• Significant revenue surge: After record-breaking growth of over 16% in 2021 — a level not seen since the pre-2008 financial crisis — sustainable headwinds are bringing performance back in line with previous years.
• Shifting financial landscape for MedTechs: Despite the sharp decline in the MedTech IPO market in 2022, venture financing is consistent across the sector.
• Outlook on industry investments: The sector continues to invest in long-term growth: In 2021, 71% of MedTechs expanded their R&D spending, and 77% bolstered headcount. However, executives are still treading cautiously with M&A as deal activity remains subdued and macro-outlook looms.
• Robust innovation: With over 1,800 U.S. Food and Drug Administration (FDA) approvals in the first six months of the year, 2022 is on track to see the highest number of FDA 510(k) clearances since 2012.

NEW YORK, Oct. 24, 2022 /PRNewswire/ -- The global medical technology (MedTech) industry hit record revenues from July 2021 through June 2022, but faces an uncertain future, as described in the 16th annual Pulse of the Industry report produced by Ernst & Young LLP (EY US). As the global pandemic subsides, MedTechs are adjusting to a complex environment, including geopolitical conflict, soaring inflation, currency volatility, recession fears, changing health care ecosystems and supply chain difficulties.

Arda Ural, PhD, EY Americas Industry Markets Leader, Health Sciences and Wellness, says, "The MedTech industry proved it is incredibly resilient, as we've witnessed throughout the past few years. While current geopolitical and economic challenges pose a threat, we believe public markets should rebound and MedTech will be in a stronger position than before. This is the time for MedTech executives to reimagine their business models and think of opportunities beyond the upcoming slowdown."

Pulse of the Industry captures the current state of the MedTech industry, as expressed in revenues, overall financials, spending trends, M&A, R&D and other factors. The report also outlines four key areas that will promote the industry's transformation, and it encourages taking calculated risks for future success:

• Embrace the shifting nature of MedTech innovation
• Adapt to new commercial models
• Design forward-looking supply chain strategies
• Recruit and retain a strong workforce

"As global economy is ripe with uncertainty, MedTechs are facing the reality of new challenges in their day-to-day business," Jim Welch, EY Global MedTech Leader, says. "While this can be a tumultuous period, the industry is healthy and continues to invest in itself. R&D spending is well above the past-decade average, new FDA approvals offer promise of more innovation and there's an opportunity for supply chains to be reinvented. If the industry can focus on making itself more resilient, there is a lot of optimism to be had."

As detailed in the report, extrinsic obstacles are challenging MedTech leaders. Total capital raised by the industry dropped year over year, falling 30%, which was particularly noticeable in the first six months of 2022. However, despite this fall from the record highs, the overall fundamentals of the industry remain strong. Staffing recruitment and retention have proven difficult, and a looming shortage of clinical care providers in the next five years will stress the health sector overall. The IPO market also took a dip from the record highs seen in 2021, and M&A dealmaking — while generating $77b in the 12-month period ending June 2022 — is below the average of the previous decade.

But despite these challenges, rebounds are likely on the horizon. The innovation revolution of virtual care presents significant opportunity to MedTechs. The accelerated acceptance of home-based care was largely due to COVID-19, but flexible care delivery offers many benefits. MedTech companies can serve vulnerable populations, increase detection of underdiagnosed diseases and deliver better outcomes. Additionally, rethinking commercial models and redesigning supply chains provides the chance to market devices in a new way and ensure that there will be less disruption in the future. Supply chain transformation will be another priority for the sector: The disruption to supply chains during the pandemic continues to affect the industry, with the shortage of semiconductor chips, and the rising costs of raw materials and labor representing ongoing challenges that MedTechs will need to address as they plan their growth strategies for the future.

Other key findings highlighted include:

• The therapeutic devices segment represented 61% of total pure-play industry revenues in 2021. Having undergone a slight (0.4%) contraction in 2020, the segment rebounded by posting an 11% gain in 2021, hitting $195.1b as the recovery in elective procedures drove major revenue growth in areas such as orthopedic (up 26% in 2021) and dental (up 17%).
• In 2021, commercial leaders launched $84.3b in capital across R&D, M&As and cash deployed to shareholders. The industry spent well above average on every one of these three activities, indicating high levels of capitalization in the sector.
• Around 36% of the $8.5b in venture capital raised during the 2021 and 2022 period came from early-stage funding rounds, in line with the average of 35% from the previous decade and up from 29% the previous year. The vast majority of the largest venture rounds of the 12-month period went to late-stage companies.
• The IPO market raised $4.4b in the period from 2021 to 2022, comfortably above the $3.3b average during the previous decade. However, almost all of this capital was raised in the first half of the year, with the first six months of 2022 adding only $76m to the total.

Overall, the health industry is encouraged by MedTech's innovations to help overcome the macro uncertainties ahead.

To read Pulse of the Industry, visit ey.com/pulse.

Notes to editors

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About EY Health Sciences and Wellness

The rise of the empowered consumer, coupled with technology advancements and the emergence of digitally focused entrants, is changing every aspect of health and care delivery. To retain relevancy in today's digitally focused, data-infused ecosystem, all participants in health care today must rethink their business practices, including capital strategy, partnering and the creation of patient-centric operating models.

The EY Health Sciences and Wellness architecture brings together a worldwide network of 34,000 professionals to build data-centric approaches to customer engagement and improved outcomes. We help our clients deliver on their strategic goals; design optimized operating models; and form the right partnerships so they may thrive today and succeed in the health systems of tomorrow. We work across the ecosystem to understand the implications of today's trends, proactively finding solutions to business issues and to seize the upside of disruption in this transformative age.

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