2010 Good Year, but Medtech Needs New Ways to Sustain Innovation, Says E&Y

http://medicaldevicesummit.com/Main/News/2010-Good-Year-but-Medtech-Needs-New-Ways-to-Susta-504.aspx Wednesday, September 28, 2011 9:21 AM

2010 Good Year, but Medtech Needs New Ways to Sustain Innovation, says E&Y Report While 2010 was a better year in terms of revenues and more deal-making, venture capital funding fell 13 percent; the industry will need to revamp sales and marketing, and innovation efforts to show outcomes, offer solutions rather than products and cater to ‘super consumers,’ the Medical Technology Report 2011 concludes.

For publicly-traded medtech companies in the US and Europe, 2010 was a better year than 2009 in terms of growth rates, persistent funding challenges for many companies, along with regulatory and pricing pressures and fundamental changes in global health care has pushed companies to find new ways to sustain innovation in the future. This is the conclusion of Ernst & Young’s Pulse of the Industry: Medical Technology Report 2011 released this week at AdvaMed 2011.

“The medtech industry delivered an impressive performance in 2010 in the face of continued strong economic headwinds, but a closer look beyond the numbers shows that deep challenges remain for most industry members,” said John Babitt, Ernst & Young's Medtech Leader for the Americas. 

"From increased payer pressure to demonstrate value, heightened regulatory scrutiny, a continued tight funding climate and a rapidly changing customer base, the industry's ability to innovate is under increasing strain. To respond effectively, companies will need to expand beyond the products they have historically offered to solutions built for an increasingly outcomes-focused system."

The report included various findings such as: 

• Net income for non-conglomerates in the US and Europe increased 43 percent from 2009 to $17.4 billion; total revenues for all public medtech companies was $315.9 billion (a 4 percent growth from the previous year).
• Venture capital investment fell 13 percent in 2010 compared to the prior year; while the fall was 15 percent in the US (to $3.5 billion), in Europe venture investment grew 4.7% to $707 million.
• IPO activity picked up in 2010, after two years of sluggishness; nine medtech companies in US or Europe completed IPOs in 2010 compared to two in 2009, grossing a total of US$568 million.
• Total value of mergers and acquisitions in the US and Europe rebounded to $30.6 billion in 2010, up from a historically low $15.7 billion in 2009. Average deals size increased from $175 million to $245 million.

The report also highlighted challenges that the industry was facing such as the pressure to demonstrate health outcomes: “A company's success or failure in the medtech industry of the future will not be based simply on how many products they sell but on their ability to demonstrate how they are improving health outcomes.” 

The emergence of highly informed and empowered “super-consumers" will also force companies to adapt and target their offerings rather than simply focusing on physicians.

The report concluded that these changes in the medtech ecosystem will require medtech companies to fundamentally reinvent core parts of their business model, including what they sell, how they sell it, and how they develop these new offerings, throwing up challenges like: 

• Expand from products to solutions and seek new ways to extract value from the information they have.  
• Revamp the sales and marketing end of their business model. 
• Better capitalize on opportunities to mine new product ideas from more widely distributed information networks that will be part of the health care ecosystem of tomorrow.

“Medtech companies have always taken on substantial risk to innovate new products and technologies," said Glen Giovannetti, Ernst & Young's Global Life Sciences Leader. "However, risk now stems not only from product development, but also from a host of other pressures. To respond, companies will need to innovate new business models. If risk has moved beyond the product, so too must innovation."