impact of m&a activity on r&d productivity & innovation

Impact of M&A Activity on R&D Productivity & Innovation

Daniel L. Mooradian, Ph.D. Chief Scientific Officer

Innova Medical Design LLC

Marcus Evans Medical Device Summit 2012 Colorado Springs, CO

Copyright © 2012 Daniel L. Mooradian. All Rights reserved

Objectives

• Mechanics of Deal making

•  Discuss trends in Medical Device M&A

•  Explore the Challenges facing R&D

•  Share my experiences (R&D centric) as a “survivor” and student of the subject

•  Invite you to share your experiences!


Introduction

• Mergers & Acquisitions are a necessary and beneficial part of the corporate “life-cycle”

•  Small companies - often the preferred strategy to create investor value

• Mid-/Large-Companies - a path to growth via optimization of new or existing sales channels


Source: www.fiercemedicaldevices.com


Medical Device M&A Trends

•  Strong M&A activity in the Medical Device and Biotech sector through Q2 of 2012

• Modest activity Q3-Q4 2012 based on uncertainty regarding the election outcome, healthcare reform, etc.

• Marketplace seems poised for resurgence in 2013


Medical Device M&A Trends

•  Significant capital on the side-lines – even VCs claim to be eager to invest!

•  Trend in large companies away from organic R&D

•  Trend in start-ups toward strategic partnership vs. traditional VC route for start-ups


The M&A Process

R&D INVOLVEMENT LOW LOW-MEDIUM HIGH

xeon-international.com/services/corporate-finance/ma/the-ma-process


M&A Challenges

• Mandatory adoption of cumbersome processes can strain resources

•  Reorganization - loss of key management, changes in reporting can impact morale

•  Shift in priorities by OPS, Quality, M&S can reduce availability to support product development leading to delay


Pipeline Value/Technology

• Often an attractive “sweetener” during due diligence.

•  The acquired may believe that they will have a new source of support for innovation

• Not the Norm. Cost of acquisition (which comes at the expense of existing businesses) makes it difficult to “double down” before the value of the acquisition itself has been confirmed!


Strategies to improve R&D integration


• Make sure you are represented on the Integration team

•  Engage your functional counter-part

•  Realize that everyone involved has a “day job”

•  Seek opportunities for your Senior staff to participate in key integration activities

• Make integration a priority

Integration Team


Process Knowledge

• What is your new Innovations Process?

• What is your new company’s Budget Process?

• Who are the key decision-makers?

•  Are you adequately represented?


The “Deal Model”

• Make sure you understand what constraints have been placed on your current and future budgets as part of the acquirers “deal model”

•  If growth in R&D is not built into the deal model then it will be very difficult to grow post-acquisition.


Next Years Budget

•  You new organization is already working on next years budget!

•  You are already at a disadvantage

•  Learn how budget decisions are made……

• And who makes them!


Protect Resources

•  The deal-model will set limits on unit expenditures post-acquisition

•  If your needs are not reflected in the deal-model then you are at a disadvantage

•  Pressure on OPS/Manufacturing/Quality (and Clinical) will put existing and future R&D resources at risk

•  You must fight for position or risk decline


Protect Resources

•  Critical R&D employees who are not protected by CIC agreements must be identified and protected via retention agreements if possible

•  Protect against flight

•  Promote engagement

•  Reduce uncertainty and anxiety


Preserve Corporate Culture

•  The post-acquisition period is one in which culture can play a critical role in guiding behavior in the face of uncertainty

•  Too little emphasis is placed on the integration/assimilation of culture in mergers & acquisitions

•  Repeat your core values often to yourself and others.


Communicate!

New Management Peers

Staff

No news is NOT good news!


Thank you!

impact of m&a activity on r&d productivity & innovation

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