Doctors looking at computer screen

Pulse of the industry databook

Financial performance

  • Despite the disruptions of 2020, industry revenue grew 6.3%, essentially unchanged from revenue growth rates in 2019 (6.2%) and 2018 (6.3%).
  • Conglomerates were the strongest performing segment, with 10.2% growth (vs. 1% in 2019). Seven conglomerates (Fresenius, Danaher, Avantor, Abbott, Roche, Merck KGaA and Philips) saw revenue growth of at least US$1.5 billion as COVID-19 spurred investment in testing and treatment, diagnostics, PPE, and remote screening and monitoring technologies.
  • However, other conglomerates saw revenues hit by canceled or delayed elective surgeries and reduced overall patient visits. For instance, Johnson & Johnson experienced a US$3 billion drop in revenues, while Essilor’s ophthalmic business experienced a US$487 million decline.
  • Pure-play MedTechs also suffered from the impact of COVID-19, with net income falling 18% to US$20 billion, following a 40% increase (mostly driven by accounting charges, credits, and other tax/legal adjustments) in 2019. In all, 55% of pure-play MedTechs saw incomes fall, and seven of the10 largest pure-plays saw declining revenues, with only Medtronic, Siemens Healthineers and Edwards Lifesciences growing revenues.
  • Despite COVID-19, there was an increase in the number of public pure-play MedTechs (rising 3% to 446) and the number of people working for them; pure-plays added nearly 40,000 employees, with two-thirds of all companies increasing headcount.
  • Of the commercial leaders and conglomerates that released H1 2021 earnings, their collective top lines grew 30% vs. the same period in 2020 and 25% vs. 2019.
    • 94% of the companies grew their revenue, with Align Technology (+111%), Hologic (+96%) and PerkinElmer (73%) leading the way.
  • Of the industry’s US$446 billion total, US public companies accounted for 63% of that revenue, generating a total US$274 billion (up 5%). European public company revenue rose 8%, reaching US$172 billion.
  • There were 68 commercial leaders (defined by EY research as pure-play MedTechs with revenues greater than US$500 million) in 2020, with 44 of these companies based in the US.
  • Europe had 24 commercial leaders, with one addition in 2020 — Denmark’s Ambu A/S, which focuses on single-use endoscopy solutions, diagnostic and life-supporting equipment, saw its revenues climb 37% to US$563 million in 2020.
  • The therapeutic areas worst affected by the pandemic were:
    • Orthopedic, which saw the most significant drop in annual growth rate (-8.2%) and dollar (-US$2.7 billion) terms. In all, 68% of orthopedic companies saw a decline, with Zimmer Biomet revenues dropped -12% (-US$958 million), largely through deferral of elective surgical procedures; Smith & Nephew fell 11% (-US$578 million) for similar reasons), and Stryker also declined 4% (-US$533 million).
      • However, there was a notable improvement in H2 2021 as these same companies saw their top lines grow by 29%, 28% and 30%, respectively, vs. H1 2020.
    • Dental (-10.3%; -US$1.2 billion): with customer demand plunging in H1 2020 and professional dental associations recommending practitioners perform only emergency procedures, leaders like Dentsply Sirona experienced a 17% (US$687 million) revenue decline, with Envista Holdings also taking a 17% hit. In all, 75% of dental companies saw revenues contract, though the sectors’ second-largest player, Align Technology, grew 3%.
      • Again, H1 2021 provided significant relief as revenues of Dentsply, Envista and Align grew 53%, 59% and 111% vs. H1 2020.
    • Ophthalmic (-8%; -US$840 million): with delayed orders, lack of patient access and lower use of contact lenses during social distancing, 70% of ophthalmic companies saw revenues fall, including the two leaders Alcon (down -9%, a drop of US$675 million) and Cooper Companies (-8%; US$222 million).
      • Once again, H1 2021 results far outpaced H1 2020 as Alcon’s revenue surged 32% while Cooper’s increased 20%.
    • Cardiovascular (-4.2%; -US$787 million): 71% of companies saw revenue contractions because of COVID-19, though the worst-affected, Boston Scientific, fell largely because its 2019 revenues included US$2.5 billion of after-tax credits.
      • In the first half of 2021, Boston Scientific’s top line jumped 28%.
  • In absolute revenue terms, Respiratory grew more than any other therapeutic area (up US$492 million, a 13% rise), with companies such as GVS (a 2020 IPO) and ResMed at the forefront of delivering masks, ventilators and filters.
  • With the negative impact of COVID-19 on the two biggest therapeutic areas (orthopedic and cardiovascular), overall therapeutic device revenue remained almost flat, falling 0.4% to US$176 billion (though still accounting for over 72% of all revenues for pure-play MedTechs).
  • All other product segments grew in 2020, with the pandemic often acting as a driver rather than a constraint; the imaging segment grew 6%, with 58% of imaging companies recording top-line growth; Siemens Healthineers led the way with 9% growth.
  • The Research & other equipment segment grew 13%, with COVID-19 fueling growth; in all, 70% of companies in the segment grew, with PerkinElmer revenues rising US$900m and Sartorius by US$807 million, in both cases driven by product offerings relevant to COVID-19 diagnostics, vaccines and other R&D.
  • The urgent need for COVID-19 diagnostics saw non-imaging diagnostics perform more impressively than any other product segment, hitting USS$21 billion with 60% of companies increasing their revenues, and 28 seeing top-line growth of over US$200 million. While the pandemic accelerated growth, the diagnostics segment has performed strongly in recent years and established itself as a key driver for the industry even prior to 2020.
  • Prominent among the non-imaging diagnostics companies making significant revenue gains were Quidel (up US$1.1 billion with 70% of revenues coming from six different COVID-19 immunoassay and molecular diagnostic products for which it won emergency use authorization), Biomerieux (up US$813 million on the basis of COVID-19 testing, and Exact Sciences (up US$615 million after expanding its cancer screening franchise and adding COVID-19 tests.
  • Many of today’s MedTech commercial leaders were mere startups when we first published the Pulse of the industry report in 2007.
  • Technologies like continuous glucose monitoring, precision diagnostics, automated drug delivery platforms, surgical robots and rapid genetic sequencing were all in their infancy. Today, they are at the core of MedTech innovation and growth.
  • Founded in 1999, Dexcom’s revenue has grown an astronomical 88,688% since 2006. In 2006, Dexcom received US FDA approval and launched the Dexcom STS Continuous Glucose Monitoring (GCM) System, a three-day sensor that provided up to 288 glucose measurements for every 24 hours. Fast-forward 15 years, and the flagship G6 CGM System — which uses a small wearable (remote) sensor and transmitter to measure and send real-time glucose values wirelessly — fueled nearly US$2 billion of revenue for Dexcom in 2020.
  • With a growth rate of more than 31,000%, Wisconsin-based Exact Sciences was the second-fastest-growing MedTech over the past 15 years. Founded in 1995, the company is a leading provider of cancer screening and diagnostic tests, marketing Cologuard® (a multitarget stool DNA test) and Oncotype DX (an individualized oncology diagnostic test)
  • Rounding out the top 3 is Insulet, maker of Omnipod®, a tubeless, automated insulin pump that provides 72-hours of continuous insulin delivery to diabetic patients and which has recorded a 24,590% revenue increase in the past 15 years.
  • As well as outstripping the other segments of the market in revenue growth terms, the non-imaging diagnostics segment also led the rebound in MedTech company valuations, with company valuations rising 95% in the 20 months from January 2020 to the end of August 2021. The other MedTech product segments all saw their valuations climb in this period, though less spectacularly. Research and other equipment company valuations grew 83%, imaging 64%, and therapeutic device 41%.
  • Overall, since dropping 36% when the market bottomed out on March 22, 2020, MedTech valuations have recovered to a record growth of 55% since January 2020, outperforming big pharma (16%), NASDAQ biotech (42%) and the composite broader indices (21%).
  • MedTech’s recovery indicates the importance of its offerings to the global effort to contain COVID-19, from PPE and ventilators to novel diagnostic tests. For example, Quidel received a EUA for its Lyra SARS-CoV-2 Assay rapid point-of-care test as early as March 17, 2020. However, it is notable that Rock Health’s digital health index has rebounded even more strongly (up 77% since January 2020), suggesting the growing perception of digital health’s vital role in health delivery during the pandemic crisis and beyond.
  • Since the second half of 2016, cumulative MedTech market caps have recorded a median CAGR of 24%. Notably, the bulk of the top 10 companies by valuation change achieved growth without making significant M&As during this period.
  • The biggest growth in market cap (in terms of US dollars) was recorded by Intuitive Surgical (up US$84.5 billion), which has pioneered the robotic surgery space with its first-in-class da Vinci surgical system. Though Intuitive suffered from the pandemic slowdown, its stock has performed strongly since elective procedures began to return in the second half of 2020.
  • Market leader Medtronic joins the list of MedTechs with the biggest cap growth this year — as does Align Technology, the dental specialists’ which manufactures the Invisalign system, iTero intraoral scanners and software for digital orthodontics and restorative dentistry, which cleared US$1 billion in Q2 2021 revenues (up 187% on the previous year). 
  • With a relative decrease in M&A activity in 2020, MedTech commercial leaders opted to return US$14.1 billion to shareholders (in the form of stock buybacks and dividends) — this represented 61% of deployable capital, the highest rate since 2011 (71%).
  • In all, nine of the 10 largest MedTechs carried out stock buybacks or paid dividends, with the total shareholder return rising 5% to US$10.4 billion, led by Boston Scientific, which returned US$563 million to shareholders (almost entirely via buybacks).
  • Though MedTech largely avoided large-scale M&As in 2020, the industry did heavily invest in R&D. R&D spending hit a record US$19.6 billion — with eight of the top 10 allocating more capital to R&D than to shareholder returns — suggesting a readiness to invest in organic growth rather than seeking acquisitions. However, H1 2021 did witness a resurgence in MedTech M&A as a more stable market left companies searching for a quicker avenue to growth.

Financing

  • Total MedTech funding fell 17% to US$47.4 billion in the H2 2020–H1 2021 period; however, this decline is entirely accounted for by a drop of over US$22 billion in debt funding that reached record levels in the previous 12-month period as large MedTechs looked to secure themselves against disruption from COVID-19.
  • Excluding debt, financing rose by 60% in the 12-month period, reaching US$34.5 billion, its highest in the past decade.
  • Around half of this total came from follow-on public offerings, which rose 45% to US$16.9 billion — its highest level in a decade — representing the largest single source of financing in the H2 2020–H1 2021 period. Yet, venture capital also hit US$9.1 billion, which once again was the highest level in a decade, and IPO financing doubled.
  • The impact of COVID-19 was felt in the diversion of VC funding towards late-stage ventures. The top 12 funding rounds all went to late-stage companies, while the number of early-stage VC rounds >US$5 million fell to its lowest level in five years, capturing only 16% of VC investment.
  • Verily Life Sciences captured the largest single VC round of the H2 2020–H1 2021 period with US$700 million in Q4 2020. The Alphabet-owned company has R&D investments in multiple areas of MedTech, attracting attention for its Baseline platform for COVID-19 research and joint venture with Johnson & Johnson in the surgical robotics space.
  • Also focused on surgical robotics, CMR Surgical of the UK, which manufactures the Versius system, raised US$600 million in a Series D round in June 2021; another European robotics company, eCential Robotics SAS, also drew US$121 million to fund its surgical robotics system, incorporating 2D/3D imaging.
  • Once again, diagnostics loomed very large in VC funding, with companies such as Truvian Sciences, Binx Health, Inflammatix, and Delfi Diagnostics all among the top 15 VC rounds overall. Companies like Element Biosciences (focused on genetic analysis) and PathAI (using machine learning in pathology) also indicate the high level of investment in disruptive diagnostic technologies.
  • IPO funding grew by 100% in the 12 months to June 2021, generating US$6.4 billion, with over half of the value generated by just two deals. When adding the proceeds of eight SPAC (special-purpose acquisition company) related IPOs, the total funding jumps to US$8.6 billion.
  • “Research and other” equipment player Maravai LifeSciences, which provides reagents and services, completed a US$1.9 billion IPO in November 2020.
  • Ortho Clinical Diagnostics raised US$1.5 billion in a Q1 2021 IPO. The company is focused on non-imaging diagnostics.
  • As an alternative to an IPO, growing numbers of MedTechs are making deals with special purpose acquisition vehicles (SPACs). SPACs are formed with the sole purpose of raising capital and then merging with a target private company, which takes on the public listing and so gains rapid and straightforward access to public markets. During the COVID-19 pandemic, the SPAC route to market has gained appeal as IPOs became logistically more difficult. (For example, virtual roadshows are less effective at generating investor attention). 
  • Once again, non-imaging diagnostics have been an important focus area, with the first half of 2021 seeing two significant SPAC financing deals: CA Healthcare Acquisition Corporation (CAHC), a Boston-based SPAC, merged with LumiraDx (a London-based maker point-of-care diagnostics for COVID-19 antigens and antibodies, among others); and Richard Branson’s VG Acquisition Corporation merged with personalized genetic testing company 23andme.
  • Other SPAC deals of 2020–21 have offered routes to market for companies innovating in the proteomics space, including next-generation protein sequencing innovators Quantum-SI; SomaLogic, a specialist in AI-driven proteomics assays; and Nautilus Biotechnology, which is developing a novel platform for rapid human proteome analysis and has a partnership with Genentech.
  • California continued to dominate the overall MedTech financing landscape in terms of both VC and overall capital raised. Outside of the US, the UK generated the highest levels of MedTech funding, yet this amounted to barely one-seventh of the volume raised in California alone, which attracted 35% of all MedTech equity investment.

Mergers & acquisitions

  • In the H2 2020–H1 2021 period, MedTech companies executed 288 deals — the highest annual number seen since EY research began creating the Pulse of the Industry report in 2007 and a 77% rise over the previous 12 months.
  • Many of these deals were small-scale: 200 of them (69%) were valued at under US$100 million, and the average deal size of US$282 million was well below the previous four-year average of US$455 million.
  • In all, the total value of M&A activity was US$63.3 billion (with 79% of the spend going to US-based targets), up 129% on the previous 12-month period. In part, this reflects the fact that the first six months of 2020 saw a hiatus in M&A activity due to the pandemic, while the second half of the year saw a recovery.
  • In particular, the second half of 2020 saw Siemens Healthineers close a megadeal (defined by EY research as any M&A transaction worth over US$10 billion) in acquiring Varian Medical for US$16.4 billion, representing over a quarter of all the MedTech M&A investment in the H2 2020–H1 2021 period). While industry attention focused on Siemens’ addition of Varian’s radiation hardware to its oncology portfolio, Varian’s digital software business was also a significant component of the acquisition for Siemens.
  • Outside the scope of this data, September 2021 saw a further megadeal, with Baxter acquiring Hillrom for US$10.5 billion. Baxter will add Hillrom’s suite of products and services (including monitoring and diagnostic technologies, smart beds, and advanced surgical equipment) to its core portfolio of essential hospital products covering dialysis, IV solutions and other categories.
  • Elsewhere, therapeutic devices attracted less M&A attention than other device segments, with MedTechs more focused on research and lab equipment, surgical tools, and disposables. Non-imaging diagnostics was once again at the forefront, accounting for seven of the top 15 M&A deals. Notably, Roche and DiaSorin each paid US$1.8 billion to acquire companies (GenMark Diagnostics and Luminex, respectively) with COVID-19 diagnostic capabilities.
  • Private equity played a role in five of the top 15 deals over the 12-month period, appearing on both the seller side (Boston Scientific spending US$1.1 billion to acquire Lumenis from a private equity portfolio), the buyer side (with the Hellman & Friedman PE syndicate paying US$1 billion to buy Cardinal Health’s Cordis business), and on both sides in the Patricia Industries (part of Investor AB) and Windjammer Capital for the acquisition of the Advanced Instruments for US$780 million.
  • After dropping in the previous 12-month period, the number of M&A deals involving milestone payments rose to 22% between July 2020 and June 2021. However, the percentage of deals involving milestones fell to 8%, the lowest rate in the past five years.
  • At US$1.7 billion, the total value of potential milestones was also below the three-year average of US$2.3 billion; nevertheless, this represented an 85% increase in the potential milestone value from the previous 12 months.
  • Total milestone value as a percentage of overall deal value hit a five-year low of 22%. In all, MedTech seems currently disinclined to explore novel deal structures in its M&A activity.