and bought Laminar, which is developing a treatment for left atrial appendage closure, for $400 million in November 2023.
Venture capital investors have zeroed in on both the cardiovascular and surgical robotics sectors over the past year: The former has attracted $2.2 billion in funding and the latter $1 billion, Pitchbook said.
The firm identified cardiovascular startups Cardiac Dimensions, R3 Vascular and Corvia Medical as potential M&A targets because all have raised more than $100 million of venture capital funding.
In the surgical robotics segment, Agilis Robotics, Medical Microinstruments, True Digital Surgery and LEM Surgical raised a combined $300 million of venture capital funding since the start of the year.
Venture capital investment drove total deal value to $3.3 billion in the first quarter, the highest level since the fourth quarter of 2022, Pitchbook said.
Freenome’s $254 million round led the quarter in a sign that investors remain interested in opportunities in early cancer detection.
Still, funding in the first quarter remains well below a quarterly peak of $6 billion in 2021, and market expectations for interest rate cuts have dampened since the start of the year, the analysts added. Regulators have also been scrutinizing private equity investment in healthcare services, and would-be acquirers may opt to wait until after the presidential election later this year to attempt to close major deals.
“We view the strong start to VC funding for the year with cautious optimism,” wrote the researchers.