Find episode transcript below.
JENNY COLAPIETRO:
00:00:00:00 Welcome to HRI’s Next In Health podcast. I'm Jenny Colapietro, PwC’s consulting commercial leader, and I'm joined here today with three of our leaders from our Med-tech Practice. James Woods, Kevin McLellan, and Luna Corbetta.
00:00:19:09 Kevin, James, Luna. You guys pulled together a new perspective around driving growth in med-tech, and today we'll be diving into the critical strategies and insights that can help companies navigate the complex landscape of technology investments, cultural transformation, and M&A.
00:00:37:23 Thank you all for being here and sharing your expertise with us today.
KEVIN MCLELLAN:
00:00:41:20 Thank you Jenny.
JAMES WOODS:
00:00:42:23 Great to speak with you, Jenny.
LUNA CORBETTA:
00:00:44:10 Thank you for having us, Jenny.
JENNY COLAPIETRO:
00:00:46:20 So let's start with the big picture. James, what are some of the biggest challenges med-tech companies are facing today?
JAMES WOODS:
00:00:53:18 The med-tech industry really is at a critical juncture. The health care ecosystem is transforming in the face of increasing cost pressures, empowered consumers, new care settings, and disruptive technologies. And in response, med-tech companies are reinventing their business models, looking to compete differently in their existing markets while also unlocking opportunities for new ones. But this all requires a very delicate balance.
00:01:16:09 Med-tech companies need to both invest in the capabilities required to compete in the future, but also deliver against investor expectations for both growth and margin improvement in the near term. And this has proven to be a real challenge for many an industry. We've seen this borne out through fairly uneven stock market performance over the last few years.
00:01:35:01 While med-tech companies have historically been rewarded for top line growth, rising interest rates, increased competition, and this need to invest has really placed profitability squarely in the spotlight as well. Nearly all of the companies we studied in our analysis have highlighted plans to improve operating margin in calls with analysts.
00:01:53:05 So delivering across both of these dimensions, investing in the future while also meeting near-term commitments, will really require companies to act across multiple different fronts, challenging how they've operated in the past.
JENNY COLAPIETRO:
00:02:05:17 So it sounds like there's a lot of opportunity here. Kevin, the last time you were with us on Next In Health, you shared some ways that med-tech companies can reinvent their business model. Could you give us a quick reminder of what those were?
KEVIN MCLELLAN:
00:02:19:27 Sure, Jenny. Last time we talked about how med-tech companies seeking to capture growth beyond their traditional markets could partner with customers to meet a broader set of needs. Right? And we've seen that play out in the industry over the last few years. We talked about three ways to play, which included mastering products and care settings, which is really the traditional med-tech business model and will continue to be important.
00:02:44:02 We talked about creating product-enabled services, which we see in categories like the increasing number of connected products. And finally, we talked about building or participating in an ecosystem to solve that broader set of challenges that med-tech’s customers have. Ideally, blending some of these should accelerate growth and increase market share.
JENNY COLAPIETRO:
00:03:04:17 So in addition to considering these changes to the more traditional med-tech business model, Kevin, what else can companies do?
KEVIN MCLELLAN:
00:03:12:11 Jenny, there are some things that companies can do right now, even in the midst of transforming their business model and how they play. We have three priorities that we see companies driving towards at the moment. Number one is ensuring that there is a measurable return on technology investments and leveraging those investments to unlock data and rethink how processes run in the company is something we see top of mind.
00:03:39:26 We call that digital value transformation. The second is really moving at pace, and we refer to this as enterprise agility and really embracing a high-tech mindset to move faster and capture opportunities more quickly. And the third is coming back to a traditional med-tech growth lever around driving M&A and leveraging M&A capabilities to continue to unlock value and invest in the future.
00:04:05:01 I'll give you an overview of digital value transformation before I turn it over to James and Luna on the other two topics. One of the things that we see is that the sector has yet to achieve the promise of improved productivity and revenue growth from IT investments.
00:04:19:10 We do see a lot of investments in AI, but more importantly, the massive investments in core infrastructure have yet to pay off for many. Digital technologies have been deployed to improve operations, product development, manufacturing, supply chain, and even marketing and digital value transformation looks beyond those point technology efforts, which have often centered on targeted initiatives and route process automation.
00:04:45:08 So, really fundamentally redesign how work is done. We call this right to left thinking, starting with the outcome in mind and reimagining, and then value change and delivering what we call value drops. So that the transformation becomes self-sustaining. In one example, we had a client who was seeking to improve their bad debt expense, and it was growing faster than they could sustain.
00:05:10:21 They had a half dozen teams working on this for a number of months, each looking at a single piece of the process. What we helped them do was to rethink the end-to-end process that cut across functions in different areas of the business, and unlocked simple interventions that helped them prevent bad debt from happening in the first place. So, this is a very powerful and pragmatic approach to getting value from tech.
JENNY COLAPIETRO:
00:05:34:27 That's great. So that's digital value transformation. You also mentioned enterprise agility. And I'd like to shift gears and discuss how the workforce will evolve to support these new strategies. Luna, can you share how med-tech companies create a workforce culture that supports enterprise agility and enables quick, high-quality decision making?
LUNA CORBETTA:
00:05:57:07 At its core, enterprise agility refers to the ability of an organization to adapt and thrive in a rapidly changing business environment. For med-tech, this means needing to make higher quality decisions faster and do it in a way that fosters a sense of empowerment and ownership at all levels. But how do you do that? Centrally, you cannot change behaviors through town halls, posters, and memos alone.
00:06:26:16 You need a movement. You need a movement that instills agility in daily ways of working to move quickly and effectively through these dynamic PDF or reinventions. Med-tech companies should focus on creating space for continuous learning and improvement. Give teams A and C and promote transparent communication. This starts by establishing a two-way street between leaders and front-line decision makers, each owning their respective roles.
00:06:57:23 There's a series of questions laid out in the paper. My favorites are how I set the right context and expectations? Do I make the decisions as a leader when I own it and allow others to do the same? Med-tech leaders have an opportunity to act now, focusing on their sphere of influence to enable an agile and entrepreneurial spirit with empowered decision making.
00:07:23:19 A couple of actions they can take include, make it real. Publicly share a personal story about a failed decision and demonstrate the behavior of failing fast and forward. Step out of the room physically and symbolically. Remove yourself from the decision-making process and firm, allowing your teams to own the decision with your support.
00:07:47:06 Role reversal. Delegate one decision per quarter to a direct report and my favorite, add humor. Establish team norms and introduce a physical signal. It could be a foam finger of your company logo that indicates there has been enough discussion at the meeting. It is time to make a decision and move on.
JENNY COLAPIETRO:
00:08:10:27 Thanks, Luna. I think those introspective questions were very interesting and I love the actions that you outlined. Now, the last area that we spoke about was M&A. James, can you share how M&A can unlock value and invest in the future?
JAMES WOODS:
00:08:26:10 Sure. And as Kevin mentioned, M&A really has been a core part of the med-tech playbook over the last decade. And nowhere is the sense of speed and urgency more relevant than in an M&A transaction. Over the last decade, the med-tech industry has consolidated significantly and were left with a fairly narrow pool of buyers competing for relatively few differentiated assets.
00:08:49:16 This has led to increased valuations and a heightened focus amongst acquirers on really delivering the value of the deal. So in our report, we highlighted four key areas for med-tech companies to focus on. The first is proactive portfolio renewal.
00:09:04:09 Companies should be regularly reviewing their portfolios, particularly after a sustained period of consolidation, to identify where a part of that portfolio may no longer be coherent with their strategy, and identify opportunities to unlock value through divestitures.
00:09:20:25 Now, within med-tech, divestitures are particularly complex due to global supply chains and quality and regulatory considerations. Companies should really take a proactive posture to realize both the strategic and financial objectives of the deal. Next, med-tech companies will need to think and act more broadly as it relates to M&A and inorganic growth generally.
00:09:42:08 As the industry continues to embrace new business models, med-tech companies will likely need to engage with a broader set of deal partners. And in this context, M&A will often not be the optimal or feasible way to complete a deal, and companies will instead need to evaluate collaborations, partnerships, joint ventures, and other deal structures that are common in biopharma and other industries but really haven't been widely adopted in med-tech.
00:10:08:22 While these types of structures can lead to a competitive advantage, they do also bring a host of complexity, ranging from setting the strategy to finding the right partner to governance structures. Third, we do expect an active med-tech M&A market in the future. Companies should take this opportunity to re-evaluate their diligence processes and confirm that they are still fit for purpose in the new environment.
00:10:30:22 Retooling diligence activities and deal analytics can help mitigate the risk of a blind spot that could lead to either overpaying for an asset or losing out on a deal by not fully considering potential sources of value. Lastly, med-tech companies should recognize that these new dynamics will likely require different integration strategies to maximize the value of a deal. In the past, commercial integration and execution has really been the primary lever for med-tech M&A.
00:10:57:05 This new era may require heightened attention to topics such as employee retention and culture the way Luna was speaking about before. Executing the right integration strategy will really be critical to success and ultimately delivering profitable growth from M&A.
JENNY COLAPIETRO:
00:11:11:21 Thanks for outlining those, James. And so, let's wrap it up. Kevin, I think for folks in our audience who are looking to take the next step, can you share what comes next?
KEVIN MCLELLAN:
00:11:21:14 Sure, Jenny, and thanks for the conversation. I think we all believe this is an incredibly exciting time for med-tech. And there are three things I would leave our listeners with. Number one, challenge the ROI on every tech investment. What did you really get? It's not too late to go back and unlock that return. Second, the world is moving faster than it ever has, but slower than it ever will be.
00:11:46:19 And management teams are waking up to a new reality that is a tech-based innovation curve. That means enterprise agility is really important. And the question I would have you ask your teams is, are you and your team moving that fast? And third, the deal market’s back. What place should you get going on today? Perhaps there are things that you've had simmering, but the market is moving and it's an exciting time in the deals market.
JENNY COLAPIETRO:
00:12:11:03 Wonderful. Well, James, Luna, Kevin, I want to thank all three of you for joining us today and sharing your insights. This has been great.
JAMES WOODS:
00:12:19:10 Jenny, great to be here.
KEVIN MCLELLAN:
00:12:20:24 Thanks for having us, Jenny.
LUNA CORBETTA:
00:12:22:01 Thank you for having us, Jenny.
JENNY COLAPIETRO:
00:12:24:12 For more on these topics and other health industry insights driven by policy, innovation, and care delivery changes, please subscribe to our podcast at pwc.com/US/NextInHealthpodcast. Until next time, this has been Next In Health.
UNIDENTIFIED SPEAKER:
00:12:48:25 This podcast is brought to you by PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This podcast is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
