The stage is all set for another good year in healthcare. Medical technology (medtech) and digital health are gaining traction with investors, insurers and governments (payers), and large tech companies are wading in to fund health technologies.
Over the past year, evolving trends have driven investment and interest in the sector. These show no signs of stopping.
The life sciences sectors traditionally consist of pharma – at roughly $1.1trn (£752bn) sales – the biotech sector ($290bn) and the medtech sector ($370bn). In recent years, the digital health sector ($90bn) has been added to the mix.
Recently, the medtech market has seen a significant upswing, witnessing very strong M&A activity in 2014-15. Medtech IPOs grew in popularity just as the biotech IPO boom, which started in 2012, was dying down.
A number of areas have received special attention from investors and strategists, especially in the fields of neurostimulation and cardiology. Neurostimulation devices are used to treat neurological disorders, such as Parkinson’s disease, and tend to show very good efficacy.
This space is among the fastest growing in the medical device industry, due to higher awareness of these diseases, an ageing global population and positive clinical data. Leading companies are building their neurostimulation franchises, usually by acquiring smaller firms. Recent deals include Sapiens Steering Brain Stimulation, acquired by Medtronic in 2014, and Spinal Modulation, acquired by St Jude last year.
In cardiology, many of the larger players are focusing on heart valves, particularly mitral valve disorders. Medtronic bought mitral valve replacement company Twelve; Edwards Lifesciences acquired CardiAQ Valve Technologies; and Abbott bought Tendyne and secured an option to buy Cephea Valve Technologies.
Another trend is that devices are edging closer to areas that were once dominated by drug treatments. Irish company Neuravi’s EmboTrap, for example, can mechanically remove a clot from a stroke victim’s brain.
Healthcare systems worldwide are under significant budgetary pressures, so the most attractive medical devices are those that improve the quality of care in a cost-effective way. For instance, innovative technology from IlluminOss enables the internal fixation of fractured bones, with improved outcomes for patients. Compared with traditional bone repairs, the cost saving is approximately 25 per cent.
Building on this trend, investment funds are focusing specifically on financing companies that are developing cost-saving technologies.
Digital health has also turned into a thriving business, especially in the US, with investors raising significant funds in the sector. In Europe however, this market segment is still in a fledgling state because of a number of obstacles.
One is the highly fragmented market. While most medical devices can be considered a one-size-fits-all solution in different geographies, a digital health solution that works in one country may not be a good fit in its neighbouring state due to differences in the way healthcare is delivered.
Secondly, a significant number of digital health products are positioned at the conclave between healthcare product and consumer goods, meaning they tend to fall between the cracks in terms of who should be paying for the product. European consumers tend to be unwilling to pay for healthcare products, while payers prefer not to extend their coverage to something they might consider out of their scope.
