Dive Brief:

• A joint survey by AdvaMed and Deloitte of 22 medtech companies finds the industry is responding to pressure from market and regulatory changes by diversifying portfolios and accelerating time to market with new products.
• Nearly all respondents (95%) said increasingly complex global regulatory requirements are a top challenge for R&D over the next three to five years.
• Technology advances are creating competitive threats from non-traditional entrants to the market, but advances in sensors and digital technologies are creating opportunities to improve patient care and develop efficiency, according to the study.

Dive Insight:

The shift to value-based payment models and already tight profit margins are ratcheting up pressure on traditional medical technology companies, but the device makers are taking steps to adapt their R&D investment strategies in response, the AdvaMed/Deloitte study said.

Between 2008 and 2016, the return on capital for medical device companies dropped to just 6% from 14%, as pressure to reduce healthcare costs accelerates the shift to value-based payment models from volume-driven.

"For R&D leaders at medtech companies, these shifts have created an existential challenge that will likely require a new way of thinking, operating and doing business," the study said.

The industry lobby and the Deloitte Center for Health Solutions surveyed 22 midsize to large medical device, diagnostics and imaging companies between April and August 2018.

The survey found 64% of companies reported either discussing, piloting or implementing value-based contracts with payers or providers. A growing number of value-based contracts tie payment more closely to device performance and patient outcomes. Medtronic, for example, has an agreement with a large payer that links payment to the success of its automated insulin pump in lowering HbA1c levels in patients.

Responding to the challenges posed by the emergence of digital technologies, all companies (100%) in the study reported investing in device connectivity. But 77% identified integration of data from new technologies as a potential obstacle, citing lack of access to funding and skill gaps.

Many medtech companies are moving outside of their core competencies and incorporating sensors and software into devices and diagnostics to generate and transmit or share data. As a result, companies will need to invest in new technologies and partnerships to keep up with nontraditional competitors, the report said. Most companies (82%) surveyed plan to collaborate with non-traditional partners such as technology and healthcare companies.

R&D executives are focusing on the following priorities over the next three to five years: diversification of portfolios (86%), accelerating time to market (82%), leveraging real world evidence in product development (77%), and developing more digitally-enabled solutions and software (64%).