As a follow up to last year’s discussion about the yearly medtech outlook, MedTech Intelligence spoke with Karl Freimuth, partner at Livingstone, to get an update on some of the progress the industry has made and the challenges ahead.

Read last year’s interview, MedTech in 2019: M&A to Continue, Robotics & Cardiovascular Tech Drive GrowthMedTech Intelligence: Overall, what are your thoughts on how last year went in the medical device industry from a deals perspective?

Karl Freimuth: 2019 was an active year in the medtech outsourced manufacturing space. Livingstone has a specific focus on companies that are manufacturing components and finished devices for the orthopedic, robotic assisted surgery, cardiovascular, radiation oncology, and spinal device markets—across a spectrum of implantable device components as well as surgical instrumentation. Within that segment, M&A activity was a bit on the slow side during the first half of 2019 after a robust 2018. At the beginning of 2019, there were a couple of headline trades: Nordic Capital acquired Orchid Orthopedic Solutions in January 2019, and at the end of 2018, Linden Capital Partners acquired Avalign [Technologies]. During
the second half of 2019, deal activity picked up with the sale of several assets including GCM to Avista Capital Partners and Providien to Carlisle Companies, among other trades. We’re seeing continued deal momentum leading into 2020.

MTI: What kind of growth is occurring in the robotics space?

Freimuth: Intuitive Surgical is the dominant global market leader in that space. They have several surgical platforms across the Da Vinci brand, including the Xi, X, and Sp models. There have been several other players in the OEM space trying to gain market share as well. The market is anticipated to grow 20% per annum through 2023, and as a result, several other players have developed their own platforms or are making acquisitions—Medtronic’s acquisition of Mazor Robotics and Stryker’s acquisition of Mako Surgical as two examples—to acquire the technology to capitalize on growth in the market. A big driver is that robotic assisted surgical systems are being used for training within the medical school ranks where surgeons are learning how to perform multiple types of surgeries on robotic surgical equipment. We view the market in robotic surgery as extremely high growth over the next five to 10 years.

MTI: During our conversation last year, you mentioned concerns over a skilled labor shortage. Have you seen any progress in this area?

Freimuth: Specific to the medtech outsourcing manufacturing segment, it remains an issue. The supply chain vendors serving [large] companies like Medtronic, Intuitive [Surgical], Stryker and Boston Scientific are faced with continued increasing demands from their global OEM customers. The growth of the medtech device industry is such that the supply chain partners downstream have to invest significant capital to keep up with the demands of their OEM customers. Having the human capital and skilled labor in place is a key component.

What we’re seeing with the medtech CMO [contract manufacturing outsourcing] players is that the companies of scale are going to be the winners—those with significant capital backing from their ownership, the size and scale to keep up with customer requirements, as well as keeping up with the demand of investing in new capital equipment and automation to support growth. We’re seeing those types of investments to minimize the required labor inputs to help mitigate the risk in what is a tight labor market. Broadly speaking, we view the medtech CMO space as having a clear set of winners and losers. Those outsourced manufacturing partners that are willing to invest in their business—human capital, new machinery and equipment, automation, new facilities to support the growth of their medtech OEMs—those will be the winners. I would classify the losers as the firms that are unable to keep pace with the rate of growth with OEM end customers. I think that will also be a driving force in terms of future M&A activity in the outsourcing medtech manufacturing segment. The OEMs are continually looking to consolidate supply chains and give more work to fewer players that they can rely on for multiple capabilities.