Pulse of the industry: medical technology report 2013
Financial performance: a growth challenge
The revenues of US and European companies increased by a relatively modest 2% in 2012, but the true picture was quite different.
After adjusting for the Johnson & Johnson/Synthes megadeal and for exchange rate fluctuations, the “apples-to-apples” 2012 revenue growth rate would have instead been around 8%, compared to 4% in 2011. Similarly, the normalized net income growth rate would have been 3.5% (significantly better than both the reported 2012 decline of 22% and the 2011 normalized growth rate of 0.5%).
While the medtech industry’s 2012 financial results were better than 2011 on a normalized basis, looking at the longer term reveals a more troubling picture.
Innovation is going to be driven by entrepreneurs who are true experts in a disease area, and have unique insights into where the holes are.
The medtech industry’s financial growth is significantly below its pre-crisis levels, when it routinely delivered double-digit increases in revenue and robust net margins. As companies grapple with increasing pressure from market forces, payers and regulators, they will need to take action not to merely sustain recent performance but rather to return to the top-line growth and bottom-line profitability they enjoyed before the crisis. Meeting that challenge will require revisiting how they innovate in both their products and their business models.
Medical technology at a glance, 2011–12
|(US$b, data for pure-plays except where indicated)|
|Public company data||2012||2011||% change|
| Revenues || $339.6 || $333.9 || 2% |
|Cash and cash equivalents and short-term investments||$40.7||$39.8||2%|
|Number of employees||732,400||725,000||1%|
|Number of employees||368||374||-2%|
|Source: EY and company financial statement data. Numbers may appear to be inconsistent due to rounding. Data shown for US and European public companies. Market capitalization data is shown for 31 December 2012 and 31 December 2011.|
A tale of two continents
Since 2008, US medtech companies have struggled in the public markets. The biotechnology industry has seen its cumulative market valuation double, while medtech firms have traded below broader indices and fared no better than big pharma, which is struggling in the wake of its patent cliff.
Conversely, European medtechs have been a beacon in a tumultuous market impacted by the eurozone crisis. Not only have they fared better than their American counterparts, but they have outperformed both European biotech and big pharma companies, as well as the DAX, FTSE 100 and CAC 40 indices.
As discussed in this year’s Point of view article, the situation in Europe may become more difficult due to proposed changes to the approval process, but European investors seem to be discounting such concerns.