Medtech M&A 2024: Looking Onward and Upward | LSI USA ‘24

John Babitt  0:04  
Well, thank you all aside. Thank you, everyone for joining us here. We do have a great panel for this afternoon. And as we said, we're going to look at M&A. You know in the rearview mirror, we're going to look through the windshield and what we think is going to come and get some perspective of just some of the macro themes that are going on across med tech. But first, I'll allow the panel to introduce themselves. And Jennifer, you want to start?

Jennifer Fried  0:31  
Yeah, Hi, I'm Jennifer fried. I'm the co founder and CEO of a company called Flow Medical. We're developing a next generation PE thrombolysis catheter. This is my second company. My last company ExplORer Surgical is an LSI Alum, we exited the business in 2021.

Greg Banker  0:50  
Hi, everybody, Greg    Banker I'm with Pansonic capital. We're a med tech focused VC firm currently investing out of our second Fund, which is a $325 million vehicle, we cross we invest across the whole spectrum of the lifecycle from product development through commercialization. Currently, a team of seven headquartered Minneapolis, and but spread between California and DC as well.

Bennet Blau  1:10  
I've been a managing director with Goldman Sachs, I help lead our med tech franchise, set in Los Angeles, work with companies both large and emerging, very excited to see how popular this event is every year, obviously, lots of innovation coming, not only to California, but globally. So good to see everybody.

John Babitt  1:30  
Great. And with that, we thought it would make sense since we are a data driven organization to take a look at some of the numbers. And so, you know, as we came out of 2023, and into 2024, it was, I think really just enlightening to see what what was going on in the med tech sector. And you know, to do that, both from a revenue perspective and from a profit perspective. And so, as you look at some of the forecasts, as people set new guidance for 2024 revenues continue to be forecasted to increase. So, you know, roughly up from from 5% to 6%, but still headed in the right direction. But probably more importantly, actually profits are forecasted increased pretty significantly. And while they're flat over the last year, they're actually forecasted to increase by about 8% in 2024. So I think one of the more important questions that we're asking is, you know, what, what is med tech going to do with all that excess cash and, and that stockpile and where will be allocated. And so it's one of the themes that will kind of try to unpack within, you know, the panel here today, you know, one of the areas where we expect to see continued spending his internally when you know, that, that's with respect to r&d, and so we saw that actually increase last year, a little bit over 8%, across the industry. So a lot of capital is being allocated there. You know, interestingly enough, capital raising was down, we'll get some perspective, both from Greg on the VC side, from Jennifer, on the emerging company side, what that environment really looks like, you know, but more importantly, M&A. And you can look at the bottom Chevron, for this, you know, industry wide, you know, typically averaging 50 to 55 deals per year, you know, over the last two years, only averaging about, you know, 35 ish deals. So volume has been, you know, down over the last two years. You know, interestingly enough, we saw run up evaluations over that time as well. And so, one of the themes in past years that we've talked about was this theme of valuations, were they were they too high? And how do you really make the math work from a valuation perspective? So what we'll do is, you know, those return to the normal ish levels. And then interestingly enough, private equity numbers were down last year again, but you know, we're seeing some robust activity there, including a deal today that we'll talk more about. And then corporate carve outs still represent, you know, you know, roughly 20% of overall M&A volume. And so, we'll talk a little bit about that and how things go in the portfolio. But before we get started, I'll have Chris, just do a brief introduction, although you need no introduction, since you've been on four panels and like an NFL player at halftime, you probably need an IV drip here, but just a brief introduction, Chris, if you will. Sure. Yeah.

Chris Eso  4:29  
First of all, thanks.

All right. First of all, thank you for having me. Yes, this is the, I guess, third panel of my for today. So they have me packed with a bunch of different panels. So Christie, so I lead corporate development and M&A and venture investment for Medtronic. I've only been in this role for now four weeks prior, I spent Most of my time on the cardiovascular side at Medtronic, I've been with Medtronic going on 14 years, all in a business development, M&A capacity. So just a little bit of background on me.

John Babitt  5:12  
Great. Thanks, Chris. And so as we dig in, you know, I think everyone was kind of excited when you know, the kickoff 24 We were at JP Morgan, the axon IX, Boston Scientific deal gets announced a few other transactions along the way, but thus far, it really hasn't kind of kicked in. And, you know, Bennett, you know, since you have the perspective of, you know, really sitting over a lot of M&A activity at Goldman, you know, what are the large OEMs? You know, kind of kind of telling you is it, you know, that there aren't enough targets to, you know, actively go at it, because I'm hearing that everybody's busy. But it's also that, you know, it's taken a lot to get deals done. And we're going to come back to your, your deal announced today, because that's gonna fit in another subject. But just from an overall perspective, how are you hearing from the corporate side?

Bennet Blau  6:06  
Yeah. Thanks a lot, John, thanks for moderating this. So I guess I'd say a couple things, at least when we sit back and hear what large cap med tech is really talking about, you know, if you were to look back, you know, two or three years ago, obviously, 100% of the focus was on moving the needle from a growth perspective, meaning, how do we think about acquisitions that not only make a ton of sense in terms of enhancing the strategic portfolio fit with the platform moving to new adjacencies? But how do you move the needle from growth, especially for companies that trade, from a public market perspective, largely on growth expectations? I think if you fast forward to today, the interesting thing is if you look across where the public markets are, and you look at the things that really drive, at least from a financial perspective, bankers perspective, valuation growth is still the strongest predictor of differences in valuation, public market valuations for large cap medtech. So that relationship has not changed. But I do think that the sensitivity to dilution, the sensitivity to de risking from a clinical perspective, also to some degree from a commercial perspective, although I think there's probably less sensitivity across the board, than then clinical de risking sensory dilution is probably much more heightened than that has been, you know, certainly two years ago. The amount of capital that is available, I think, remains exceptionally high. This is both from a corporate perspective, as well as from financial sponsor financial party perspective, but I think the criteria has increased substantially in terms of the de risking I was talking about in terms of checking the box not only on growth, but quality, growth, recurring revenue, good business models. And so I'd say, you know, certainly from an M&A perspective, John, when you think about the large cap folks, many of the same themes continue. But I'd say the bar has become certainly much higher over the course last 18 months. Yeah.

John Babitt  8:18  
And I guess, Chris, I mean, I'm, I think we've heard in a couple of different venues that that's a similar situation at Medtronic. But what will it take for any inertia? It's really, you know, make its way into the system? Because I think one of the things that, you know, what's anything that can move the needle to kind of accelerate, you know, the M&A activity? Yeah,

Chris Eso  8:47  
I mean, I think if you, you got to look at history for a second, right? For Medtronic, if you look at kind of 2021 2022 really active years for us. From just if you just take cardiovascular, we spent over $3 billion in deployed capital into that space for acquisitions, many of which you probably didn't even see a headline, because we don't announce a lot of them. But some of them we did a fair a cath works, you know, some of the other ones, right. And so so we we actually, were really active in 2021 2022 2023, right? To Bennett's comment, right, it was really about how do we focus internally and improve our earnings power? How do we get our margins back to where we were pre pandemic, right, so some of those types of topics were, you know, a top of mind for us in 2023. So when you look at going into 2024, right, I think we're coming off a low base in terms of activity for us in 2023. But I still think that, you know, there's there's some headwinds from a macro perspective that we're looking at and evaluating, you know, inflation interest rates, all Those types of things, a low stock price for us, right? And so how do we actually look to change that? And part of that calculation is can we go out and get some near term growth? Well, there's not a lot of near term growth that is, that is out there that we could go by that is at a reasonable valuation. And so it's constantly looking at that near term growth versus that dilution, that Ben talked about, and evaluating how can we actually get that? I think we got to work through some of the macro stuff that's going to play out, I think, in the next six months, and I but I also think that we're still looking and active, we just haven't pulled the trigger on a lot of things.

John Babitt  10:41  
Yeah. Ya know, it's an interesting time. And an interesting situation, I think, in some of the corporate venture capital panels yesterday, we heard maybe two ends of the spectrum, too. So it's different. It's interesting how it's different across the med tech space. But, you know, with that, I guess, Greg, from venture capital, see, you know, how are you advising your portfolio companies? And how are you encouraging them to set strategy with these types of AppDynamics?

Greg Banker  11:14  
Yeah, thanks. Thanks, John, appreciate you organizing having us on the panel today. So, you know, for us, I think you guys have probably heard this theme, the last few years, it's no longer kind of, especially for commercial stage companies growth at all costs, I mean, you really have to have a believable story, to you know, what a cash flow breakeven plan would look like. And so I'd say, you know, in the boardroom, and otherwise, you know, you're constantly having this discussion on, you know, how do we extend runway? What's the leader plan look like? And, you know, as is often the case, you say, Well, you know, let's see two plans that the more aggressive one and the leaner one, everybody looks at that. And I said, we don't like the leaner one as much. And they try and find something in the middle. And, you know, it's a balance, right? Because at the at the, you know, one end of the spectrum, you know, your job is to eliminate risk and knocked out milestones, it takes capital to do that. On the other hand, you know, companies are often valued on revenue, right? And so you want to drive growth as well. And so it's very company specific, and there's no one size fits all. But I think we can expect the theme of, hey, let's make our capital extend further and be more efficient and leaders is probably a theme that's here to stay.

John Babitt  12:11  
Yeah, no, it seems like that. But Jennifer, we put you on the witness stand, and we say make the case for taking dilution now to, you know, in lieu of that higher revenue growth in the future. As a startup. I mean, how do you make the case to someone like Chris, or even, you know, Greg, as a might be a venture capital sitting on your board? Yeah.

Jennifer Fried  12:35  
I mean, it's all stage dependent, right. And so you know, anything about med tech, it's just like any other industry, and it's cyclical. So it'd be I'd be lying if I said, I wasn't happy that I sold a company in 2021, which is a very good time to sell a company. It's a different market today. But I think, you know, you have to be thinking about what are you know, those subcategories than industry, we're going to see a lot of growth, right. So in pulmonary embolism, this is a space where we see p intervention procedure is growing 20 or 30%, year over year, right. So we're in a category that is very fast growing, but I think for every company, they're thinking about their own portfolio, are they prioritizing revenue growth, are they focused more on profitability? And when I was looking for a new business to be in, I wanted to be in a category that was going to be appealing on both of those levels?

John Babitt  13:23  
Ya know, it makes it makes sense and fits with the strategy for sure. But yeah, you know, I think one of the things we've seen in med tech and it's common theme here, you know, get to 2023 things like inflation and effects really crept into the profitability. The street was all questioning, you know, large OEMs what are they going to get back and kind of return to that profitability that actually forced, you know, a critical view on the portfolio at a certain level? And, you know, we're still seeing, you know, a lot of, you know, spin outs carve outs, divestitures, Bennett, you know, why don't you maybe lead us off here, because you can talk about the the Deal of the Day. And, you know, some of the things that we're seeing just some of the insight that that's leading companies to, you know, that it's not only just, you know, process improvement and profitability improvement, but sometimes you have to take a bigger, you know, stance on the portfolio.

Bennet Blau  14:24  
Yeah, no, I appreciate that, John. So, I think the transaction you're referring to is Johnson Matthews, their sale of really their cmo business, announced this morning to a private equity firm. Look, I think that really underscores a couple of different themes that are at the forefront of a lot of what we're seeing within the broader med tech market. I'd say the first is kind of a rationalization, pruning, refining, however you want to talk about it from a kind of large or even mid cap, corporate perspective, which is how do we think about optimizing Our portfolio in such a way that's going to be aligned with our strategic goals. How do we make sure that we're continually being evaluating that that's not just a one time, you know, snapshot in time, but doing that kind of year in, year out? So I think that's one element. The second element of that transaction is, you know, one of the big themes we've seen is just the intensity of focus intensity of activity in the CMO market, which is really the med tech manufacturing market. This is an area which frankly, of course, last decade probably has not gotten as much attention. Certainly within pharma, it has actually gotten more attention. I think folks probably saw the NoVo holdings, Katelyn acquisition, which was obviously kind of big in the pharma world. But I think the focus on supply chain from a med tech perspective has certainly been a theme that has garnered a lot of interest. And when you think about kind of areas where you know med tech and pharma from a thematic perspective, are somewhat converging. I think this is one example of that. I think there are other areas, whether you look at clinical trials or otherwise, where you have other convergence from a pharma and medtech perspective. So I think, you know, John, today's deals kind of emblematic of a lot of what what we're seeing in the med tech market, but certainly as it relates to that corporate rationalization, yeah.

John Babitt  16:20  
And certainly, I think the three M solve, no, of course, which is coming in a few weeks, and then the Edwards deal, we'll talk a little bit more about those the implications for maybe broader M&A and a little bit, but, Chris, I know you guys, obviously the ACM business, you made an announcement there, you know, not to proceed with the divestiture and but you were also or at least, management was quick to point out, hey, this, this doesn't mean that we're going to necessarily take other divestitures, you know, really off the table, that we're going to continue to look at the portfolio. So maybe just tell us what you can about, you know, the evaluation, the ACM process, and, and then also, you know, where that leads you guys, you know, prospectively,

Chris Eso  17:07  
yeah, thanks. So when you, when we, you know, set forth to do that spin out of our patient monitoring and respiratory intervention business, right. Obviously, it was a different time, it was a couple it was 18, 20, 24 months ago, and the environment was much different at that point, right. And, and as we looked at it, going through the process, as you go through these portfolio decisions, you end up doing your own diligence on your own self, right, and you learn things and you find things that you like, and you find things that you don't like, right, and, and so as we were going through that, and the environment was changing, in terms of the market potential, you know, we kind of reassessed and said, look, let's, let's take a look at this, again, in a in a much more granular and deeper assessment. And, and should we keep this in light of kind of the market situation. And so we ultimately made the decision to keep it. And part of that, right was to also shut down part of the nonprofit old piece of the business, in order to deliver the earnings power that we that we need as an organization across across our enterprise. And so, obviously, it's not an easy decision, right? Because we went out and was doing all the work had put all the teams in place to all the, all the separation work, did all the, you know, the soliciting of bids and deal. And then ultimately, you know, based on what we got back said, Is this going to add the most value to our shareholders. And ultimately, we said no, actually keeping it is going to add the most value to our shareholders. And so, you know, we are going to continuously look at our portfolio, we feel good about our portfolio and what we have in it. But there's always going to be continuously evaluating the different pieces of the of our full suite of businesses to say, are they adding value in that given point? Or? Or do we think that there's a better solution to add value to our shareholders? And, you know, I can't I can't sit here and say that there's never going to be any separation, and I can't say that there's going to be all separations. Right. So it is it is a constantly evolving and and an assessment that we are doing similar to like, what Ben just said that he thinks it's going to be an annual, I think we're going to be constantly evaluating separations. Yeah,

John Babitt  19:31  
no, I mean, saw was continuous improvement, right? And sometimes, and things do change. So it's, yeah, go ahead.

Chris Eso  19:41  
I think the other piece of it right, that that we, I would say took away from it is there's also pieces in our in our portfolio that we could just look at that are not profitable today. different product lines, and that we can you know, use your word prune or rationalize and an X really will have a positive impact on our return for our investors. So there's things like that, that we're going to also be doing in parallel,

John Babitt  20:06  
so accomplishing kind of a tangential benefit that you were ultimately looking for, as part of that, that transaction, for sure. So 20% of those deals that we talked about where the carve outs 26% are private equity, there's almost, I think, 1.2 trillion of dry powder that's in the system and globally, private equity. And, you know, I mean, we're seeing, you know, firms like Blackstone KKR, like, move into earlier stage, you know, how should some of the investors, Greg, you know, kind of think about private equity, where it's at, I mean, it seems like in med tech, at least, that we've seen an uptick in 2024 with a lot of money going into fields, like, you know, cardiac ablation, and, and some of the robotics companies continue to get funding, but, you know, where are we from just an overall private equity and kind of VC? standpoint?

Greg Banker  21:09  
Ya know, it's a, it's a really good observation, John, you know, it's one, it's great to see just another kind of investor type, I think, enter our sector and put capital to work, you know, the funds are different, you know, they're different strategies, different structures than a traditional venture firm. So they're often looking to put much more capital to work, you know, on the orders of hundreds of millions of dollars, often looking to take a controlling ownership and more often than not pursuing kind of later stage assets. And so, you know, some of the deals that we're seeing, you know, Blackstone and others do are, you know, just deals that probably a traditional venture firm is not going to touch one due to, you know, capital requirements and to, you know, just due to timelines, etc. But I think where we see some, you know, optimism is, you know, some of those companies with, you know, the right funding and the right teams and the right strategies, you know, could become bonafide acquirers down the road, they definitely have the the, you know, the companies that were feeling more on the earlier stage.

John Babitt  21:58  
Yeah. And I mean, Jennifer's an early stage investor, are you, you know, seeing some of these funds kind of come into even your space, and, you know, fun transactions.

Jennifer Fried  22:10  
Yeah, I mean, I think it's, you know, we're still in the early on, right, today, but I think you are seeing more and more interest in going earlier, and you're seeing some of these new vehicles emerge. So if you look at Ajax as an example, I mean, that's, you know, you see KKR and hNf, you know, putting real capital to work in early stage medtech. And I think that's really exciting, and really welcome in this industry. So, you know, I think as an early stage company, it's exciting to see these different types of capital coming into play. And there's all types of opportunities that you can pursue. Yeah,

John Babitt  22:41  
it certainly adds to the excitement, because there used to be just the early stage. And then, you know, some crossover funds that were really, you know, tourists venture capital, I think, often referred to, you know, and then the big P E's, which were always looking for leveraged buyouts, and so they've gotten a lot more diversified in their approaches. And I guess, you know, Chris, maybe back to you, because when you guys had a Blackstone deal, that was a couple years ago, that there are these, you know, the Ajax type deals. You know, I think one of your colleagues may have said, hopefully, they're no accountants in the room, we're going to be creative on looking at our balance sheet. But, you know, how are you guys thinking about leveraging, you know, the just alliances with private equity at this point?

Chris Eso  23:27  
Yeah, I think, obviously, you've seen us do a handful of deals with Blackstone, the way we kind of look at it, right, is we have organic investment, and we have inorganic investment, and how can we increase the capital across both of those? Right, so how can we do more M&A? How can we do more minority investments to you know, incubate and develop technologies and companies? How can we actually fund more of our internal programs that we would love to do, but we can't do on our p&l. And so looking at these creative structures, like a Blackstone, you know, like other ones that we've done structure deals, it's all for driving more innovation and dollars towards innovation, to actually get to those growth numbers that we would hope to get to in the future. You know, Blackstone is a great partner of ours, and really helps fund a lot of our programs. We have, you know, well over a billion dollars of investment coming from Blackstone into our into our p&l, and funding programs that are material for us. And so it's critically important for us to look at those.

John Babitt  24:36  
Yeah, no, it's a critical source capital and funds the ecosystem, as we say, Yeah,

Chris Eso  24:43  
and I think that's the key, right? It is an ecosystem and it has to work along that full ecosystem. And when there's a cog, you know, in that ecosystem, then things don't flow. And so if you know venture isn't putting money in then somebody needs to fill in for that, right. And so that's why 10 years ago, we started doing a lot of structure deals, so that we can then be the one that is doing the tranche financing and then have rights on the back. It's all the same. Now we need some more later stage dollars like Blackstone to take the clinical and reimbursement risk, so that we're taking the commercial risk, right. And that's what we're good at, is taking a technology and driving it to standard of care and getting it to the mass amount of patients that need this therapy. Yeah. But everybody has their their piece that they do really well and that we as an ecosystem have to work together across the board. No,

John Babitt  25:39  
it's, I mean, look, there was one levers that wasn't didn't exist, like five years ago, right? I remember some early meetings with some of your executives to kind of explain what was going on in pharma and really bring that thinking, you know, to kind of med tech, so really interesting evolution, Bennett, maybe to round out the private equity, because I know you have some perspective, I think on the Zeus EQ T deal. We saw an interesting take private, you know, with NanoString and patient square, we saw a carve out with, you know, hyg and Zinoviev. So, where do we think kind of that, you know, dealmaking perspective, are we gonna see more carve outs more? Take privates and more, you know, secondary trades? Yeah, it's

Bennet Blau  26:27  
a great question. Look, I think a lot of the commentary, even you know, that Chris was making, I think, is very much a reflection of a private equity industry that has become much, much more sophisticated, over the course of last, you know, even five, seven years. And it's not just that the pools of capital are, you know, orders of magnitude greater than they were 510 years ago, it's also the level of creative thinking, in different situations, is, is certainly at an all time high, and the level of effort that goes into getting the right external advisors, whether it's from a tax perspective, accounting perspective, the lawyers to really find transactions in those complex situations that has gone kind of way up. And I think the deals that you're describing, John, are very much a reflection of that. And so you know, you just gave an example. You know, you kind of ranging from very distressed very difficult situations to best in class, highly competitive contract manufacturing situations. You know, if you think about the full spectrum, I think it just means that private equity is able to step into being a solutions provider in ways that they haven't historically, and I actually think, you know, Chris, the fact that, you know, when you when you think about when Medtronic started moving down this pathway from a structured perspective, that was way ahead of its time, because if you actually still talk to investors, as well, as companies at this conference, I think one of the most misunderstood elements is some of the new pools of capital, and some of the new vehicles that are now available in the market to help drive different objectives both for earlier stage companies, as well as large cap later stage companies. So I think, you know, the deal type variation, John, that you're describing is just a reflection of the sophistication this capital base. Yeah, it's

John Babitt  28:22  
gonna be exciting to watch. I think it'll be an active part of the industry for 2024. Gonna move us on to digital health. And, you know, it's topic I haven't, I haven't seen her in a lot of M&A venues. But obviously, there's there's been some casualties, you know, you know, when we had the big run up in HCIT, but we've had some successes, as well explore surgical, you know, being one of those, Jennifer, and maybe just share with the audience, you know, what, what were some of the keys that really drove that to being a, a successful outcome? Would would you focus on what was the had that had to be true criteria for you to be successful? Yeah.

Jennifer Fried  29:01  
So for us that explore, we started selling our product to hospitals. And we were able to do that successfully. I mean, it was painful. But we got these customers on board. What we saw after we had our first 100 health hospitals on board was that the med tech community was actually a better customer for us at the time. So we made a pivot to that. When we made that pivot, we were consciously going into a customer that had better unit economics, but it was a smaller overall market. So the total addressable market selling to med device companies was smaller than hospitals and we said, we're gonna go sell to med device companies now with software as a service and go into the hospital market later. I think what happened was people got very excited about software in 2020 and 2021. So I had investors that wanted to put in 5075 $100 million into the business and it took a lot of financial discipline to say, what's the size of the market now? Oh, how much money do I actually need? I knew that I could get to break even with less than 10. And we declined those offers. And we decided instead to exit the business when we started getting acquisition offers. And so I think, you know, you want to be very optimistic as an entrepreneur, but you also want to be a realist, and you want to really understand what's the size of your market? What are the unit economics look like? How much capital do I need? And what kind of return can you generate? And I think there was a miss balance of a lot of that when you started looking at what was the truly what was the true total addressable market for some of these products? Yeah.

John Babitt  30:38  
And, you know, you bring up an interesting point about, you know, getting the hospitals on board, because I think one of the things I hear from med techs, you know, executives is that hospitals now and in the future are going to want to deal with fewer companies, especially when it comes to it and the plumbing. So maybe tell us a little bit how you fought that battle in one.

Jennifer Fried  31:01  
Yeah, I mean, I think hospitals want to do everything they can through their EMR, right. And so if you want to bring a new technology into a hospital, you are always going to fight a big battle if you're not part of that EMR. And it's been an exciting time. I mean, I started, you know, the company in 2013. And I told people that I wanted to put iPads into operating rooms, they looked at me, like I was completely insane, right? Like, how are you going to do that? How could that be sterile, right. And by the end, you've got an Android app, you got a Windows app, you got all these different things. But what you learned is that the EMR is really taking that priority. So if you're not part of the EMR, there's going to be a long wait, it's going to be a battle. But you're also seeing the EMR is now get a lot more creative with having some of their own ecosystems. So I think it's what med tech has the advantage of is, you're already in the hospital, right? You, you know, or you're working through them with software, he's got physical people in the hospital. And so I think there's a lot of inertia and healthcare for good reason. But if you want to bring in a new technology, you have to really fit yourself into an existing workflow, whether that's people process or technology that's already embedded in the way that patient care is done. Yeah.

John Babitt  32:15  
I mean, everyone talks about improving hospital workflow, but in the I think the advice here would be don't interrupt it, you know, fit in with it. Right. Exactly. Yeah, for sure. And Greg Vinson, I think one of your mantras is, or areas of focus is digital health and tech enabled services, so maybe, you know, provide a little bit of color. What does that mean? And where are you guys actually thinking about deploying capital in that? vein? Yeah, no

Greg Banker  32:43  
happy to. So you know, our mandate is kind of broadly defined as anything outside of drugs. So obviously inclusive of digital health and healthcare, it you know, a bread and butter for us probably 70%, we're gonna, what we're going to do is medical devices, but I think one of the things, you know, at least our thinking has evolved around some of these digital health opportunities is, you know, they're actually not too dissimilar from a medical device from, you know, product lifecycle commercialization standpoint, you know, often you have a sub specialty physician who's going to order it some context of their workflow, either diagnosis or therapy delivery, often, it's going to require some sort of FDA regulation or feedback, you have to figure out a way to get paid for it. So either you got to fit under an existing reimbursement code or develop one to do that unique clinical data, you know, so checking a lot of box same boxes at a medical device has to check. And so on the one hand, I think it's a, it's a well worn, it's a well traveled path. On the other hand, you know, Jennifer's point, I think, you know, how do you fit in the workflow and who's your stakeholder are still key questions, and a lot of these case studies are still being written. And so we're certainly bullish on the opportunity. And for a lot of these technologies to improve patient care. It's just kind of figuring out, you know, how do they fit alongside an existing, you know, more traditional medical device based therapy? And are they complementary? Are they standalone products? Yeah,

John Babitt  33:49  
no, it'd be an exciting time. And certainly a lot of a lot of room to go in the digital health as well. Chris, maybe, you know, just a little bit of Medtronic perspective, because I know, a JP Morgan, one of the whole slides of every CEOs presentation was on AI and what they're doing around it, obviously, you guys have some pretty interesting plays already with digital surgery and gi genius, both, I believe, you know, acquired technologies and then develop further within Medtronic. But you know, as you think about your M&A lens, and you know, how you look at healthcare IT, where are the areas to kind of, they're kind of top of mind for you guys? Yeah,

Chris Eso  34:31  
I mean, so we have about five product offerings that include AI today, right? And I see that that's going to continue to expand. We tend to look at it as it's part of that ecosystem that needs to be with the medical device, implant or procedure, and really to help drive better outcomes. And so, right now, right, we brought in Ken Washington, To help us kind of rethink our AI kind of vision and direction, rethink, but have continued to evolve it. But but really it's it's about how do we take this type of technology and apply it to various therapies that will actually drive even better outcomes than they're currently situating? So is it? Is it image guided? Is it AI? Is it help identifying, you know, colorectal cancer cells, those types of things is where we see that the future is and feel like that, we'll continue to look at those types of technologies that complement our existing portfolio. And

John Babitt  35:40  
I mean, just from a capital allocation perspective, I mean, how are you guys thinking about, you know, how much you do organically with, you know, can coming on board? And how much you're going to look to turbocharge, if you will, by by looking outside the four walls? Yeah,

Chris Eso  35:54  
it's a great question. Right? We have established a Innovation Center in India, that has, I think, close to 1000 engineers that are primarily data, data science engineers, that is really looking at this from an internal place. That being said, right, this is all new for everybody that's in the medical device world. And it's all evolving. And so we're going to have to supplement our capabilities with external investment, partnerships, those types of things. And we've done some of those already. Specific like gi genius, right, we partnered with somebody externally to develop that. You're seeing those types of relationships? And I think we'll continue to do

John Babitt  36:41  
that. And Bennett maybe a question for you, because I we're seeing a lot of positive traction on number of spinouts. You know, certainly GE HealthCare out there now. I mean, I think they did maybe five or six deals over the last year. So very active will have solved them out in a matter of weeks, you know, the words business is going to be out there. I mean, what is this, you know, number of, you know, med tech companies that are publicly traded and, you know, have their own sources and uses of capital, and what does that do for the overall med tech M&A landscape?

Bennet Blau  37:17  
Yeah, I think it's gonna be fun. Exactly, yes. I think lucky, you've had a number of great healthcare care businesses within, you know, very large, diversified corporations, which for the first time now, are unconstrained in some ways. As you think about strategy, as you think about focus, I think, you know, each in each of these cases, there's been a ton of discipline, from a strategy perspective, I think, in terms of those management teams really spending time in where they want to focus not only from a time and people perspective, but from a financial perspective. But I think it means that, you know, as they create their own, you know, footprint, as standalone healthcare players in the ecosystem, that will be enormously important. And I think, you know, as much as anything else, this is, at least from that, you know, as I put my kind of earlier stage, med tech had on, you know, it's not just the great kind of blue chip, you know, long long standing healthcare companies like, like Medtronic, which is at the very top of that list, but it's also some of these newer entrants. And so keeping kind of an eye on the full field, and where folks are spending time strategically, I think it's gonna make for a very dynamic environment,

John Babitt  38:38  
certainly saw a lot of activity in the with the mid cap, med tech, certainly active in the M&A front. And it's always great to get a glass half full view as we're down the stretch. And speaking of that, maybe just a couple of thoughts on, you know, just conference sentiment, compared to maybe last year. And, Greg, I know, we were chatting before the conference. But you know, I think last year you and I kind of compared notes really after the conference, and it was it was not a positive sentiment, it was a one of beaten down and feeling sorry for people and maybe just some of your perspectives this year of you know, coming, you know, so far. Yeah,

Greg Banker  39:18  
no, I mean, if you look back at 23, and, you know, I know, we've talked about the data that shows a deal, volume is down. I think that's true, like with everything depends on how you cut the data. I think one of the other data points is that, you know, Tony, total funding dollars wasn't proportionally down as much. And so I think that, you know, part of what that probably reflects is a lot of, you know, venture firms are sort of doing insider led rounds, or trying to extend runway for their portfolio companies. And so, you know, that takes some bandwidth away from the team of doing new deals. And so I think, you know, that there was a lot of that, I think, in the last two years, I think as we get on the other side of that, you know, there is dry powder on the sidelines, I think you're going to be seen people actively looking for new deals. I think I saw you know, a data point at a recent banker conferences said you know, 50% of the deals and 22 Mi three and med tech were insider lead. That's, you know, pretty significant, I think, for what we traditionally see. And so I think as you know, we get into the 24. You know, it definitely seems like there's a lot more positive sentiment.

John Babitt  40:11  
Yeah. And Jennifer, maybe I'll let you have the last word. How are you feeling? As you know, to a lot of the emerging companies that are in the audience, what, what are you feeling?

Jennifer Fried  40:20  
I think it's a great time to build a new med tech company. Look, I you know, I think there's, there's definitely some baggage from the last couple years, there's no denying that. But I'm really excited to be starting a fresh company, I think looking, you know, looking, if you look over the cycles over time, you know, you see these different cycles of great returns. And I personally think 2024 is going to be one of the best vintages of all time, right? You're coming out of, you know, this, this crazy, unprecedented period in history. And now, you know, valuations are lower, you know, you gotta suck it off. It's a little bit harder right now to raise money. But if you can do it, I mean, there's a light at the end of the tunnel, and three, four or five years and you know, the cycle is going to come back. So I'm really excited about leading an early stage company. I've got a lot of energy. I think it's a lot of fun. And I think for those who are deploying capital right now, this is a great time to have capital. You know, you've got your pick of amazing companies, the terms are back in your favor, unlike what it was a couple of years ago. So I can't wait to see what this year

John Babitt  41:24  
brings. So vintage 2024 wine for dinner tonight. Absolutely. All right. Well, hey, with that we're in the read up here. So if everyone can, first of all, thank you for all the commentary. This is really insightful.