Written by: Jake Smiths
As we enter 2024, the medical devices sector is poised for a resurgence in mergers and acquisitions (M&A) activities. While traditionally a sector ripe with M&A, the last two years witnessed a slowdown in notable deals. This was mainly due to economic uncertainties and a shift in focus from growth-related capital allocation to cost-cutting measures marked by rising interest rates and the formation of risk-free interest investment markets.
If we dive into 2024 and look for companies that could be attractive acquisition candidates, Inspira Technologies can be marked as one of them. Its transformative technology and low valuation reflect an excellent opportunity for the industry’s mature companies and retail investors looking for public companies with upside potential.
Current Market Dynamics and the Medical Device Industry Landscape
As we enter 2024, with stabilized inflation but in the high range of the central banks, there is no way to think that interest rates will drop drastically. The current economic environment, characterized by high interest rates, has led to the emergence of risk-free interest investment markets. In such a setting, M&A activities become increasingly attractive for companies seeking strategic growth and diversification. This trend is further fueled by the recent downgrades of startups, which have made them potential targets for acquisitions by larger, more established firms looking to bolster their portfolios and market positions.
The medical device industry stands out for its innovation-driven and high-stakes nature. Critical processes in this sector include rigorous research and development (R&D), compliance with stringent regulatory standards, and a constant drive for technological advancements.
According to a Pitchbook analysis, the medical technology (MedTech) sector shows renewed signs of M&A activities. After a period of relative quiet, recent months have seen a pickup in significant transactions. For instance, Quest Diagnostics’ acquisition of Haystack Oncology, a liquid biopsy maker, for $450 million (including a $150 million contingent payout) marks a notable development. Additionally, Medtronic’s acquisition for $738 million further exemplifies this renewed activity. These deals indicate a shift towards growth-related investments and strategic expansions, setting a positive tone for 2024.
It’s All About the Valuation
In the realm of M&A, valuation often hinges on multiples of EBITDA or revenue. However, the valuation of companies without revenue presents a unique challenge. For such entities, factors like the level of patented technology, regulatory approvals (FDA, CE, etc.), and the establishment of a sales infrastructure become critical in assessing their market potential.
For example, out of many deals in 2023, these two reflect the M&A potential in companies with no significant revenues but with innovative technology:
- Smith & Nephew’s Acquisition of CartiHeal (November 2023): Smith & Nephew agreed to purchase CartiHeal, a developer of knee regenerative technology, for $180 million in cash at closing, with an additional $150 million contingent on financial performance. This deal reflects the strategic value placed on CartiHeal’s innovative technology and its potential in the medical devices market, especially considering its focus on knee regenerative solutions despite not generating revenues yet.
- Harmony Biosciences’ Acquisition of Zynerba Pharmaceuticals (November 2023): Harmony Biosciences completed the acquisition of Zynerba Pharmaceuticals, a leader in innovative transdermal cannabinoid therapies for rare neuropsychiatric disorders. Harmony’s tender offer to acquire all outstanding shares of Zynerba was at a purchase price of $1.1059 per share in cash, compared to a $0.3 share price before the acquisition announcement, totaling $60 million. This deal also included potentially leading to additional payments of up to $140 million, subject to achieving certain clinical, regulatory, and sales milestones.
Spotlight on Inspira Technologies
Inspira Technologies (Nasdaq: IINN), currently valued at $13M, is a standout innovator in the medical devices sector, recognized for its advanced technology in the life-support segment. Though still in the pre-revenue phase, the company’s robust portfolio of patented technology and its anticipated FDA approval within the next six months position it as an attractive prospect for mergers and acquisitions.
The core of Inspira’s technology revolutionizes intensive and respiratory care by enabling direct blood oxygenation, effectively bypassing the lungs. This breakthrough can potentially disrupt the traditional mechanical ventilator market, which currently stands at a global value of $20 billion. Further enhancing its appeal, the technology offers continuous blood monitoring and analysis capabilities, potentially eliminating the need for manual blood draws. This feature represents a significant advancement in improving intensive care unit (ICU) treatments.
The company has already secured three strategic agreements to deploy its medical device in Europe and the United States, with projections targeting up to $386 million over seven years, contingent upon regulatory approval. Adding to its momentum, the company recently announced a collaboration with a leading U.S. hospital to implement its technology in real-life clinical scenarios in anticipation of the forthcoming FDA approval. This partnership underscores the practical application and market readiness of Inspira’s groundbreaking solutions.
Conclusion
As 2024 unfolds, the MedTech sector is gearing up for a significant uptick in M&A activities, driven by economic factors and technological advancements. The examples of Smith & Nephew’s acquisition of CartiHeal and Harmony Biosciences’ acquisition of Zynerba Pharmaceuticals underscore a broader industry movement toward recognizing and capitalizing on the inherent value of innovative medical technologies. Companies like Inspira Technologies are in the vanguard of this trend, exemplifying how innovation in medical technology can create substantial value and attract investment, even without immediate revenue streams.
