Although demand for healthcare is more inelastic than other products and services, new business in healthcare (development and innovation) requires financing, a particularly scarce commodity during the recession. Well established companies with existing revenue streams are able to draw on those streams to fund new development. However, early stage and startup companies demand financing from 3F ( "family, friends and fools"), since they do not yet have other revenue streams. So, an obvious polarity is set up: big companies with money seeking innovation versus small companies with innovation but little money.
Hence, the young startup has become a very real acquisition target by established companies.
If we look at one of our favorite markets, for surgical sealants, glues, hemostats, wound closure and anti-adhesion, here is a past list of acquisitions in this arena, a robust amount of activity before the financial meltdown took place:
American Medical Instruments
Fusion Medical Technologies
Source: MedMarket Diligence, LLC, Report #S175, "Worldwide Surgical Sealants, Glues and Wound Closure Market, 2009."
In early 2009, we have already seen some struggles among young companies in this sector, such as Haemacure, in financing their operations and continued development. Given that there are so manny active companies in this area (our report #S175 profiles over 135 companies), we anticipate in 2009 a significant amount of interest and potentially acquisitions by the well established players.
See our report #S175 table of contents, including companies profiled, for potential acquisition targets.