Medical technology companies will lose their competitive edge unless they quickly rev up innovation and adapt to a changing marketplace, according to a new report from PwC.
PwC's 2013 Health Research Institute report released today concludes that growth merely through product innovation is not sufficient.
Customers — be it hospitals, accountable care organizations, or individual consumers —now demand more in financial, convenience and health terms, said PwC, a multinational professional services firm also called PriceWaterhouseCoopers.
The firm says radical innovations to current business models are needed otherwise new players will claim a bigger stake in the $325 billion global medical technology market.
"Historically, medtech innovation has relied on incremental improvement," Christopher Wasden, managing director and global healthcare innovation leader at PwC, said in a statement. "But innovation needs redefining for an environment that rewards value — measured in affordable patient outcomes and customer satisfaction — over volume.
"True innovators learn from failure – fast, frequent, frugal failure," Wasden added. "Medtech leaders need to change their business models, their corporate DNA, to embrace lean innovation beyond their core operations."
The HRI report, national in scope, is of interest to states such as New Jersey, where pharmaceutical and biotech industries are key economic players. PwC defines medical technology as companies involved in diagnostics, disposable medical products, medical equipment, diversified life sciences, implantable devices, and other areas.
Debbie Hart, president of BioNJ, a trade group for the state's biotech industry, said New Jersey is well situated to respond to the report's findings because it has so many medical technology companies clustered here, creating collaboration opportunities.
"We have a lot of partners here, so they can do it on their own turf, in their own backyard," Hart said.
Hart added that the merger of Rutgers University and Robert Wood Johnson Medical School will create additional opportunities for innovation. State government policy also has become more supportive in recent years, she said.
"It is absolutely necessary that more be done when it comes to innovation," Hart said. "There's never enough money and never enough time because the opportunities are endless and the needs are endless. We need better syncing, better strategies and more funding."
The report also concludes:
- New competitors are staking their claim. At least 18 medical technology companies have entered this space and are driving technological innovation:
- Medical technology executives were almost twice as likely as executives across all industries to say that product innovation was their top priority in the coming year — 46 percent compared with 29 percent — and just 10 percent said that business model innovation was next year's priority;
- Medical technology executives expect more breakthrough innovations in services and business models, but just 14 percent said that they coordinate and manage innovation processes for maximum efficiency. Only 17 percent believe their companies are innovation pioneers;
- Medical technology companies have been slower to apply new social, mobile, analytic, and cloud technologies than other industries;
- Half of these companies appear to be using such technologies at least somewhat to engage customers and patients in managing their health and to enable remote monitoring;
- But only 11 percent are using them aggressively to create new business models that center on clinical and consumer dynamics. With outdated information technologies, companies might miss opportunities to meet demands of the next generation of consumers;
- Medical technology executives say finding the right collaboration partners is difficult. Currently, they work with customers or external partners on less than one-third of their products and services.
PwC interviewed more than 30 top executives and conducted a survey in summer 2013 of more than 35 medtech companies, almost half of which reported annual revenues of more than $1 billion. More than 50 companies total were involved in the research.
"Three things are essential to transform today's medtech companies for the future," PwC principal Ed Yu said. "Embrace failure — create an innovation operating model that separates breakthrough and radical innovation from incremental innovation. Embrace the disease — select a target area and collaborate with health industry counterparts to get closer to the patient. Finally, measure innovation in new ways with forward-looking metrics and connect the dots for shareholders."