Frank Jaskulke [Photo courtesy of Medical Alley]
Jaskulke is the Minnesota medtech booster who recently took a new job with Avio Medtech Consulting. We shared some of our findings from our 2024 Medtech Big 100 ranking and analysis, which tracks changes in revenue, employment and R&D spending across the 100 largest medical device developers and manufacturers.
Here are some excerpts from our conversation, which covered M&A megadeals, spinoffs, medtech layoffs and what Jaskulke’s up to at Avio Medtech Consulting. (The following has been lightly edited for clarity and length.)
MDO: We’re seeing the biggest companies getting bigger with M&A. What does all the M&A activity mean for the medtech industry?
Jaskulke: “The M&A part is good news, because if there’s M&A, that tends to increase flow down the market. More startups can get funding because there’s more exits. On the CDMO side, that’s been getting super interesting. As you well know, with all the PE firms that have come in, lots of M&A, lots of acquisitions, lots of consolidation, that definitely is a big theme. Where there used to be 1,000 small firms and medium- sized firms, there’s still 1,000 of them — there’s new ones every day — but there’s now a handful of ones that are bigger than most of the medical device companies.”
MDO: And what does that trend on the CMO/CDMO side mean for medtech developers?
Jaskulke: “One of the challenges I could see emerging is if you’re the big OEMs, you know those suppliers are getting bigger, they’re more consolidated, which means for them to hit their growth goals that the PE firms had baked in when interest rates were lower, they’re going to have to get more agreements with those big OEMs. If you’re now at a billion dollars, like an Integer-type of company, you can’t drive your growth on startups. And if you’re Medtronic, you know that. You’re thinking, ‘Oh, there’s fewer of them. They need me.’ That’s going to give me leverage to go and push on margins and terms and other things that could have the effect of making it harder for some of those larger CDMOs to maintain profitability and invest and may make the smaller ones more competitive in the future.”
MDO: There have also been a lot of recent spinoffs, and you think that’s more noteworthy than the M&A activity. Why is that?
Jaskulke: “The natural direction would be that the industry gets bigger. Growth is what they’re trying for. Inorganic growth, especially for larger companies, is a major part of that strategy, and has been forever, so it’s what you would expect to happen. … The really interesting thing is the spinoffs: J&J’s Kenvue, Solventum from 3M — that followed 3M’s Kindeva Drug Delivery, which is actually a medical device business — Baxter spinning off its renal business, Mozarc getting spun off from Medtronic, and Medtronic had been trying to sell other ones as well. There’s been a wave, a lot of deconsolidation of companies, and that’s a deviation from the normal course of activity. … If you think about economic development when there’s a spinoff, usually a fair number of new jobs need to be created because the corporate functions have to be added. Consolidation from an economic development point of view means fewer corporate jobs, fewer leadership jobs, fewer back office jobs. Now those things get added into the mix. That can have a very positive economic effect.”
MDO: What’s driving all this spinoff activity and do you expect it to continue?
Jaskulke: “I do expect it to continue. But not unabated — there’s only so many things you can spin off. I think the driver has been as these companies got larger and more complex, there’s a realization that the synergies aren’t quite as synergistic. R&D can be very different among different technology platforms, the call points and the sales channels can be very different. Even if everything is sold in the hospital, it’s a lot of different buyers. There has been effort by the bigs to form strategic accounts, where a hospital would buy the majority of its products from J&J or Medtronic, and that hasn’t seemed to fully play out. So I think that complexity, the lack of synergies, is driving some of it, combined with the need to free up capital to invest in future growth programs. The big companies haven’t been spinning off their fastest-growing businesses. They tend to be spinning off ones that are more mature and as a result often aren’t getting the investment in R&D and other services to advance the technologies. By making them independent, those companies can go get their own capital, be very focused, and likely deliver better returns and better innovation.”
MDO: Is the opposite true then, that these megadeals might be harmful for innovation?
Jaskulke: “I don’t think they’ll be harmful for innovation. A number of the megadeals that have popped up have been bringing together products that I would argue are much more aligned, more common call points, platform technologies that can work together. It’s one thing if you’re a cardiac company and you add ortho. It’s a different thing if you’re a cardiac company and you bring in another cardiac technology.”
MDO: What does all this mean for the device designers and engineers inside these companies?
Jaskulke: “In many cases it initially feels like a headwind, because there’s a lot of work that has to be done to either integrate a new business or to extract an old business. But — knowing many of the leaders at these companies, this is one of the messages they deliver — once they get through that, they’re going to have more resources, better focus to go and do the work they want to do and innovate on great products that save lives. It’s sort of like you’ve got to go through the journey to get to the promised land.”
Related: How to build your career amid medtech M&A, spinoffs and layoffs
MDO: We saw R&D spending growth slow down to 10% year-over-year compared to 20% the year before. Is that just because it’s hard to grow that metric by double digits every year, or is there something else to take away from that?
Jaskulke: “A couple things. Everything has been reverting to the mean from the COVID-19 pandemic. I thought we were going to be back to normal two years ago, and it’s taken a lot longer. Second, I would suspect that some of that reflects heightened inflation. Everything was getting more expensive. That’s going to drive growth rates up. And then there are concerns about a slowing economy. Fingers crossed we get the magical soft landing from the higher interest rates, but there are concerns about growth slowing, recession, things like that. Companies are probably being a little more cautious as a result.”
MDO: Do you think recent supply chain shocks and other pandemic pressures were a driving force behind some of the spinoffs we’ve seen?
Jaskulke: “it’s a good question. There have been waves before of spinouts and spinoffs. There tend to be these cycles of consolidation and then sales, spinoffs, closures, it’s fairly cyclical. It wouldn’t surprise me if the pandemic accelerated some of it. Your point about supply chain could be well put that disruptions in supply chains force companies to really prioritize where they would make investments, where they could put cash, and that may have caused them to ask which of these assets are most critical to their future and say other assets may be better placed elsewhere.
MDO: Are we past the worst of the medtech layoffs, or should we expect more to come?
Jaskulke: “I’m in sales, so I’m naturally an optimist, and I think we’ll figure it out. I’m old enough to remember when 5% interest rates would have been good and low as far as the fed funds rate, and the economy has shown to be pretty darn resilient. There have been layoffs, but there also have been companies that have been hiring. The Medtech Big 100 captures probably the bulk of the activity, but not the totality, and we know 80% of medical device companies are under 50 employees — many are hiring. I can’t speak to the full data of it, but anecdotally, I’ve seen lots of companies that are growing and, at least in Minnesota, have taken advantage of some of the layoffs that have happened. The last time I had looked at the Federal Bureau of Labor Statistics data, the device industry in Minnesota was up so far this year. I would talk to large members when I was still at Medical Alley, and by and large they were positive. They had challenges, but they didn’t think it was dire.”
MDO: Before we go, tell our readers what you’re up to with your new company. I was recently catching up with Avio Chair Amy Langer and she emphasized the focus on helping device startups that might not be big enough to get the full attention of suppliers or CDMOs/CMOs.
Jaskulke: “At Medical Alley I was VP of innovation, leading startup and international programs. I’m now VP of sales and business development at Avio Medtech Consulting. We are a medtech consulting firm by startups, for startups. Our founder is an entrepreneur who had those same startup challenges, so she created the business to help often early-stage startups do things the right way, and do it in a way they could afford. One of our best sources of referrals are the CDMOs who see an interesting company but it’s too early or it doesn’t have the funding. We’re able to help them out, get them set up right, help them mature, go out to do the capital raise, and then they can come back and become a customer of the CDMO. If we do our job right, we’ll grow the market for those CDMOs, which is good for everyone.”
Previously: Frank Jaskulke offers advice to help device founders find a buyer for their medtech
