Medical technology report 2015 Pulse of the industry The MedTech Conference October 2015
Mega trends are disrupting health care and medtech business models Changing demographics Life style diseases Digital and mobile 1.5 billion By 2040, non- 80% of global over-65s communicable smartphone users interested in using by 2050 diseases cost US$30 trillion phones to interact with HC providers New delivery models and care bench marks ► Value-based Greater Increased Changing customer health care transparency efficiency expectations Medtech growth challenges Page 2 Pulse of the industry | Medical technology report 2015
The pace of change is accelerating… 3-5 5 years Today years from ago now Sweeping health care Debate and uncertainty New payment, financing reforms balance cost about move to value models enable access and access Most people had never Growing number of Analytics drive device heard of “big data” analytics initiatives usage, Dx priorities Digital and mobile Digital and mobile help Shift from engagement technologies were engage patient to outcomes novelties Transparency is the new Trust a source of Data opacity is the norm buzz word competitive advantage Page 3 Pulse of the industry | Medical technology report 2015
…but medtech revenue growth is not. US and European revenue growth, 2007-14 Non Conglomerate Conglomerate 2% $350 4% 2% 1% 2% 5% 11% $300 $250 US$b $200 $150 $100 $50 $- 2007 2008 2009 2010 2011 2012 2013 2014 Source: EY, Capital IQ and company filings . Page 4 Pulse of the industry | Medical technology report 2015
Pulse of the industry Looking for growth Page 5 Pulse of the industry | Medical technology report 2015
Storm clouds are emerging… ► A new normal of single-digit top & bottom line growth ► Dwindling interest from a shrinking venture capital community ► Eroding early-stage venture capital threatens the future of medtech’s innovation ecosystem ► Innovation capital drops Page 6 Pulse of the industry | Medical technology report 2015
…but there are reasons for optimism. ► Smaller medtechs deliver stronger performance ► Booming M&A market: Result of tepid growth & historically low cost capital ► A blockbuster year in financing: IPOs & debt offerings deliver all-time highs ► R&D investment rises for 5 th straight year while cash returned to shareholders decreases ► Medtechs once again outperform the broader public markets Page 7 Pulse of the industry | Medical technology report 2015
Looking for growth US and European pure-play performance – 2014 +5% +4% Revenues (US$b) Net income(US$b) 200 20 15 150 10 100 50 5 0 0 2013 2014 2013 2014 +6% +21% R&D expense (US$b) Market cap (US$b) 15 750 10 500 5 250 0 0 2013 2014 2013 2014 Source: Ernst & Young, Capital IQ and company financial statement data. Page 8 Pulse of the industry | Medical technology report 2015
A blockbuster year for US & European IPOs 43 medtechs raised US$2.3 billion 2.5 50 Capital raised Number of deals 2.0 40 Capital raised in IPOs (US$b) 1.5 30 Number of deals 1.0 20 0.5 10 0.0 0 J ul 2000 - J ul 2001 - J ul 2002 - J ul 2003 - J ul 2004 - J ul 2005 - J ul 2006 - J ul 2007 - J ul 2008 - J ul 2009 - J ul 2010 - J ul 2011 - J ul 2012 - J ul 2013 - J ul 2014 - J un 2001 J un 2002 J un 2003 J un 2004 J un 2005 J un 2006 J un 2007 J un 2008 J un 2009 J un 2010 J un 2011 J un 2012 J un 2013 J un 2014 J un 2015 Source: EY, Capital IQ, BioCenutry and VentureSource. Page 9 Pulse of the industry | Medical technology report 2015
Debt bonanza US & European innovation capital fell for the 2 nd year in a row 50 Commercial leaders Innovation capital 40 30 US$b 20 10 0 Jul 2008 - Jun Jul 2009 - Jun Jul 2010 - Jun Jul 2011 - Jun Jul 2012 - Jun Jul 2013 - Jun Jul 2014 - Jun 2009 2010 2011 2012 2013 2014 2015 Source: EY, BMO Capital Markets, Dow Jones VentureSource and Capital IQ. Innovation capital is the amount of equity capital raised by companies with revenues of less than US $500 million. Page 10 Pulse of the industry | Medical technology report 2015
The ugly truth Early-stage venture capital financing continues to stagnate US and European early-stage VC rounds >US$5 million Number of early-stage VC rounds >US$5 million Percentage of VC investment going to early-stage medtechs 140 25% Percentage of VC investment going to early-stage medtechs 120 20% Number of early-stage rounds 100 15% 80 60 10% 40 5% 20 0 0% Jul 2007 - Jul 2008 - Jul 2009 - Jul 2010 - Jul 2011 - Jul 2012 - Jul 2013 - Jul 2014 - Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Source: EY, Dow Jones VentureSource and Capital IQ. Early-stage rounds are seed-, first- and second-round VC investments. Page 11 Pulse of the industry | Medical technology report 2015
A solid M&A market Driven by tepid growth and historically low cost of capital Total deal value of mega deals (>US$10b) Total value of M&As Number of M&As 90 180 80 160 70 140 60 120 Total deal value (US$b) Number of deals 50 100 40 80 30 60 20 40 10 20 0 0 Jul 2007 - Jul 2008 - Jul 2009 - Jul 2010 - Jul 2011 - Jul 2012 - Jul 2013 - Jul 2014 - Jun 2008 Jun 2009 Jun 2010 Jun 2011 Jun 2012 Jun 2013 Jun 2014 Jun 2015 Source: EY, Capital IQ and Thomson ONE Chart includes deals with value disclosed Page 12 Pulse of the industry | Medical technology report 2015
The capital allocation balancing act How US & European medtechs have deployed their cash 40 Cash acquisitions Cash returned to shareholders R&D expenses 35 30 Annual spend (US$b) 25 20 15 10 5 0 2009 2010 2011 2012 2013 2014 Data shown for US and European public pure-play companies for which data were publicly disclosed. Cash returned to shareholders includes total dividends paid and stock repurchased. Source: EY, Capital IQ and Thomson ONE. Page 13 Pulse of the industry | Medical technology report 2015
Differentiating differently
Commoditization How does it play out in medtech? Shifting customer perception Lower barriers to market entry Full-on price competition Strategies against commoditization ► Move downstream or upstream ► Create stickiness by rebranding Page 15
What do medtech purchasers value? Procurement ► Hospital managers and administrators —not physicians —are key influencers ► Centralized procurement models Research and development ► Real-world data, beyond-the-product services important to purchasers ► Iterative innovations matter less Contracting models ► Value-based purchasing, pay-for-performance are more important ► Simple cost-cutting is less important Pharmacoeconomic outcomes ► Total cost of care the most important outcome ► Reduced hospital stays, improved surgical efficiency less important Page 16
What’s on medtech purchasers’ minds? Pressure points are shifting Declining: simple cost-cutting Increasing: value/outcomes Today In three years 44% 41% 40% 38% 37% 37% 34% 33% 27% 22% 21% 12% Cost-cutting Cost of High-end medical Rising drug costs Imaging costs Healthcare reform upgrading/maintaining IT technology costs (non- initiatives (e.g. value-based systems imaging) purchasing, pay-for- performance) Source: EY Hospital survey 2014. Page 17
What’s on medtech purchasers’ minds? Medtech’s customer base is changing Physicians are becoming less important as influencers of purchasing decisions Today In three years 2.4 1.9 1.9 1.7 Ranking 1.7 1.6 0.5 0.2 Physicians CFO Finance department Procurement Purchasing Payers Insurers department Source: EY Hospital survey 2014 . Higher scores indicate influencers who are more influential in hospital purchasing decisions. Page 18
What’s on medtech purchasers’ minds? The old rules count for less Price Old ways of differentiation Differentiation will have to be remains based on data and value are losing relevance the top factor Today In three years 77% 77% 62% 51% 55% 35% 35% 31% 32% 27% 25% 27% 22% 22% 18% 6% Data demonstrating Data demonstrating “Beyond the product” Risk-sharing Physician preference User-friendly design Training in use Price of device clinical outcomes value services (e.g. patient agreement for specific device support) Source: EY Hospital survey 2014 . Page 19
Implications for medtech New bases for competition Achieve superior outcomes via technological advances 1 ► Buyers care less about iterative innovations ► New product R&D can catalyze new standards of care Increase scope through services and solutions 2 ► Medtechs can “own” more of the bundle ► Solutions must focus on health care buyers’ needs Increase scope by adding product offerings 3 ► End-to-end solutions have an edge in value-driven care ► Opportunity for contracts around total cost of care Take costs out of the health care system 4 ► Demonstrate that products result in cost offsets that reduce total cost of care Page 20
Achieve superior outcomes via technological 1 advances Look for areas where R&D can catalyze new care standards STRATEGY 1: Traditional medtech innovation ► Highly specialized, sophisticated devices (e.g., EndoChoice) ► Superior outcomes ► Novel approaches to unmet medical needs can appeal to payers Page 21
Recommend
More recommend
