Will innovation pay the price for med-tech biggering?

June 10, 2016 – 4:51 PM | By Amanda Pedersen | No comments yet

The-loraxThe urge to go on biggering and biggering and biggering has taken over the med-tech world. Barely a year after Zimmer and Biomet completed a $14 billion merger to become the second largest orthopedic device maker, the company now plans to spend another $1 billion to buy LDR and grow its spine business.

Not too long ago a deal this size would have been considered a blockbuster for the medical device industry. But after two years of mega-mergers like Zimmer-Biomet, Medtronic-Covidien ($42.9 billion) and the still-pending $25 billion merger of Abbott and St. Jude Medical, this latest acquisition pales by comparison.

But what would Dr. Seuss say about such massive M&As? He tried to warn us about corporate greed 45 years ago with “The Lorax” but did we actually learn from it or did we simply scoff at a story critics say brainwashes children with a liberal, anti-industry agenda?

Published in 1971 at the height of the environmental movement, Dr. Seuss’ furry orange protagonist conveyed a clear message about excessive industrialization. Since then, most major companies have adopted corporate responsibility programs to show they care (or at least pretend to care) about environmental sustainability and reducing energy usage.

But “The Lorax” is also a fabulous critique on consumerism as the antagonist, the Once-ler, insists on “biggering and biggering and biggering” to sell more thneeds “which everyone, everyone, everyone needs,” though they offer no real value.

Just as the Once-ler did not mean any harm by growing his thneeds business, there is surely no ill-intent behind med-tech’s merger mania. Device companies are simply responding to the changing health care environment and the push for a more value-based system. Delivering better clinical outcomes at lower costs requires scale. Still, we should be wary of the Once-ler’s “business is business and business must grow” attitude. The Brown Bar-ba-loots, the Swomee-Swans and the Humming-Fish paid the price for the Once-ler’s greed. Can we afford to let innovation pay the price for med-tech’s greed?

So let’s think about the pros and cons of med-tech biggering.

Pros:

  • Mega-mergers provide scale to build value-added platforms that smaller companies can’t always afford to invest in.
  • Companies are more likely to make products that truly add value to the health care system instead of launching prettier and pricier versions of existing devices and calling them groundbreaking.
  • Hospitals will get more of a one-stop-shopping experience rather than going to one vendor for surgical tools and another for heart stents. The proposed Zimmer-LDR deal, for example, is expected to significantly beef up the company’s spine portfolio, which Zimmer’s customers will probably appreciate.

Cons:

  • Just because super-sized med-tech has the power to innovate, doesn’t mean it will. If sales reps can walk into a hospital holding all (or at least most) of the cards, manufacturers will be less motivated to innovate.
  • Competition spurs innovation by forcing companies to approach unmet needs from different angles. By taking out the competition, consolidation poses a huge threat to innovation.
  • As more companies announce mega-mergers, others might get scared into making bad deals because they’re worried about keeping up with the Medtonics and Abbotts and Zimmers of the world.
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