Medtech worth half a trillion dollars in 2020 – with a new leader in the offing

Analysis

In 2020 the worldwide medical device market will be worth $514bn, topping the half-trillion mark for the first time, EvaluateMedTech’s World Preview 2014 reveals. The largest company will be Johnson & Johnson, with 2020 medtech sales of $32.8bn (see tables).

But the J&J ranking stands only because Medtronic’s purchase of Covidien has not yet closed. Assuming the $43bn deal – the largest in the sector’s history – is completed as planned in the first quarter of 2015, Medtronic will almost certainly take the top spot as the leader of 2020’s medical device industry.

Worldwide medtech sales by company in 2020
      WW medtech sales ($bn)
Company 2013 2020 CAGR
Johnson & Johnson 28.5 32.8 2.0%
Siemens 17.9 24.0 4.3%
Medtronic 17.0 22.1 3.8%
Roche 11.3 15.3 4.4%
Covidien 10.2 13.8 4.4%

In a sense, the medtech industry is holding its breath. The Medtronic-Covidien deal is the most significant move hanging over the sector in that it will not only create a new leader but will profoundly affect the cardiovascular, neurology and orthopaedic markets too. The $10bn-plus Zimmer-Biomet and Becton Dickinson-CareFusion mergers will also contribute to a momentous year for medtech (BD to buy CareFusion in third biggest deal this year, October 6, 2014).

One of the reasons for the trend towards consolidation is the slowing growth rate of the sector. The medtech market is expected to grow at 5% per year between 2013 and 2020, more slowly than the prescription drug market, which is set for an annual growth rate of 5.3% in the same period. The analysis uses in-depth forecast models based on the consensus view from equity analysts of the medtech market.

One area within medtech above all is defying this, however. In vitro diagnostics (IVDs) is predicted to become by far the largest segment in 2020, with sales of $71.6bn. Cardiology, in second place with forecast sales of $57.3bn, is not even close. Roche is expected to dominate the IVD sphere with sales of $12.2bn in 2020, nearly twice as much as its closest competitor, Siemens.

Worldwide medtech sales by device area in 2020
WW Sales ($bn)
Device area 2013 2020 CAGR
In vitro diagnostics 47.4 71.6 6.1%
Cardiology 39.9 57.3 5.3%
Diagnostic imaging 35.5 47.0 4.1%
Orthopaedics 33.8 45.9 4.5%
Ophthalmics 24.5 37.7 6.3%

And IVDs is predicted to be one of the fastest growing areas. Expanding at an annual rate of 6.1%, it is beaten only by ophthalmic technologies, sales of which are seen rising 6.3% a year.

Smoothing the path to market

Another change sweeping through the industry is regulatory in nature, with the FDA aiming to approve more devices than in previous years. There is great need for such a change; the World Preview shows that in 2013 the FDA granted just 23 first-time premarket approvals – the approval given to the most innovative devices. This was a 44% decrease from the previous year.

Fortunately, this situation has improved in 2014, with the agency granting 20 first-time PMAs in the eight months to the end of August, a 43% increase compared with the 14 PMAs that had been granted at the same point last year. As in 2013, one of the most predominant areas was IVDs; molecular diagnostics were particularly popular, with four approvals.

FDA approval count, 2012-2013
Year 2012 % change 2013 % change
First Time PMA/ HDE/ PDP 41 -5% 23 -44%
Supplementary PMA/ PDP 2,382 9% 2,326 -2%
510(k) 3,185 1% 3,085 -3%
Total 5,608 4% 5,434 -3%

This ought to be amplified in future with the deliberate efforts the FDA is making to speed devices to market, such as streamlining the de novo regulatory process and proposals for an expedited access PMA programme (The FDA's latest push to speed medtech approvals, August 28, 2014).

A billion dollars in IPOs

Another new trend to have emerged this year has been a willingness for companies to stay independent where once they would have been expected to angle for a trade sale. EvaluateMedTech’s new IPO analysis, available this year for the first time, shows that the first half of 2014 saw $1.3bn raised in completed IPOs. This is 44% more than the $900m raised in the whole of 2013.

All industries go through periods when going public is easier than usual, but the huge rise over the course of 2014, and the far greater sums raised, suggests that this is more than just the window opening.

Top 5 medtech IPO deals of H1 2014
Company Primary Focus Stock exchange Date Value ($m)
Castlight Health Healthcare IT NYSE March 14, 2014 204.2
K2M Orthopaedics Nasdaq May 13, 2014 120.0
Horizon Discovery In vitro diagnostics LSE AIM March 27, 2014 113.6
Materialise Group 3D printing Nasdaq June 25, 2014 110.4
TriVascular Technologies Cardiology Nasdaq April 16, 2014 101.4

That said, these floats are in many cases simply financing events, with the ultimate goal for many early-stage medtech companies remaining a takeout by one of the bigger groups.

The story of medtech in 2014 has been one of swift alterations – and the promise of even more seismic change to come. This time next year there is likely to be a new market leader, and the effects of mergers and IPOs are changing the nature of how device makers do business. Things are about to get very interesting.

To contact the writer of this story email Elizabeth Cairns in London at elizabethc@epvantage.com or follow @LizEPVantage on Twitter

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