How is 2023 shaping up for you—a year of opportunity or one of challenge? I suspect the answer may be a bit of both, given the state of flux in the industry and the pressing need to be more pragmatic in responding to market conditions. Here are the medtech trends I’m seeing:
We’ve watched a steady stream of big, bad tech companies coming for our dollars. They were well funded, with large developer teams and long-term investment horizons, and looked like a formidable foe. While I can’t declare an all clear, I think we can climb out of the foxholes and recognize there has been little damage.
We’ve seen that digital health startup funding is way down, consistent with headlines about Google shuttering many ventures. We’ve smirked at the challenges of Apple’s emergency call functionality and generally learned that things aren’t so easy. Amazon has made some big plays in the space, but I remain unconvinced that a primary care chain or pharmacy fulfillment is any more disruptive than owning Whole Foods. Bold words, but they come from a pair of observations:
First, rising interest rates and a flight to quality have hampered technology companies and their long-term view. One of my favorite articles in The Wall Street Journal was “Big Tech Stops Doing Stupid Stuff.” Written to be provocative, it resonated for me. Come on guys, stay in your own lane.
Second, I think we’re finally learning the provision of healthcare isn’t really a scalable business, at least not how we’ve set it up in the U.S. Fragmented integrated delivery networks with abysmal data-sharing protocols, payers who follow patients only for a few years, hospitals whose episode of care is over when the calendar is changed and doctors whose patient load seems devilishly designed to minimize personalization. Healthcare is local, so where exactly does software get scale?
As investment climates force tech companies to prune their ambitions and focus, programs struggling to achieve scale in a hyper-local environment are simply not panning out. Maybe the coast isn’t clear, but I think medtech needs to step up our game and reclaim the space.
Last year AdvaMed asked me to put together a panel for the CEOs’ unplugged stage. I really enjoyed the conversation, but it wasn’t lost on anyone that the innovation we discussed was almost entirely focused on the procedure instead of the product.
We see the ultimate manifestation of procedure over product in robotics. Million-dollar capital equipment and enormous development programs—all dedicated to making a procedure more repeatable, faster, easier to train or less exhausting to perform. But at the end of the day, the implantable really isn’t that different. Visualization and video capture are another example of how the fundamentals aren’t different, but the promise comes in the improvement of the procedure.
So when you focus on procedural innovation, especially when adoption represents a commitment made in an operating room (OR), there are important implications on a race for real estate. Robots take up ORs, where there are limited DVI ports for video capture. Hospitals will buy only one OR integration system. It strikes me that the implication of focusing on procedure might very well bring with it certain scale and network effects we don’t see with products. Watch out for sharp elbows.
I realize I’m making this point amidst a wave of layoffs and cost cutting, so apply a grain of salt. Nonetheless, I think the tech retrench and enough painful lessons might mean that, in 2023, we’ll see more maturity in digital health strategies with less playing and more serious intentions. This would be welcome because industry efforts to date have been mixed. I see important indicators of maturity and am hopeful the lessons are starting to make an impact on the overall approach.
First, it’s time to turn disconnected digital assets into commercial ones. Companies have been in acquisition mode the last few years, amassing a set of digital health companies and capabilities that have yet to be integrated into a core strategy. The prevailing notion has been “The Island of Misfit Toys” as organizations acquire things that could be useful. With less money to spend on acquiring more toys, it’s time to start figuring out how they fit together to create value. It’s that moment on Christmas morning when all the toys have been unwrapped and the kids get down to the serious business of playing.
Another key concept is the pivot from “value” to “willingness to pay.” This might seem like a nuance, but it’s critical in digital health. What I have been seeing is a great many solutions that create a lot of value for a lot of people but no clear notion for how to monetize it. Of course a solution that improves rehab creates a great deal of value for patients and payers. An early warning solution that helps prevent hospitalizations is valuable to payers. Augmented reality for training surgeons is exciting, but who should pay for it? Beyond creating value in a theoretical sense, how are these solutions monetized? As we mature as an industry, we’re learning to take a deeper look not just at theoretical value but also at willingness to pay and mechanisms to monetize that theoretical value.
Robotics provides an illustrative case example. The entire field has many entrants and some big incumbents vying for a rapidly growing market. But before we get too excited, what growth will sustain this market? If reimbursement isn’t changing, and additional patients aren’t being treated and throughputs aren’t any higher, where is the money coming from for this growing market? While I’m not suggesting there is no value, I want to encourage a careful examination of where it is and who should pay for it.
I have been working in medtech for nearly two decades. In that time, China has been an uninterrupted success story. We’re finally coming to grips that this run is over. Made In China 2025 was announced seven years ago, so we theoretically could have seen this coming, only we preferred to imagine this was the one area the Communist Party of China didn’t actually mean what it said.
In 2023 we finally admitted that the unfettered ambitions and unmitigated growth story of China has been clobbered by volume-based procurement. Companies are breaking out China from the rest of Asia because the financial impact is large enough to hide positive signals from the rest of the region.
This is a big deal, although I think there is a bit of wishful thinking for a happier outcome. I heard a CFO talking about "working through the impact of China on the income statement” in a manner that sounded like a transitory effect instead of a structural change. While my colleague has a more nuanced view of the situation, I think we’re finally starting to wake up to the full impact. Even looking at some of the more important recent growth drivers in the global market (such as soft tissue robots and structural heart), China already has a robust market of incumbents before western multinationals even enter. So in 2023 we must come to grips with the moderation of the China dream.
There’s one other thing worth mentioning in this discussion. While the impact of China on the home markets of many Western multinationals doesn’t appear to be enormous, there is a mounting competition for the rest of Southeast Asia. While firms are starting to internalize the impact of losing the China market, I feel the impact on the rest of the Southeast Asia market is underappreciated.
To call 2023 “a year of focus” is a euphemism for a year when medtech went through unprecedented downsizing. It’s coming. I don’t think we have been through this in our past, at least not in my two decades in the industry. What we’re dealing with is a toxic brew of:
- Difficult post-COVID-19 comparables
- (Too) big ambitions for growth
- Rapid cost inflation and an immature ability to pass it on
- Severe shocks to a relatively weak supply chain
- China impacts
So what will this mean for us? I think we’re learning we need to trim certain ambitions, whether in digital health, portfolio expansion, market development or functions such as marketing and market development—which frankly are not nice to have. Business development is curtailed at the moment.
We’re learning to streamline the portfolio in the midst of a significant number of spin-offs, and we’re learning to be smarter with acquisitions. A key lesson from the supply chain challenges of the early 2020s will be the need for more aggressive life cycle management and sunsetting of old products. Somehow we forgot that trying to produce thousands of SKUs may not be sustainable.
Another bet that isn’t panning out is bets on scale. We’re learning the limits of how customers want to purchase. We’re (yet again) learning to meet customers where they are and not impose our structure on them. I think some of these ill-advised experiments in scale will be shown for what they are and usher in more customer- and service-line-centric approaches in 2023.
I don’t want to end on a sour note. In my humble opinion, the correction is too severe, curtailing the strategic capabilities we need to raise our game. But it also brings an opportunity to streamline programs that never were going to deliver, curb ambitious organizational structures that weren’t going to pan out and focus on programs that drive results. I wish we had more margin for error, but the return to basics is an opportunity to come back in a much stronger position in the future. Let’s go.