Medtech Needs to Get Serious About Investing in Digital Health

Ernst & Young’s new Pulse of the Industry study stresses that medical device companies need to begin investing more in digital capabilities or long-term growth could be at risk.

Nearly a year ago, MD+DI asked the question, is digital health making an impact on healthcare? Now, a report from Ernst & Young titled Pulse of the Industry is answering that question and points out that if medtech companies don’t make significant investments in digital health capabilities then long-term growth could be at risk.

“Incremental innovation and products are just not going to be able to sustain [long-term] growth,” Jim Welch, Life Sciences Advisory Partner, Ernst & Young, told MD+DI. “I think the real opportunity for med-tech companies that are in a position to do this is to capitalize on digital transformation.”

Welch described digital transformation as devices that are increasingly connected. He noted that the consumers and stakeholders these digital devices serve are more connected and demand more visibility and outcomes.

"While the products have historically been the value driver for medtech … and we’re not saying they will go away by any means, but additionally the data and the digital connectivity of those products in and of itself is going to become a value driver,” Welch said.

 

A Race to Invest

Medtech isn’t yet where it needs to be when it comes down to investing in the digital health space, according to the report. Ernst and Young’s study also shows that outside of cardiovascular and diabetes management solutions, digital deal making was muted in 2017.

The Ernst & Young report goes on to say that US premarket approval trends bolster the notion that medtech companies have yet to fully embrace new digital capabilities: of the 43 PMA accepted by FDA since the beginning of 2017, only 16 include any digital health component.

“If we go back and look at the top 20 medtech companies and look at the 40 or so deals they did over the last few months, of those 40 or only seven were targeted in digital technology or digital health type companies,” Welch said. “We feel like this trend is going to and needs to increase.”

If medtech companies don’t pick up the rate of investment in digital health, then they could lose out on opportunities to larger much more robust technology firms. Already, these technology companies are at an advantage over medical device firms. The technology companies have the expertise in data analytics, customer engagement and service personalization required to deliver more satisfying customer experiences, are increasingly investing in new health offerings.

The report points out these include data-rich platforms that make it easy to share data proactively with consumers and providers to avoid adverse health events and optimize individual care management. What’s more, technology and retail companies have the ability to significantly disrupt the industry through acquisitions or partnerships.

“The competition for [digital health] acquisitions don’t just come from medtech, but also comes from technology companies,” Welch said. “The raw firepower they have from an acquisition standpoint is well beyond what medtech can currently sustain.”

A group of 10 disruptors, some of which have already entered the medical device or health market, possess nearly double the deal-making firepower of the entire US and European medtech industry ($1.9 trillion vs. $990 billion).

One of the 10 disruptors is Apple, which recently captured headlines with its announcement FDA gave a nod for heart monitoring apps for the Watch Series 4. In February the Cupertino, CA-based company announced it wanted to play a bigger role in the healthcare industry through new medical related apps that included its heart monitoring solutions.

Collaborations Are the Future

A saving grace for many medical companies could come from extensive partnerships and collaborations with companies that can provide strong analytics.

Back in 2014, Google began making headlines due to its collaborations that helped reshape healthcare. The company made the perfect partner for medtech firms, offering rich data analytic solutions. Around the same time as Google began its collaborations Samsung partnered with Medtronic to develop diabetes apps for the Minimed Connect.

At the time the industry labeled these companies “unlikely players” in the space, but that’s changing as both Google (through Verily Lifesciences) and Samsung have gone on to form numerous partnerships with medtech companies.

Welch said that medical device companies need to take note and realize collaborations and investments into these unlikely players will ultimately drive growth.

“I think there’s an opportunity for medtech companies to not only build up their own internal capabilities around data, but at the same time to invest in more collaborations with companies that may or may not be historically like them to gain insight into what consumers and patients are looking for,” he said.

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A value proposition might depend on proof of actual value. Who is investing in showing that these "innovations" actually improve healthcare and/or reduce costs for the same level of care? On the other hand growth might not actually depend on value, if you can sell stuff without proving that your stuff actually matters.