Mergers Emerging

Observers of the neurotechnology industry have been watching the handful of large publicly-traded neurotech device firms for some time to see which startups would get snapped up in the next M&A deal. So far, 2015 looks like the year of the mega-merger. The announcement that Cyberonics Inc. will merge with Sorin [see article, p5], coupled with Medtronic’s recently closed merger with Covidien, points up a new level of competition in the industry.

This could be a positive development, to the extent that the two new expanded device firms seek to keep expanding by acquiring smaller neurotech firms. Both Sorin and Cyberonics have shown an interest in the market for sleep apnea and we wouldn’t be surprised if OSA neuromodulation company ImThera Medical—which Cyberonics has already invested in—and central sleep apnea firm Respicardia became acquisition targets after this deal is consummated. Of course, given Covidien’s franchise in respiratory products, Medtronic might be a competitive bidder for the latter firm.

Also, now that the new Cyberonics/Sorin entity finds itself in direct competition with Medtronic, St. Jude Medical, and Boston Scientific in the cardiac device market, it’s not beyond the realm of possibility that the new firm is ready to butt heads with the big three in pain neuromodulation. That could mean that startup SCS vendors like Nevro, Saluda Medical, or Stimwave become acquisition targets for the new firm. It could also mean that St. Jude Medical is more likely to exercise its option with Spinal Modulation, lest it fall into the wrong hands. Conversely, Cyberonics/Sorin’s foray into pain neuromodulation could induce one of the current big three in that space to sniff out potential partners in the VNS and epilepsy markets. Given Medtronic’s likely entry in the DBS epilepsy market [see article, p1], the acquisition of a less-invasive surface VNS intervention might be a strategic play.

But all this speculation about future M&A activity aside, one disturbing aspect of the two mega-mergers of 2015 is the emigration, at least in title, of two solidly American medical device firms to Europe. We believe that taxation issues are a major factor in both cases and for that we can only blame the U.S. Congress. The tax code is in major need of overhaul and a reduction in the corporate income tax rate—coupled with a corresponding elimination of senseless loopholes—would do much to keep American firms all red, white, and blue. But the government should also examine whether it is in our national interest to incentivize U.S. firms to flee our shores whenever they see a chance to save a buck. After all, the American taxpayer funded—via the NIH and other agencies—much of the R&D that helped launch new products like DBS systems and neuroprosthetic devices.

James Cavuoto

Editor and Publisher

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