The FINANCIAL — Despite a buoyant mergers and acquisitions (M&A) market and a solid performance in venture capital financing, other financial metrics suggest the global medtech industry is struggling to grow as significant changes in technology and reimbursement combine with the greater empowerment of consumers to reshape health care. These and other findings were released on October 17 in Pulse of the Industry, the 2016 edition of the EY annual medical technology industry report.
Pamela Spence, EY Global Life Sciences Leader, says:
“Key financial indicators point to a medtech industry in transition. As the distinctions between traditional medtech, biopharma and infotech continue to blur, many incumbents recognize that business model change is essential. These organizations have responded creatively, adding technological capabilities and commercial scale to better deliver improved health outcomes that are evidence-based.”
As Pulse of the Industry documents, in 2015-16 there was greater evidence of medtechs aligning with non-traditional partners such as information technology companies and payers. These partnerships allowed medtechs to access novel capabilities in data analytics, computational power and sensors to enable the development of future products and services that represent a step change in patient care.
Key findings highlighted in this year’s report include:
Revenue contracts due to currency headwinds and divestitures: Revenue for public medtech companies in the U.S. and Europe totaled US$337b in the calendar year 2015, a decrease of 1.2% from the prior year. Currency fluctuations, which shaved nearly 3% from global revenue in 2015, and conglomerates’ sales of deprioritized businesses contributed to the decline.
Market cap outperforms: The medtech industry’s market capitalization bested most major indices, increasing 14.7% from 1 January 2016 to 30 September 2016 to US$822b. A strong M&A climate, shareholder-friendly capital allocation strategies and perceptions of medtech as a safer haven than other health care stocks helped drive these gains.
Overall financing tumbles: U.S. and European medtech financing for the twelve months ending 30 June 2016 reached US$20.4b, the lowest total since 2010-11. Total proceeds from initial public offerings (IPOs) fell 74% to US$590m during this time period. In a sign of a weakening public market, only 20% of the 12-month total occurred in the 2016 calendar year.
Venture capital financing shines: Venture funding in 2015-16 reached its highest total since 2004, growing by more than 10% to US$5.6b. Growing interest in precision medicine played a role: roughly 25% of the 2015-16 U.S. venture total financed companies developing tools and services promoting the use of targeted therapies.
Strong dealmaking environment persists: Medtech companies announced M&As worth nearly US$80b as medtechs sought tuck-in acquisitions to increase scale and strength in 2015-16. Capital flowing from China was also a factor, as China-based companies acquired medtechs with a cumulative disclosed value of more than US$2b, a year-on-year increase of 10%.
John Babitt, EY Americas Medtech Leader, says:
“Growth-by-acquisition was the medtech industry’s go-to-strategy over the last year and is likely to remain so as companies continue to focus on their strategic priorities. In this environment, companies must invest more in partnerships, M&A and research and development, rather than continuing a status quo that relies heavily on returning cash to shareholders.”