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Is MedTech Entering a New Era of Leadership and Purpose-Driven Innovation?

  • Effective MedTech leadership in the next decade requires adept navigation of companies through evolving markets, technological advancements, and simultaneous management of established legacy businesses
  • Historically, MedTech leaders have been drawn from a limited pool, potentially slowing effective adaptation to new technologies, and markets
  • This has allowed tech giants to disrupt the sector, emphasising a shift from the development of physical devices to integrated healthcare solutions
  • The 4th industrial revolution (Industry 4.0) is crucial in facilitating the transformation, breaking down traditional boundaries between medical devices, pharmaceuticals, software, and patient data
  • Executives with experience in service-based sectors adjacent to MedTech may be better equipped to lead, leveraging their tech-centric background to capitalise on digital technologies and big data strategies for successful adaptation and thriving in the evolving healthcare ecosystem
 
Is MedTech Entering a New Era of Leadership and Purpose-Driven Innovation?
 
MedTech leadership is at a crossroads, demanding a strategic overhaul to tackle unprecedented sector changes anticipated over the next decade. Navigating this evolving landscape requires reconciling traditional manufacturing expertise and cutting-edge digital capabilities. A forward-thinking CEO with digital acumen is pivotal for innovation, yet the complexities of manufacturing and stringent regulatory frameworks remain crucial. In response, it seems reasonable to suggest that a collaborative leadership approach would be optimal, pairing a visionary CEO with digital expertise alongside a seasoned COO well-versed in manufacturing and regulatory compliance. This, would not only alleviate the burden on a single leader but also combine the strengths of both domains, fostering a more resilient leadership model. By strategically aligning these skill sets, MedTech companies would be better positioned to adeptly bridge the gap between tradition and digital evolution amid the complexities of an increasingly competitive market.

Historically, MedTech leadership, drawn from a limited pool of individuals, may fall short in ensuring commercial success in the coming decade. The sector's reluctance to swiftly embrace emerging technologies has created an opening for tech giants to disrupt it, mirroring the upheavals witnessed in financial markets. To thrive, MedTech companies must shift from developing physical devices to strategically promoting integrated healthcare solutions and services. The 4th Industrial Revolution, (Industry 4.0) plays a pivotal role in this evolution, breaking down traditional boundaries between medical devices, pharmaceuticals, software, and patient data. It reshapes connections among the physical, biological, and digital realms within the healthcare sector, emphasising advanced data and digitalisation strategies.

In this paradigm shift, traditional MedTech executives may find themselves ill-equipped to lead effectively. Executives from adjacent service-based sectors, with a tech-centric background, seem better positioned to spearhead this transformation. Leveraging their expertise, these leaders can adeptly capitalise on digital technologies and utilise big data strategies to navigate and adapt business models. Strategic leadership from executives with a tech-centric background is essential for MedTech companies to survive and thrive in the future.
 
In this Commentary
 
This Commentary has two parts. Part 1: The MedTech Market describes opportunities and challenges within the evolving dynamic global market. Part 2: Navigating MedTech’s Evolutionary Challenges, examines the limitations of current MedTech leadership, suggesting a shift towards diverse skills, backgrounds, and perspectives. Future MedTech leaders need expertise in digital technologies, data analytics, and innovative business models, coupled with an understanding of global markets and a compelling sense of purpose to engage and inspire Generation Zs. Takeaways raise the likelihood that existing MedTech executives may be ill-equipped for upcoming industry transformations, highlighting the potential of leaders from service-based sectors with proven strategic agility and innovation.
 
Part 1
The MedTech Market

Currently, MedTech is undergoing a transformation, and shedding its traditional conservative image. The industry's growth is driven by various factors, such as the aging global population, an uptick in chronic diseases, and an increasing trust in medical devices among clinicians and consumers, which has fostered stronger collaborations between MedTech and pharmaceutical companies. Although the US and the EU continue to be significant contributors to MedTech markets, they face hurdles, including increasingly stringent regulations, shifts in reimbursement policies, and elevated costs linked to advanced medical technologies.
 
About two decades ago, foreseeing constraints, some large MedTechs like Johnson & Johnson (J&J), Abbott, and Medtronic, strategically established manufacturing and research and development (R&D) centres in emerging markets such as Brazil, China, and India. Back then, these markets were undergoing substantial growth, fuelled by burgeoning middle-class populations with an increasing demand for improved healthcare services. This situation not only presented strategic opportunities for continuous expansion but also served as a buffer against the escalating difficulties experienced by MedTechs in the more mature Western markets.
 
Despite facing challenges, the global MedTech market continues to be a promising arena for growth and innovation, extending its reach across diverse sectors and geographies. Projections indicate that its global revenues will reach ~US$610bn in 2024, with an anticipated compound annual growth rate (CAGR) of ~5.2%. This trajectory points towards a substantial market volume of ~US$748bn by 2028. The US stands as the primary revenue contributor, expected to reach ~US$216bn in 2024. Historically, MedTech business models have predominantly targeted affluent markets in the US, Western Europe, and Japan, comprising only ~13% of the world's population but holding a significant market share. This historical skew allowed MedTech leaders to focus their marketing efforts on healthcare providers in prosperous developed regions, benefitting from favourable fee for service reimbursement policies. Notwithstanding, recent years have witnessed a tightening of the wealthy Western markets.
In the coming decade, MedTech sectors in emerging regions are set to experience significant growth. For example, in 2024 China's MedTech revenues are anticipated to realise ~US$46bn, with a projected CAGR to 2028 of ~7.5%. This growth trajectory is expected to culminate in a market volume of ~US$61bn in the near term. In the face of dynamic shifts, MedTech leaders are confronted with the challenge of recalibrating their strategies to ensure sustained success amid challenging global politico-economic conditions and the use of more demanding outcome-based healthcare reimbursement models in traditional wealthy Western markets.


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Following a peak in late 2021, MedTech stocks faced a setback around mid-2022, losing a significant portion of the gains accumulated during the Covid-19 pandemic. By July 2023, growth had slowed, with MedTech valuations showing only a modest increase of ~22% compared to January 2020. During this period, trading multiples experienced a decline, dropping from a peak of ~16x in September 2021 to ~7x by mid-2023, falling below the industry's 10-year average of ~8x.
 
Although there have been some recent improvements, the 2023 EY, Pulse of the MedTech Industry Report raised concerns about challenges ahead for the sector. In the post-Covid landscape, the industry is grappling with significant hurdles, including a notable decline in public valuations and ~30% decrease in financing. These challenges manifest in various aspects, such as a downturn in special-purpose acquisition company (SPAC) deals, a substantial decrease in the total value of initial public offerings (IPOs), and a slump of ~21% in venture capital (VC) funding. Compounding these issues is a decline of ~44% in merger and acquisition (M&A) activity.
 
Traditionally, M&A has played a crucial role for MedTechs, contributing to scale, operational leverage, financial performance, product portfolio diversification, improved therapeutic solutions, and international expansion - all while maintaining core manufacturing structures and strategies. Moreover, post-Covid, revenue growth has experienced a significant dip, dropping from ~16% in 2021 to ~3.5% in 2022, and remaining flat in 2023. The anticipated future growth of ~5% may encounter challenges due to a potential scarcity of new disruptive product offerings. These challenges have implications for equity investment, which hit a seven-year low in 2023, declining by ~27% to ~US$14bn. Notably this impacts smaller, innovation-driven firms.

A positive recent trend is the rapid growth of digital health with expected global revenues set to reach ~US$194bn by 2024, with a projected CAGR of ~9% from 2024 to 2028, which would deliver a market volume of ~US$275bn by 2028. China leads in global revenue generation for digital health, reaching ~US$53bn in 2024. However, many large diversified MedTechs with legacy products in slow-growing markets have yet to capitalise on this trend.
 
MedTech stands at a critical juncture, navigating challenges that necessitate a strategic overhaul for sustained success. The decline in key financial indicators and the sluggish pace of innovation pose significant threats, obliging leaders to embrace transformative strategies and capitalise on emerging trends, particularly in digital health, to secure a resilient future.
 
Part 2
Navigating MedTech’s Evolutionary Challenges

Changes in the MedTech landscape introduce difficulties for executives striving to stay abreast of technological advances and transformative shifts, particularly in emerging economies. Compounding these obstacles is the prevalence of middle-aged men in leadership roles, perpetuating traditional management styles that may impede the necessary adaptations required for growth.

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Despite women constituting >50% of the MedTech workforce and significantly influencing healthcare decisions, they are underrepresented in executive positions. Addressing these disparities is not just a moral obligation but a strategic imperative to unlock the full potential by embracing diverse perspectives and talents. The historical contributions of women in healthcare underscores the urgency of closing the gender gap in MedTech leadership.
Further complicating matters is the median age of C-suite executives; ~56. This demographic nearing retirement, suggests that many company leaders embarked on their professional journeys before the pervasive influence of the Internet, email, and the rise of social media platforms, creating a technological generation gap. The sector's historical reliance on affluent markets in the US and Europe, coupled with fee-for-service healthcare policies, poses challenges in adapting to emerging markets and reimbursement policies centred on patient outcomes.
 
The integration of artificial intelligence (AI) and machine learning (ML) into medical devices adds another layer of complexity, necessitating a paradigm shift. However, this transformation proves challenging for traditional leaders, given that these impactful changes unfolded during the mature phases of their careers. Notably, out of ~691 FDA-approved algorithms functioning as medical devices, ~35% received clearance in 2022 and 2023. Despite the urgent need for adaptation, persistent leadership obstacles hinder progress, particularly in understanding and aligning with the fluidity of rapidly evolving technologies in new markets.
 
MedTech leaders face challenges in understanding the dynamics of emerging markets, especially in economically vibrant regions like Brazil, India, China, and sizable African nations. These areas experience economic development and a growing middle class, leading to increased demand for advanced healthcare. The global acumen gap is further intensified by a lack of first-hand experience among these professionals in these regions, presenting a hurdle to effective guidance. Consequently, many MedTech executives seem to struggle with delivering impactful direction, given the disconnect with transformative trends in emerging markets and advancing technologies. Addressing these perspective and knowledge gaps requires more than incremental adjustments; it calls for a shift in mindset and a recalibration.
 
Significant changes in MedTech call for a departure from traditional top-down directives towards an empowering leadership style. The sector now demands a new breed of leaders - tech savvy individuals with global experience capable of understanding and connecting with the needs and aspirations of Generation Z employees. This demographic shift in the workforce requires leaders who not only comprehend evolving technologies but also align with the values and expectations of today's highly skilled, young professionals. Beyond the pursuit of shareholder value, this demographic craves purpose-driven leadership and seeks companies with a clear sense of mission and societal impact. In this context, MedTech companies face a stark choice: adapt to lead with purpose or risk being left behind.
 
Takeaways

The future leadership of MedTech companies stands at a critical juncture as it is potentially faced with unprecedented changes over the next decade. While the necessity of a forward-looking CEO with digital acumen is essential for strategic innovation, the persisting challenges of manufacturing and regulatory frameworks highlight the need for a more collaborative leadership approach. To address this, we have proposed a strategic collaboration between a visionary CEO equipped with digital expertise and a seasoned COO skilled in manufacturing and compliance. It seems reasonable to assume that this would not only ease the burden on a single individual but also harness the strengths of both, fostering a more resilient leadership approach. Further, it recognises that navigating change demands a balance between embracing digital evolution and maintaining a strong foundation in traditional manufacturing and regulatory compliance. Future MedTech leaders must be able to bridge knowledge and perspective gaps, align with emerging technologies, and connect with the aspirations of the evolving workforce. The shift towards a more empowering leadership style, coupled with an understanding of Industry 4.0 principles and the dynamics of emerging markets, is essential for sustained success in a rapidly evolving market.

The urgency for MedTech leaders to adopt a forward-thinking, adaptable, and purpose-driven approach cannot be overstressed. The industry's capacity to allure and retain talent, foster innovation, and make substantial contributions to global healthcare pivots on a commitment to purposeful leadership and the incorporation of transformative strategies. In this demanding journey, the judicious collaboration between a forward-looking CEO and a traditional COO emerges as a strategic imperative, ensuring a comprehensive and resilient leadership model that can thrive in the next decade. 

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