The year may be new, but the Big Picture story is the same one we’ve heard for a decade: Mergers and acquisitions in the medical technology industry will continue through 2008, according to Jefferies & Company, a global investment bank and institutional securities firm.

What does seem new for the med-tech industry is the rapidly increasing influence of Asia.

The analysts at Jefferies are predicting that the largest market opportunities are in China, India and Eastern Europe, according to the company’s new equity research report, “Themes & Tactics: U.S. Top Picks 2008.”

The bottom-line lower costs associated with manufacturing are driving this trend, Mark Richter, a device and diagnostics analyst for Jefferies told Medical Device Daily.

“As companies are looking for continued growth, they are looking to buy distributors internationally. It’s an additional growth driver,” Richter said. “Thirty-five percent of med-tech revenues come from international. and the companies are looking for more international growth.

“Companies that move into Asia will be helped because they can capture substantial savings in their costs,” he said. “Inverness Medical [Innovations; Waltham, Massachusetts] is a classic example. They are shutting down manufacturing facilities in the U.S. and saving money. For every test they transfer overseas, they save 20 cents. There’s tons of capacity in Asia and cost savings.

“CEOs are becoming less concerned about IP violations as IP protection becomes more stringent and upheld over there,” Richter said.

Inverness Medical Innovations (IMI), a developer of rapid point-of-care diagnostics, has been scooping up diagnostics firm at a rapid rate and is one of two Top Pick med-tech companies for Jefferies in 2008. And it is continuing to shift its manufacturing to China to garner huge costs savings.

Its numerous acquisitions in 2007 include: Cholestech (Hayward, California), a maker of rapid diagnostic products, which it completed in September for $326.3 million (MDD, Sept. 14, 2007) and first disclosed in June (MDD, June 5, 2007); Maritech (Newton, Massachusetts), a developer of protein-based diagnostics, for about $36 million (MDD, Aug. 29, 2007); HemoSense (San Jose, California), a developer of handheld blood coagulation monitoring systems, in an all-stock deal for $165 million (MDD, Aug. 8, 2007); and Biosite (San Diego) for $92.50 a share, beating out rival Beckman Coulter (Fullerton, California) (MDD, May 11, 2007); Alere Medical (Reno, Nevada) for $302 million, consisting of about $125 million in cash and $177 million in IMI common stock (MDD, Oct. 25, 2007).

IMI “was our top pick last year too,” Richter said. “It’s got even more legs of growth for this year for a couple of reasons, including it’s acquisitions of Biosite and Cholestech.”

The company also is planning to migrate tests from the emergency room to doctor’s offices, opening up another avenue for increased revenues.

Jefferies’ other favorite company is Allergan (Irvine, California).

Allergan’s ophthalmology and aesthetics portfolios, he said, should “continue to provide upside to Street projections over the next several quarters.”

Richter predicts Allergan will pursue new acquisitions in 2008, particularly in the field of urology, to complement its development work for Botox in overactive bladder and its purchase of Esprit Pharma (Princeton, New Jersey) in October 2007. In 2006, Allergan also acquired Inamed (Santa Barbara, California) and its Lap-Band.

Richter said reimbursement for the bariatric product will improve further following the launch of Ethicon Endo-Surgery’s (Cincinnati) Realize band. Other Inamed products, including breast implants and dermal fillers, beat sales expectations in the most recent quarter, resulting in strong double- and triple-digit growth.

“Allergan has raised its full-year guidance for both product lines, citing no evidence of any slowdown, which we believe bodes well for 2008,” he said.

Overall, Richter said a weak consumer market and a weak dollar, combined with cheaper med-tech valuations, “could ignite significant buyout activity in 2008.

“Medtech in general is delineated into the haves and have nots,” he said. “The mid- to large-cap consolidators and the small one-product companies have outsourced their R&D.

“When these small companies start executing, these larger companies will take them out.”