Innovative Bells and Whistles Won’t Maintain Competitive Edge: Report

October 25, 2013

To remain competitive and grow in coming years, devicemakers will need to develop products that offer their customers real, advanced utility, a new PricewaterhouseCoopers report concludes.

“[G]oing forward, the value of devices is no longer only in the actual product itself. It is in how companies integrate information and services to solve larger problems such as increasing operating room efficiency, reducing length of hospital stays, avoiding unnecessary readmissions and improving patient adherence and satisfaction,” the report says. “Yesterday a cardiovascular device company may have sold pacemakers; tomorrow it ought to sell heartbeats per minute.”

Staying ahead of the innovation curve is key to a devicemaker’s success — and to the industry’s health as a whole, PwC says. According to the report, investment in venture capital funds that support medtech declined by $1.2 billion from 2007 to 2012, and the number of deals completed each year plunged 20 percent. Over the same period, the annual revenue growth rate for the 20 largest medtech companies fell from 10.7 percent in 2007 to 4.93 percent in 2012.

PwC also warns of increasing competition from companies that traditionally haven’t been players in the medtech arena. The report cites 18 companies that have developed medical devices or diagnostics in recent years, among them Verizon, AT&T, Canon, Sony and Samsung.

For the report, PwC’s Health Research Institute surveyed 35 large medtech companies and conducted in-depth interviews with 30 company leaders. Sixty-four percent of the executives said innovation is a competitive necessity now, while 81 percent said it will be in five years.

Despite sluggish investment, the executives who were contacted predicted a 41 percent increase in revenue over the next five years. More than two-thirds (65 percent) of this growth will come from the existing organization, the execs said, with the remainder resulting from mergers and acquisitions.

While medtech executives were more likely than their counterparts in other industries to view product innovation as a top priority (46 percent versus 29 percent), they put less attention on the business side of innovation. Only 12 percent said they were “aggressively” using social media and other technological advances to promote new business models that focus on value outcomes, the report says.

One barrier is lack of reimbursement, which has hampered the uptake of remote patient monitoring despite its proven ability to enhance patient care, PwC says. Of the companies surveyed, just 18 percent said they are “very focused” on using social, mobile, analytic and cloud technologies to integrate patient-generated data into clinical workflows and electronic health records, the report says.

Medtech leaders expected most innovation to focus on customer experience and technology, with 28 percent saying their customer experience innovation would be “radical” and 25 percent describing it as “breakthrough.” In technology, 25 percent planned radical innovation and 36 percent planned breakthrough innovation. However, they also said innovation in all areas was 70 to 90 percent incremental.

PwC suggests that medtech companies develop new metrics to account for innovation at an operational level, noting that many have no formal structure to manage innovation. Only 14 percent of respondents said all innovation projects were “coordinated and managed for maximum efficiency,” while 72 percent said innovation was aligned from concept to market, the report says. Eleven percent said innovation was managed informally as needs arose.

Medtech companies could also benefit from more collaboration with customers and partners, PwC says. Roughly a third of innovative products and services in the respondents’ companies were co-created with customers and 22 percent were developed with the aid of external researchers, the report notes. Working with partners to develop products that patients will be comfortable using could spur hospitals and other purchasers to select one company’s product over a competitor’s, the report says.

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