COVID-19 has prompted dramatic rethinking of supply chains, health care delivery, regulations, and collaboration that are likely to permanently restructure the med-tech industry, according to industry leaders speaking at a panel during the Advanced Medical Technology Association’s (Advamed) Virtual Medtech Conference on Oct. 6. In addition, the significant increase in debt and strong fundamentals position the industry for a burst of M&A activity.
After a record year in 2019, med-tech revenue dropped 5% through June 2020, according to Ernst & Young’s Pulse report on the global med-tech industry, published in conjunction with the Advamed conference. At the same time, completed M&A deal value plummeted 60%, from $67.6 billion to $27.1 billion. Financings doubled, reaching $57 billion, driven significantly by increased debt.
That debt may have represented a backstop for the economic impact of the pandemic for larger companies, but smaller med-tech firms likely “needed to have the cash in their pockets,” said Jim Welch, EY Global Medtech leader. “The impact going forward is that it created a lot of firepower in an industry that’s already very strong. That will drive more deals and funding of research and add a little momentum to mergers and acquisitions we expect to see.”
Overall, “med-tech is a healthy industry in an unhealthy time,” Welch told BioWorld. Even smaller companies that have seen critical clinical trials put on hold could get through this period fairly well. “If a [smaller company’s] funder’s appetite is not as strong as it was, there are others out there who will step in, whether other investors or larger med-tech companies.”
Fundamentally, the pandemic has changed how companies in the med-tech industry relate to one another. Companies at greater risk could see the most benefit from one of the major trends – increased collaboration. “There are enough folks in the industry looking to support innovation that companies may just use different channels” to find funding, Welch said. Panelist Bob White, Medtronic executive vice president and president of the Minimally Invasive Therapies Group, echoed the sentiment, noting that the pandemic broke down long-established silos and sped responses, so that “eternal collaborations that probably would have taken us months or years to figure out, we got done in weeks.”
Working together started early in the pandemic as the nation and med-tech companies struggled with a shortage of ventilators and personal protective equipment. “We realized that no single company could solve for this pandemic,” White said, noting that the crisis led the company to enter new partnerships with non-traditional partners such as Tesla and Intel and to make the plans to build ventilators open source.
Collaboration has extended to regulators as well, who quickly approved life-saving devices using emergency use authorization, accelerated clearances with breakthrough designations for truly new technologies, and helped companies quickly deliver the needed technology by engaging in ongoing conversations and building a pragmatic, cooperative, process, the panelists noted.
“One of the big learnings will be in supply chain,” said Vladimir Makatsaria, Johnson & Johnson and Co. group chairman of Ethicon. The pandemic demonstrated the importance of agility, the ability to quickly adapt to meet rapidly changing needs around the world. Reliability and “de-risking” the supply base will continue to gain importance, but perhaps the biggest change will come in the geography of supply chains. Where the megatrend over the last several decades had been toward globalization, the realization that 60% of the world’s PPE was manufactured in one region will push more localization of supply chains and greater distribution of stocks around the world, Makatsaria said.
Issues of business continuity, supplier reliability and relationships across the supply chain are likely to remain areas of focus post-pandemic, White noted. Continued travel restrictions, reduced shipping options as airlines and freight companies reduce flights and ships, promise to throw more spanners in the works for months to come.
Health care delivery
Digital health dominated the biggest deals of the year so far, led by Teleadoc’s $18.5 billion acquisition of Livongo and Amwell’s IPO. Demand for remote delivery of health care will likely continue after the pandemic said White, who predicted that patients would remain leery of in-person visits to large facilities for some time.
The move to digital extended well beyond virtual patient encounters, the panelists observed. As hospitals restricted access, for instance, Medtronic found that it needed to offer training on equipment to physicians remotely as well. “The innovation mindset has shifted from analog to digital” across the board, he said.
“The shift toward digitalization, telehealth and remote-operated business models is accelerating as a silver lining to the tragic impact of COVID-19, but executives will have to adapt to operating in a highly uncertain environment in the foreseeable future," said Arda Ural, EY Americas Industry Markets leader, Health Sciences and Wellness.