Consolidation is back in vogue in the medical technology industry, the 2017 edition of the EvaluateMedTech World Preview report finds. While Medtronic will remain secure at the top of the pile in five years’ time with global sales of almost $38bn, several of the other top-20 device makers – most notably, Abbott – will have leapfrogged their fellows thanks to mergers and acquisitions.
Overall, the global medtech sector is forecast to grow at 5.1% annually between 2016 and 2022, culminating in 2022 global sales of $522bn. Combined, the top 20 companies currently occupy 54% of the global medtech market, but because they are forecast to grow at an average of just 4.6% per year this will shrink to 52% in 2022.
Bigger but scarcer
The biggest merger this year was that of Abbott Laboratories and St, Jude Medical, which clocked in at $25bn and closed in January. This means that Abbott will jump five places in to become the third-largest player in 2022. And the company’s sales forecast could well rise further, following the expected closing of Abbott’s acquisition of Alere later this year; this could bring Abbott’s 2022 forecast sales to more than $22bn.
A similar situation ought to emerge with Becton Dickinson, forecast to be the eighth-biggest medtech company in the world, and currently working to close its acquisition of C.R. Bard. If and when this happens, the combined company could achieve sales of over $18bn in 2022, which would place it fourth in the rankings.
The story of this year, meanwhile, is that M&A activity is once again on the up. At $49bn, the total value of mergers closed in the first half of 2017 has already eclipsed that for all of 2016. Despite this the number of deals struck has been falling. Just 97 mergers and acquisitions closed in the first half of this year, compared with 134 a year earlier. Mergers are getting bigger, but also scarcer.
The largest sector within medtech in 2022 will be in vitro diagnostics, buoyed in part by the growing interest in sequencing-based tests such as liquid biopsies. Annual sales of IVDs will amount to $69.6bn, well ahead of the second-placed segment, cardiology, on $62.3bn.
The fastest-growing area among the top 15, however, is neurology. Partly thanks to neuromodulation technologies including deep brain stimulation and spinal cord stimulation becoming more common, the neurology segment is forecast to be worth to $11.6bn in 2022, representing an annualised growth rate of 7.8%.
EvaluateMedTech’s consensus forecasts find that medtech companies worldwide will splash out $33.5bn on R&D in 2022, with spending expected to grow by 3.7% per year until then. But research appears to be falling down medtechs’ list of priorities: the R&D investment rate – the amount spent by the sector as a percentage of sales – is expected to decline from 6.9% in 2016 to 6.4% in 2022.
The top 20 companies spend much less than this. The average R&D investment rate for this cohort is just 5.7%, falling to 5.1% in 2022. Medtronic will of course be the biggest spender, with an R&D bill of $2.7bn in 2022. Abbott is expected to take the number-two spot following its acquisition of St. Jude. Of the top 20, Biomérieux and Edwards Lifesciences are forecast to invest the most into R&D as a percentage of medtech sales in five years’ time, both on 15.2% of revenues.
An analysis of US regulatory approvals showed that the number of US approvals for the most innovative, high-risk devices fell from last year’s total. EvaluateMedTech found that the FDA approved 40 new PMAs, HDEs and PDPs (first-time approvals) in 2016, a huge 22% drop from the 2015 figure of 51, a 10-year high. But supplementary PMAs – updates to first-time approvals, required when a medical device is altered in some minor way – rose 19% to 2,528.
The number of 510(k) clearances was also down on 2015, with a decrease of 2% to 2,993. Of these, 24 were de novo clearances, used for low-risk devices for which there is no pre-approved device similar enough to act as a predicate. Overall, 5,561 US approvals and clearances were granted last year, a 6% increase from 2015.
Breaking this down by company shows Boston Scientific punching above its weight. The company had the most overall approvals: 385 in total in 2016, despite spending less than $1bn on R&D. Medtronic, the overall table leader as might be expected, had 803 devices approved or cleared, but spent much more – $2.2bn – on research. Roche and Abbott were tied when it comes to first-time PMAs, scoring five each.
2017 will not see a return to the kind of M&A frenzy that distinguished 2015. But business development activity is picking up from last year; it would be good to see a corresponding increase in companies’ ability to bring new, innovative technologies to market – even if they have to spend more on R&D.