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    Editorial

    Charting a Course

    ...

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    Christopher Delporte, Editorial Director10.14.15
    Who doesn’t like to know where they’re going—to have guidance, a sense of the best direction to take, some inside information before setting out on a life change or prior to planning for the next big professional step? Variety may be the spice of life, but too much variability—particularly in the medical device industry these days—is cause for nervous knots and restless nights. Life usually doesn’t come with GPS-like turn-by-turn directions (“Siri: Will the diagnostics sector continue its growth over the next two years?” or “Siri: What will be the next big blockbuster in connected health technology?”). Well-researched market intelligence from reliable sources, however, certainly helps to take a modicum of the guesswork out of planning for the near future.

    During the recent AdvaMed 2015: The Medtech Conference held Oct. 5-7 in sunny San Diego, Calif., multiple reports were released charting the medical device industry’s recent performance and providing some clues about preparing for changes ahead. One of the studies was the widely anticipated Pulse of the Industry, a medical technology report produced by the life-science group at professional services firm Ernst & Young (or simply EY, as the company has branded itself recently). The report, compiled since 2008, usually is released during the AdvaMed meeting. According to findings in the 2015 edition, despite a record number of initial public offerings (IPOs) and “robust” mergers and acquisitions (M&A), the global medical technology industry “continues to face tepid growth and a dwindling pool of investors for early-stage companies, raising important questions about the long-term sustainability of the sector.”

    Revenue for U.S. and European public medtech companies increased just 2 percent in 2014 to $341.8 billion, the second year of low, single-digit top-line growth. Net income rose 4 percent to $16.9 billion. Venture capital investment held steady, but the amount of money dedicated to early-round investment dropped 19 percent to less than $1.3 billion from $1.6 billion the year prior. EY analysts said medtech’s share of U.S. venture dollars declined for the fifth year in a row,  reaching a decade-long low in 2014 of only 5.9 percent. During the 12 months to June 30 of this year, only 29 percent of venture investment went to companies raising their seed, first or second rounds, as opposed to 37 percent for the prior 12-month period.

    A strong market for IPOs contributed nearly $2.3 billion to the annual financing total. Despite a positive climate for IPOs, innovation capital—the money raised by companies with less than $500 million in annual revenue—fell by nearly 12 percent to $13 billion. Innovation capital’s share of total funding in the sector dropped to a record low of less than 26 percent. This was partly due to a spike in debt financing, study authors noted, of $40.8 billion, which represented more than 80 percent of the total financing dollars raised in 2014-2015.

    Sixteen M&A deals announced from July 2014 to June 2015 exceeded the $1 billion threshold, double the prior 12-month total.

    “Over the last 12 months, the disparity between the ‘haves’ and the ‘have-nots’ in the medtech sector has grown increasingly stark,” said Glen Giovannetti, EY’s global life-sciences leader. “Even in this buoyant fundraising and deal-making environment, there remains a persistent gap in the type of early-stage venture capital funding required to support an innovative medtech ecosystem. This lack of funding is partially attributed to an increasingly uncertain reimbursement climate, exacerbated by the repetitive nature of medtech innovation, and the resulting pressure for companies to find new ways to demonstrate the value of their products.”

    Even in the face of obstacles, the industry delivered “several strong and record-breaking performances, highlighting the opportunities that exist for innovative companies,” according to EY analysts. For example, U.S.-based medtech firms with less than $500 million in annual revenue outperformed the broader medtech industry in 2014-2015, delivering revenue and net income growth of 6 percent and 16 percent, respectively. In addition, R&D investment rose 6 percent in 2014 to $14.3 billion, the fifth consecutive yearly increase.

    Speaking of decision-making, it’s with a mixture of sadness and excitement that after more than nine years with Medical Product Outsourcing and Orthopedic Design & Technology, I’ve decided to pursue a new professional opportunity. This is my last issue of MPO. My appreciation and respect go to Group Publisher Howard Revitch for his constant support, faith and friendship. Managing Editor Michael Barbella simply is one of the best writers and colleagues with whom I’ve ever worked. Thanks to Art Director Mike Del Purgatorio for his patience and talent; he (and his group) make us look good. Without a doubt, working with the entire MPO and ODT team (Ranica Arrowsmith, Mark Weeks, Julie Fuhrer and Patrick Browne) has been one of the highlights of my career. I know these news outlets will continue to grow and thrive—particularly with the support of such amazing readership. I hope I’ve left these titles stronger than when I started and that we’ve provided the industry with valuable guidance along the way. I know they’ve certainly shaped me.

    Now onto the next challenge.


    Christopher Delporte
    Editorial Director
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