Thursday, 3 March 2016

Medical M&A – more than meets the eye?

Back in October of last year, we prepared some figures to highlight patent-protected investment trends in the prosthetics sector. These were published as an IAM Industry Report and we also posted them on this weblog here.  Now we return to the healthcare sector, looking beyond prosthetics to the general area of medical devices -- a field of innovation and ingenuity that is almost as old as mankind itself, but one that has until recent times attracted more interest and incredulity than investment funding.  This is what we have come up with:
The start of 2016 saw a number of high-profile acquisitions in the medical space, with Abbot buying Alere, Stryker buying Sage and Medtronic buying Bellco. These highlight that large corporates, especially in that fast-moving space, have a strategy to grow by acquiring companies. In the area of medical technology and devices there is also constant pressure to outperform in the markets as well as gain traction with hospitals and, of course, stay innovative, as summarised by Bloomberg research: “Facing pressure from hospitals and purchasing groups that are trying to control costs, medical device companies have been consolidating to offer a wider range of products. More than 590 deals worth about $82 billion were announced or completed in the sector over the past year, according to data compiled by Bloomberg.” Bloomberg further reports that Stryker strengthened a tangential part of its business, by adding “a complementary group of surgical items that help prevent infections acquired in hospitals”. The Abbott-Alere deal follows a similar pattern, boosting Abbott’s diagnostics department; and the Medtronic acquisition follows the same pattern of expanding and strengthening the business.
The trend appears to be a broad strategy of acquiring and strengthening innovative solutions. But these big organisations are often broadly researching many areas, leaving them with many legacy IP assets in non-core areas. Therefore, any acquisition should be evaluated in terms of what the technical overlap is as well as whether the acquisition brings in any added (IP) value drivers or risk factors.
However, uncovering these details can sometimes be less than obvious as there are often large numbers of IP rights and deals to consider. A high-level overview assessing many different factors shows that what appears to be the same is actually quite different.
This article looks at these deals, highlighting what the various acquisitions bring to the table.
Stryker acquiring Sage – increasing their fire power? 
Figure 1 shows that Stryker and Sage actually appear to have a similar number of patents in the technical areas of Sage products, and have grown their presence in these areas over time at similar rates. Although only 2% of Stryker’s portfolio, it still has a sizeable portfolio in Sage’s space.
Their geographic profiles as seen in Figure 2 are also similar, so on face value one could imagine Stryker getting more of the same assets.
However, Table 1 tells another story: we can see that Sage has actively asserted its patents over the past five years and with positive results. So it would appear as if Stryker could indeed be acquiring a strong IP position in the space.
Table 1: Sage's patent assertions
Start date
Duration
Outcome
Defendant
April 30 2015
One month
Settled
Medline Industries, Inc/Industries Inc Medline
November 22 2013
Three months
Settled
Posey Company/Posey Company (aka JT Posey Company)
November 2 2013
Four months
Won
SwipeSense, Inc
August 7 2013
Three months
Settled
DeRoyal Industries Inc
November 3 2011
One month
Settled
Val Med, Inc
March 8 2011
Four months
Settled
Skil-Care Corporation
November 14 2003
Seven months
Other
American Nonwovens Corporation
Abbot acquiring Alere – filling up the pipeline? 
Abbot and Alere have the most technical overlap of these three acquisitions at 21%. Again, the acquirer has a substantial portfolio in the space and Figure 3 shows that both have hundreds of granted families and similar growth rates. However, there is a slight difference in the filing profile, as Alere has filed much more than Abbott over the past couple of years, which means that Abbot has acquired some interesting pipeline.
Territorially they also have slightly different profiles: Alere has a substantially broader profile as seen in Figure 5.
Medtronic acquiring Bellco – looking outside the United States? 
Medtronic’s acquisition of Bellco is the acquisition in which the acquirer adds the least amount of patents to their portfolios. Medtronic has a substantially larger portfolio than Bellco (even if the technical overlap only equates to less than 1% of its total portfolio). Figure 6 shows the vast difference in the size of portfolio and Figure 7 highlights the recent drop in pipeline for Medtronic, likely indicating that an acquisition has been on the cards for a while.
The one big difference is seen in Figure 8, where two completely different geographical profiles can be seen and Bellco could give Medtronic an angle in other geographies.
What looks the same is not always the same 
On paper what might look similar are indeed very different transactions from an IP point of view. As these companies must compete fiercely, intellectual property and strong IP positions could be of great value. These strong IP positions could also come in different shapes and sizes (eg, litigation-ready patents or stronger geographical footprints). The point is to have "the right tool for the job” and to align your acquired intellectual property with the existing IP portfolio and strategy.
You can also read this piece on IAM here.

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