It is worth just taking a quick look at Apax Partners a London-based private equity company, who in mid 2005 acquired Mölnlycke. APAX Partners merged the new-comer Mölnlycke Health Care with its companies Regent Medical, a globally well-known supplier of surgical gloves and disinfectants, and Medlock Medical, a UK-based medical supplier specialized in wound care. The three companies formed the new Mölnlycke Health Care with two divisions, Surgical and Wound Care.

 

These divisions were then sold in 2007 to Investor AB for €2.85bn ($3.85) and now it looks like Apax is taking a second bite at the wound care apple after this successful experience and attempting to take over the largest wound care company in the world.

 

This bid from Apax, if it goes through, could be the largest leveraged buyout since the collapse of Leman brothers in 2008. Now that makes you think.

 

Why is this?

Well here are a few thoughts factors contributing to the attractiveness of buyouts for large advance wound care companies:

• Aging population explosion worldwide
• Obesity/diabetes significant contributors - both rising to near epidemic proportions
• Acceptance of new technologies by health care providers - protectable products through - patents
• Reimbursement of new technologies has occurred
• Many new startup companies with new technologies to chose from

Large vs. Small - The Great Divide

The wound care market is a fragmented, dispersed and has multiple distribution points requiring complex sales, customer education and delivery infrastructure. Bolting several wound care companies together into one larger company offers very significant opportunities for efficiencies of scale and market presence. Hence the attractiveness of leveraging.

 

The converse is also true; small startup wound care companies cannot justify the investment in the necessary infrastructure for market access for just one product. Small startup companies therefore seek large marketing partners for their products - further strengthening the position of the larger players who can pick & chose from the wide array new technologies out there all claiming some novel "better-faster" attribute. This provides the opportunity for medium to long-term sustainability to the growth of these large companies by acquiring new technologies and driving them through their existing sales, marketing, customer education and distribution networks.

 

While the global macroeconomic outlook is dire, investment in wound care appears to have been a successful bet and continues to draw attention.

 

Perhaps this interest by investors is for good reason!

 

 

Granted the panelists may have been making comments for effect, nevertheless the message was clear; with one panelist stating clearly that he would "never invest in a pre FDA approval company", as the uncertainty behind what the FDA would and would not approve was just too risky. The remainder of the panel discussion centered around going to Europe, gaining CE mark as the EU system was clear and transparent. It's not that any particular set of testing requirements is unreasonable, it is not knowing if what you have agreed beforehand with the FDA will actually be sufficient to get approval once you have collected all the data. Business can cope with a lot, but uncertainty is not one of them.

The advice was clear - focus on going to Europe, do your clinical trials in Europe, get your approval in Europe, sell your product in Europe, set up an arm of your company in Europe and only then consider applying for US approval. And then, only do it if it still made sense!

 

This does not bode well for the US economy in the medium to long term. While being seen to reign-in big Pharma may be politically expedient, driving high tech companies and high paying jobs overseas is not exactly a good idea for the US, but it is great news for my readers in the EU. We at GIS expect to be spending more time and focus on servicing the need for US companies to reach European markets.

Now you have to remember MedVentures was a life sciences venture forum where startup companies were pitching live to VC companies and other investors. So you would hope that amongst this select and knowledgeable audience there might be a glimmer of hope for an early stage company to find investment dollars. Fortunately there is still money out there, much of it still on the sidelines, but according to the panel discussions and presentations, the VC/Angel route is probably not going to be much help in the short term, at least not in Texas.