Medical Device and In Vitro Diagnostics/Research Deal Statistics Quarterly, Q4 2010

In the fourth quarter, medical device companies raised $1.1 billion, a third of which was represented by follow-on public offerings. Acquisitions were strong overall, holding steady with 15 transactions - the same as Q3 - but only slightly less in money paid, $6 billion. In vitro diagnostic/research companies, like medical device, also ended 2010 on a high note, with funding totaling $511 million in Q4. The majority of the money spent on IVD/research acquisitions came from Thermo Fisher Scientific's buy of Dionex for $2.1 billion.

A look at financing, M&A, and alliance activity October–December 2010

In this issue, we present another installment of our quarterly review of medical device and in vitro diagnostics/research dealmaking – for the fourth quarter of 2010. Our data come from Elsevier's Strategic Transactions.

Amanda Micklus and Theresa Surprenant

Medical Device Transactions

Medical device companies ended 2010 with a total of $3.2 billion in financing, a third of which – $1.1 billion – was raised in Q4, making the final quarter of the year the most lucrative. ( See Exhibits 1 and 2.) And although the IPO window has re-opened, it was the follow-on public offerings that really drove the fourth quarter's 8.6% dollar volume increase over Q3's $997 million.

FOPOs brought in $311 million, almost a third of the total money. Half of the deals raised $40 million or higher, but renal care specialist NxStage Medical Inc. beat everyone, netting $73.3 million in its offering of 3.7 million shares at $21.38. [See Deal] Glucose monitoring firms did well in Q4 – Insulet Corp. and DexCom Inc. together pulled in over $68 million. [See Deal] [See Deal] The companies, along with fellow insulin pump developers, are in a heated debate with the FDA over what appears to be new clinical requirements that have been established for these types of devices by the agency's infusion pump initiative and 510(k) reforms. ( See "Insulin Pump Standards: Confusion Persists Over Pre-Market Requirements," "The Gray Sheet," January 24, 2011 (Also see "Insulin Pump Standards: Confusion Persists Over Pre-Market Requirements" - Medtech Insight, 24 Jan, 2011.).)

A total of seven companies (including stent makers REVA Medical Inc. and Stentys SA in the fourth quarter) went public in 2010, a far cry from AGA Medical Holdings Inc.'s lone IPO of 2009, just after the window finally opened back up. [See Deal] [See Deal] [See Deal] The majority of these newly public entities are located outside of the US, although a pair of ex-US companies – China Kanghui Holdings and Israel's D. Medical Industries Ltd. – filed on US exchanges. [See Deal] [See Deal] Isolating the US exchange group, so far the picture hasn't been pretty. As of February 22, 2011, China Kanghui is the only exception, outperforming its IPO price by almost 60%. But respiratory device maker Electromed Inc. and D Medical were both trading well below their opening prices. [See Deal] ( See Exhibit 3.)

Unlike their biopharma brothers, device IPOs in 2010 avoided haircuts, or deep discounts to their share prices. Take French firm Stentys, which in Q4 priced at the midpoint of its €10.80–13.20 range, selling 1.9 million shares at €12 to net €22.7 million ($31.9 million). ( See "Stentys' IPO: European Public Markets Opening For Device Companies?," START-UP , November 2010 (Also see "Stentys' IPO: European Public Markets Opening For Device Companies?" - Medtech Insight, 1 Nov, 2010.).) Or cardiovascular-focused MicroPort Scientific Corp., which went out in September at its maximum price of HK$6.10 to raise HK$1.54 billion ($199.7 million), the largest device IPO of 2010. [See Deal]

A clear fourth-quarter outlier was HeartWare International Inc.'s debt offering in December. [See Deal] At $144 million, which the company raised by publicly selling seven-year 3.5% senior notes, the transaction was not only the biggest of the quarter, but the fourth-largest of 2010 (behind MicroPort's IPO, Devicor Medical Products Inc.'s $151.5 million initial outside round, and Mindray Medical International Ltd.'s $151 million FOPO). [See Deal] [See Deal] HeartWare, a producer of cardiac assist devices that was nearly acquired by Thoratec Corp. in 2009, also raised $51.9 million through a follow-on offering in early 2010. [See Deal] [See Deal]

Not surprisingly, investors are backing more advanced device companies: late-stage venture capital financing has beaten out the early-stage rounds quarter-for-quarter in 2010, and the last three months of the year were no exception. In fact, late VC money has consistently outpaced its early-stage comrade at least 1.5x each quarter, but in Q4 the later venture rounds grabbed $317 million, almost two and a half times the $132 million early-stage amount. A standout in the fourth quarter was SuperSonic Imagine SA, which raised €34.5 million ($45.7 million) in Series C financing. [See Deal] The diagnostic imaging company, which has accumulated $70 million in venture capital, has also secured a top device player – Hologic Inc. – as a partner. Just before closing the Series C, Hologic agreed to exclusively market in the US SuperSonic's Aixplorer MultiWave ultrasound system for breast applications. [See Deal]

Still, backers are willing to take risks on device start-ups. Take NinePoint Medical Inc., which was founded in 2009 and completed a $33 million Series A financing in October, the largest early round of Q4 and the largest device Series A of 2010. [See Deal] ( See "NinePoint Medical Inc.," START-UP , February 2011 (Also see "NinePoint Medical Inc. " - Medtech Insight, 1 Feb, 2011.).) Like SuperSonic, NinePoint is also focusing on diagnostic imaging. It's developing optical technology that physicians can use to diagnose dysplasia in the GI tract in real time without a biopsy. Just two months after securing the Series A funds, NinePoint strengthened its IP portfolio by in-licensing over 100 patents and applications from [Massachusetts General Hospital], which also developed NinePoint's Nvision device. [See Deal]

After a slow start in 2010, the market for device acquisitions improved in the last two quarters of the year, peaking in Q3 at $6.8 billion in dollar volume. Over half of this money was from Reckitt Benckiser Group PLC's $4 billion deal for SSL International LLC. [See Deal] ( See Exhibit 4.) The fourth quarter was strong overall, holding steady with 15 transactions – the same as Q3 – but only slightly less in money paid, $6 billion. And in the end, 2010 closed out with $18.6 billion worth of device acquisitions, a 112% increase from 2009's $8.8 billion. ( See "Device M&A Poised For A Strong Year," IN VIVO , February 2011 (Also see "Device M&A Poised For A Strong Year" - In Vivo, 1 Feb, 2011.).)

Three billion-dollar deals helped bump up the numbers in the fourth quarter. ( See Exhibit 5.) A year after going public, AGA Medical – the inventor of the Amplatzer occluder system – was acquired by St. Jude Medical Inc. for $1.3 billion. [See Deal] St. Jude paid $20.80 per share, a 43% premium to AGA's 10-day average prior to deal announcement – $14.56 – which also happens to be the company's IPO price. Stryker Corp. was also busy. In October, it paid $1.4 billion up front for Boston Scientific Corp.'s neurovascular division, propelling Stryker into a new area beyond its specialization in orthopedic implants. [See Deal] ( See "Stryker And St. Jude Acquisitions Signal Year-end Uptick In Device M&A," IN VIVO , November 2010 (Also see "Stryker And St. Jude Acquisitions Signal Year-end Uptick In Device M&A" - In Vivo, 1 Nov, 2010.).) BSX, which has been divesting noncore businesses over the past few years, could receive another $100 million based on the launch of Target, a next-generation detachable coil for hemorrhagic stroke, as well as the transfer of neurovascular manufacturing plants to Stryker. Stryker was also on the selling end in Q4. Olympus Corp. bought Stryker's OP-1 (recombinant human bone morphogenetic protein-7) orthopedic implant and putty bone regeneration products, plus a manufacturing facility, for $60 million. [See Deal]

Q-Med AB garnered $995 million from its takeover by Galderma SA. [See Deal] An additional $800 million in development and business-related milestones could bump up the price to $1.8 billion, making it potentially the biggest acquisition of Q4. Now armed with Q-Med's dermal filler Restylane (hyaluronic acid gel; a competitor to Allergan Inc.'s Botox [onabotulinumtoxinA]), Galderma will almost double its sales in the aesthetic dermatology market.

A couple of fairly young private cardiology firms were scooped up by large device companies, and in each deal, the acquirer already had an equity stake in its target. After leading Ardian Inc.'s $47 million Series C in March 2009, Medtronic PLC acquired the remaining 89% of the company in November 2010 for $800 million up front, plus an estimated $500 million in earn-outs. [See Deal] [See Deal] Medtronic now has full ownership of Ardian's Symplicity renal nerve ablater, a catheter that delivers low-level radiofrequency energy to the renal artery to treat drug-resistant hypertension. The device is CE marked but hasn't yet been launched in Europe. US pivotal trials are planned. Boston Scientific also already had a minority stake (14%) in Sadra Medical Inc. when it bought the aortic valve specialist in November for $386 million in up-front and earn-out payments. [See Deal] Sadra is believed to be the first ever to develop a fully repositional percutaneous aortic valve replacement for patients with severe aortic stenosis. If successful, the Lotus device will enable BSX to enter the structural heart disease market. ( See "Device M&A Rebound Continues: With Ardian, Sadra Deals Show Appetite For Big, Early-Stage Acquisitions," IN VIVO , December 2010 (Also see "Device M&A Rebound Continues: With Ardian, Sadra Deals Show Appetite For Big, Early-Stage Acquisitions" - In Vivo, 1 Dec, 2010.).) Both the Ardian and Sadra transactions show the potential for corporate venture backing to improve returns for investors. Participation by corporate VCs in private placements has been increasing over the past three years – in 2010, 16% of venture rounds included a corporate investor. ( See "Will Rise Of Corporate Investors Lead To Return Of Device Returns?," START-UP , January 2011 (Also see "Will Rise of Corporate Investors Lead to Return of Device Returns?" - Scrip, 1 Jan, 2011.).)

In Vitro Diagnostics/Research Transactions

In vitro diagnostic/research companies, like medical device, also ended 2010 on a high note following a sluggish start. Funding jumped from a low of $144 million in Q1 to $511 million in Q4. A total of $1.3 billion was raised during the 12-month period, only slightly less than 2009's $1.5 billion sum. ( See Exhibits 6 and 7.)

Two IPOs brought in almost 50% of the financings, with Pacific Biosciences of California Inc. netting $186 million (the first US life sciences company to go public in 2010), followed by Complete Genomics Inc.'s $50.2 million. [See Deal] [See Deal] PacBio had raised a $109 million Series F venture round three months before listing [See Deal] and Complete Genomics' Series E round closed at $39 million in August. [See Deal] Also in Q4, Sequenom Inc. and Exact Sciences Corp. both completed follow-on public offerings that collectively brought in $156 million. [See Deal] [See Deal]

Venture-backed deals took a nosedive from Q3. While early-money deals were halved, accounting for the 78% decrease to $15 million in the fourth quarter, the number of late-stage financings remained about the same, but still declined 44% to $96 million. Two-thirds of the late-VC money came from a pair of $30 million Series Cs for 23andMe Inc. (which got a boost from Johnson & Johnson's venture arm) and Pathwork Diagnostics Inc. [See Deal] [See Deal] DNA sequencing firm Sequenta Inc.'s $13 million Series B made up the majority of the early-stage funding. [See Deal]

Although the in vitro diagnostics/research industries began 2010 with a bang by raking in almost $8 billion through seven acquisitions in Q1, the year ended with a less exciting, but quite respectable $3.2 billion via nine transactions in Q4. The year closed out with a total of $13.3 billion in mergers (21 deals), which is just $1 billion shy of the totals for 2008 and 2009 combined. ( See Exhibit 8.)

The largest deal in Q4 was Thermo Fisher Scientific Inc.'s buy of chemical analysis tools company Thermo Fisher Dionex for $2.1 billion, almost two-thirds of the total M&A money. [See Deal] Thermo Fisher agreed to pay $118.50 in cash per share to increase its position in the mass spectrometry and laboratory software markets. The first company to launch an ion chromatography system for water safety analysis, Dionex is now the third-largest chromatography firm across the globe. More than a third of the company's revenues come from Asia-Pacific, which will benefit Thermo as it has attempted to establish headquarters for its worldwide environmental instruments business in China. Dionex is the second company Thermo has added to its analytical technologies business in 2010; mid-year it paid $260 million for Canadian molecular and cellular biology research products firm Fermentas International Inc. [See Deal]

Almost half of the fourth-quarter acquisitions were of molecular diagnostics companies. General Electric Co.'s GE Healthcare purchased Clarient Inc. for $587 million in cash to gain its biomarkers and tests to characterize and classify prostate, breast, lung, colon, and blood cancers. [See Deal] ( See "GE Acquires Clarient To Anchor Its Molecular IVD Business," IN VIVO , December 2010 (Also see "GE Acquires Clarient To Anchor Its Molecular IVD Business" - In Vivo, 1 Dec, 2010.).) One of Clarient's leading products – the lung cancer immunohistochemistry panel Pulmotype – came from the buyout of Applied Genomics Inc. last year. [See Deal] GE is hoping the deal will not only expand its diagnostics offerings, but also increase revenues, which took a dip during 2009. GE also penned a fourth-quarter alliance with Janssen Pharmaceutica NV to discover a biomarker for Alzheimer's. [See Deal] The resulting noninvasive or minimally invasive test would identify patients with the disease before any clinical symptoms appear.

Japanese pharma company Sekisui Chemical Co. Ltd. picked up Genzyme Corp.'s Genzyme Diagnostics for $265 million in cash, just months after Genzyme sold off its Genzyme Genetics division to Laboratory Corp. of America Holdings for $925 million. [See Deal] [See Deal] ( See "A Divesture To Kick Up Valuation For Genzyme Drives US Expansion For Japanese Diagnostic Firm," PharmAsia News , November 19, 2010 (Also see "A Divesture To Kick Up Valuation For Genzyme Drives U.S. Expansion For Japanese Diagnostic Firm" - Scrip, 19 Nov, 2010.).) After several months of negotiations, Genzyme Corp. itself was finally just scooped up by Sanofi in a deal that values the company at $19.4 billion. [See Deal] And Genzyme Genetics was also busy in Q4 – it sublicensed a diagnostic assay to detect mutations in the EGFR gene to Roche. [See Deal] Roche will use the assay in a concurrent non-small cell lung cancer agreement it signed with Astellas Pharma Inc.'s OSI Pharmaceuticals LLC