By Glenn Snyder, principal, MedTech Practice leader, Deloitte Consulting LLP, and Paul Grand, founder and CEO, MedTech Innovator
Start-up medtech companies tend to be nimble, innovative, and hungry for investment dollars. These firms, and the products they have in development, can offer a glimpse into key trends that could shape the sector in the years ahead. On September 30, the two of us will participate in a panel discussion at AdvaMed's annual The Medtech Conference in Minneapolis. The panel will assess the future medtech ecosystem through a discussion with representatives from a leading medtech innovator, a strategic company, and an investor, and will highlight data from a new report from Deloitte that explores the trends shaping the future of medtech.
Last spring, Deloitte’s Center for Health Solutions teamed up with MedTech Innovator (MTI)—the world’s largest health care accelerator for medical devices, digital health, life science tools, and diagnostic companies—to evaluate trends across the medtech landscape. Deloitte analyzed MTI’s database of 1,000 start-ups that applied in 2021 to participate in the organization’s global competition for support from MTI’s accelerator program. We also interviewed leaders from start-ups and companies that could become strategic acquirers. The insight gleaned through the application database and our interviews provided us with a new lens through which we can view the industry. Our full report can be downloaded for free from Deloitte’s Medical Technology webpage.
Six trends that could shape the future of medtech
Many of the trends highlighted in this new report confirm some of our previously published hypotheses about the way the medtech sector is likely to evolve over the next 20 years. Importantly, the research helped us quantify some changes already underway. Here’s a look at six key trends:
- The series A bar has been raised: While investors might see tremendous potential in medical devices, they often aren’t willing to commit significant dollars without clinical evidence or near-term regulatory approval, our research found. Most companies pursuing Series A funding have products that are clinical or later in the development stage (66%). The average medtech Series A funding round is $4.85 million, according to MTI’s data. For devices in earlier stages of development, the average seed round was $1.31 million. There are also nearly as many pre-seed rounds as seed rounds, with an average pre-seed investment of $250,000. A newer funding option is Special Purpose Acquisition Companies (SPACs). These investment vehicles raise funds and then look to merge with one or more privately held companies. Over the past year, SPACs have grown in popularity in a wide range of sectors, including health care, according to Deloitte’s recent report, SPACs find new prescription in health care.
- Many start-ups are focusing on prevention, wellness, and diagnosis, rather than treatment: Medtech companies have historically developed devices that target specific therapeutic areas defined by a procedure (e.g., implanted devices). Many medtech companies are now expanding their portfolios to address the full patient journey—from diagnosis to rehabilitation. Nearly half of innovators in the MTI database (46%) have a focus on prevention and wellness and/or detection and diagnosis. Over the next 20 years, Deloitte expects there will be a greater emphasis on health and well-being and less focus on treatment. MTI’s data supports this—only 19% of innovators are including a focus on treatment. We expect that clinicians and patients will rely more on medical devices to detect disease in the earliest stages. In this Future of HealthTM, Deloitte also expects that consumers will gain access to their own health data, which could help empower them to make more-informed decisions.
- Digital health technology is getting smarter: Investors pumped nearly $15 billion dollars into 372 digital health care deals during the first half of 2021—more than all of 2020, according to a recent blog post from Deloitte's Peter Micca. Many medtech companies are developing a new class of digitally enabled technologies. This includes Software as a Medical Device (SaMD), algorithms, wearables, and other connected devices. According to MTI’s data, about 70% of start-up technologies include a digital-health component. Some established medtech companies might be interested in acquiring digital technologies developed by innovators. Digital-enabled devices can generate enormous amounts of patient data, which can be fed into machine-learning algorithms to provide insightful recommendations to clinicians and patients. Nearly 30% of MTI’s applicants that identify as digital say they employ artificial intelligence (AI) and machine learning.
- The site of care is shifting away from traditional inpatient settings: The COVID-19 pandemic helped underscore the importance of virtual health and alternative sites of care. We interviewed business-development leaders who are seeing a significant shift in where medical devices are used. In addition, many early-stage innovators are designing products for use in outpatient locations or in the home. Medtech companies could see increased price pressure on products that are used in lower-acuity settings. Interviewees told us that investors have become more knowledgeable about these challenges. This means start-ups should be prepared to provide investors with detailed information about payment and reimbursement.
- There is a growing commitment to diversity: Medical device manufacturers, like many companies, are working to improve gender, racial, and ethnic diversity among their executives. According to recent data from AdvaMed, 3.2% of medtech leaders are Black. Nearly all of the medtech executives we interviewed—and 83% of the companies in the MTI database—have diversity, equity, and inclusion strategies for talent. While about half of start-ups have women in leadership positions, only 16% have racial or ethnic diversity in top roles, according to our research. A diverse and inclusive health care workforce—both in clinical and nonclinical/corporate settings—can help improve trust and empathy and strengthen the connection with patients and communities, according to a new report from Deloitte.
- Incumbent medtech companies and start-ups are addressing health equity in their businesses and products: Systemic racism and socioeconomic barriers can make it difficult for some people to access devices or technology that could sustain or improve their health and well-being. Two-thirds of the companies in MTI’s database (67%) said they are designing products with health equity in mind. There are a number of ways medtech companies can make their products more equitable. We heard from one company that is incorporating data from a diverse set of patients to make its algorithms more representative. In addition, medtech companies should consider the price of their products so that they are affordable for community health centers, rather than just large hospitals and health systems. While technology can make it easier for people to connect to clinicians and care teams, the best and most advanced technologies might be useless for someone without access.
In medtech, start-up companies typically reflect the leading edge of innovation and will likely serve as the backbone for a strategic shift in the medtech industry. Looking at the industry through the lens of medtech innovators could give us a preview of what lies ahead.
If you are attending AdvaMed’s The MedTech Conference, please join us for our panel discussion Thursday, September 30, from 9:40am to 10:30am CT. Details are available at https://themedtechconference.com/2021-agenda/.
The “health” of our medtech innovation ecosystem as seen through the lens of MedTech Innovator
How is our medtech innovation ecosystem adapting to broader health care and business trends, and what are the implications on the future of our industry? Deloitte teamed up with MTI to research thousands of start-ups and derive key trends such as: to what extent is innovation shifting to prevention versus intervention? Are site-of-care shifts pushing more innovation toward retail/consumer? How are innovators addressing health equity and how is that affecting investment/strategic partnership strategies? Is corporate venture capital starting to boost the ecosystem? Our panel will explore these, and other questions based on our new research report.