R&D Dollars Being Funneled Into High-Growth Market Segments

The COVID-19 pandemic has created numerous healthcare challenges over the past two years—a gnarled supply chain among the most inhibiting—but it’s been quite a boon for medtech research and development.
 
The virus that has killed more than 6.5 million individuals worldwide led to a major boost in R&D spending in 2020, with the top 10 medtech companies collectively investing more than $15 billion, Evaluate Vantage data show. And while that figure rose to $17.4 billion last year, the financial  news analyst organization expects R&D investment to slow in 2022 and rise only moderately through 2028.
 
“However, even modest growth year over year represents a record level of spending,” David Stuart, Life Sciences senior analyst, director, wrote in a Fall 2022 Industry Outlook for RSM, a London-based accountancy network. “We expect the trend of record R&D spend will continue as companies jockey for technical superiority and the pace of innovation continues to accelerate. There are no viable substitutions; if  medtech companies don’t maintain strong R&D spend, they risk being left behind in a highly competitive and segmented industry.”
 
Substantial R&D investment has long been tied to healthy product innovation and market capitalization. Whether R&D spending levels stay consistent or falter in the near future remains to be seen, but medtech firms will most certainly have maintain robust research and development pipelines to ensure their future success.
 
MPO’s feature, “Medtech Research and Development Explores Remote and Digitized Healthcare,” details the trends and market forces driving medtech research and development. MichaelHoch, vice president of R&D at Plano, Texas-based Integer Holdings Corporation, was among the experts interviewed for the feature; his full input is provided in the following Q&A:
 
Michael Barbella: What areas of healthcare are companies focusing their R&D on (for example, diagnostics, cardio, robotics, etc.)? Why are companies investing in these particular areas?
Michael Hoch: Companies are concentrating their R&D investments on high-growth market segments that confront significant unmet clinical needs. As publicly reported by major customers, we know many are increasing investments in the areas of structural heart, electrophysiology, neurovascular and neuromodulation.
 
Barbella: Are companies allocating their R&D dollars more into transformational or incremental innovation? What is the reason (or reasons) behind their choice?
Hoch: Companies appear to be allocating more R&D dollars to transformational innovation because, as they grow and consolidate, they need blockbuster products to maintain their growth trajectory. They are also focused more on transformational innovation because most companies have a network of external development and manufacturing partners they can rely on for complex subassemblies and complementary products that are more incremental in nature.
 
Barbella: Is there an ideal or best R&D outsourcing strategy that companies should employ when pursuing new innovation?
Hoch: Successful companies decide which capabilities are core to them and which capabilities can be effectively outsourced. This disciplined and focused approach improves device performance and speed to market because resources are efficiently allocated in alignment with their strengths.
 
Barbella: When does it make sense—if ever—NOT to outsource medtech R&D?
Hoch: It does not make sense to outsource R&D when there is not a capable partner to support the project. Both design capabilities and manufacturing scalability need to be considered when selecting a development partner.
 
Barbella: What benefits does an academic partnership bring to R&D?
Hoch: Access to a broader network of subject matter experts and enhanced access to cutting-edge technology and equipment are just a few of the resulting benefits when the medtech industry partners with academia. The medtech industry has the potential to benefit from a partnership with clinical and technical thought leaders, while academia benefits by gaining access to product development capabilities and a commercialization pathway.
 
Barbella: How will approaches to R&D evolve in the future?
Hoch: The dynamics of ongoing healthcare economics will continue to increase price pressure on customers, which will drive strategic outsourcing of both development and manufacturing. There will also be further consolidation among customers which will drive supplier consolidation to vertically integrated customers with broad capabilities. In turn, the need for full-service, large-scale CMOs will lead to additional consolidation within the very fragmented CMO market.
Medtech R&D may evolve toward a more decentralized model where elements of the design will come from a number of sources both internal and external to the design owner. These may include process or design capabilities sourced from academia or from service providers with expertise in specific areas pertaining to the R&D effort.