Navigating MedTech Industry in 2024
January 1, 2024 | Industry Report
The MedTech industry is gradually emerging from the challenges posed by the post-COVID dynamics, rising inflation, and an uncertain geo-political climate. It has undergone significant changes, including the need for quick adaptation, innovation, and re-evaluation of supply chain, commercialisation, and manufacturing strategies. In 2023, the growth rate of the MedTech industry has noticeably slowed compared to previous years
1. Introduction
Based on Vamstar’s own analysis of the industry using our AI-based market intelligence platform and the EY’s Pulse of the Industry medical technology report, the industry’s total revenue in 2022 was approximately $573 billion.
However, the growth rate declined from a post-pandemic high of 16% in 2021 to just 3.5% in 2022, the lowest level since 2015. This slower trend has persisted in 2023, with revenues across all major segments showing virtually no to very little growth, compared to the previous year.
While many companies experienced a recovery in the second half of the year, their revenue growth rate has not reached the levels seen before the pandemic.
Changes Impacted The Industry
In 2023, several notable changes impacted the industry
Digitalisation and AI Integration: The MedTech industry has experienced a rapid increase in digitalisation, particularly in the application of artificial intelligence (AI) across various areas such as administration, commercial processes, clinical support, and predictive algorithms for patient care. The focus this year has been on digital clinical trials, digital therapeutics, generative AI in R&D and software development, smart factories for operational enhancement, digitisation of marketing and sales, customer support automation, and addressing regulatory challenges. While there is growing interest in AI, only a small proportion of MedTech professionals currently use AI in their work, with barriers such as data accuracy, privacy, cybersecurity, and regulatory concerns hindering wider adoption.
Economic and Geopolitical Factors: The MedTech industry in 2023 has been influenced by geopolitical upheaval, supply chain disruptions, a shifting regulatory environment, and global inflation, all contributing to uncertainty in the sector. Despite these challenges, the ageing global population, movement of care towards home, and the rise in chronic disease patients provide a strong foundation for long-term growth. The industry’s performance is slowly returning to pre-pandemic norms, posing strategic questions about restoring growth trajectory and increasing attractiveness to investors.
Supply Chain Challenges: The MedTech industry’s supply chain has experienced significant flux due to the COVID-19 pandemic, leading to global shortages and disruptions in manufacturing diverse components. According to MPO’s 2023 Medtech Supply Chain Survey, respondents expressed a preference for a mix of specialised shops and full-service “one-stop shops” for sourcing, particularly for complex components and ancillary services such as injection moulding, 3D printing, and sterilisation. While over half of the participants indicated they wouldn’t change their number of suppliers, cost considerations, and the need for efficiency were cited as reasons for potential adjustments. The predominant pain points included long lead times, fluctuating prices and availability, material shortages, and challenges with offshore sourcing. The industry displayed general concerns ranging from regulatory issues, industry consolidation, and workforce shortages to material costs and specific challenges related to manufacturing in China, prompting some to consider shifting their operations to the U.S. or in-house production.
FX movements and Pricing Adjustments: In 2023, the MedTech industry grappled with the impact of foreign exchange (FX) currency movements, which affected revenues, profit margins, and supply chain costs. Central banks’ monetary policies, political events, and uneven economic recovery post-pandemic drove currency volatility throughout the year. MedTech companies responded with hedging strategies, supply chain diversification and supply chain re-engineering, and pricing adjustments. Nearly all of the 200+ companies that we regularly study have raised their prices by more than the rate of inflation.
Hospital Staff Shortages and Growing Budgetary Cuts: Most health systems, including those of the EU and the US, are currently facing significant challenges, including a post-COVID budget crunch, a growing health workforce crisis, and the pressures of an ageing population. For example, in the EU, the discontinuation of COVID-19 emergency legislation is likely to lead to reduced public health spending, impacting the quality of care. The region is experiencing a critical shortage of health workers, with a current deficit of 1.8 million that is expected to rise to 4 million by 2030, exacerbating the strain on healthcare services.
Global Dynamics and Investment Trends. The MedTech industry is adjusting to deglobalisation and reshoring trends, impacting the entire value chain. The investment downturn in MedTech varies across regions, with declines in M&A deals, capital raising, and R&D investments. Unique challenges in each region demand rapid adaptation to economic slowdowns. The COVID-19 pandemic highlighted the critical role of medical technology and exposed vulnerabilities in global supply chains. This has led to discussions on supply chain resilience and strategic autonomy, potentially driving shifts towards more regionalized production networks to ensure the availability of medical technology during crises.
Refocusing and Reorganising. In recent times, MedTech companies have faced increased operational costs (including higher SG&A costs), inflation, and rising interest rates, leading to,workforce reductions, restructuring, and spinoffs. Among the top 200+ companies we monitor, approximately 80% have ongoing initiatives (launched post-COVID) to simplify their portfolios, rationalise SKUs, and streamline their operating models. The industry, particularly in Europe, saw a decline in profitability during 2022 and 2023, attributed to supply chain disruptions, higher energy and material costs, and wage inflation.
Experts recommend focusing on immediate operational efficiency and a long-term commitment to environmental, social, and governance (ESG) performance as remedies. Certain companies have successfully grown in revenue and profits by maintaining strategic focus, commercial realignment with technology adoption, innovation, efficient cost management, and robust ESG practices. As 2024 approaches, the MedTech industry is expected to continue confronting these challenges, underscoring the need for both operational excellence and ESG integration to navigate the evolving market landscape effectively.
Rise of Anti-Obesity Drugs. The advent of GLP-1 drugs for obesity treatment has sent shockwaves through the MedTech industry, raising concerns about their impact on demand for medical devices used in obesity-related procedures. MedTech companies are reassessing strategies, acknowledging the potential disruption caused by GLP-1 drugs, similar to the impact of statins on the cardiovascular market. Despite investor concerns, MedTech companies remain confident, citing data showing improved adherence to treatment plans and continued market share gains in bariatric surgery.
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