Guest Column | February 18, 2019

M&A Mirage: Rapid Medtech Adoption Is No Sure Sign Of Commercial Success

By Jane Rogers Clark, Jonathan P. Gertler, and Hannah Cabot, Back Bay Life Science Advisors


Clinical and commercial adoption are interrelated, but not identical. Successful medical device acquisitions are predicated on a thorough understanding of how these components fit together. Before acquisition, both target and acquirer must first understand the core scientific and clinical support for the technology, as well as anticipate ongoing hurdles in front of commercial acceleration.

For medical device companies, acquisitions are more frequently based on revenue multiples or profitability than on the promise of new technology. Understanding where a company fits, where the target acquisition is positioned, and how to advance carefully is critical to a healthy ecosystem.

Rarely is a paradigm-shifting medical technology so disruptive to a field that acquisition will be made based on technology criteria alone. One of the significant challenges in medical device mergers & acquisitions (M&A), regardless of sell- or buy-side perspectives, is knowing whether the trajectory of a medical device commercial launch is, indeed, reliable and predictive of future revenues.

Medtech developers must determine whether the initial rapid adoption is sustainable and justifies the price paid for commercial-stage companies. The questions of how to successfully conduct diligence and predict ongoing outcomes are complex and entail constant regulatory surveillance, clinical investigational challenges, reevaluation of the device’s utility, and potential interruption of the device’s revenue trajectory by alternative technologies.

Consider this real-world example: the PROPEL Sinus Implant, developed by Intersect ENT for chronic sinusitis patients undergoing sinus surgery, represents an effective, widely-adopted medical device that enjoyed initial support and conclusive data in PMA trails, a significant trajectory of revenue generation, expansion of indication, and utilization in adjacent areas. However, the device now must grapple with big questions from the otolaryngologic community.

Repeat Sinus Surgery For Recurrent Sinus Disease Is A Problem

Each year, a quarter-million people have sinus surgery for chronic sinusitis, and 20 percent of those patients require repeat surgery to maintain the sinus openings. For years, surgeons attempted the use of many drugs and devices postoperatively to minimize recurrent disease and to reduce the need for additional surgery. Their efforts included oral steroids, leukotriene modifiers, anti-IgE modifiers, interleukin antagonists, IL inhibitors, topical nasal sprays, steroid-impregnated biomaterial dressings, absorbable and non-absorbable packings, and rigid and pliable metal stents and spacers.

Then, Intersect ENT developed PROPEL — a 30-day steroid-eluting resorbable stent designed specifically for deployment in a surgically corrected sinus opening. In 2011, after three small studies demonstrated the device’s safety and efficacy, the US Food and Drug Administration (FDA) approved the use of PROPEL in the ethmoid sinuses.

Subsequent device refinements and PROGRESS — a 160-patient, multi-center randomized, blinded controlled trial, wherein PROPEL Mini was studied in the frontal sinuses in one 80-patient cohort, and PROPEL Contour was studied in another, separate 80-patient cohort — resulted in expanded approval for use of the PROPEL Mini in the ethmoid and frontal sinuses (2016), and use of the PROPEL Contour in the frontal and maxillary sinuses (2017). Off-label use prompted a developmental departure, resulting in the FDA’s December 2017 approval of Intersect ENT’s SINUVA technology, a $1,275, 90-day mometasone-eluting stent for office treatment of nasal polyps in adults.

These drug-eluting stents were rapidly adopted into clinical practice. From 2012 through 2016, publicly available 10-K filings by the manufacturer showed that annual sales of PROPEL increased from 8400 units to 103,400 units and, by 2017 — with prices now near $750 per unit — annual revenue had increased 16.3-fold to $96.3 million.

However, now that these expensive drug-eluting sinus stents are widely used and immensely profitable, the medical community is looking at several emerging issues:  

  • Pre-approval PROPEL efficacy studies showed a short-term decreased need for repeat surgery. But, with 200,000 patients having now received steroid-eluting stents, the number of sinus surgeries for chronic sinusitis has not declined over the past five years. Long-term reduced need for surgery has not been studied.
  • Some patients treated with SINUVA had detectable plasma steroid concentrations. Whether this can cause adverse systemic effects has not been studied.
  • The cost-effectiveness of these stents has come into question
  • Exact indications for use of these stents remain a topic of debate.
  • Quality of life studies have not been done. PROPEL patient-reported outcomes at 30 days were not measured. In the RESOLVE trial, SINUVA mean patients reported nasal congestion and obstruction scores at a rate not statistically different from that of sham patients. In the larger RESOLVE II trial, the score difference was favorably significant, but only assessed as far out as 90 days.
  • RESOLVE II showed the need for repeat surgery was reduced at 90 days, but there are no data available on the efficacy and safety of repeat treatment with SINUVA after 90 days.
  • There have been no efficacy or cost comparisons between traditional adjuncts and the four devices.
  • The PROPEL maxillary sinus approval was based on data from 15 patients. More data are needed.

PROPEL had commercial launch success, but now faces questions from stakeholders. With this example as a backdrop, we analyzed medical device acquisitions over the past year and concluded that, for companies interested in medical device M&A:

  • Technology values are idiosyncratic — Angioplasty devices were acquired in the 1990s for large sums that, today, would be based on revenue and profitability, such as endovascular devices for peripheral vascular disease (e.g., AAA grafts). Valve replacement technologies are the new disruptive paradigm shift and are trading at values that reflect potential markets, rather than revenue multiples, net present values (NPVs), or highly speculative markets. These decisions are being made based more on a company’s perceptions surrounding strategic fit for portfolio planning and technology vision than the nitty-gritty of sales and adoption.
  • For more mature companies, revenue and earnings before interest, tax, depreciation and amortization (EBITDA) multiples apply — Regarding revenue multiple, there is not much difference between a global and a limited launch if a technology cannot command pre-revenue disruption value. Thus, careful consideration must be given to how dollars are raised and deployed regarding investor returns. One runs the risk of driving increasingly expensive launches if one attempts broad launches without realizing incremental internal rate of return (IRR) though absolute transactional value numbers might be higher.

Whether selling or buying, medical device companies — as well as the broader life science industry — must understand launch dynamics, and then accurately translate that information into the type of M&A diligence or preparatory diligence that must be completed.

How Does The Sinus Stent Lesson Apply? 

Surgical and interventional adoption is driven off salient medical principles that are economically reinforced by practice patterns fitting physicians’ business models. Adoption drivers include quality improvement, sustainability of interventional outcomes, reduction of ancillary costs, proper reimbursement for time allotted, and avoidance of re-do interventions and rehospitalizations. The difference between efficacy and effectiveness (i.e., the difference between reported outcomes in controlled trials and community or practice-level experiences) can have a significant impact on payor response, as well as physician adoption.

With new technologies, several dynamics are at play, including buy-in by thought leaders with complex practices and delivery circumstances that support complex procedural additions. Such leaders can view a technology add-on as both beneficial and differentiating in the marketplace.

Translation of their enthusiasm can happen rapidly, and an initial uptake of procedural possibilities can cross the first adopter chasm into the general practicing population with relative ease — especially if aided by clear reimbursement codes and broad-based payer adoption. However, this early enthusiasm — which can translate into early revenue surges — can be followed by clinical skepticism or longer-term follow-up clinical and economic data that no longer support the technology thesis.  

Acquisition decisions must thoroughly explore the adoption drivers, the translatability of initial clinical data into general practice, the sustainability of results, and the impact on quality of care that ensues. Further, the competitive landscape might dislodge an early enthusiastic burst and the level of support needed from a corporate perspective to either sustain the growth or to prevent erosion due to organic (i.e., changing medical views) or inorganic (i.e., competitive entrant) disruption to the acquisition thesis.

Early growth in a limited launch scenario is rewarded by meaningful revenue multiples. Using this assumption, the economic cost of developing a limited (as opposed to a full) launch is meaningfully less, but the lower revenue multiple — especially for a single-product company — can end up representing a greater IRR. Depending on the investor structure and the investor goals (e.g., quicker return on capital, larger IRR, better cash on cash returns), this observation becomes critical to the convergence of investor capital and company goals that ultimately drives corporate decision-making.

Larger multiples and the ability to withstand P&L loss is the hallmark of companies that feel compelled, or are compelled by acquiror skepticism, to go it alone. In this setting, although the absolute rewards are higher, the time to liquidity and the ensuing IRR can be significantly constrained.

Typically, the judge of this differential is a technology’s sustainable clinical impact. Whether in preparation for a liquidity event (e.g., a small-growing medical device company) or an acquisition (e.g., a consolidator), a company’s ability to differentiate adoption enthusiasm from a valid clinical result and sustainable commercial adoption goes a long way toward determining its success on either side of the M&A equation.

About The Authors

Jonathan P. Gertler, MD is the founder and CEO of Back Bay Life Science Advisors, which provides integrated strategy consulting and investment banking to biotech, pharmaceutical and medical technology companies. A former vascular surgeon, Dr. Gertler guides companies on growth and liquidity strategies and has published widely on scientific and commercial interests.

Jane Rogers Clark, MD is physician-writer in residence at Back Bay Life Science Advisors and a former Otolaryngologist and Head and Neck Surgeon.


Hannah Cabot is a senior analyst on the M&A team at Back Bay Life Science Advisors, where she works across an array of life science strategy projects.

Contact the authors at