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Barry Cohen
Barry Cohen
Articles (259) 

TransEnterix and Butterfly Among Medtech M&A Opportunities

Deals likely to pick up with industry consolidation

Investors are probably going to do a double-take when they look at the five-year price chart for TransEnterix Inc. (TRXC). The North Carolina-based medical device company traded as high as $90 just more than two years ago. The stock can now be bought for $0.53 a share. For those of you keeping score at home, that's a decline of more than 99%.

What makes the stock intriguing is that it is the only public company among ten firms recently identified by FierceBiotech as a merger and acquisition candidate (the rest are private). Another of the 10, Butterfly Network, will be taken public under the symbol BFLY as the result of a merger with Longview Acquisition Corp., a special purpose acquisition company (SPAC).

TransEnterix's established Senhance digital laparoscopic platform for minimally invasive procedures might be attractive to producers of robotic surgery systems. These include Intuitive Surgical Inc. (ISRG), Stryker (SYK), Accuray Inc. (ARAY), Smith & Nephew (SNN), and Medtronic (MDT). Senhance, an artificial intelligence-powered surgeon's assistant, could be a nice addition to the companies' robotic systems.

TransEnterix estimates that, while robotics are used in about one in four open surgeries in the U.S. and Europe, the bigger opportunity is likely in laparoscopic surgery because of its limited penetration so far.

Abdominal robotic surgeries are expected to grow into a $16 billion market in 2023, up from about $3.7 billion just two years ago, according to FierceBiotech. TransEnterix is hoping to get a new FDA approval early next year that would allow it to expand the use of the Senhance product in general surgery.

One setback is that TransEnterix is facing a cash crunch. The company raised $15 million in gross proceeds in a public offering in July and said it now expects to have the cash to support its operations only into the second quarter of 2021.

TransEnterix, like many medical technology companies, was negatively affected by a dramatic drop in voluntary hospital procedures which were canceled or postponed due to Covid-19. Moreover, the pandemic resulted in reduced medtech M&A in certain parts of the industry..

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Caption: The TransEnterix stock chart isn't pretty

According to a report from EvaluateMedtech, only 57 deals closed in the first six months of 2020. Their average size was $108 million and their total value was under $2 billion, the lowest point of the past decade.

I think that the deal flow is likely to pick up as the pandemic forces industry consolidation. All the top companies are in the shopping mode, according to Raj Denhoy, managing director and an equity research analyst at Jefferies. Dealmaking has been "part of the DNA of the space for a long time," Denhoy told FierceBiotech. "In some respects, these companies have become a conduit into hospitals, and more of a sales channel, as opposed to development companies, as a lot of the products come from the outside for them. They're always looking for things to feed into that."

The "flavor" of acquisition has changed a bit, though. Denhoy said, "There was a period where companies were doing acquisitions for scale... [but investors] generally prefer these companies grow faster, and scale unto itself hasn't driven that. It's found in new products and innovation, so that's where these companies are looking."

Caption:TransEnterix's established Senhance digital laparoscopic platform for minimally invasive procedures might be attractive to producers of robotic surgery systems. (Photo courtesy of TransEnterix)

Butterfly's point-of-care iQ device is a transducer that uses semiconductor technology to perform whole-body imaging using a single handheld probe. Powered by Butterfly's proprietary Ultrasound-on-Chip technology, it connects to a mobile device and uses AI to deliver advanced imaging. The device is approved in the U.S. for multiple applications across the entire human body, including adult and pediatric scans of the heart, abdomen, blood vessels and lungs.

The device is relatively inexpensive at $2,000, making it affordable to middle-income households around the world. It is already used by 15,000 health professionals.

Disclosure: The author has no position in any of the companies mentioned in this article.

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About the author:

Barry Cohen
Barry Cohen has nearly 40 years experience in communications and marketing, the majority in senior positions at large international health care companies, including Abbott Laboratories and Bayer Inc.

He has contributed to a number of financial websites, writing primarily about the stocks of health care companies.

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