“It’s not infrequent that someone with an idea perceives it should make sense to J&J, but they don’t understand where our business is in that space,” Stebbins said. (See Stebbins discuss M&A deals at DeviceTalks Boston on Oct. 2.)
“The target companies don’t realize why the buyer might be interested in them.”
When seeking licensing or an acquisition from a major medical device company, getting the pitch right is more important than ever because the number of medtech OEMs out there is shrinking amid a flurry of mergers in the industry.
At any given time, an OEM could be looking from one of three different angles (or perhaps some kind of combo involving the three) in possible acquisition targets, according to Stebbins. What a company is looking for changes over time, too, so don’t be surprised if you come back in a few years and there is interest when there wasn’t any before.
Ask yourself how your medtech startup fits into these three buckets – and which buckets an OEM is after – and you’ll be more likely seal the deal:
1. Technology company
Sometimes a large medical device company could be looking to enter or for a reset in a particular space, so they’re hungry for startups with cutting edge core capabilities, innovative materials, etc. This is the optimal time for the classic medical device startup pitching a potentially groundbreaking innovation.
Simply being a great technology company, though, doesn’t always work for an OEM, according to Stebbins.
“The thing that strikes me about the startups we see now, there are some good solutions for some patient-based care, diagnostics, different things, but they’re still pretty far from how companies want to shift into that business model,” Stebbins said. “Just because you have some health technology doesn’t mean that acquirer is interested in that yet. It can take a while.”
2. Procedure company
One OEM I might be interested in novel technologies –smaller and innovative, but another OEM might have some good innovative implants but needs to be adding some supportive equipment in the operating room, according to Stebbins.
The latter OEM has gone beyond developing an innovative core technology and is actually seeking to assemble a menu of products and services around a particular procedure or episode continuum.
“I may need to move into something else in that procedure to make it important,” Stebbins said.
3. Customer-defined company
This goes beyond technology and procedure to asking, “How does the customer actually make money? What does that physician do in the operating room? What does that person do in his or her office? Is the hospital or insurer the real customer?”
A startup with a solution for an especially strong health provider need could be an attractive target for an OEM looking to expand or better adapt to a particular health space.
To get a sense of what a business unit might be thinking, Stebbins suggests that people leading young medical device companies should go to conferences and talk with employees from the OEM on the show floor or plenary sessions. It might not be even conscious, but how are they approaching things? What’s their slogan, their buzzword of the year?
“Is this a business getting love? If so, great. If not, you better be creative with how you’re pitching there,” Stebbins said. “The pitch has to be super good for the management to be buying it.”
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