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MedTech industry valuations to suffer with economic headwinds

The most well-known medical technology products are, among others, pacemakers, radiotherapy machine imaging instruments, dialysis machines, and implants. The global medical technology industry’s market size was worth around €550 billion in 2021. Established centers of this industry include the United States and the Western Europe.

Over the last decade, low interest rates have driven record-high valuations, resulting in a trend toward larger and fewer merger and acquisition (M&A) transactions. Recently, deteriorating capital markets and rising interest rates have slowed M&A activity further as buyers and sellers struggle to agree on a fair value. Buyers, flush with cash, are expressing interest, but sellers continue to resist. We expect valuations will recede in 2023 as economic headwinds continue to affect the industry.

The industry’s revenue growth has accelerated, on average, during the past 10 to 15 years – much of the improvement has come from small- and midcap companies. In 2016, analysts’ consensus growth estimate for these companies was 11 percent CAGR; by 2022, it had topped 17 percent. For large diversified MedTech companies, growth expectations barely budged – from 4.6 percent in 2016 to 4.7 percent in 2022. Most larger companies remain overexposed to low-growth markets that depress overall growth rates and muffle the impact of innovative new products. High-growth markets do exist – in fact, 25 percent of the total MedTech market is projected to grow at 6 percent or more a year from 2022 to 2025. But the legacy businesses in the portfolios of large MedTech tend to distract them from these markets. The rising number of medical facilities will boost the demand for medical devices in the market. Various government initiatives, such as the Production-Linked Incentive (PLI) Scheme for Medical Devices 2020, and establishing medical parks will augment demand. The medical devices sector in India is projected to reach USD 50 billion by 2025.

The Indian medical devices market is driven by 70–80 percent imports from countries, such as the US, China, and Germany.

India and Russia have set the bilateral trade target at USD 30 billion by 2025. Trade is expected to increase by an additional USD 5 billion per annum, with opportunities in pharmaceuticals and medical devices, minerals, steel, and chemicals.

Medical devices are a highly attractive export area for US firms.

In July 2022, the government tabled a draft for the new Drugs, Medical Devices, and Cosmetics Bill 2022 to assure and offer thorough legal protections to ensure that the medical items sold in India are reliable, efficient, and up to the required standards.

In November 2021, the Indian Council of Medical Research (ICMR) collaborated with Indian Institutes of Technology (IITs) to establish ICMR at IITs by setting up Centers of Excellence (COE) for Make in India product development and commercialization in the medical devices space.

This sector has attracted significant investments over the years.

FDI inflow in the medical and surgical appliances sector stood at USD 2.71 billion between April 2000 and June 2022.

The 2020s are bringing many opportunities for the MedTech industry to generate value and growth beyond historic industry norms. MedTech companies, willing to do business in new ways and develop holistic approaches to meet their customers’ needs, stand to exceed industry growth forecasts and reap significant revenue rewards.

To achieve this growth, MedTech companies must move beyond the traditional playbook of incremental product improvements, narrow M&A activity, and investment in sales and marketing efforts. They must also take into account the rapidly changing healthcare ecosystem and the transformational effects of the Covid-19 pandemic, including supply chain disruptions, healthcare staffing shortages, shifting care settings, and the rapid uptake of digital health solutions.

MedTech companies must sustain their core businesses, but those seeking to capture growth beyond their traditional market share must navigate disruptive market trends, and partner with customers to help meet their larger needs and future goals. With vision, the industry can increase the number of truly new products and solutions that improve outcomes and lead to customers’ overall success. 

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