Continued M&A, investment in long-term innovation, transforming business models – those are some of the ways the medical device industry could evolve this year, according to Jeff Greene, EY’s global life sciences transaction advisory services leader.
EY today released its 2017 M&A Firepower Report: Life sciences deals and data, which analyzes three life sciences subsectors: biopharma, biotechnology and medical devices. The report’s biggest overall prediction for 2018 involves a surge in mergers and acquisitions (M&A) by life sciences companies, with the total value of deals once again surpassing $200 billion.
Here’s are the three things that especially stuck out to Greene when it comes to the medical device industry:
1. M&A isn’t going away.
There have been so many huge medical device companies merging in recent years: Medtronic and Covidien, Abbott and St. Jude Medical, Zimmer and Biomet, to name a few. That means there isn’t a lot of fodder left for big deals, according to Greene. But the incentives for medtech M&A are still there, because hospitals are merging, healthcare payment models are changing, and there’s pricing pressure on medical device products.
“We look for continued M&A in the sector, including in the medium-sized space,” Greene said.
2. More investment in long-term R&D
The business-friendly environment – especially in the U.S. (e.g. the new tax laws, the Trump administration’s slashing of regulations and other business-friendly moves) – should give medical device companies more room financially to invest in research and boost innovation over the long-term, Greene said.
“Innovation is going to continue, even accelerate, as companies have more confidence and a positive outlook,” Greene said.
3. Continued evolution toward new business models
The shift, especially in the U.S., toward value-based healthcare means that medical device companies are increasingly seeking out service-based models. Expect that trend to continue in 2018, according to Greene.
Look out for some unexpected partnerships and acquisitions. In the same vein as CVS’s planned acquisition of Aetna or UnitedHealth’s plans to buy DaVita, medical device companies may seek to buy health providers, for example.
“We talk of biopharma companies needing to thing beyond the pill,” Greene said “I think medical device companies have been better at thinking about services beyond their products.”