6. VC funding model under strain – longer runways, higher bar for exits, diluted returns, fewer investors and less capital available
7. Transactions were down significantly as many strategic acquirers sat on sidelines
8. Buyers sought maturity and required sellers to share risk
9.
10. … is creating three fundamental challenges US 510(k) reforms Comparative effectiveness research Sustaining innovation Delivering value and outcomes Fueling growth Consolidation of purchasing at hospitals Slowdown in product approvals Regulatory opaqueness IOM list Sunshine Act IPOs all but disappear M&A buyers want commercialized products Slower growth in mature markets Device tax in US has high burden for emerging companies Electronic health records adoption Lower P/E ratios Capital crunch Hospitals under strain Health care reform measures enacted Pricing pressures Regulatory reforms in many markets Rapid growth opportunities in emerging markets Safety concerns grab limelight Risk aversion
13. Medtech’s long-standing “cycle of innovation” … Physicians Idea Coverage VCs Payors Idea Funding Commercialization Startup Big medtech R&D Acquisition Approved technology Source: Ernst & Young
14. … now faces new challenges at every stage Physicians Idea CER VCs Payors Increased transparency requirements Capital crunch Pricing pressures Big medtech Startup Device tax, Regulatory hurdles Buying later Approved technology Source: Ernst & Young
37. The potential is tremendous New technologies Health care Boosting health outcomes + Medtech’s “sweet spot” Source: Ernst & Young
38. Success will require partnering with non-traditional players IT e-health Health outcomes ecosystem Traditional deal environment Co 1 Bio tech Tele com Alliance Med tech PE Payor Acquisition JV Acquisition Pilot JV Provider Payor Pilot JV Med tech Govt Partnership Co 7 Med tech Co 3 Acquisition Acquisition Partnership IT Med tech Alliance JV Partnership Payor Alliance Acquisition Alliance IT Social media VC Co 5 Commercial/business model risk Tech & market adoption M&A risks: M&A competencies: Simultaneous co-creation of value with partners, experimentation, decision making under uncertainty Analysis, valuation, post-merger integration
39. Examples are already emerging Lifescan (J&J) Bayer Diabetes Care GE / Intel Glucometer for children with diabetes that connects to Nintendo gaming systems Formed new company that will focus on telehealth and independent living iPhone app for uploading and sharing glucometer data. Medtronic Stryker/Capsule Cellular accessory sends information from implanted cardiac devices to clinics Connecting patient data from smart beds to hospital electronic medical records (EMRs) Source: Ernst & Young, company press releases
40. The health outcomes ecosystem IT Providers Informationcompanies Physicians Socialmedia CROs Health records Academia Medical technology Patients Pharma Telecom Biotech Med device Governments Food Consumer electronics Insurers Retailers
Whereas biopharma innovation is typically represented in alinear “funnel chart”, medtech is illustrated in a cyclical and iterative processMedtech’s long-standing innovation model has included these characteristics:Short development times based on engineering: closer to the 18-month product development cycles of IT, than the decade-long one of bio / pharma – allowing it to move from the laboratory bench to the production shop quickerCollaborative and iterative innovation: innovation is done at bedside, not bench – physicians are a valuable source of feedback on product effectiveness and design; iterative improvements occur post-marketing with new generations of slightly improved products
Innovation cycle is under strain as it faces new challenges in the form of:Venture funding: Even though capital is constrained, funds are still available but the distribution has been skewed towards later stage investments; VCs are having to carry portfolio companies further – means less money for new investmentsR&D: Less access to capital to fund; process of obtaining market approval is becoming more challenging (new 510(k) restrictions expected); device taxExits through acquisition: Buyers now more risk averse and requiring companies to commercialize their operations, adding time and costs to exit; is inefficient use of scarce capitalIterative innovation with physicians: Some worry connection (and subsequent innovation) between company and doctors will be hurt by too much clarity – Sunshine Act in the USBusiness concerns – time to profitability and necessity of ongoing improvements remain an issue
But in order to capitalize on these opportunities, medtechs will also need new ways of doing business and executing transactions.The real opportunities may be to experiment through pilots and to partner – including with non-traditional players.As an industry who’s deal space has traditionally focused on M&As, medtechs would be smart to add strategic alliances to the mix, especially with non-traditional players
Offer service capabilities or forming JV’s with non-traditional players
A graphic that Microsoft created showing how the new health ecosystem could evolve and the key players in that transformation, whereby the application programming interface will play a central role in communicating data.An IT driven answer, but interesting in how the view to health care will change in the future
And as we all should know that during “change”, there are tremendous opportunities.
