Ernst & Young’s 2023 Pulse of the Industry medical technology report may not have been overly positive, but medtech executives certainly are.
The EY report highlighted sluggish revenues and post-COVID-19 corrections leading to a growth decline. In fact, it was the lowest growth in medtech since 2015. Roughly half of medtech stock price gains realized in 2021 were wiped out by the end of 2022.
However, leading medtech executives, including Stryker CEO Kevin Lobo, only see upwards.
“I feel as bullish as I’ve ever felt in my time in medtech,” Lobo declared.
Lobo, Abbott EVP of Medical Devices Lisa Earnhardt, Smith+Nephew CEO Deepak Nath and Edwards CEO Bernard Zovighian all have positive outlooks for the space. They outlined their views on a panel based around the EY report Monday at The MedTech Conference in Anaheim. (Seeking more insights about the medical device industry’s future? DeviceTalks West is next week in Santa Clara. Register here.)
EY Global Medtech Leader Jim Welch led the conversation. While the revenue and valuation numbers reflect a disappointing year, Welch and EY point to technological advances and reinventions as potential growth drivers as medtech moves forward. Lobo, Earnhardt, Nath and Zovighian all provided insight into how they view the space.
The leading executives touched on the popularity of GLP-1 drugs and what it means, connected care, regulatory, M&A and more.
Taking on GLP-1s
GLP-1 receptor agonists, like Ozempic and Wegovy, provide therapy for diabetes and weight loss. Beyond impacting the diabetes industry, questions have arisen over their overall impact on medtech. Companies like Intuitive Surgical saw bariatric procedure declines due to weight loss, for example.
Investor reactions, particularly when it comes to positive developments around GLP-1s, tend to go against the traditional medtech companies.
Lobo labeled the increased focus on GLP-1 “hysteria,” saying it’s an overreaction.
“Yes, there’s there’s a lot of noise out there, GLP-1s being one of them,” Lobo said. “There’s noise. But the underlying business is chugging along.”
Nath, representing another orthopedic giant in Smith+Nephew, called GLP-1s a wonderful advancement. However, he doesn’t have many concerns over the impact on his company’s business.
“There are other impacts that are part of medtech, but in terms of the business that I lead today, the near-to-mid-term impact, when you parse all the different factors, I see as being pretty limited,” Nath said.
Earnhardt was in a unique position on the panel in that her company could stand to benefit from the drugs. Abbott recently released data demonstrating a positive impact of GLP-1s on diabetes technology, such as its FreeStyle Libre continuous glucose monitor.
Despite clear positives from the drug class, Earnhardt doesn’t see GLP-1s as a cure-all.
“The fact that GLP-1s have shown they can help people lose weight and hopefully improve chronic conditions, especially those related to obesity, is a very good thing,” she said. “But, we have to recognize that it’s just one piece of what we know as a healthy lifestyle. Nutrition and exercise are contributors to our health. So, I think GLP-1s alone are very interesting and impactful. But, they will not be sufficient to solve the very big healthcare needs we have.”
The emergence of connected care in medtech
Connected care has been a hot topic in medtech for a while now, and plenty of discussions at The MedTech Conference have centered around it. (Read: ‘Love, yet fear’ — how medtech is stepping into the digital sphere).
Stryker, a company best known for orthopedic implants, has made its way into that space. Lobo cited the company’s 2022 acquisition of Vocera as a source of particular excitement there. He’s even more excited for the future in that arena.
“I think there’s going to be an explosion of opportunities over the next 5-10 years around connected care using data and predictive algorithms,” he said. “There’s just a tremendous amount of excitement that I see around digital robotics, data and technology, so a lot of our innovations, even in orthopedics. If you walk through an orthopedic congress now, you used to look, and all you’d see before were implants everywhere. Now, all you see are robots and screens with pictures and all kinds of uses of data. These are the types of innovations that are going to be, I think, exploding.”
For Nath, he sees connected care as offering solutions “broader than what we’ve actually ever imagined.”
He predicts this type of technology could fundamentally change things down the line across the board in the space. Data and robotics now play a huge role in orthopedics and medtech in general, and he believes companies need to react.
“What’s clear is our innovation models need to adapt,” Nath said. “The regulatory environment needs to adapt. How do you bring AI-based solutions? We have a role to play in that as companies.”
When asked about the risk perspective of bringing connected technologies to market, Zovighian said he doesn’t see it from a risk standpoint.
Zovighian, who took over as Edwards CEO in May, believes a connected ecosystem will be important and says Edwards will place a focus there.
“Being able to grow and connect with all of the stakeholders, physicians and patients, for them to become more aware, it’s going to be super important,” said Zovighian. “Even for a company like us, we see a big opportunity. This is going to change the way patients are going to be aware and going to be treated.”
Different approaches to M&A
Each executive offered differing viewpoints as to how their companies approach innovation, both homegrown and acquired.
Whereas Lobo and Stryker look to acquire commercial-level companies, Zovighian noted that Edwards hasn’t made a post-market acquisition in the last 10 years.
“We are investing 18% of revenue in R&D every year,” he said. “We’re also very active in pre-market acquisitions. … There are many different kinds of strategy. Both companies are highly successful. That’s an interesting way of thinking.”
Lobo said Stryker likes looking at acquisitions as “external R&D.” He lauds the company’s newer technologies created outside of Stryker, even while others questioned it.
According to Lobo, when the company bought Physio-Control, investors “were not shy” in telling him how much they hated the deal. But, he points to Stryker’s presence in emergency medical technology settings, like ambulances and firehouses. According to Lobo, that specific business has turned in double-digit growth since the $1.3 billion acquisition in 2016.
With eyes on connected care and digital, Lobo says he envisions Stryker buying “a pure digital company in the next five years.”
“That’s our philosophy,” Lobo said. “That kind of mindset makes us very open-minded to whatever technologies. We’ve been migrating more toward digital just by osmosis, but by trying to figure out what can create better value. And I think that trend isn’t going to slow down.”
Earnhardt and Abbott, meanwhile, fall somewhere in between the strategy of Stryker and Edwards. Despite a tendency to develop within, she pointed to recent buys of CSI and Bigfoot Biomedical as evidence of Abbott’s willingness to look to the market.
“At Abbott, we tend to focus more on organic opportunities under the fundamental belief that we were organized to really understand and have deep relationships and insights on the customers who we serve,” she said. “That’s typically our first order of business. But, that said, we’re always looking at make versus buy.”
Other quotes worth reading
“I think the game has changed. The era of medtech kind of having a very finely tuned ear to the preferences of physicians, we’re not past that. There are multiple stakeholders that we need to meet, to listen to, to get back to solutions that we have to come together to provide for healthcare systems. For us, as we develop solutions, by nature, you have to think across multiple specialties, keeping in mind the administrative bother that has an important role to play. — Nath on changes in healthcare systems
“When you talk about partnership, and thinking differently, I always say healthcare is a team sport. We are never going to be the owners of all the data. It’s a matter of what is the best form and method to convene and then who are all the stakeholders because, at the end of the day, we need to keep the patient at the center of what we do. We need to make sure we’re bringing the right information to help them lead their best lives.” — Earnhardt on different parts of the organization working with one another.
“In this industry, we never had to worry about [chip supply] before. This crisis was a wake-up call, especially around our power brands. We’re now at a point where the worst is over, certainly from having to spot buy these things from these — I call them — drug dealers, charging whatever prices they want for things. But, when you’re addicted, what do you do? So, we took it on the chin big-time last year.” — Lobo on supply chain and chip issues
What we were doing in the past is still very important. Having the best technology, clinical evidence, training physicians, it’s still important, we see that. But, now, we need to communicate with patients by giving them awareness about the disease.” — Zovighian on keeping patients informed