Pulse of the industry: medical technology report 2013

Redefining innovation

  • Share

The medical technology sector is weathering a perfect storm caused by three concurrent trends: the move toward value-based health care, growing regulatory pressures, and resource constraints within the industry itself.

Medtech revenue growth has slowed, dragging down R&D spending…
EY - Medtech revenue growth has slowed, dragging down R&D spending.

…leading to "lost" revenues of US$131 billion
EY - Leading to lost revenues of US$131 billion

Medtech’s customer base is shifting, too: payers, health systems and patients are much more influential than they have been in the past. This shift undermines medtech’s fundamental business model, which was focused on care practitioners.

Companies must find new ways to create, deliver and capture value. Unfortunately, medtech companies of all sizes face now significant resource constraints precisely when they need to be investing in new kinds of innovation. Financing has become increasingly scarce for small companies, while slowing growth has resulted in “lost” revenues of US$ 131 billion and “lost” R&D of US$12 billion between 2008 and 2012.

It's a perfect storm. There are regulatory challenges with the FDA, there are reimbursement challenges, there is a lack of available venture capital, corporate buyers are mostly missing in action, and the capital markets [for emerging medtechs] have disappeared.

Guy Nohra
Managing Partner
Alta Partners

Companies will need to seek avenues for growth. Successful experiments are already under way in which medtech companies are expanding their offerings in three key ways:

  • Beyond the product: Services and solutions to improve outcomes or drive costs down
  • Beyond treatment: Prevention and remote monitoring to improve outcomes more efficiently through real-time management of health conditions
  • Beyond the hospital: Enabling patients to manage their conditions at home without frequent, costly interventions

To succeed in these initiatives, companies will need to develop or improve several capabilities:

  • Focusing on capital efficiency to use scarce resources wisely
  • Initiating ecosystem-wide scanning to better understand a changing health care environment
  • Fostering collaborative cultures to tap the strengths of diverse players
  • Becoming open data enterprises to pool data and develop insights
  • Adopting disease/value pathways to identify and fix “value leakages”
  • Using scalable processes with appropriate metrics for robust business model innovation

 


Medtech revenue growth has slowed, dragging down R&D spending…

EY - Medtech revenue growth has slowed, dragging down R&D spending…

Source: EY and company financial statement data.

×

…leading to "lost" revenues of US$131 billion

EY - …leading to lost revenues of US$131 billion

Source: EY and company financial statement data.

×