Medtech 2025 — Here Come the Deals | LSI USA '25

John Babitt  0:05  
Steve, okay, we'll go ahead and get started after lunch, and we don't even need caffeine. We've got enough energy on this panel to keep us all going here. So first of all, thank you to LSI for the opportunity to present here today with EY, we've been a sponsor pretty much since the beginning, and super happy to be here again. I'm John Babbitt, partner at EY in our Minneapolis office, and I'll be taking you through the panel here, which really we have some of the biggest names in Medtech, M and A some of the biggest deal makers. So I'm going to let them do a brief intro and tell you a little bit about their organization's background, and then we'll get things kicked off. Yep. Adam, hi,

Adam Lubart  0:50  
pleasure to be here. Adam Lu Bart, I'm a managing director at Parel Weinberg Partners. We're an advisory, a pure advisory firm, and I do nothing but Medtech, and I've been there for 10 years, and I would say our business is uniquely focused on very large strategic work for the largest cap Medtech consolidators, including J and J and Medtronic, going back to the Medtronic covidian days. And we also sell some of the high growth assets into those consolidators, such as farrapuls or V wave. So that's that's our practice. Great,

Greg Larkin  1:24  
Greg, great. Hello everyone. My name is Greg Larkin, and I lead business development and strategy for the cardiovascular portfolio at Medtronic. That consists of seven businesses. It's about $12 billion in revenue annually, and my team is focused on a lot of the inorganic growth story of that portfolio. So looking at Portfolio gaps, how do we partner with the startup community and in other companies outside of our ecosystem to bring them into Medtronic

John Babitt  1:51  
Super. Anne.

Anne Sissel  1:53  
Hi, I'm Ann Sissel. I lead business development for Johnson and Johnson Medtech orthopedics, and when it within orthopedics, we're very focused on keeping people moving. And so what that means for us is everything across joint reconstruction, digital surgery, trauma, extremities, businesses, all are within our umbrella

John Babitt  2:11  
super and last, but certainly not least. Mitch,

Mitch Hill  2:15  
good afternoon. Mitch Hill, I'm an independent board member now. I was the CFO of Inari medical joined in about q1 of 2019 and then served in that capacity through late 2024 and continued on with Inari through the sale of the company to Stryker, which closed about a month ago. Great, great to be with you. So Mitch

John Babitt  2:40  
is going to tell us how to get a deal done. I can't wait. So what we thought might make sense is to just, I think we're going to share a slide and just give you some appreciation of some of the tail winds and some of the head winds that Medtech is facing as we kind of drift into 2025 and from, you know, the tailwind and the positive vector, you know, really volumes and pricing have been really favorable, and that positions Medtech. Well, for, you know what, some are forecasting, high single digit overall growth. So very positive for the sector. Venture is is relatively robust, and I would say active. I don't think I've been in Medtech and seen as many 100 million dollar rounds as what we have here at the end of 24 and in the first quarter of 25 so hopefully that trend will continue. IPOs are relatively back. I mean, we had three in the last six months. That's more than the last three years combined. And you know, overall, Medtech has been seen as a pretty safe, you know, parking place within the broader spectrum of healthcare. So all favorable, but you know, there are some some headwinds on the horizon as well. And you know, for those of you that don't know, we had an election here and that has consequences. So we'll talk a little bit about that. How does that impact the deal? You know, landscape everything from tariffs free cash flow to the FTC and maybe even some of the FDA thoughts there. And then, you know, M and A overall is off to a really slow start. I mean, M and A Medtech is off to a better start. But I think it's, it's still probably a little softer than than what we might have thought when we were all back at JP Morgan in January and, you know, Adam. Maybe that's a good place to start, because obviously, you're advising a lot of clients on M and A, it is a little bit slower start than what we thought. But you know, where do you kind of see clients, you know, be more active or what? What's what needs that to be true, to kind of trigger more activity? Yeah,

Adam Lubart  4:58  
no, it's a great point. And you brought. Up a lot of it. I think if you look back a quarter ago, there was a lot of optimism looking forward to resolving the election questions and maybe having with Trump elected a more favorable regulatory environment. But if you think about how things work historically, there's a lot of uncertainty that comes with any election and the velocity of Trump's policy initiatives have been maybe more apparent than in other elections. So when you have that uncertainty and things pull back a little bit, so perhaps maybe some over optimism. But as we talk to large cap corporations and large cap consolidators, the fundamentals are there, and the stories that we've been telling them, or the the talk track that we've been telling them, is still holding true, which is that growth matters more than ever, and it continues to matter. Size matters. And the good news is all these companies have great balance sheets and have a lot of capital to put to work, so we think the environment is actually good, and once you have certainty and clarity around tariffs and inflation and interest rates, we think, uh, you'll continue to see companies follow that playbook, which is, invest for growth and acquire for growth.

John Babitt  6:10  
Yeah. And I think one of the things that we saw in 2024 more than we have historically, is there was almost this bifurcation between medical technology companies and those kind of, you know, at that double digit or high single digit growth. And then there are medical supply companies that, you know, are, you know, not hitting that, that typical growth trajectory. I think we saw also kind of a big delta between the multiples that those stocks trade at, yeah. So

Adam Lubart  6:40  
absolutely, I think that multiple is really a new you hit it right on the head. Is about growth, and you can't be, you can't try and be what you're not. So if you're in a low growth segment, and you're focused on cash flow, and, you know, tighter margins, you got to focus on, you know, continue to return cash flow to shareholders. But if you're a growth company Boston, Scientific Medtronic, J and J growth is going to drive your multiple and you have to be aggressive. And as you can tell, you know, from this conference, a lot of the innovation doesn't happen just within the four walls of those companies. It happens externally. So they should always be on the lookout for for the next, you know, great innovation to drive growth. Yeah,

John Babitt  7:18  
and that's actually a great segue, because Greg, I wanted to talk about where Jeff is envisioning all this growth and Medtronic. He said that rdn can be the biggest franchise within Medtronic, and that falls squarely in your wheelhouse. That was a deal that you did some time ago. You know, a lot of clinical work between now and then, but tell us a little bit how you know, you guys didn't give up the fight. You stuck with it, and then maybe, you know, dubbed, you know, dovetail that into how does that influence your deal making going forward? Does it mean more later stage deals, or it means we got to get companies earlier. How does that calculus work? Yeah, it's

Greg Larkin  8:03  
a good question. So I think just maybe first off, we are incredibly excited about the rd and opportunity, and really the baseline of that is just that large unmet clinical need. And I think that large opportunity is why we have the conviction to continue to invest over time and a lot of bumps in the road. I think a lot of the folks in the in the audience know that med tech innovation doesn't happen overnight. We recognize that there's going to be ups and downs, but really, for already in it, specifically that unmet patient need at the end of the day is what drove that conviction. Going forward, you start to see signals in data, you double down, you run additional clinical trials. And ultimately, we're hoping that, you know, we're starting to write the commercial story this year and see that that franchise grow as far as how it impacts deal making going forward. And I don't think we have a strong bias to say, well, because we've lived through rd and we can only do near term deals, I think it really depends on whether you're investing in a new therapy, in an invention stage, or you're investing in an innovation disruption stage. You're going to have to have a couple of bets in both. And I think one of the big challenges with replaying the Ardian story is saying, you know, it'd be good to take that and say, Well, maybe we'll go a little later next time. The reality in Medtech is oftentimes, if you wait, someone else is going a little bit early. And we've, you know, we face that same challenge in a couple other therapy areas. So I don't see a massive swing in our investment philosophy. I think we're gonna have to take some short term, mid term and long term bets.

John Babitt  9:35  
Yeah, and, and, you know, over the last year, we've seen J, and J really moved to the forefront on the deal making perspective so more, kind of more established, you know, companies with shockwave and aviomed, what was the conviction that kind of, now is the time to kind of go bigger into med tech for a franchise like Jay? Jay,

Anne Sissel  10:00  
yeah, so J and J Medtech, right now, we're very much focused on, how do we shift our portfolio into higher growth market segments, build upon our current leadership positions and market strongholds, and as we were talking about just now, addressing those highest pressing unmet clinical needs, we have invested over $30 billion over the last few years in this area, because we believe in the long term. We believe in the opportunity of what we can do to address all these important unmet clinical needs. And much like what's been said is we have done some larger deals, particularly in robotics and in cardiovascular we've also done a number of deals that are, you know, more earlier stage, maybe a little bit smaller, maybe different types of merger and acquisition type activity to address the broader need and make sure that we are building for the long term. Yeah.

John Babitt  10:53  
And I guess some of those you mentioned how you did some earlier stage deals. I mean, V wave sounds like Adam was involved in that, maybe. And as I'm forgetting the name laminar, yeah. So, I mean, how do you get that capital allocation, you know, kind of, kind of right along the along the spectrum,

Anne Sissel  11:14  
yeah, I think it really goes back to that long term approach that we are taking within Johnson and Johnson Medtech and really staying true to our strategy, and when we're looking at acquisitions, we are focused on the market attractiveness, the growth and the profitability profile of that segment, as well as where we fit into that segment. And so with that philosophy and that discipline around how we're going to look at external innovation, it really does give us that opportunity to say, yes, we can put bigger bets in certain areas and we can make other bets that may be a little bit smaller in nature, but to work across that continuum.

John Babitt  11:52  
No. I mean, I don't think anyone's been as active as you guys that kind of looking at the portfolio and pruning stuff off and adding stuff on. So congratulations on that front. But Mitch, maybe let's get down to brass tacks. I mean, you started the year off here with a bang with the Inari. I had a chance to look at the 8k and company. A evidently gave you a phone call. You guys decided to kind of launch a mini process with nine or so companies. Eventually you end up with a company other than Company A or other the CEO named Kevin Lobo. Tell us how you know you guys went about that process, and why was it now the right time for you guys to kind of do the mini bake off and kind of look at an M and A event,

Greg Larkin  12:43  
sure, I guess the thing I would say is the whole Inari story started probably back in 2019 and I know we have a mix of investors and companies here, and I think it's really helpful to kind of give everybody a bit of background. We were just started commercializing the business in very late 2018 and the company had 6 million in revenue the quarter that I joined. So very small and very kind of nascent business. And we had two products, which is kind of different than some med device companies. And I think we all looked at each other in the summer of 2019 and said, do we want to try to keep this company independent? Or do we want to sell? And we were actually approached by two companies during the summer of 2019 to sell. At that time, we this is maybe to, I think, you know, Greg's point, an earlier stage opportunity would have been a lot of us had been involved in the management team and selling to different companies over time. We sort of felt like we had the opportunity to make Inari into a multi product platform business, so meaning we could go from two revenue streams to maybe, you know, four or five, six revenue streams. And ultimately we were successful in developing and launching during the sort of the ensuing, you know, five, six years, three organically developed products, and then one inorganic product, which is the LIN flow acquisition that we did in November of 2023 so kind of now looking at six revenue streams through the business, and I think it was becoming a more interesting, you know, kind of opportunity. We grew very quickly. We got a bit of a COVID Assist there with the IPO in 2020 and certainly grew with a lot of clotting that happened as a result of that. And, you know, saw very aggressive growth rates near 30% plus, even in the high 20s. One of the things that we were wrestling with those this transition to profitability and is there's sort of a no man's land that occurs through, you know, these smaller med device companies. As you're transitioning from a very high growth mode into a slower growth mode, you know, be it be law of large numbers or different reasons, that won't happen, then the investors are much more demanding from a profitability point of view. So you got to have kind of one of the other you. Uh, or ideally both, in some cases, as as was the case with like a shock wave. So we were making that transition, but felt like with this approach that happened late last year, that it would be prudent for us to consider selling the company and basically making it a part of the larger enterprise. And so we entered into that process that John mentioned, you know, where we contacted several different companies, ultimately got into more serious discussions with three companies, with Stryker emerging as the, basically the high bidder for that, and felt due to both the price and also to the certainty of close and kind of regulatory approval issues and things of that kind. It was the right choice for us to sell the company.

John Babitt  15:47  
And so you hit on a real interesting thing around the profitability, because I had a question on our when we did our prep call and I was going to take it off, but you guys all said, No, that's really important. You know, I mean, you guys spend a lot more in, you know, sales, marketing and clinical, to really drive adoption, drive, you know, the the growth engine. You know, how much in the out years, you know, did you guys get pressure, you know, as you kind of went through the process to, you know, maybe look at either improving profitability or just a different profitability, you know, kind of, yeah, I think

Greg Larkin  16:28  
that so with the public offering in q2 2020, I believe we had five or six of our first quarters were profitable. So we we were telling people we were profitable before it became popular. And then we made a lot of investments there, in the 2022 time frame, for the reasons that John mentioned, to really try to drive a more aggressive growth. And, you know, product and innovation and international expansion and all those things. And we were not profitable then in kind of the 2023 2024 time frame. And there was a lot of discussion about that in terms of, hey, you know, where, where's the, you know, where's the operating profit for the business? And that's something that created a lot of discussion. And, you know, ultimately commitment from us originally in the 2024 time frame. And then we delayed that by a year when we did the LIN flow acquisition. So it was in kind of the first half of 2025 we were targeting profitability. But clearly people were concerned about that, I guess I would say as companies, and you can still see examples of this today in the market. You know, take like a procept or other companies of that kind, that are growing at 25 30% nobody talks about profitability for those companies, but when you start growing at a slower pace, it becomes a big issue.

John Babitt  17:43  
Yeah, and Greg, maybe, if you could provide maybe an OEM perspective, as you guys are look, because I know you know Jeff and your interim CFO Gary, spent a lot of time kind of educating the street like of what the deals are, the type of deals that you guys are looking for, it's more these tuck ins, but that are, you know, creative, kind of sooner, you know, or now, so, so how do you approach, you know, deal making to, you know, get that right. You know, mix and, and, you know, have enough, you know, funnel to kind of, you know, get the right opportunities to the finish line.

Greg Larkin  18:26  
Yeah, I would say a couple of things that come to mind. So you can look at purely targets that are going to be a creative year one year two, that that universe becomes pretty small pretty quick. There's also some creative deal structuring you can do with companies that need an infusion of capital structure, some sort of option down the road where you can get them closer to where you can project profitability and accretion to our to our operating margin, or gross margin as well. And then the last thing I'd say is, you know, we also leverage the balance sheet through venture investing and things like that in those earlier stage companies. We want to see it at the table. We want to be able to shape that company to a certain extent such that when we do acquire a lot of the things that have typical, you know, we're not redoing a lot of work. We're trying to fully focus on what's driving the growth, versus having to do a lot of work. That's going to be really, one, really capital intensive and then to time intensive when you're trying to either play catch up or lead a new market.

John Babitt  19:25  
Yep, and, you know, maybe that's a good kind of bridge here Adam, you know, we're, we're seeing a lot more activists kind of come into the the med tech sector. I think if we rewind a year or two years ago, we didn't see that level of activity. And so they've come into companies they've been pretty successful at for seeing some change. And then, you know, even outside the med tech sector, it's been, I think, scary to some management teams like, what kind of influence? They can exert, do you But certainly, at least Becton Dickinson and Teleflex, we're seeing kind of, you know, real restructurings of the portfolio. Will we see more of that throughout 2025

Adam Lubart  20:12  
so I think, you know, taking a step back, as we touched on earlier, really what you know in Medtech, what investors tend to look for, especially in the OEM businesses growth, and you have elements of your portfolio that aren't growing as fast as others, they're not going to get the investment internally or get the capital allocation required to turn those around. Management teams are always looking at what's the right mix. Does this belong with us, or is better elsewhere, whether with another owner or on its own? To get that capital allocation, you have seen more activists be vocal about this, but I think that internal dialog happens within Medtronic, within J and J, whether the activists are there or not. So I think what companies could should continue doing is evaluating their portfolio, be proactive and decide what's the best you know, does this business make sense with us from a strategic perspective, are we going to invest the capital? And if the answer is, is we're not going to invest the capital, and so drag on growth, it's a good time to start thinking about separation, particularly before you damage the asset from under investment that you want to you want to be proactive about that.

John Babitt  21:17  
It's been interesting because both those stocks reacted pretty negatively to the news. So, right? Interesting situation to watch, I think, yeah,

Adam Lubart  21:26  
and then you have so Bentham, where there was a very positive reaction to the separation of P and F again, you know, questions of whether that business was getting the appropriate multiple the other there was a better owner, which there turned out to be. So you see it both ways. I think in the Teleflex situation, there was a lot of noise in that announcement, missed earnings, new CFO, you know, acquisition, and then the separate, and then the split. So a lot to digest. I think the important thing with separations that are successful is remain. CO has to be big enough, as we talked about at the beginning. Size does matter. There's a big advantage to being to having scale in Medtech. So if you're going to do portfolio management, you don't want to create two subscale businesses. Obviously, Johnson, Johnson has been very successful in their portfolio management, and they have the scale to do so. So that's what you have to keep in mind. And with activists, you have to make sure that you remember, as the as a Medtech company, that growth and investment is what matters, and returning too much capital shareholders or not investing enough in your business is potentially detrimental in the long run.

John Babitt  22:34  
Yeah, and and maybe tell us a little bit about like the Rob I know you guys have deployed a lot of capital around robotics. And you know, how does that kind of, you know, work its way into your portfolio? And will you expect to see more, you know, procedure specific, you know, robotics deploy here in the future, and how you guys are thinking about that?

Anne Sissel  22:58  
Yeah, we take a really comprehensive USA across different technologies and modalities. So even if we think about AI, enabling technologies, augmented realities, we're looking at all of these technologies across the continuum of care. So when we think about robotics and some of the pre op planning that we are doing, even within our Valles ecosystem, through the interoperative type technologies and enabling technologies into the post op, we take that really disciplined approach across looking, you know, from pre op to all the way to the end there too, in technologies like for virtue guide within orthopedics, which is an AI based software tools to enable the surgeon to pick the right vac for as worth a guide as we're thinking about bunion correction surgery, and what we like about these technologies throughout the continuum of care is that you're enabling greater accuracy, and you're helping the surgical process and the patient in terms of the outcomes and their recovery time. So we look at technologies very broadly across the entire continuum of care to really meet our enabling technologies, and particularly under velas within orthopedics.

John Babitt  24:06  
It really is amazing how commonplace has become. I mean, like, literally, my our Uber driver a couple days ago mentioned, you know, what were you? What are you here for? Like, a medical device conference? He's like, Oh, I'd love that we get so many financial No offense, but I mean these financial conferences down here and like, like, you guys actually do do stuff. He's like, I just had my knee redone and had a robot that did it. I was out, like, the next day, and I was like, and it was very, it was very warming, shall we say, Mitch, I would miss an opportunity with all the entrepreneurs in the war in the room, if I didn't ask you like, you know, going through the deal, you know, just a couple things that maybe you know you maybe surprised you, or a couple things that they people should pay attention to as they go through an M A process,

Greg Larkin  24:58  
well and the. A process specifically, I guess, that sometimes starts with some companies that have basically built a product and have commercialized to some degree, and are looking for some kind of a capital raising event, you know, sometimes an IPO. And it's interesting to me to, you know, kind of interact with companies like that. And sometimes I'll tell the CEO or the CFO, Hey, make sure that if you, you know number one, if you're actually considering an IPO, are you also going to, you know, kind of pursue a deal, track process, and typically they do want to do that. And if you succeed in doing an IPO, are you ready to be a public company and everything that goes along with that? In other words, are you ready to operate in a high quality, repeatable fashion, and are you able to understand your business well enough and the growth characteristics to be able to predict that and to sort of forecast the growth and be able to communicate that to the investors? If not, you're going to disappoint a lot of people, and you're going to be sorry that you did an IPO at the end of the day. And we see see lots of examples of that, you know, kind of all around us, and so I think that's just just being very thoughtful about the process, and talk to a lot of people and make sure that it's something that makes sense for your company. And I think, as I mentioned, for Inari, we felt like we had a good rationale for that, because we are kind of a two product company. I think if we are a one product company, we most likely would have sold a company, and I would, I still see that a lot today as I'm interacting with different businesses, yeah, and

John Babitt  26:25  
it's interesting, you kind of hit on that, because we had an IPO summit last summer, and the we had an institutional investor panel, and the one thing that they said was, you know, speaking of IPO candidates, like, hit your for always, hit your forecast, and be able to tell us what your forecast is and give us upside, which is what you alluded to with. You know, the second shot on goal, the six shot on goal, right? And so, and then they threw up like an Ari as their case example, by the way, so testimony to how you guys executed that, Greg, maybe just a couple more questions here. And, you know, one area that I thought was continues to be of interest in Medtech is just the, I don't know if it's a migration, but the increasing direct to consumer dynamic. You know, Medtronic, just in one of your interviews, announced that as you do kind of embark on the rdn journey that it's going to have to, you know, have the hearts and minds of primary care physicians and non interventional cardiologists. There's a social media aspect to that. There's a direct to consumer, uh, aspect to that. I mean, do you think that, you know, M A has a, you know, lens to maybe, you know, how you acquire some of those capabilities, or with all those be kind of organically, uh, kind of driven, yeah, I think

Greg Larkin  28:00  
ultimately it's likely to be a mix. There could be some bit of partnership, maybe some outright M A and we'll also say we have some organic capabilities. We've got a diabetes franchise that is very direct to direct, direct to patient these days, and I think we've seen it in other parts of cardiovascular if you think about the watchman device from Boston, doing a lot of direct to direct, direct to patient advertising, and even some of the things that Edwards has done just to, you know, increase awareness of aortic stenosis. So my guess, from an M and A standpoint, there's likely to be more on the partnership. How do we leverage, you know, different skill sets and then leaning on some of the things that we do well in other parts of our business to help grow that already in story. I think it really depends on which, you know, which part of the growth curve are you on, and when do you get the bang for your buck for going broad to, you know, to a patient community,

John Babitt  28:52  
yeah. And, you know, one of the tail winds that we highlighted Adam was the IPO market. I mean, any any insights there to give people optimism as we kind of continue into 2025, look,

Adam Lubart  29:05  
I think, absolutely, I think we had a long, cold winter with no IPOs, and you saw a lot of companies that were probably like, ready three year with, like, a three year cold, cold winter. Three year winter. You know, it's really encouraging to see companies like Sarah bell go out and have some, you know, amount of success. I think when you have volatility and uncertainty in the market, it kind of puts things on hold. But towards the back half of the year there's a whole, there's a pipeline of companies that have the scale, you know, I would call that maybe a little bigger than it was before, but $50 million of sales, and I think maybe different than before, maybe more healthy for the IPO markets, we'll see companies coming out that don't need follow on equity offerings, meaning they have a path to profitability with the capital they raise. So, you know, as we work through the, I guess, the election transition, and get some clarity on tariffs, clarity on the on the interest. Great environment, you know, hopefully we will see more. IPOs,

John Babitt  30:03  
yeah, no, I think that's right. And I even, we're starting to see, like, people begin work, like, you know, engaging advisors coming in, like, get doing all the prep work, which, as you know, you can't flip that

Adam Lubart  30:17  
switch. Yeah, there's a long lead time. And, you know, during that lead time, sometimes it's a natural to bring up the dual the dual track process. You said, ahead of that lead time, maybe it's a natural time to do a market check. But the best alternative, when you're going into a sale process to say we have a lot of conviction going at it alone, always the right frame of mind to have for any company. So I think we're hopeful that, you know, we'll continue to see the beta Bionics and the cerebellus Come out, because there are companies that are ready. Yeah,

John Babitt  30:47  
excellent. We are at time, and I think we covered a lot of ground in 30 minutes. Could have covered more ground, but really, thank the panel, and please join me in expressing some appreciations.