Future of medtech: Build resilience, deliver value

5 areas to prepare for the medtech rebound

As the medtech industry regains its footing post-pandemic, leaders have many options in preparing for future challenges and creating shareholder value.

After a decade of strong shareholder returns, medtech companies were particularly impacted by the COVID-19 pandemic. Reduced procedure volumes, supply chain disruption, the great resignation and turbulent capital markets all served to undermine a fundamentally solid industry.

But there are encouraging signs the industry is strongly rebounding.

  • In 2022, 22 of the 25 largest medtech companies beat analyst revenue estimates, according to PwC analysis of S&P Capital IQ data.
  • Company valuations now exceed pre-pandemic levels, and many analysts forecast high single-digit organic growth and significant margin improvement in the years ahead.
  • Macro trends — an aging population, increasing access to healthcare, technological advances — also continue to support a bullish outlook for the industry.

Just because the medtech industry is poised for a rebound, that doesn’t mean it’s time to relax.

The positive outlook comes with increased investor expectations and challenges from new entrants and disruptors. To help your medtech company build resilience and deliver durable growth, now is the time to reevaluate five key areas of your operations: commercial strategy, product development, supply chain, workplace culture and business development.

To help your medtech company build resilience and deliver durable growth, now is the time to reevaluate five key areas of your operations.

Update your commercial strategy

The commercial landscape is changing as healthcare systems consolidate to build their bargaining power and mature segments of the industry increasingly compete on price instead of innovation. These holistic strategies can help.

Adapt to cost pressures and reimbursement trends

While commodity costs will gradually come down from their pandemic peaks, inflation, raw materials shortages and supply chain disruptions will likely keep product manufacturing prices higher than pre-pandemic levels.

What’s more, medtech companies need to build inventory resilience, which may come at a higher cost and needs to be at least partially passed onto customers. Medtech companies should:

  • Consider revisiting contract and pricing terms that were overlooked in the past decade, such as index-tethering price to CPI and reimbursement levels for wasted or damaged product.
  • Take advantage of reimbursement trends favoring at-risk models and outpatient procedures. Medical devices demonstrating lower readmission rates through connected health and proactive data monitoring will be well-positioned with providers and payers as CMS drives adoption of outcomes-based reimbursement.

Reevaluate your commercial strategies

Traditional device manufacturers deliver high-value products that improve outcomes for patients with a specific condition. Consider what opportunities you have to move beyond your core business. Value-added services that improve patient experience can help medtech manufacturers expand their sphere of influence throughout a health journey.

Implant manufacturers, for example, are developing software that provides real-time, patient-specific information designed to help surgeons prepare for and perform procedures more accurately and in less time. Using connected health data to deliver targeted, proactive recommendations to patients and their caregivers could increase the scope of services an original equipment manufacturer (OEM) can offer.

Consider the impact of changing provider financials

The purchasing habits of healthcare systems have radically changed. Already  declining hospital margins were further pressured by the pandemic and inflation. Medtech companies must adjust accordingly. Capital purchases could particularly be impacted. Gone are the days of large capital expenditures with brokered financing options.

Consider extended lease agreements and low- or no-down payment plans with accompanying consumable or procedure-based volume commitments to win favor with cash-strapped customers. In addition to easing buyer cash flow concerns, OEMs can help lock in market share with customers.

Reinvest in product development

No matter the economic environment, the ability to innovate and develop new products is, of course, a critical differentiator for medtech companies. Don’t lose sight of these core strategies.

Align — and realign — the portfolio to company priorities

Most medtech companies do not have a holistic view of their product development projects. And clarity about resource allocation based on a company’s corporate and commercial priorities can be lacking.

  • Conduct a rapid portfolio review to improve strategic and operational alignment with company priorities. Deliberate resource allocation can accelerate development of priority projects. These reviews are highly effective in large and mid-size medtech companies, and they can be even more critical to the success of smaller, highly innovative companies.

Build resilience into development and launch plans

Prioritized product development requires cross-functional, integrated planning from development through launch and beyond. This is especially true for novel technology platforms and joint development ventures involving contract manufacturing organizations.

  • Integrate product development and resilience planning to help minimize risk when delays can equate to significant strategic, operational and financial costs.

Reduce complexity across the product and portfolio lifecycle

Review your bill of materials across both development and commercial product portfolios to understand what cross-functional initiatives are required for success before any major revamp of your manufacturing footprint and supply chains. For example, resources may need to be reallocated from innovation and growth opportunities to design for excellence and lifecycle complexity reduction in order to increase the overall resilience of the portfolio.

Integrate compliance by design

In late 2022, regulation was signed that gives the FDA new regulatory power over cybersecurity standards related to medical devices.

  • Implement new product life-cycle management processes to understand current and future exposure to cyberattacks by gaining visibility to software inventory and where your devices exist in the market, potential vulnerabilities with existing assets and how those products are either remediated or decommissioned.
  • Integrate cybersecurity into new product development processes to proactively address a broad spectrum of risks.

Shore up your supply chain

A resilient supply chain is built with awareness of a wide range of risks and gives medtech companies the agility to respond to abrupt supply and demand changes. Most importantly, it protects revenue. Consider these steps as you look to secure your supply chain.

Build a supply chain plan with end-to-end visibility

Lining up materials and operations to manufacture a medical device is a complicated process, and it’s common for a medtech company to only have visibility into part of its supply chain. Here are some ways you can gain a more complete picture.

  • Work with your suppliers to better understand the factors that have the potential to disrupt production. Knowing your supplier’s suppliers and where they are based can help you effectively respond to global events.
  • Map the entire supply chain for your top products. Visualization tools help identify where disruptions in the supply chain and changes in demand can occur. Control tower-based solutions and cross-functional planning are among the many options available to help you plan your company’s response.
  • New technologies can help and are widely available, though operations and information technology leaders appear to still be more focused on basic, near-term priorities and challenges rather than new investments, according to PwC’s 2023 Digital Trends in Supply Chain Survey.

Achieve category excellence

Medtech manufacturers should regularly assess their internal capabilities to decide whether it is better to buy a particular material or service or make it in-house. Consider not only cost and volume, but also resilience.

Sterilization, for instance, is crucial for implantable devices, but it is difficult to do well and the number of companies that provide this service is limited. Many medtech companies are consequently considering building their own sterilization facilities to gain more control. Some have discovered that their in-house sterilization capability is better than commercial options, providing a competitive advantage.

Drive value creation through operational excellence

The pandemic forced manufacturers to focus on securing supply and mitigating inflation impacts, where possible. As supply constraints have eased and commodity prices have stabilized, companies should now focus on driving value creation across their categories, while continuing to manage risk. Companies can utilize artificial intelligence and machine learning to build predictive models for the prices of key inputs such as resins and metals and enable purchasing and hedging strategies to better manage inflation. Accelerators such as should-cost models can also provide visibility into the total cost for products, allowing for more robust negotiations with strategic suppliers.

Design to value

It’s time to take a hard look at whether particular features of a device add value. For example, a high-end processor won’t have value for the end user or purchaser if the capability isn’t going to be used.

Certification and validation of medical devices takes time, money, and effort, so product specs aren’t easy to change. When choosing a component, consider how much longer it will be on the market. A product might have been used effectively for many years and be readily available today, but it’s important to consider how many years it has left. A newer generation component could be a better choice if it has a longer lifespan and will save you a change later.

Forge a workplace with purpose

PwC research shows that workers with specialist expertise are more likely to ask for a promotion or raise, and to refer job candidates. In an industry dependent on people with scarce skills, medtech leaders should consider embracing flexible working options while maintaining trust company-wide. Here are three goals to consider prioritizing.

Double down on a culture of patient-centricity and innovation

Fulfillment is the most important factor differentiating employees who are likely to look for another job and those who stay put. According to a global PwC survey, a large majority of employees want to work for companies that make positive contributions to society. Medtech companies have a unique opportunity to deliver a sense of purpose by linking their employees’ daily work life and activities to the organization’s mission and values.

Strong leadership teams can put these principles into action. When a new medtech organization was created after a divestiture, its leadership team identified and actioned organizational behaviors to reinforce the newly formed culture. PwC helped the team leaders clarify their values, which were focused on talent growth and the associated behaviors to drive this culture.

Upskill medtech workforce to keep pace with change

The medtech industry has the potential to tap into trillions of dollars in future spending on Medicare and Medicaid services beyond its historical 5% to 6% market share. With this opportunity in mind, you should be evaluating your existing capabilities and identifying gaps to make way for new and different business models.

  • Proactively assess opportunities for upskilling and reskilling your existing workforce while also recognizing some gaps may require hiring or acquiring talent or capabilities.
  • Support employees in gaining the capabilities required to succeed in new business models and compete in new markets.

Investments in your talent can have fast returns. PwC recently advised a rapidly growing medtech company on how to improve its employee onboarding process. This included an upskilling program leveraging virtual and augmented reality to develop engaging and effective training.

The result? Improved quality and compliance.

Let go of old practices that make it hard to woo talent

Health industry leaders view the failure to hire and retain top talent as the biggest risk to achieving their goals for growth, according to PwC research. To win the war for talent, medtech leaders should recognize and adapt to ways in which work has changed.

Like many industries, medtech has seen an increase in remote working.  Importantly, remote working options can help medtech organizations expand their talent pool while also being more inclusive.  Design intentional, flexible interaction points where teams can be in the office together to meaningfully connect while taking advantage of the opportunities of remote working.

Additionally, companies that provide greater flexibility in hybrid working models can improve talent retention. PwC recently worked with a large medtech company that allowed its business units to craft their own return to the office policies. The business units that spent the most time listening to their employees’ desires, understanding pain points and upskilling staff had the most success with their return-to-the office experience.

Create value through M&A

Dealmaking has become a core competency for most medtech companies — more than $600 billion has been invested in M&A over the last decade with an average of nearly 60 disclosed deals per year, according to PwC analysis of Capital IQ data.

Considering the strong balance sheets and cash flow in medtech, PwC expects M&A activity to rebound after a quieter than average 2022. As the industry evolves to include product-enabled services and ecosystems of collaborators, medtech companies may increasingly need to look outside their organizations to keep up. With these new industry dynamics, dealmakers should consider reevaluating their playbooks.

Sharpen your focus on value

The combination of pressure to deliver against investor expectations, fierce competition for innovative assets from an expanded universe of potential buyers and increasing complexity in business models is a call to action for medtech dealmakers.

  • Sharpen your focus on the value levers in each transaction and the path to creating shareholder value. Challenge assumptions, set realistic expectations for the time to help achieve a certain return and allow for adequate investment in operational and supply chain resilience and agility. Acquirers should also remain disciplined in their bid strategies to help avoid overpaying for potential synergies.

Start integration planning early

In addition to discipline in valuation and negotiation, an integration strategy is critical to creating value from M&A.

  • Involve integration teams during the diligence process to help shape a strategy to deliver value and de-risk execution in key value creation areas including commercial strategy and employee retention and people strategy.
  • Establish executive sponsorship early to help accelerate decision-making and help make sure consistency from the time of initiating the deal to integration to business as usual.

As medtech companies look to different types of M&A targets to enable new business models, they may increasingly realize that different transactions may require different integration strategies. For example, a transaction intended to have benefits across the enterprise or with parties beyond the enterprise may call for a different integration approach than the traditional tuck-in acquisition.

Proactively review your portfolio

After an extended period of consolidation throughout the 2010s and reckoning with the disruption created by the pandemic, many medtech companies are due for a proactive review of their portfolios.

Some companies have already taken this path, leading to divestitures and spin-offs, suggesting a broader trend toward portfolio agility. With many medtech companies adopting strategies centered around category leadership, divestitures can reduce distractions from non-core assets and serve as a source of capital to fund investment in areas of strategic importance. What’s more, regular strategic portfolio reviews provide objectivity and reduce the stigma associated with divestitures.

Contact us

James Woods

Principal, Deals, PwC US

Rob Maul

Principal, Commercial Transformation, PwC US

Kevin Lewis

Management Consulting Partner, PwC US

Chetan Ghatge

Partner, Strategy& US

Luna Corbetta

Principal, Workforce Transformation, Pharma & Life Sciences, PwC US

Follow us