Jim Welch & John Babitt, EY12.06.22
Each year, we analyze the state of the MedTech industry, focusing on M&A deals, revenue numbers, investment landscapes and more. Although the crisis stage of the pandemic may be in the rear-view mirror, uncertainties remain, with inflationary pressures, continued supply chain issues, geopolitical complexities, and a potential recession on the horizon. MedTechs must strategically navigate these choppy waters, seeking not just to survive, but to thrive.
While the industry has stayed resilient through the uncertainty of the last few years, present-day challenges should not be underestimated. In this current environment, MedTech executives should closely examine their business strategies to properly address current obstacles and future-proof for what’s next.
In 2021, 77% of MedTechs added to their headcount and 71% increased R&D spending. Additionally, with over 1,800 U.S. Food and Drug Administration (FDA) approvals in the first half of this year, 2022 is likely to see the highest number of FDA 510(k) clearances since 2012, which should encourage more innovation industry-wide. The one area that continues to be subdued: M&A deal activity.
We’re also noticing other MedTech trends. Of the total pure-play industry revenues in 2021, the therapeutic devices segment represented 61%. There was a slight contraction (0.4%) in 2020, but now the segment has rebounded with $195.1 billion in 2021, an 11% gain as elective procedures are up (orthopedic, up 26%; dental, up 17%). Commercial leaders have also been making news with $84.3 billion in capital being deployed across R&D, M&As and as even as cash to shareholders—with this number being well above the average typically spent.
Alongside our industry analysis, we also explored key areas to encourage industry transformation, including the talent crisis, supply chain transformation, new commercial models, and innovation. In today’s tight labor market, MedTech leaders should prioritize strategies to drive workforce recruitment, retention and engagement. For procurement leaders, we believe supply chain resiliency, localization and near-shoring are essential. And new MedTech commercial models need to include digital and other nontraditional challenges, while innovation should help companies be the disrupter, not the disrupted.
Even with this data, MedTech industry fundamentals remain strong, and rebounds are likely on the horizon. Virtual care presents substantial opportunity to grow new product lines as well as improving health outcomes, by increasing detection of underdiagnosed illnesses and serving vulnerable populations. Furthermore, reimagining commercial models and supply chains will allow for less future disruption. In particular, supply chain transformation will be critical – with semiconductor chip shortages, soaring raw material costs and inflationary pressures, leaders cannot ignore the need to rethink logistics and product management.
With this in mind, the industry is poised to face the impending uncertainties. MedTechs continue to reinvent themselves, R&D spending has only increased, and supply chain inefficiencies have been exposed. If executives use these opportunities to become more resilient, there is much to be optimistic about.
Jim Welch is the EY global medtech leader, where he leads the demand side of EY strategy, operations, risk, and compliance business for healthcare providers, payers, pharmaceutical, medical technology, and clinical research organizations. He also co-authors the annual Medtech Pulse of the Industry report. He has a Bachelor of Science in business from Miami University, Oxford, OH.
John Babitt is a partner at EY with almost 30 years of experience, all in the life science, medtech, and healthcare industries. He advises clients on various projects, including M&A, supply chain, IT, financial/accounting, and tax considerations and frequently speaks at Medtech Strategist, AdvaMed, and BIO. He holds an MBA from the University of Miami.
The views expressed by the authors are not necessarily those of Ernst & Young LLP or other members of the global EY organization
While the industry has stayed resilient through the uncertainty of the last few years, present-day challenges should not be underestimated. In this current environment, MedTech executives should closely examine their business strategies to properly address current obstacles and future-proof for what’s next.
The State of MedTech Today
From July 2021 through June 2022, the industry saw record-breaking revenue growth – over 16% in 2021, levels not seen since before the 2008 financial crisis. But the stark reality of today’s economy has brought business performance back to reality. There has also been a more fluid financial landscape with a cooling IPO market, but venture financing remains consistent and long-term investments are still going strong.In 2021, 77% of MedTechs added to their headcount and 71% increased R&D spending. Additionally, with over 1,800 U.S. Food and Drug Administration (FDA) approvals in the first half of this year, 2022 is likely to see the highest number of FDA 510(k) clearances since 2012, which should encourage more innovation industry-wide. The one area that continues to be subdued: M&A deal activity.
We’re also noticing other MedTech trends. Of the total pure-play industry revenues in 2021, the therapeutic devices segment represented 61%. There was a slight contraction (0.4%) in 2020, but now the segment has rebounded with $195.1 billion in 2021, an 11% gain as elective procedures are up (orthopedic, up 26%; dental, up 17%). Commercial leaders have also been making news with $84.3 billion in capital being deployed across R&D, M&As and as even as cash to shareholders—with this number being well above the average typically spent.
Alongside our industry analysis, we also explored key areas to encourage industry transformation, including the talent crisis, supply chain transformation, new commercial models, and innovation. In today’s tight labor market, MedTech leaders should prioritize strategies to drive workforce recruitment, retention and engagement. For procurement leaders, we believe supply chain resiliency, localization and near-shoring are essential. And new MedTech commercial models need to include digital and other nontraditional challenges, while innovation should help companies be the disrupter, not the disrupted.
What’s To Come
Like many industries, executives across MedTech are contending with a host of external business threats. Total capital raised by the industry fell 30% year-over-year and was especially noticeable in the first six months of 2022. Staffing recruitment and retention, along with an oncoming shortage of clinical care providers, will cause difficulties in the health sector overall – trickling down to impact MedTechs. And although M&A dealmaking generated $77 billion from July 2021 through June 2022, it is now below the average of the previous decade. Concurrently, this past year, the IPO market has dropped from the record highs of 2021.Even with this data, MedTech industry fundamentals remain strong, and rebounds are likely on the horizon. Virtual care presents substantial opportunity to grow new product lines as well as improving health outcomes, by increasing detection of underdiagnosed illnesses and serving vulnerable populations. Furthermore, reimagining commercial models and supply chains will allow for less future disruption. In particular, supply chain transformation will be critical – with semiconductor chip shortages, soaring raw material costs and inflationary pressures, leaders cannot ignore the need to rethink logistics and product management.
With this in mind, the industry is poised to face the impending uncertainties. MedTechs continue to reinvent themselves, R&D spending has only increased, and supply chain inefficiencies have been exposed. If executives use these opportunities to become more resilient, there is much to be optimistic about.
Jim Welch is the EY global medtech leader, where he leads the demand side of EY strategy, operations, risk, and compliance business for healthcare providers, payers, pharmaceutical, medical technology, and clinical research organizations. He also co-authors the annual Medtech Pulse of the Industry report. He has a Bachelor of Science in business from Miami University, Oxford, OH.
John Babitt is a partner at EY with almost 30 years of experience, all in the life science, medtech, and healthcare industries. He advises clients on various projects, including M&A, supply chain, IT, financial/accounting, and tax considerations and frequently speaks at Medtech Strategist, AdvaMed, and BIO. He holds an MBA from the University of Miami.
The views expressed by the authors are not necessarily those of Ernst & Young LLP or other members of the global EY organization