E&Y recently released its latest Pulse of the Industry: Medical Technology
report. Many of the themes were familiar and revolved around the ongoing shift in the traditional medtech business model. Primarily, medtech companies need to stop thinking about innovation in terms of a pure technological advancement, and more in terms of how their device fits into an entire cycle of care for a given patient. This includes everything from preventative care, to diagnosis, to treatment. Also, a technological advancement might mean nothing if companies can?t prove that the new device is a more cost-effective solution for treating a given condition. E&Y has labeled this fundamental shift as ?Beyond the product, beyond treatment, beyond the hospital.? Medtech companies changing their approach to innovation was also our main takeaway from our 2013 Year-in-Preview presentation back in February.
I did want to point out though a few things that jumped out at me.
First, although we?ve heard a lot about the cost-constrained health care environment, E&Y points out that there is still a lot of money in health care?it's just been reallocated. That is, there is still a lot of potential for revenue for companies (medtech and otherwise) that can address chronic conditions that place a large burden on the health care system?diabetes being a prime example here.
Second, among the US commercial leaders, the number of employees increased slightly between 2011 and 2012, and more than 70% of medtech companies added employees during the year. This strikes me as interesting because we heard a lot about layoffs in 2012, partially as companies lamented the implementation of the medical device excise tax. Were the companies doing the layoffs just the loudest?
Third, M&A activity seems to be dropping. E&Y pointed out that not only did the number of transactions with values in excess of US$1 billion drop, but the total value of deals between June 2012 and June 2013 fell by 19% compared to the previous year. This article
even suggests that 2013 ?may turn out to be the most disappointing year in about a decade for medtech M&A?. Some of the larger deals that did happen include Valeant Pharmaceuticals? purchase of Bausch & Lomb, Baxter's purchase of Gambro, and Bayer's purchase of Conceptus. E&Y does, however, warn that M&A data is often ?lumpy? given the low number of transactions (personally, I like the term).
What stood out to you in E&Y's Pulse of the Industry 2013 report? Let us know in the comments.