Global medtech revenues reach all-time high, yet innovation investments lag
- Medtech revenue up 7% to US$407.2b in 2018-19, with 11% rebound in R&D spending
- Increasing number of smaller deals indicates portfolio optimization rather than transformative dealmaking
- Absence of linked-up ecosystem between industry and stakeholders challenges long-term growth
NEW YORK, Sept. 23, 2019 /PRNewswire/ -- The global medical technology (medtech) industry continues to grow, but its long-term growth outlook is at risk due to underinvestment in R&D and lack of collaboration between industry providers, payers and patients. The 2019 EY medtech report, Pulse of the Industry, has found that in 2018-2019 the industry's collective revenues increased by 7% to US$407.2b, representing medtech's third consecutive year of growth and the highest revenues recorded to date. Valuations were also robust, as cumulative public valuation rose by 38% in the 18 months to 30 June 2019, far outpacing the broader life sciences industry.
While R&D spending increased 11% in 2018, showing promise after a disappointing 2017, uncertainty remains as to whether this rebound signals the beginning of sustained re-investment. The report also notes that cash returned to shareholders increased, with medtech companies returning US$17b to investors in buybacks and dividends – more than the R&D investment total of US$15b.
Pamela Spence, EY Global Health Sciences and Wellness Leader, says:
"Medtech remains exciting, as industry players continue to unlock the power of data to offer personalized treatment for more effective and faster patient outcomes. An increasing number of AI algorithms are now approved by the US Government – a trend that is set to continue as our understanding of AI matures. Consolidation into therapeutic areas also continues to build scale, driving companies to be more competitive, while collaboration with non-traditional partners to access diverse skills and talent will be critical to building a cybersecure ecosystem for data exchange between devices or products."
With the absence of a linked-up ecosystem, medtechs cannot extract the full value from the connected devices they create, the report finds.
Jim Welch, EY Global Medtech Leader, says:
"Medtechs have a unique opportunity to capitalize on digital transformation. As devices become increasingly connected, medtech companies have a built-in advantage. They also have strong alignment with other health care ecosystem stakeholders, so they are well-placed to develop new business models and create value in the future. What they don't have are broad, in-house capabilities to develop personalized health care offerings. Increased investment in digital collaborations that expand customer experience, as well as data and analytics capabilities, will continue to move medtechs closer to patients."
The report further highlights that medtech companies are continuing to optimize their portfolios to prepare for future growth by shedding non-core assets and increasing capital efficiency. Investment opportunities in the US$500m to US$1b range are limited, exposing the sector to intense competition in innovative fields such as robotic surgery platforms. The report notes that, aside from a small number of megadeals, the total value of mergers and acquisitions is similar to the previous period, albeit spread over a much larger number of deals – indicating that medtechs are prioritizing tuck-ins and portfolio optimization, rather than bold or transformative deals.
Other key findings highlighted in the report include:
- Non-imaging diagnostics signal a growing emphasis on data-driven, personalized and proactive care, recording some of the highest growth in the industry with 11% revenue growth in 2019. Non-imaging diagnostics companies outperformed those offering traditional therapeutic devices, which recorded a 6% revenue growth.
- Digital health continues to win validation from regulators: in the US, the Food and Drug Administration (FDA) approved the first augmented reality system for surgical training and more than 30 AI algorithms over the past year.
- There has been an uptick in medtech M&A deals in Asia-Pacific: despite the total deal value slipping 17% (to just under US$4b) the volume of M&A activity from Asia-Pacific buyers surged 239% to 61 deals – more than the total number of Asia-Pacific-based deals over the three previous years combined.
To read Pulse of the Industry, visit ey.com/pulse.
Notes to Editors
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About EY Health Sciences and Wellness
The rise of the empowered consumer, coupled with technology advancements and the emergence of digitally focused entrants, is changing every aspect of health and care delivery. To retain relevancy in today's digitally focused, data-infused ecosystem, all participants in health care today must rethink their business practices, including capital strategy, partnering and the creation of patient-centric operating models.
The EY Health Sciences and Wellness architecture brings together a worldwide network of more than 20,000 professionals to build data-centric approaches to customer engagement and improved outcomes. We help our clients deliver on their strategic goals; design optimized operating models; and form the right partnerships so they may thrive today and succeed in the health systems of tomorrow. We work across the ecosystem to understand the implications of today's trends, proactively finding solutions to business issues and to seize the upside of disruption in this transformative age, please visit ey.com/life-sciences.
Maya Vautier
EY Global Media Relations
+1 212 773 2181
maya.vautier@ey.com
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