The Federal Trade Commission today sued to block GTCR BC Holdings LLC’s (GTCR) acquisition of Surmodics Inc. (Surmodics), alleging that the deal, which seeks to combine the two largest manufacturers of critical medical device coatings, is anticompetitive.

The FTC charges that private equity firm GTCR’s proposed acquisition of Surmodics would create a combined company controlling more than 50% of the market for outsourced hydrophilic coatings. These coatings are often used by medical device manufacturers and are applied to lifesaving medical devices such as catheters and guidewires.

“Medical device makers rely on high-quality coatings in designing and bringing to market life-saving devices, such as neurovascular catheters,” said Daniel Guarnera, director of the FTC’s Bureau of Competition. “This merger threatens to disrupt competitive dynamics that have ultimately benefited patients. Today, the FTC is stepping in to protect patients from this unlawful acquisition.”

GTCR currently owns a majority stake in Biocoat Inc., the second-largest provider of outsourced hydrophilic coatings. Surmodics is the largest provider.

As the FTC’s complaint alleges, GTCR’s acquisition of Surmodics would lead to a highly concentrated market for outsourced hydrophilic coatings and eliminate significant head-to-head competition between Biocoat and Surmodics. This direct competition has spurred lower prices, higher quality coatings, and product innovation. The proposed deal would change those competitive dynamics and harm medical device manufacturers as well as patients, the complaint states.

Hydrophilic coatings allow physicians to maneuver medical devices within the tight confines of the body—within a blood vessel in the brain, for example—without damaging sensitive tissue or vital structures. Medical devices with hydrophilic coatings are used in a range of interventional neurovascular, structural heart, coronary, and peripheral vascular procedures.

Market Dynamics

GTCR’s acquisition of Surmodics would significantly increase market concentration in the outsourced hydrophilic coatings sector, which already suffers from few competitors. The merger would result in a level of market concentration that violates the 2023 Merger Guidelines, the FTC’s complaint states.

Internal documents from both companies, as well as competitor and customer testimony, recognize Surmodics and Biocoat as head-to-head competitors. As alleged in the complaint, Surmodics and Biocoat closely monitor each other’s business strategies and often target the same large, small, and startup medical device manufacturers, also known as original equipment manufacturers (OEMs). This fierce competition has driven Surmodics and Biocoat to improve coating quality and services, lower prices, and increase innovation. The benefits of these competitive dynamics, however, would be eliminated by the proposed merger, the FTC’s complaint alleges.

The manufacturing of hydrophilic coatings requires specialized expertise, years of research, and millions of dollars in investments. Many OEMs prefer to outsource this process instead of manufacturing it in-house. Often, OEMs outsource to coatings manufacturers with a proven track record, like Biocoat and Surmodics. Given these dynamics, it is unlikely any new coating provider could emerge to meaningfully compete with GTCR and Surmodics post-merger, the FTC’s complaint alleges.

The Commission vote to issue an administrative complaint and authorize staff to seek a temporary restraining order and a preliminary injunction was 4-0. Commissioner Rebecca Kelly Slaughter, joined by Commissioner Alvaro M. Bedoya, issued a statement.

The federal court complaint and request for preliminary relief will be filed in the U.S. District Court for the Northern District of Illinois to halt the transaction pending an administrative proceeding. A public version of the complaint will be available and linked to this news release as soon as possible.

The Mergers I Division of the FTC’s Bureau of Competition led the investigation in this matter.