Editor's Note: This article comes from the WeChat public account"Artery Network"(ID: vcbeat), author Ning Chen, published with authorization from 36Kr.

According to EvaluateMedTech's prediction, by 2020, the annual medical device market will reach $477.5 billion. Although the market pie is tempting, it must be acknowledged that the global medical device market is still dominated by a few large international companies.

In mid-2019, major companies in the medical device field successively released their annual reports for the 2018/2019 fiscal year. Therefore, Artery Network streamlined the TOP 100 medical device companies list published by Medical Design & Outsourcing, creating a top 8 list for cross-comparison.

It is worth mentioning that throughout the history of these 8 companies, most follow a development model of starting with technology, expanding the market, and transforming through mergers and acquisitions. By sorting out the activities of these eight companies in the capital market, we also attempt to answer why medical device giants have all become "shopping addicts" in the later stages of development.

Compiled by Artery Network based on each company's 2018 fiscal year report

What are the giants buying?

From the 2017/2018 fiscal year to the 2018/2019 fiscal year, many giants on the list have experienced more or less business adjustments (such as consolidating their original main business, divesting side businesses, etc.), and their revenue has changed compared to the previous fiscal year or the beginning of the year expectations. These changes can be glimpsed in the giants' business activities from 2018 to the present.

Medtronic:The leader in medical devices, maintaining the top position

Even though Medtronic has recently divested some businesses, from 2017 to 2019, the company has still focused on mergers and acquisitions. From several merger and acquisition activities, on one hand, Medtronic continues to emphasize its business in orthopedics and surgery, consolidating it through acquisitions; on the other hand, Medtronic's trend of entering the surgical robotics field has become very clear.

Johnson & Johnson:Entering AI healthcare + surgical robots

Since 2017, Johnson & Johnson has been continuously expanding its acquisition list of medical device companies. By early 2019, Johnson & Johnson had completed 9 acquisitions, the most notable of which was the $3.4 billion acquisition of surgical robot company Auris Health. Although Auris's currently commercialized products can only be applied to lung cancer, the main purpose of Johnson & Johnson's acquisition is to supplement the previously acquired Orthotaxy orthopedic surgical robot.

While strengthening its device segment, Johnson & Johnson is also accelerating the divestment of other businesses, starting a "big sale" of devices.

Since 2017, Johnson & Johnson has announced the cessation of operations and exit from the Animas insulin pump business and the Codman neurosurgery business. So far, after divesting its diagnostic business, cardiovascular stent business, diabetes business, and sterilization and disinfection business, Johnson & Johnson's device segment remains focused on orthopedics, surgery, and ophthalmology, with a key focus on developing surgical robot technology.

The above measures clearly demonstrate Johnson & Johnson's determination to enter the AI medical device field, especially in surgical robots.

Danaher:Life sciences become the main focus

In 1969, Danaher's predecessor, DMG Real Estate Investment Trust, was established; in 1986, the company was renamed Danaher and achieved strategic transformation step by step through mergers and acquisitions. Danaher's acquisition strategy can be divided into four stages: financially driven, business-driven, platform-driven, and industry influence enhancement.

It is particularly noteworthy that in the third stage in 2004, Danaher entered the medical diagnostics field through the acquisition of Radiometer. In 2005, Danaher acquired Leica Microsystems to enter the life sciences field. Through these two acquisitions, Danaher established its own medical diagnostics platform and life sciences platform, preparing the engine for high-speed growth in the future and carrying out a series of actions around these two segments.

Having gone through 47 acquisitions from 1981 to 2019, Danaher can be considered an acquisition expert even among medical device giants. Especially the acquisition of GE's life sciences division's biopharmaceutical business (BioPharma) in 2019 not only significantly boosted Danaher's stock price but also made the company's total revenue for 2019 expected to reach $9.5 billion, which will cause the life sciences platform to greatly exceed the revenue of the medical diagnostics platform, becoming Danaher's most important business platform.

GE Healthcare:Divesting businesses + acquiring companies, a parallel development strategy

Compared to GE Healthcare's efforts in acquisitions, its divestment of businesses is even more noteworthy. At the beginning of 2019, Danaher announced it would acquire GE's life sciences division's biopharmaceutical business (BioPharma) for $21.4 billion. This business generated approximately $3 billion in revenue in 2018. Stimulated by this news, GE's stock opened up more than 11% on that day.

Whether it is the divested BioPharma business or the retained Pharmaceutical Diagnostics business, both were acquired by GE. Compared to GE's core business of medical diagnostic imaging, the life sciences business was integrated into GE Healthcare relatively late. Therefore, the BioPharma business can form a strong alliance with Danaher's life sciences business; while the retained business can continue to provide supporting contrast agents and molecular imaging consumables for GE's imaging equipment. As a result, GE Healthcare has benefited in the stock market.

Philips:The arrival of the digital health era

Since the beginning of 2017, Philips has made 18 acquisitions in medical technology and is transforming into a technology supplier in the healthcare field. Between 2017 and 2018, Philips's acquisition direction, in addition to medical imaging technology, also focused on digital health (such as mobile health app developers, remote home care monitoring platforms, etc.), big data medical management, and other comprehensive medical service fields.

Philips's transformation in healthcare has three characteristics: first, Philips gradually integrates product lines to form themes, making operations more holistic and focusing more on operational efficiency, operating around related themes; second, it has reduced its interest in non-healthcare businesses and is now fully recognized as a health technology company; third, Philips has transformed from a manufacturer focused on equipment and hardware to a company that forms solutions based on existing advanced equipment, targeting the entire patient care process and disease cycle.

Fresenius:The giant in the dialysis field.

Fresenius, located in Germany, has a long history that can be traced back to the 15th century. In 1912, Edward Fresenius, the owner and pharmacist of Hirsch Pharmacy, officially established the pharmaceutical manufacturing company Fresenius, primarily responsible for producing special medications such as treatment plans, serum reagents, and rhinitis ointments. Between 1933 and 1934, and into the 1950s, Fresenius built a production line for intravenous injection devices.

Since 1966, the company's dialysis equipment and dialyzers have been sold to foreign manufacturers, capturing a significant market share in this field. In the 1970s, Fresenius produced the world's first blood dialysis machine with capacity balance chamber control, using this as an opportunity for gradual development. Currently, Fresenius is a global leader in dialysis products and services.

Since the 20th century, Fresenius, like other medical device giants, has embarked on a path of mergers and acquisitions. In addition to acquiring dialysis companies that consolidate its main business, it has also begun acquiring hospitals and other comprehensive medical service providers to prepare for a complete transformation of the company.

Siemens:Imaging business is the main revenue driver, with great potential in diagnostic business.

Siemens Healthineers, which started with medical imaging equipment, has an undeniable core position in its medical imaging department. Before strategic adjustments, Siemens Healthineers had three major businesses: imaging diagnostics (including ultrasound diagnostics), advanced treatment, and medical diagnostics, with the revenue from imaging business far exceeding the other two departments.

In terms of clinical treatment, its performance in the first quarter of 2019 declined compared to the same period in 2018. Siemens Healthineers mainly focuses on treatment in the cardiovascular and oncology fields, but currently, the product line is not extensive. Considering the broad prospects of "integrated diagnosis and treatment," its capital investment may increase.

In addition, Siemens Healthineers established a medical diagnostics product line through significant acquisitions, becoming the second-largest medical diagnostics company in the world, second only to Roche. Although the revenue from medical diagnostics is not as large as that from imaging, the overall industry growth rate can match it. Siemens Healthineers places additional emphasis on the Atellica solution, stating that it will optimize it in 2019 to reduce costs.

Cardinal Health:A low-profile diversified giant.

Cardinal Health's business consists of four main parts: first, large-scale pharmaceutical supply and distribution; second, medical products and services; third, pharmaceutical technology and services; and fourth, automation and information services. Among these, sales of pharmaceuticals and medical devices still account for over 95% of its total revenue.

At the same time, like many medical device giants, Cardinal Health has rapidly grown through the acquisition of numerous companies, and its business scope exceeds that of many companies known for their diversification.

Through acquisitions, Cardinal Health has transformed from a simple pharmaceutical and medical device wholesaler into a service provider across the entire industry, providing "surprising" services for various links in the industrial chain, and creating an unprecedented market through this service.

Why have giants become acquisition maniacs?

Looking at the development history of the top eight medical device companies, one can find that the expansion of scale and business, along with several strategic development guidelines, are consistently intertwined with the measure of mergers and acquisitions.

Taking Medtronic as an example, since the 1990s, Medtronic has completed nearly 100 acquisition transactions, disclosing a total scale of over $73 billion, with several acquisitions playing a key role in Medtronic's development, allowing its existing business to achieve a qualitative leap.

Based on this, we can outline the typical development path of medical device giants:

1. In the early stages of development, companies mostly rely on technological research and development as the main driving force;

2. After successfully landing technology and products, companies begin to achieve large-scale market marketing;

3. For strategic considerations, companies embark on the inevitable path of medical device giants—mergers and acquisitions. Overall, technology-driven medical device companies must go through the integration path to become industry leaders.

For these giants, after undergoing the baptism of technology-driven development, maturing their own business, and scaling the market, they will begin to focus on the market side, but face the situation of "large ships being difficult to turn" in research and development. To consolidate their position and avoid being disrupted by small and medium-sized innovative companies, mergers and acquisitions have become a direct means for traditional medical device giants to break the segmentation of product technology.