The MedTech companies would be well advised to plan their transformation journey while the going is still good.
The healthcare sector is not immune from cyclical ups-and-downs, but rising emerging market living standards and societal aging are likely to ensure that the industry grows much faster than the global economy. Based on current GDP forecasts, global healthcare spending should grow more than 6 percent annually over the next decade. Needless to say, such rapid growth makes the healthcare sector a unique destination for capital in the current economic environment.
Strong growth in aggregate health spending will not necessarily translate into increased revenue and earnings at incumbent health providers and product manufacturers. Rising cost pressures – and policymakers’ responses to them – are likely to spur innovation in new technology and business models that have the potential to disrupt existing arrangements. A passive approach to the sector will fail to capture the likely shift in spending patterns and market share. Instead, investors should seek to deploy capital strategically in response to the specific opportunities created by rapid emerging market health infrastructure growth and a new era of innovation and cost consciousness in advanced economies.
Indian Market Dynamics
The Indian MedTech market will continue to record healthy growth despite a hardened stance on pricing for essential devices. Currently valued at Rs.25,426 crore, the market is expected to grow to Rs.27,736 crore in 2017 and to Rs.39,262 crore in 2021, predicts BMI Research. Market growth will moderate over the next 6 years, reflecting an increasingly competitive operating environment and expanding market share for lower cost domestically produced products in some sectors.
The market will benefit from sustained economic growth and strong healthcare drivers. It will continue to reduce its dependence on imports, as local manufacturing expands under the Make in India initiative. The expanding private sector will remain the main growth driver.
In the 12 months to January 2017, imports grew by 7.7 percent, taking the running annual total to Rs.18,130 crore. Despite an improved performance in 2016, headwinds to exports persist with a weak external demand outlook in key markets. In the 12 months to January 2017, exports grew by 8.7 percent, taking the running annual total to Rs.7,510 crore.
India will actively target investment from major medical device manufacturing nations under a memorandum of understanding signed between Invest India and the local medical device industry. The public–private collaboration will also seek to address the roadblocks hindering investment to achieve its goal of becoming a global medical-device manufacturing hub. Meanwhile, Japan will partner with India to develop an internationally harmonized medical device regulatory framework and Japanese manufacturers will support the Make in India initiative under a program of enhanced co-operation agreed in May 2017.
Industry Seeks Ease of Doing Business
The Make in India initiative is gaining traction by the day. However, there is a need for creating an ecosystem that fully supports technology in MedTech, from the perspectives of engineering design, human application, clinical validation, and delivering the product in the hospital setting. Wider adoption of the medical devices, which are developed in India, is a necessary prerequisite in order for us to leverage the Make in India initiative.
The development of an expert decision-making system suitable for the manufacturing of medical devices in the country will need to be supplemented by a series of enabling policy initiatives by the Government of India. To start with, regulations specific to medical devices must be laid out, which recognize the difference between medical devices and drugs. The real benefits to the sector will only become available when the creation of a different Act, and regular review and amendment of the respective rules are carried out in tandem with each other. Key to achieving the ideal ecosystem is the establishment of significant academic–industry partnership to support high-end technology manufacturing, and the development of technical know-how and skills. A tie-up with clinicians, on the other hand, will be important in the design as well as testing phases, when the industry can learn the medical needs for addressing a disease space, and can utilize the space for testing the medical devices before rolling out large-scale manufacturing.
The MedTech sector is in dire need of support, in terms of policies that can be oriented toward facilitating ease-of-doing business. Post the FDI coming on automatic route, the FDI has multiplied as was anticipated. Taxation benefits, infrastructural support, skill development, single window clearance, higher expense on healthcare, a holistic understanding of the nuanced sector and reducing the overlap between different ministries are some recommendations to help boost the performance of the MedTech sector in the country.
On the taxation front for example, in the recent GST roll-out, a large range of products came under the 12 percent bracket of GST, a figure that is quite high (especially after the custom duties on most devices having gone up from 11.6 percent to 18.9 percent in 2016) and will inadvertently result in a higher tax burden on patients.
Global Market Dynamics
The global healthcare market was valued at USD 1.65 trillion in 2016 and is expected to reach USD 2.69 trillion by 2025, growing at a CAGR of 5.6 percent, estimates Frost & Sullivan.
According to Evaluate, the total value of the global MedTech market is expected to reach USD 529.8 billion by 2022, growing at an annual rate of 5.2 percent over the next seven years. In vitro diagnostics (IVD) will be the largest device area in 2022, with sales forecast to reach USD 70.8 billion, representing 13.4 percent of the industry’s total sales.
Healthcare is an industry in need of innovation. Governments, health plans, providers, and MedTech companies are facing rising costs and inconsistent outcomes in their pursuit of the triple aim – improving care, improving health, and reducing spending.
Innovations likely to transform healthcare in near future.
Cath labs. Cath lab imaging technology has migrated from the analog-based image intensifiers (IIs) to fully digital flat-panel technology with 3-D reconstruction. Some in the industry may still remember having to process the cine film. The introduction of stents significantly altered the care landscape. The evolution of stent technology – from bare-metal stent to approval and adoption of drug-eluting stents (DES) – had a major impact on the cost of procedures, while also improving clinical outcomes. Peripheral interventions in the cath lab setting have migrated from the early days using equipment to image each leg individually to now using flat panels that image both legs for runoff evaluations at the same time.
The evolution of the cardiac cath lab only platform to an interventional platform, where the technology can be procedure-agnostic, has been fueled by tight capital budgets and recognition of the expanding and overlapping skill sets of the cardiovascular medical team. Physicians who traditionally worked within the cath lab, cardiac and vascular surgery, and radiology silos now are working side-by-side not only sharing space, but evaluating and managing a more complex patient population collaboratively. The cardiac cath lab of the future may function as a hybrid suite, supporting cardiac and vascular catheter-based interventions and associated complex staged/combined interventional and open surgical procedures – a long way from the community cath lab of the past, through a vision that is attainable in many hospitals, regardless of size.
CT scanners. The buzzwords for 2017, when it comes to CT, are dual energy and spectral imaging. It is all about getting functional information out of the same CT without additional expense or radiation to the patient, while providing valuable functional information. Examples include detecting lesions earlier in the disease process and customizing future treatments. Structural heart imaging is also on the rise, a trend believed to continue. Some of the notable advancements include: The ability to extract clinical information from CT studies, which enables a more confident diagnosis – potentially resulting in reduced follow-up testing and improved disease management; the ability to extract clinical information at lower radiation doses, which allows a broader use of CT for high-risk populations and earlier disease detection (lung cancer screening); and the ability to integrate information across different diagnostic tools, creating opportunities to optimize information across the continuum of patient care.
CT technology will continue to see advancements that quantify and make sense of these data – using it to bring value back to the radiologist, the provider, and the patient.
Defibrillators. Scientists think that beams of red light could restore normal heartbeat functions in humans, replacing the use of painful electric shocks. Researchers have already tested this on animals and hope to make – incredibly – an optical defibrillator.
Anesthesia machines. Anesthesia machine manufacturers continue to introduce technological advances in their newest machine models. New technology focuses on patient safety as well as optimizing the efficiency of anesthetic delivery and minimizing anesthetic gas wastage. Target-controlled low-flow anesthesia systems automate the fresh gas flow rate and vaporizer settings to achieve a specific end-tidal percentage that is set by the anesthesiologist. All leading brands have implementations of target-controlled low-flow anesthesia. Each manufacturer continues to explore opportunities to integrate anesthesia machines with hospital information systems, including data sharing with anesthesia information management systems (AIMS) for automatic documentation. Improved connectivity and integration will offer new opportunities to enhance workflow efficiency and patient safety.
ECG monitoring systems. Remote ECG monitoring systems are long past their infancy. They have advanced past most issues of security and reliability and their use is steadily on the rise. They will soon be commonplace medical devices for remote and long-term physiological monitoring, especially for that of the elderly and frail patients. The systems will consist of three major components: a mobile gateway, deployed on the patient’s mobile device, that receives 12-lead ECG signals from any ECG sensor; a remote server component that hosts algorithms for accurate annotation and analysis of the ECG signal; and a point-of-care device for the doctor to receive a diagnostic report from the server based on the analysis of the ECG signals. The wireless physiological information collection nodes of the wearable network will be connected to the patient’s portable terminal, such as a personal digital assistant (PDA), smart phone, or other communication device, to send data. At the same time, it will also be capable of uploads, backup, analysis, and feedback of data to a remote medical service center through the Internet or mobile communications network.
Endoscopy. In recent years, the field of endoscopy has seen a variety of innovations. One of the major turning points has been the start of robotic surgery with Intuitive Surgical’s da Vinci robotic system. Besides its robotic arms, the system has a 3-D-imaging system. 3-D is very popular today, and is now offered in a handheld system in the form of the Aesculap EinsteinVision. Along with lightweight chip-in-scope technology, the second generation of EinsteinVision systems can also be used with EndoSheath microbial barriers, which allow the endoscope to become a permanent fixture in the operating theater as a part of the endoscope tower, reducing the volume of capital equipment that moves around in a hospital.
MRI. The future holds good for MRI with ultra-high-field systems with 7T and 9.4T systems currently being evaluated. Combined modalities and targeted contrast media are further on the clinical horizon, but will become a reality for specialist referral centers in the coming years.
Ventilators. Over the past few years, leading market players have reshaped the ventilators market with the cutting-edge technologies and new product launches to sustain their position worldwide. These technologies offer advanced ventilator breathing circuits that provide exceptional performance in an easy-to-use system, increasing the effectiveness of patient care and reducing the amount of intervention required. The new products employ unique algorithms that offer therapy to patients’ individual breathing needs by adjusting to a patient’s respiratory rate and target each patient’s alveolar ventilation, auto-adjusting pressure support as needed to maintain that target and stabilize ventilation. With the in-built leak management technologies, these devices maintain patient–ventilator synchrony to ensure effective ventilation.
Neonatal care equipment. Premature infants face numerous health challenges during their first week of life. Recognizing the need for better NICU patient monitoring, the Medical Predictive Science Corporation (MPSC) unveiled its HeRO system. Extending beyond the capabilities of traditional monitoring systems, HeRO can detect even the smallest alterations in infants’ heartbeats and provide accurate feedback on developing health problems. The machine provides feedback on a scale of zero to seven. If an infant receives a score higher than two, it indicates to hospital staff a potential health problem. In addition, HeRO can alert caregivers to issues up to two days earlier than conventional tests. With this information, nurses and doctors are able to act earlier than ever before and deliver life-saving treatment to their tiny patients.
Nuclear medicine equipment. Molecular imaging, using high-resolution single-photon emission computed tomography (SPECT) and positron emission tomography (PET), has advanced elegantly and has steadily gained importance in the clinical and research arenas. Continuous efforts to integrate recent research findings for the design of different geometries and various detector technologies of SPECT and PET cameras have become the goal of both the academic community and nuclear medicine industry. As PET has recently become of more interest for clinical practice, several different design trends seem to have developed. Systems are being designed for low-cost clinical applications, very-high-resolution research applications, and just about everywhere in-between. Thus, many different design paths are being pursued. It will be interesting, indeed, to see which ones become mainstream for future commercial systems and which technologies emerge as the most popular.
X-ray equipment. The latest generation of wireless DR detectors with automatic beam detection achieves the traditional use of both CR and film, but with the benefits of much higher throughput and improved dose efficiency. Automatic beam-detection capability enables a simple path to digital retrofits, since no integration with the X-ray generator is required. State-of-the-art DR panels are now equipped with a data-processing engine and carry their own calibration files, which allows the images to be corrected on the panel. With the calibration data stored on the panel, the DR cassettes are more portable between the equipment and the rooms. On-panel image corrections decrease the image transmission time and improve the wireless link robustness by reducing the number of images transmitted with each image acquisition.
The BCG Formula
A medtech transformation agenda. Companies need to develop a comprehensive transformation agenda and a rollout plan that moves forward on all fronts now. The changes sweeping across MedTech – slowed growth, increased emphasis on value-based health care (VBHC), static R&D productivity, price and cost pressure, digital growth, and heightened M&A activity – are here to stay. A transformation agenda requires change in multiple areas of the business, from cutting costs internally to investing in high-growth opportunities. These parallel actions are essential for success. Companies that move too cautiously will fail to free up sufficient resources to reinvest and will therefore lose ground in high-impact areas where they need to develop critical new capabilities.
Boston Consulting Group’s transformation framework is based upon three pillars: funding the journey, winning in the medium term, and establishing the right team, organization, technology, and culture:
- Funding the journey. Launch short-term, no-regret moves; simplify the organization; reduce costs; boost revenue; and free up capital to fund new growth engines.
- Winning in the medium term. Develop a strategic direction to increase competitive advantage and drive growth.
- Establishing the right team, organization, technology, and culture. Deploy change management, identify and develop talent to fill critical gaps, and set up the organization to sustain high performance over the long term.
For MedTech companies, it is crucial to follow through on all three pillars of the transformation framework. Funding the journey will become an overriding concern for many companies over the next year as margins get squeezed from multiple directions, including downward price pressure and an increasing cost base. But the MedTech companies that can proactively lower their costs and boost revenues (by optimizing pricing and sales force effectiveness, for example) will free up funds to develop new capabilities – in market access, digital innovation, data analytics, and operational excellence – and invest in new growth areas.
The healthcare industry is in the midst of sweeping changes that are having profound effects on the MedTech sector. The industry has recently attracted the attention of a number of nontraditional players. Technology giants such as Apple, IBM, Samsung, and Sony are entering the MedTech game independently or partnering with MedTech companies – and they are not looking to make incremental changes to existing innovations. These companies are making big bets on game-changing devices, wearable technology, diagnostics, and big data and analytics, and they are moving at a pace – with enormous investment budgets – that far exceeds the norm in MedTech R&D.
With investor expectations at an all-time high and growing pressure to produce high-value products at low cost, the current business model needs to evolve. Times are still good– with strong gross margins, healthy growth in sales, and high valuation multiples – and MedTech companies would be well advised to begin their transformation journey now.