Dive Brief:

• Stagnant R&D investment, low revenue growth and slow adoption of digital and data technologies suggest that entrenched medtech companies are overly focused on short-term growth, even as the threat of large tech conglomerates entering the space grows larger, a new EY report asserts.
• The medical technology industry’s aggregate revenue grew to $379 billion in 2017, an increase of 4% over the previous year, down from an average of 15% average annual growth between 2000-2007.
• Medtech R&D investment of $15.9 billion remained "relatively unchanged" in 2017, totaling less than the $16.4 billion companies gave back to investors through share buybacks and dividends, according to the EY report.

Dive Insight:

The report comes shortly after Joe Grogan, associate director of health programs at the Office of Management and Budget, told reporters Thursday that the Trump administration is concerned about tepid U.S. private investment in the medical device space.

Grogan told reporters every option is on the table to help protect domestic medical device makers ranging from statutory and regulatory changes to increasing public communications between FDA’s Center for Devices and Radiological Health and industry.

“This is an industry that we dominate, and which the Chinese want to own completely. They have it a part of their national goal to really dominate the medical device industry. At one point we were the No. 1 country to launch a device first and now it is Germany. That is not a good trend, and we don't see as much private equity investment in the device space as we would like,” Grogan said.

As large technology firms enter the medtech arena, existing players must use data being collected from their devices to inform clinical insight, Jim Welch, EY life sciences advisory partner, told MedTech Dive.

"It feels like some of the bigger organizations are more focused on shorter-term shareholder value than pure R&D," he said.

"The value isn't anymore owning all the data, the value is in how you leverage and collaborate with other parts of the ecosystem to make that data meaningful for the patient," Welch said. "From our perspective, as you look at where companies are going around value-based healthcare, data is a key component of it. Ultimately you almost have to look at it as the clinical insights that come from data, that is as much as 'the product' as much as the actual medical technology of the device."

Of the 43 premarket approval applications accepted by FDA in 2017, only 16 contained a digital health component, an indication that companies are not focused on demonstrating value in the area even as it becomes more critical to gain reimbursement, according to Welsh.

But even as growth in the U.S. medtech market slows, China is on the rise; it is already the second-largest market globally, according to EY. While the number of deals coming out of the Asia-Pacific region dropped by 50% in 2017-2018, the total value of the deals went up about 18% to $4.8 billion, according to Welch.

Notably, China’s Weigao Group bought Argon Medical Devices for $800 million, and CDH Investments bought Sirtex Medical for almost for almost $2 billion, according to EY.