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Ushering in 2019: Medtech’s Year to Come

Posted by Tobi Laczkowski on January 17, 2019



2777__2018Evolution_Blog_PostA new year has come, so it’s time to take a step back and make some observations about the industry’s 2018 evolution and provide some thoughts on how 2019 is shaping up.

Looking at the traditional medtech manufacturers, 2018 was generally a quiet year. The megamergers of the past few years (think Abbott/St. Jude and Becton Dickinson/Bard) and even the mid-sized acquisitions (Philips/Spectranetics, for example) simmered down in 2018. The mood among leaders appears to be mostly focused on “ingesting” the new organizations and aiming for strong execution of their respective business plans. For the M&A deals that did come to fruition in 2018, they tended to be on the smaller side.

Perhaps the steadiest firm for 2018 business development activities was Boston Scientific, completing a variety of “tuck-in” transactions in nearly every corporate division. Investors seem to be pleased with this strategy: In our analysis of more than 25 publicly traded companies, Boston Scientific was one of only a small handful with significant positive stock price gains in 2018. Others included Exact Sciences and Siemens Healthineers, although the latter only started trading separately than Big Siemens partway through 2018. Boston Scientific itself was the subject of merger rumors with Stryker mid-year, but nothing substantial has come of that. Given the increasing importance of a diverse portfolio, the important question for Boston Scientific going forward is whether it can continue along its “category leadership” strategy in a select few categories, or whether it will need to diversify into such service lines as orthopedics or imaging.

The overall stock market declined in 2018, and most of the medtech sector did the same, including companies in the diagnostics space. The two major lab diagnostics companies, Quest and LabCorp, each had more than 20% declines in their stock valuation. And Theranos went away completely, but for different reasons. Other segments, such as those with a heavy distribution focus—think Cardinal, McKesson, Owens & Minor, Patterson, etc.—took a particular beating, each declining by at least 33% and up to 69%. The looming specter of Amazon (whether alone or with its combined JPMorgan Chase/Berkshire Hathaway venture) will force those companies to change, or they may quickly become irrelevant.

Traditional medtech manufacturers have other concerns on the horizon, as well. New entrants such as Apple and Bose, both with their respective first FDA-cleared devices, kept the industry on its toes in 2018 and served as a wake-up call for many who believe that such a highly regulated industry would have impenetrable barriers to entry.

In the IDN/provider space, there has been continued consolidation, abated nearly only by regulatory bodies. In 2018, we saw mergers large and small, extending the trend that began several years ago. This includes completed transactions such as Advocate and Aurora, Bon Secours and Mercy, LifePoint and RCCH, and ProMedica and HCR ManorCare. And 2019 is already shaping up for more of the same, with mergers pending between Dignity and CHI, Beth Israel and Lahey, and Baylor, Scott & White and Memorial Hermann. In addition to the usual M&A talking points related to efficiencies, leaders of IDNs are turning their attention to longer-term population health topics. The combination of IDNs getting higher population share, as well as economic incentives beginning to have more of an outcomes-based orientation, is forcing—or allowing, depending on your perspective—IDN leaders to expand their mindset to broader topics. High-share IDNs such as Kaiser and Geisinger are broadening into services related to transportation, neighborhood safety, home visits and homelessness prevention. This presents an opportunity to diversified service providers to capture some of that business. Given medtech’s desire to strategically partner with IDN customers, which companies will we see expand their portfolio to match the IDN leaders’ new definition of value?

Here are my three tips for medtech companies as we enter 2019:

  1. Expand your mindset to find ways of adding increasing value. This can include doing a better job with your current products and services as well as diversifying into new areas. Really dig deep into your customers’ evolving definition of value, and design or refine your value proposition to serve them better than ever before. Some of the more holistic ideas mentioned above (transportation, safety, homelessness issues, etc.) could provide a much broader opportunity to innovate and add value.
  2. Keep your eyes on the “fringes” of the traditional market definitions. Apple, Bose and Amazon are just a few of the potential disrupters with their sights set on expansion into healthcare. Determine how you can beat ’em or join ’em. Increase your use of competitive strategy scenario planning and be agile in your business model.
  3. Be bold and experiment. The FDA has shown multiple signs of being more industry-friendly, as has other regulatory bodies. Stretch yourself to consider partnerships in areas that aren’t your core competency. Those can include customer-facing elements or back-office capabilities. The “safe route” isn’t very safe anymore.

As we head into 2019, I urge you to embrace the new opportunities. Despite the fear that uncertainty and change naturally will bring, take advantage of the opportunity to rethink your business, expand your value, and find the winning strategy to thrive in this market. Your ideas and hard work will not only lead to financial rewards but, more importantly, to healthier global populations, which we can all appreciate.


RELATED CONTENT 

BLOG POST: A View From the Other Side: Four Lessons for Medtech Startups From OutcomeMD

BLOG POST: What to Expect in Medtech for 2018


 

Topics: medical products and services, medtech, m&a, consolidation, mega-mergers, medtech commercial model, medtech innovation, 2019

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AUTHORS
Brian_Chapman_thumbnail
Brian Chapman
Principal,
ZS Associates
Tobi_Laczkowski_thumbnail
Tobi Laczkowski
Principal,
ZS Associates
Will_Randall_thumbnail
Will Randall
Manager,
ZS Associates
Matt-Scheitlin-London_thumbnail
Matt Scheitlin
Associate Principal,
ZS Associates
Andy-kach_thumbnail
Andy Kach
Associate Principal,
ZS Associates
Bhargav_Mantha_thumbnail
Bhargav Mantha
Associate Principal,
ZS Associates
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