May 2019

At the recent Symposium on Advanced Wound Care (SAWC Spring 2019), there were several interesting developments and companies to watch (scroll down for a video interview we did with one of them). But without a doubt, the major advanced wound care (AWC) industry theme in the first half of 2019 has been consolidation. Given the increasing size and frequency of recent deals in the sector, it also may be time to discuss if, when, and how executives and investors might potentially begin to look at companies’ handling of post-M&A integrations as a core competency–and perhaps even an opportunity to develop new competitive advantages?   Recent corporate activity To be clear, M&A activity in this space has been ramping up for years. To recap just a few: 2017: Integra Life (IART) Science’s acquisition of Derma Sciences Organogenesis’ (ORGO) acquisition of NuTech Medical Essity (ESSYY)’s acquisition of BSN Medical 2018: Acelity’s acquisition of Crawford Healthcare Mölnlycke Health Care’s acquisition of SastoMed Urgo Medical’s acquisition of SteadMed Medical Yet both the quantity and scale of activity in just the fist half of 2019 alone is essentially unprecedented. At least six deals, three of them mid-to-large (by  AWC industry standards, not necessarily when compared to medtech or pharma overall), and all of them strategic, occurred: 1H 2019: 3M Company’s (MMM) acquisition of Acelity (KCI + Systagenix) for $6.7 billion including assumption of $2.4 billion in debt (expected to go through later this year) Smith & Nephew’s (SNN) acquisitions of Osiris Therapeutics for $660 million and Leaf Healthcare for an undisclosed amount Misonix’s (MSON) acquisition of Solsys Medical for $97 million in stock, plus assumption of $20 million in debt Mölnlycke Health Care’s acquisition of M&J Airlaid Urgo Medical’s acquisition of Realm Therapeutics (Vashe) Perspective and significance The 3M-Acelity and S&N-Osisis deals are both considered very large relative to historical activity in the AWC sector. In particular, 3M and Acelity were both “Top 6” AWC players before the acquisition, and the combined entity will command a very significant scale, particularly in the US (about half of the global AWC market), but also in the rest of the world, where Acelity traditionally lagged but had impressive growth leading up to the acquisition, and 3M already has a solid presence. The S&N-Osiris deal pulls a top regenerative medicine company (with a particular AWC focus) into the portfolio of a “Top 6” AWC firm. Before the acquisition, S&N already had what we might casually be referred to as “tissue growth acceleration” products like Oasis and Regranex, in addition to active healing assets such as PICO (single-use NPWT) and Santyl (collagenase ointment for enzymatic debridement). While clinically different, those products shared similar sales call points, reimbursement support infrastructure, and other considerations to the Osiris portfolio. The Leaf acquisition, while certainly much smaller in size, is in line with strategic trends in the AWC space overall: Pressure ulcer prevention and offloading is among the skin and AWC product segments with the most focus in recent years. Moreover, it put S&N particularly head-to-head with Mölnlycke (who acquired patient turning, positioning, and offloading device firm Sundance Systems in 2016), with both companies claiming their respective foams, adhesives and turning/offloading systems as a three-pronged approach to pressure injury prevention and care. Pressure ulcer prevention and treatment has become such a key battleground in the AWC sector that it was the subject of a lawsuit filed by Mölnlycke in 2017, claiming misleading and unsubstantiated advertising. As of May 2019, both firms continue to assert their respective skin and pressure injury portfolios, even as multiple new entrants have launched solutions for prevention, early detection, and treatment. Prior to this new round of major acquisitions, if there were such as title as “most comprehensive and sophisticated AWC portfolio,” Acelity and S&N would likely have been the top contenders. After all, both companies boasted solutions for most key categories of AWC therapies, and each had several assets with significant market share in their respective categories (debridement, traditional NPWT, disposable NPWT, etc.). The timing of the above acquisitions couldn’t have been more exciting, as each firm bolted on multiple asset classes which too enjoyed significant account penetration and market share (single-use compression, film dressings, CTPs, etc.). The developments were almost like watching two racers neck-and-neck, when both simultaneously increase their pace. At the same time, the “rules” of the sport are evolving in real time, with reimbursement and pricing pressures, continuum of care, digital health and wearables, prevention, diagnostics, and the global markets shaping the terrain ahead. Although overshadowed by the massiveness of the 3M and Smith & Nephew deals, Misonix’s purchase Solsys Medical was also significant. Why? Because traditionally, most of the  major cellular and tissue product (CTP) / biologics / allograft / “skin sub” product firms’ portfolios are pure plays in that space (they might have different formulations or sizes). Likewise, debridement is a crucial wound care need, with relatively few options on the market considering how important proper wound bed preparation is for wound healing. Almost none of the other advanced products–CTPs, NPWT, dressings, ointments, rinses, and even diagnostics, are effective if they cannot come into contact with viable tissue (and if the “chronic” wound is not turned into an “acute” wound). At the same time, selling debridement products, especially those involving a capital equipment component like Misonix, can be complex. In this sense, at least on its surface, the combination is a good fit that significantly expands the reach and offerings of two companies that each benefit from the others’ portfolio and team. Although a smaller deal than the 3M and S&N ones above, care must of course be given to the actual integration efforts as well. The last two deals listed (Mölnlycke-M&J Airlaid and Urgo-Realm Therapeutics) are smaller and appear to be driven by control of sourcing, protection of intellectual property (IP), and other vertical integration considerations: Important roll-ups, but likely not to be viewed as game-changers. However, they also come just months after other important M&A activity by both Mölnlycke and Urgo alike–and