U.S., EU medtech industry forecast: Overcast, with some clear patches

Coinciding with two major medical technology industry conferences this month, a flurry of reports and articles have been published on the future of the medtech industry. This week, U.S. industry association AdvaMed convened in Chicago, leaving behind the Washington, DC, bubble, where it usually holds its annual event. Next week, AdvaMed's EU peer Eucomed will host the European MedTech Forum in Brussels. All of which begs the question, whither the global medical technology industry? The forecast is pretty bleak overall, if you believe the analysts, but there are some bright patches.

Relatively speaking, prospects for the U.S. medtech market are fairly positive; Europe, on the other hand, remains mired in the economic doldrums—with some predicting yet another recession on the horizon—and that is having a noticeable impact on the medtech market. Even across the pond, though, there are pockets of good news, especially in the United Kingdom and Switzerland. Those two countries have little in common, but they do share one thing: their own national currencies.

Global industry to grow 5% through 2020

The global medtech industry is forecast to expand at an annual 5% annual compound growth rate through 2020, when sales are expected to reach $514 billion, according to market intelligence firm Evaluate (Boston, MA). It released its EvaluateMedTech World Preview 2014, Outlook to 2020 report at the AdvaMed conference on Oct. 6. Megamergers that will radically transform the medtech playbook and a massive uptick in initial public offerings (IPOs) are among the defining characteristics of the year thus far, according to Evaluate.

"The report shows that the value of completed medtech M&A deals jumped 363% during the first half of 2014 compared with the same period in 2013," writes report author Ian Strickland, EvaluateMedTech Product Manager. M&A activity will continue on an epic scale, when the Medtronic/Covidien and Zimmer/Biomet deals are finalized in 2015, not to mention Becton Dickinson's intentions to merge with CareFusion. In fact, the Medtronic/Covidien merger could upset the ranking of medtech leaders. Johnson & Johnson is ranked as the largest medtech company by Evaluate through 2020, but "if the deal between Covidien and Medtronic goes through, we could see a new market leader," writes Strickland. "In an industry forecast to be worth more than half a trillion dollars in 2020, that is no insignificant achievement."

The report also notes that $1.3 billion was raised in completed medtech IPOs during the first half of 2014, 44% more than was raised in all of 2013.

Industry threatened by commoditization

In its Pulse of the industry: differentiating differently, the publication of which also coincided with the AdvaMed conference, EY's Global Life Sciences Center highlights relatively low levels of growth and a looming challenge for the industry that it defines as the risk of commoditization.

"As purchasing decisions become increasingly centralized and influence shifts from physicians to hospital administrators and managers, the historical value drivers for purchasing a device—brand, quality, and design—will lessen, leaving price as a main consideration," writes EY Global Life Science Leader Glen Giovannetti. "To achieve meaningful differentiation for their offerings, firms will need to design and market their products in ways that demonstrably improve patient outcomes while also lowering costs." Evidence-based practices and cost constraints have been on the front burner for the medtech industry for some years now, but they are taking on a new urgency as the threat of commoditization becomes more tangible.

"The traditional rules of competition are becoming less relevant, requiring companies to implement new strategies to achieve sustainable success," says Patrick Flochel, EY European Life Sciences Leader and Global Pharmaceutical Segment Leader. "While each organization's chosen strategy will differ, every company must find new ways to demonstrate that its products help providers achieve top-quality care metrics and build market share while taking costs out of the system."

EU medtech industry to lose global market share

It will be interesting to see what sort of prognostications for the EU market come out of Eucomed's MedTech Forum next week, but if an article on the market published by sister brand emdt is any indication, it won't be pretty. The economic straits that continue to plague the eurozone—those European countries that have adopted the euro as their currency—will continue to be a drag on GDP and, thus, hamper growth of the medtech economy. A more burdensome regulatory environment that will be introduced with the new medical device regulation as well as cost-containment measures and pricing and reimbursement controls also will weigh heavily on the EU medtech industry, write Karen Simpkins and Ricardo Vicente, Business Monitor International (BMI; London).

The world's second largest market for medical devices, western Europe accounts for slightly more than a quarter of the global market. Slow growth forecast at 3.7% CAGR through 2019 by BMI, however, will cause this region to actually lose market share over the next five years, dropping to 22.6%. Some outliers will buck this trend.

Northern Europe, which BMI defines as the United Kingdom, Norway, Finland, Denmark, Ireland, and Sweden, will match the 5% growth rate forecast for the global medtech market by EvaluateMedTech. The United Kingdom is the star performer of this group, with annual growth pegged at 6.8% through 2018. It may not be coincidental that there are only two countries that use the euro as their currency within this group.

Central Europe—Germany, Belgium, France, the Netherlands, Austria, and Switzerland—is expected to post a CAGR of 3.8%, the second highest rate of growth, write Simpkins and Vicente. Europe's largest medtech market and the third largest in the world, Germany is described as "resilient" by the authors, although shrinking exports, which grew by 1% in 2013, the lowest rate since 2009, are a cause for concern. Its worth noting that Switzerland continues to punch above its weight in this group, with the highest per capita medical device expenditure in the world. During the last 15 years, the medtech sector has grown faster than almost any sector in the country, according to the article. Yes, Mr. Lime, they don't just make cuckoo clocks any more in Switzerland.

Southern Europe—Spain, Portugal, and Italy—will eke out a CAGR of 1.7%, barely putting a dent in the decline that started with the Great Recession.

So, there you have it—a mixed bag, to put it mildly. From a macro point of view, the medical device industry is going through a period of significant change. Some of that change is largely beyond industry's control (barring legislative influence)—a radically altered healthcare structure in the United States (which includes the much reviled device tax) and, in Europe, a sluggish economy as well as the prospect of new regulatory constraints.

On both sides of the Atlantic, companies will need to adjust to a period of profound change and adapt their business models accordingly. There will be winners and losers, but innovative, forward-thinking medical technology companies will prevail, and, macroeconomics aside, they are just as likely to hail from Italy's Modena region as Southern California, to name two medtech hubs.

— Norbert Sparrow

Norbert Sparrow is Senior Editor at PlasticsToday. Follow him on twitter @norbertcsparrow and Google+.