Covid-19 scrambles big medtech’s spending

The largest medical device makers have reacted to the seismic changes wrought by the Covid-19 pandemic by spending more on research than ever before. The top 10 groups spent, between them, $15.6bn on R&D last year, a 4% increase from 2019 – despite this cohort’s total 2020 device sales showing a year-on-year increase of just 1%. 

Of course, these headline figures disguise huge variation in the fates, and the strategies, of these 10 companies. For instance, Baxter International kept a tight hold on its purse strings last year, whereas Boston Scientific was relatively extravagant.

The interactive graphs below were compiled using companies’ stated expenditure on R&D specifically in medtech and their acquisitions of other, smaller medtech companies, as well as their medical technology sales.

In terms of sheer R&D expenditure Medtronic leads the way. It devoted $2.5bn last year to advancing new devices, a 7% increase from 2019. But the greatest increase in R&D spending came from Roche, whose 2020 R&D bill was, at $1.7bn, 12% higher than the year before. It had cash to burn: as a major player in Covid-19 testing its 2020 sales saw a 13% year-on-year increase.

The only other top 10 company to beat this revenue increase was Abbott, which also sold billions of dollars-worth of coronavirus diagnostics. Abbott did not reinvest in research as Roche did, however, boosting its R&D spending by a relatively paltry 3%.

In terms of proportional spending – how much of a company’s medtech sales are reinvested in developing new devices – Philips is ahead of the pack. The Dutch group spent 13% of its 2020 sales on research, just pipping Boston Scientific, which invested 12% of its 2020 revenues into device development. 

That said, 2020 was unlike any year that has gone before it. The top 10 medtechs’ proportional spending was likely affected as much by fluctuations in their sales as by their strategic R&D priorities. 

For instance, Johnson & Johnson’s expenditure on R&D last year was equivalent to 9% of its 2020 sales, a sizeable increase from the year before. And it did indeed up its research budget. But the company’s sales fell 12% owing to Covid-19, and it is probably this that accounts for most of the proportional increase (Medtech’s haves and have-nots, February 24, 2021).

Some medtechs prioritise a different route to broadening their product offering: M&A. Medtronic is, again, the biggest overall spender, with $50bn of its $58bn total over the past decade having gone on a single deal – the purchase of Covidien in 2015.

Medtronic is still one of the largest spenders on M&A as a proportion of its cumulative sales over the past decade, dedicating 23% of its revenues to this purpose. Abbott is close behind.

But it is Becton Dickinson that has, over the past ten years, allocated the largest proportion of its sales to M&A, at 35%. The group has done two of the five largest deals since 2011, buying Carefusion for $12.2bn in 2015 and CR Bard for $24bn two years later. 

2020 was a quiet year for deal making among big medtech: the top 10 companies closed only four deals, and only one of these, Stryker’s acquisition of Wright Medical, was worth more than $1bn. But this cohort has been far more active this year, with Roche, Philips and Siemens Healthineers, who do not generally prioritise acquisitions as a way to use their cash, all doing billion-dollar deals. The picture could be about to shift.