Devices & Diagnostics

Report: Sales, financing slow down for medtech firms

The industry faces challenges from inflation to labor shortages, according to an annual report from EY. However, there are grounds for optimism and areas to focus on, such as patching up supply chains.

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Medical technology companies thrived last year as the Covid-19 pandemic drove demand for tools to diagnose and treat patients.

But the industry faces serious challenges this year from a constellation of factors, including high inflation, throttled supply chains, a tight labor market and an uptick in geopolitical conflict, according to an annual report on the medtech industry by professional services firm EY. (Ernst & Young).

On the plus side, the industry is continuing to invest in research and development at above-average levels and gaining approvals for new products, according to EY’s Pulse of the Industry report, which strikes an optimistic note overall.

“The medtech industry proved it is incredibly resilient, as we’ve witnessed throughout the past few years,” Arda Ural, EY Americas industry markets leader, said in a news release. “While current geopolitical and economic challenges pose a threat, we believe public markets should rebound and medtech will be in a stronger position than before.”

Nonetheless, the industry may not repeat the double-digit revenue growth it saw in 2021, according to the report. For companies with annual revenue over $500 million, sales grew 16% on average last year, fueled by demand for Covid-19 testing and research. Average revenue growth has fallen this year to over 6%.

“It is not yet clear whether the industry’s outstanding performance in 2021 is a one-off impact of the pandemic or a secure basis for ongoing growth,” according to the EY report.

Given the uncertainty in the broader economy, investors also have been pulling back. Total medtech financing fell 30% for the year ending June 30, with smaller companies seeing an even bigger drop. The report noted a 35% decline in the amount of capital raised by companies with less than $500 million in revenue. The first half of this year also saw a “rapid decline” in the IPO market for medtech companies, EY said, as well as a slowdown in mergers and acquisitions.

Total M&A spending was up 24% for the 12 months ending June 30, EY said. However, deal volume was concentrated in the latter half of 2021.

“The overall MedTech M&A and innovation ecosystem continues to remain intact, but near-term storm clouds are likely to pause transactions volumes into 2023,” John Babitt, Americas medtech transactions leader for Ernst & Young, said in the report.

Despite the headwinds, the report argues the medtech industry has proven resilient in the past and can continue to do so. However, EY suggests companies should focus on four areas: innovating to keep up with advances in digital technologies; exploring new commercial models; shoring up their supply chains; and honing new approaches to recruiting and retaining talent.

“This is the time for medtech executives to reimagine their business models and think of opportunities beyond the upcoming slowdown,” Ural said.