What makes a successful MedTech investment?

For many investors the strong growth prospects, resilient valuations and defensive nature of healthcare investments make this a very attractive market. Evaluate MedTech calculates $6 billion of venture financing was invested in 2019 and 2020, slightly down from the 2017 high of $7.8 billion.

The underlying fundamentals are persuasive. Ageing populations, increased prevalence of lifestyle diseases and focus on prevention rather than cure, all serve to drive demand. Add to this the increasing consumerisation of healthcare, from real time monitoring to personalisation, and it’s clear the industry is a fertile ground for some  transformational innovation.

Of course, investing successfully in MedTech is not without its challenges. A great idea does not necessarily equal commercial success. To understand the key factors investors should consider, Campden Wealth spoke with Michel Le Bars, M&A partner and Gabriele Vanoli, consulting partner, at Deloitte Switzerland, ahead of the Campden Wealth 31st MedTech Investing Europe Forum on 21-22 September, 2021.

Campden Wealth: Michel, as an M&A partner you see a lot of potential investments in the MedTech industry. What are the two or three key factors you believe determine success?

Michel Le Bars: The most compelling investments we see are where the management team really understands the market and knows exactly what need they are addressing, or even creating in some cases. They have a realistic evaluation of the market potential, supported by third party evidence covering global and regional growth rates for the treatable condition. They also understand how the market is segmented, and what the patient population looks like for the particular therapy.

Some MedTech devices, such as those which facilitate minimally invasive surgery, can open up new market segments as it becomes viable to treat patients at an earlier stage of the progression of their condition. A product which can effectively create its own market will clearly have an advantage.

Gabriele Vanoli : I agree with that Michel. We work a lot with some of the larger MedTech companies, helping them to define which segments of the market they should invest in and how to do it most effectively. The other element around market potential is understanding what drives purchasing decisions now, but more importantly, how that will evolve so the business can develop its value proposition.

Campden Wealth: Gabriele, you mentioned how purchasing decisions are evolving. Where do you see the most challenge here for growing companies?

Gabriele Vanoli: The MedTech market is changing rapidly, and innovation is not just limited to the products themselves. The best performing companies will be those who are already progressing from the current product supplier role and re-defining how they will operate in the future healthcare ecosystem.

We see this particularly in the evolving payment models, with flexible consumption through pay per use and value-added models with providers focusing on patient outcomes becoming more prevalent. This means product-centric solutions will see a steady decline, but this will be offset by increasing focus on service elements such as continuous monitoring, smart diagnostics and prevention.

Michel Le Bars: This is mirrored in terms of what we see around product innovation. The clearest area of disruption is through data and digitalisation, as always-on biosensors and software are incorporated into devices that can generate, gather, and share data. This elevates the device from a one-off investment to a service, feeding the trends of consumerisation and personalisation, and this will change how MedTech companies operate.

Campden Wealth: The level of innovation in MedTech is very high, accounting for 7.7% of patent applications in Europe in 2019, a level which has almost doubled in a decade. How can new products differentiate themselves successfully?

Michel Le Bars: Constant innovation is a primary feature of this industry but to be successful this has to be aligned to the commercial reality. Unless there is a substantial impact on how physicians treat a disease or significant cost advantages through reduced inpatient time, follow up treatment or lower cost to deliver, a product will struggle to make much impact on a crowded market. Cost pressures and increasingly centralised purchasing require quantifiable, significant benefit to gain clinician and purchaser support. Traditional product innovation will struggle to deliver this which is where we see these trends of digitalisation and personalisation coming through again.

Campden Wealth: So what does this mean for MedTech companies and their investors?

Gabriele Vanoli: To succeed and thrive in the future, we see three key competencies companies can focus on to define their role, with progressive levels of innovation. The first is to strengthen the core capability, focusing on sustainable cost advantage and cuttingedge product innovation and this will be the most heavily contested.

The next level of growth will come from expanding the offering, which requires an extension of the existing capabilities. Examples of this would be a “Medical-solution-as-a-service” provider, elevating the product to a holistic solution incorporating workflows, CRM and outcome monitoring.

Finally, at the highest level of innovation we see success will come from entering new spaces, particularly around harnessing the potential of ecosystem data.

Michel Le Bars: That’s true for nearly all the businesses we are currently working with. Their innovation focus is on how to move away from being a product supplier and become embedded in the patient journey. The holy grail of data interoperability will change the way the health conditions are managed, and interconnectivity will put consumers at the centre of managing their health. We think that this is where the most disruptive and successful companies will operate.

Campden Wealth is the leading independent provider of information, education and networking for generational family business owners and family offices globally in person, online and via research.

How Deloitte can help

For more than 20 years, Life Sciences companies have looked to Deloitte to deliver insights, outcomes and value. Our market leading team has an in-depth understanding of the Life Sciences sector across both M&A Advisory and Consulting, covering Pharma, Biotech and Medtech. We support clients in executing both small and large-scale transactions, and successfully delivered over 500 global M&A engagements across 5 continents last year.