Technology today is impossible without centuries of Innovation. Take the basic lens; without the invention of extreme heat thousands of years ago, silicon dioxide cannot be formed or molded into glass.
As these lenses evolved we see the inventions of microscopes and telescopes which led to massive movements in science. Late 1800’s Carl Zeiss uses these lenses to discover germs and bacteria which is the beginning of public health efforts. Glass innovation is all around us; from laser fiber optics to the modern day selfie on our iPhone.
Today’s innovation will pave the way for tomorrow’s technologies. We must understand the obstacles and work hard to inspire and support innovation without causing harm to our society. Healthcare specifically is going through radical changes, many of which will impact innovation. We are all inventors by our ancestry. An understanding of the marketplace, obstacles, and challenges will pave the way for better solutions, better science, better technology that fits the world of tomorrow.
- Consolidation – 6 of the 15 largest device manufacturers announced agreements to merge in 2014 in three transactions. All indications are mega-deals will continue and interesting to note: 1) we are seeing little activity to buy mid-sized companies; 2) increased activity in the earlier staged companies with low deal prices. (R&D pipeline is shifting) Note: MedTech R&D spending will grow 3.9% per year to reach $26.7 billion by 2018 – but slowing relative to CAGR.
- Power shift to payers and providers – Evidence-based decisions and the funding channels are increasingly challenging the traditional business model of clinician choice. Payers and providers are evaluating medical devices based on safety and procedural efficacy as well as cost and value.
- Heightened regulatory scrutiny and cost of compliance – In recent years there have been recalls that are high-profile and damaging. Regulators have been tightening up existing regulations and adding new ones. FDA audits have increased by 40% in the past 12 months and the number of warning letters has risen by 24% over the past two years. Cost of corporate compliance has risen 3-5 times in the past 10 years.
- Unclear sources of innovation – Because of regulatory and reimbursement issues, medical device companies are focusing their R&D efforts on improving already approved devices rather than developing truly innovative new products. Additionally, startups and small companies are finding it difficult to find capital to fund the increasing cost to bring new innovations to market. Funding sources are shifting and many are not able to adapt to the shift.
- New healthcare delivery models – As payers’ resource constraints intensify, and powerful analytical tools make it easier to evaluate large volumes of data, patient pathways are being modified to obtain better outcomes for less money. For example, increasingly the emphasis is to shift care out of hospitals and into the community.
- Medical device companies seeking growth will need to target less affluent segments that can offer significant absolute profit potential with the right solutions. Accessing growth segments, even in traditional markets, will require new business models, lower price points, and more value-based product offerings than those of today. Health economics is a global need!
- Healthcare partnerships – Device taxes, reduced hospital utilization metrics, quality tied to reimbursement (outcomes data), and regulatory pressures will remain in the foreseeable future, which in a maturing market will further accelerate the need for industry consolidation and strategic partnerships. Device manufacturers will grow their employee base below the rate of revenue growth pushing the need to accelerate into new markets, new R&D models, and new healthcare delivery models i.e. MedTech mergers with Big Pharma, partnership deals with Google, Amazon, Apple, Walmart, and Walgreens are happening and will shape tomorrow’s healthcare leaders.
Who will be the M&A winners in this rapid healthcare consolidation?
Who will be the Innovation winners?
Learn more about these impacts and how to overcome them at Innovation taking place on July 17-18, 2015.