Global medtech revenues reach all-time high, yet innovation investments lag

An increasing number of AI algorithms are now approved by the US Government – a trend that is set to continue as understanding of AI matures.

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