If you, as a med tech entrepreneur, are still green with envy (vs. rolling in green yourself) over Medtronic’s eye-popping $800+ acquisition of Ardian in Q4 2010, this 2009 quote from Ardian’s CEO will really make your blood boil:
“For now, Andrew Cleeland insists that he and his management team are not focused on the vagaries of the current device M&A environment or Ardian’s ultimate exit strategy, preferring instead to concentrate on executing the company’s clinical trials strategy and bringing its technology to market as a stand- alone business. ‘Our vision as a leadership group is that, no matter what state the economy is in, you don’t sell a company; a company gets bought,’ he argues.”1
Of course, we are all extremely happy for the founders and management team of Ardian, and especially the investors who put in a whole $65M, of which $47M came in less than two years before the big payola. Hopefully this will put them in positive territory for their 10-year returns and embolden them to invest in our clients!
But back to Cleeland’s 2009 quote, which raises not only one’s blood pressure (Ardian even has a treatment for that, dammit!), but also a vexing question. How should an early stage med tech company consider their exit strategy in the development of their product? Or, to be even more provocative, should they consider exit at all or just keep their heads down and naively plow forward? According to Cleeland (slight paraphrase), it’s the aloof, mysterious guy in the corner who is the ultimate babe magnet, not the one pestering the girls all night with his “elevator pitch”.
But here is the reality. The IPO window has barely opened a crack, and the cost of US pivotal studies increase with every new FDA pronouncement (rumor has it they are regulating Puffs Plus® with the Scent of Vicks® as a combination device). The thought of going all the way as an independent company is overwhelming, and potentially not easily financeable depending on the size and “sizzle” of the market opportunity. Of course, you can pursue non-dilutive funding, but not before you read our last blog post about the perils of this strategy
Looking at things from the Buy side, acquisition is a major growth strategy for many, if not all, of the medical device behemoths, though they are balancing the need to buy revenue (to compensate for their maturing products, lackluster late-stage pipelines and sheer mass) and the need to buy innovation (to compensate for their bureaucratic, dysfunctional and/or depopulated research organizations). Some new companies have shown up at the M&A banquet table, e.g. Terumo with their $2.6B purchase of Swedish blood banking devices company CardianBCT. Boston Scientific, the humbling Guidant experience sufficiently behind it, has been back on the M&A trail, kicking off 2011 with the $375M acquisition of Atritech after a busy 2010.. Out of necessity on both sides of the negotiating table, the device M&A market is pretty hot.
Still, knowing all of this reality, do you plan on, and plan for, getting bought? And if so, what does this mean for a company? And what if you bet wrong, i.e. you end up being in business much longer than you expected? Just teeing up the question here, realizing there is way too much fodder for a single blog post so we will leave you hanging in suspense until our next one. But please, give us your thoughts on the topic!