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The medical devices market experienced steady growth throughout 2017, with deals reached between some of the largest players in the market. The story has not changed much over the first six months of 2018, as the appetite for mergers and acquisitions (M&A) in the medical technology industry remains strong. From our insights into the industry, it appears this trend will continue into the second half of 2018 and 2019. The recent U.S. tax overhaul has resulted in M&A as a major driver of growth for healthcare and medical technology companies. In fact, a Capital One survey of 300 senior healthcare executives found that 50% of those polled said M&A would be their major growth strategy in 2018, up from 38% in 2017.
Industry leaders have begun embedding market access into their key business decisions, which is increasing the visibility and effect of this competency. Leveraging the market access competency during the M&A process can lead to immediate and sometimes substantial results, by providing sound clinical and economic data on which decisions are made around evidence investment, pricing, reimbursement risk, and target asset timelines. Failure to assess market access risk in due diligence can result in post-M&A surprises, particularly if additional evidence and infrastructure needs were not factored into deal valuation. In short, the market access function is vital for any company that is strategically emphasizing inorganic growth.
Evolution of Market Access Function
The market access function has always been a key competency when it comes to supporting value creation and definition for medical device companies. Historically, market access was limited to a peri-launch activity, and focused primarily on payment mechanics and communicating value to stakeholders. Eventually, market access moved upstream to support product development as payers and purchasers began demanding more evidence to support clinical and economic value.
Today, the demand for value-based healthcare requires a more holistic, integrated approach to defining and communicating value to customers, and market access is, of course, a key enabling function.
M&A Process and Key Market Access Issues
Several factors can drive M&A: diversifying portfolio risk, entering new growth markets or geographies, leveraging synergies or supply chain, and acquiring a strong IP pipeline. During any M&A, acquirers must rigorously evaluate a target asset’s commercial potential via a systematic assessment of opportunity and fit.
Due diligence is, of course, critical to informing a company’s go/no-go decision, but too often, market access is considered a secondary issue in the process. In fact, given ever-increasing demand for evidence that goes beyond regulatory requirements for medical devices, market access should be an essential part of due diligence. Market leaders are deploying market access analysis upstream, in landscape assessment, target prioritization, and throughout the in-depth diligence review.
Broadly speaking, the goal of the market access evaluation in due diligence is to conduct an examination of opportunity and risk. It allows the team to zero in on opportunities and red flags that could range from opportunity for clinical and economic differentiation, underinvestment in evidence to prove value, impact of evolving payment models, and the need for specialized resources for post-deal integration. Ultimately, the goal is to identify opportunities and the investment needed, including additional investment in evidence or any barriers that are so severe that the deal should not be consummated.
Real-World Insight
The results of the market access evaluation during due diligence are critical for medical technology companies to course-correct and to inform financial modelling and post-merger integration plans. These real-world implications for companies considering M&A include:
Assessing whether evidence development planning supports revenue projections. A major concern during M&A is whether the available/ongoing/planned clinical studies are designed to meet the target’s average sales price (ASP) and market penetration projections. A market access evaluation for a target’s principal device asset helped our client identify that market penetration for the entire class of devices was threatened, and we realized that the clinical studies designed to support the ASP were not sufficient. These market risks and integration priorities were factored into the client’s financial model, which affected the final deal valuation.
Identifying specialized reimbursement strategies and resources. Market access also plays a role when coding and reimbursement structures are in place. For one M&A, the target asset (a manufacturer that is also a durable medical equipment {DME} provider) had a code payment that was lower than its claimed ASP, only realized by leveraging payers’ appeal processes. This makes reimbursement a cumbersome process for providers, with inconsistent results. Through the market access analysis, the client realized that high-level reimbursement came at considerable expense. The costs of this infrastructure were factored into the deal.
Realigning reimbursement timelines in a global market. A target had forecast substantial revenue growth in Germany and noted that it had developed a “buttoned up” market access strategy. The asset was an ambulatory product going through the Federal Joint Committee (G-BA), and the target had projected a reimbursement timeline of less than 12 months. By conducting a thorough market access assessment, it was discovered that the target had underestimated the timeline by years. Significant efforts needed to take place post-integration to drive the reimbursement process, and as such, our client adjusted its financial model appropriately.
Industry changes, including new economies of care delivery, innovative business models, and evolving customer needs, are expanding M&A interactions. Medical technology companies must leverage market access competencies to maximize investment and promote value. Companies anticipating growth through M&A need to assess their market access opportunity and risk, both to minimize surprises and to ensure that the deal lives up to its promise based on a clear picture of the market access environment.
