And while the overall picture for the medical technology industry is rosier than for many other industries still reeling from the recession, it’s simply not as good as it used to be. Accenture research reveals that across the industry, enterprise value dropped in 2010 to 17 percent below the prerecession peak of 2007 and, for the first time, future value for the industry became negative …

Moreover, our research forecasts a recovery to growth (driven largely by emerging rather than developed markets) at roughly half the levels prior to the economic crisis … It’s a dramatically different world out there, and medical technology companies need focus in a way they never have before.

While accelerated by the recession, many of the trends we are seeing actually stem from the plain fact that industry dynamics are fundamentally changing. The medical technology industry is maturing and, as such, is experiencing growing pains. The forces at work are enormous, and include:

• United States health care reform: Health care reform in the United States has already begun shifting the established rules for an industry that traditionally relied on being United States-centric to drive growth and profitability from innovation. Among these, an industry tax on United States sales will affect margins (and rewards) for innovation, and other changes in regulation will result in a heavier burden of proof and a longer and more costly innovation cycle.

• Skills shortage: The medical technology industry faces a multifaceted problem. For example, fewer people are pursuing engineering-focused education in the mature markets and, subsequently, medical technology as a career. Individuals who have specialized rarely make the jump to a different medical technology therapy area, which leaves some market segments with particularly restricted talent pools. Many companies now face the challenges attendant with moving to emerging markets—which may offer large and low-cost labor pools but potentially less of the specific skills needed.

• Shifting customer landscape: The traditional customer and stakeholder landscape is shifting from the medical practitioner to include economic decision makers who are gaining increasing influence.

• Cost containment and a shift to improved health solutions and outcomes: In developed countries, slowing GDP growth and pressure on public finances means health systems cannot sustain historic spending growth rates. Payer models have begun shifting from an individual drug, procedure and service model to an outcome-based approach. For medical technology companies, the emphasis is no longer solely on the medical practitioner, but rather the broader health care stakeholder group that will consider patient outcomes and health economics.

• Higher regulatory barriers: In both the United States and Europe, governments are reassessing their regulatory processes to make them more all encompassing and more valuable to payers, by demanding more rigorous proof of performance, safety and efficacy. For example, the United States is reviewing United States Food and Drug Administration (FDA) 510k regulations, and considering greater comparator efficacy and clinical testing requirements, as well as tightening controls over promotional activities.

• Pressure on venture capital funding: Concerns over regulatory reform and future returns on innovation are already having a dampening effect on venture capital funds directed at small innovative start-ups.

For the medical technology market players, what has worked in the past will not necessarily work in the future; future dominance will depend on the ability to adapt to the new dynamics of a medical technology industry that continues to change rapidly…… It’s taking longer, and fewer new products are being approved—both of which will impact the rate of innovation. We found a 37 percent increase in the time it takes to get regulatory approval for new products, across the industry over the past five years …

The upshot of these trends is that venture capitalists see the regulatory environment becoming an increasing concern, which is contributing to reduced venture capital investment in early stage products and companies. For example, in the United States, the period between 2007 and 2010 is marked by a steep, 64 percent decline in funds invested for the first time in early stage medical technology companies. Moreover, a comparison between investment in the first five months of the year, has seen a 50 percent decrease between 2010 and 2011.16

High performers recognize these realities and have begun taking steps to develop the expertise needed to effectively navigate the changing regulations’ effect in R&D. These advances seem to be in their infancy and happening on a small scale, but include such techniques as building comparative effectiveness and clinical research capability, demonstrating differentiated outcomes at the patient level, and harmonizing best clinical practices across countries of operation…

For years, the medical technology industry enjoyed solid and substantial growth: flush with venture-capital funding and traveling down a well-worn path of acquisitions and device-focused, incremental innovation. While medical technology has ridden out the global downturn far better than many other industries, the industry is facing down an entirely new scenario—one in which regulation is tightening, markets are shifting, customer landscapes are changing and customer demands are generating entirely new product pressures. To achieve high performance in the future, medical technology companies will need to develop new portfolio strategies and significantly improved capabilities in acquisitions, fixed asset management, partnering and innovation. They will need to orient themselves to deliver patient-centered, outcomes-focused solutions within a few crisply defined target market segments…  (…read more)

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