2020 was undoubtedly defined by Covid-19. For the global medtech industry the pandemic had many knock-on effects, both in terms of challenges and opportunities. Financial channels and M&A moves were severely hampered and healthcare providers’ necessary deferment of elective surgeries and major capital spending damaged revenue and cash flow for device firms supplying equipment in those areas.
Even the medical supply firms that have benefited from surging demand related to the pandemic – from diagnostic companies to personal protective equipment suppliers and ventilator manufacturers – will be aware that this revenue spike is a temporary one. Consequently firms must consider how they can turn a period of unprecedented but Covid-dependent demand into sustainable growth for the future.
With many countries still deeply in the grip of Covid-19 lockdowns and, in many cases, dealing with record-high case numbers and deaths, it remains to be seen whether 2021 will be similarly defined by the pandemic. Even amid the uncertainty, the medtech sector is mulling how best to bounce back from the crisis and the extent to which changes prompted by Covid-19 should become part of a ‘new normal’ in the industry.
Omar Ahmad, managing partner of global strategy and marketing consultant Simon-Kucher & Partners’ Danish operations, leads the company’s global HealthTech cluster. Here, he discusses the issues and opportunities facing medtech companies in 2021.
Chris Lo: What were the most challenging impacts of Covid-19 on medtech companies in 2020?
Omar Ahmad: For the companies that have seen sales go up, there are a lot of demands on the sales teams. For the ones that have seen sales go down, the sales teams are sitting around because there’s no demand.
I think if you start on the sales angle, obviously for those companies whose sales have gone up as a result of Covid-19, in those situations what we have seen is that the remote sales engagement model has to come to the forefront.
Medtech has been a people-to-people business – you go meet your key opinion leaders, you talk to procurement, you demonstrate the products and make the sale or agreement. Suddenly from doing that, you’re moving to doing virtual calls and having very limited contact, which has posed a lot of challenges for salespeople, who are used to living in the old world, in terms of engaging with customers.
And then there have been those companies – dental, orthopaedics – where elective procedures have dropped. What do you do with your sales teams? The smart companies have used that time to re-educate their sales teams to do those long-term projects as a way to best utilise the time.
On the cost side, there have been certain investment decisions made by companies that potentially had to be delayed or re-directed to relevant areas to drive growth. So obviously from a cash flow perspective there has been some management required from companies on how to manage costs. That has also brought learnings and some pain, including furloughs that some companies have done more than others. That has been a big challenge.
CL: In what ways has the pandemic changed working practices in medtech, and which of these changes are likely to become the ‘new normal’ in the sector?
OA: I think it goes without saying that face-to-face interactions, just shaking hands even – that will change. From a hospital perspective, being more clinically clean and trying to limit any additional spread of disease is going to be part of the norm moving forward. So I believe that some form of remote and digital engagement is here to stay.
The biggest change is also on the hospital side, regarding what I call the time of reconciliation. At some point someone needs to pay for Covid-19. A lot of money has been spent in healthcare with regards to Covid-19. Right now obviously investment and money are being pumped in because it’s a healthcare crisis. But once we get over it, there will be a time to ask, ‘Who pays?’ Where do we prioritise budgets, not only in terms of raising taxes but also prioritising money within [healthcare] settings and which procedures [are prioritised]?
As such this opens things up for value-based partnerships, economic partnerships, where it’s not just about sending a transactional product, but creating an overall solution that solves a clinical need, but at the same time has an economic benefit that allows [clients] to save money. That’s why we see all these digital apps and health tools generating a lot of demand.
CL: To what extent has Covid-19 exposed vulnerabilities in the medtech supply chain that need to be addressed in 2021 and beyond?
OA: There’s the back-end supply chain, so medtech manufactures that have their material suppliers and so on. What we hear is that has caused problems, because if you have one single-source supplier and they’re unable to deliver because of lockdown, it affects the whole supply chain moving forward.
From a supply chain perspective medtech companies are professionalising and making sure that in the future, they’re not just dependent on one [supplier] in case another crisis happens.
And then of course there’s the front-end supply chain from the medtech suppliers to the healthcare systems. That also needs to be secured – how do we ensure that our products can reach these markets and healthcare providers at the right time, in the right format, in a way that doesn’t cause a higher risk of infection?
I do believe there has been a strong focus on the supply chain, both on the back-end and front-end; medtech companies and hospital providers have learned from it, and are already putting systems in place.
CL: Do you think Covid-19 has helped to bring greater public attention to the vital role of medical devices and technologies in healthcare?
OA: I do think the whole Covid-19 crisis has brought healthcare to the top of the mind, and obviously medical devices are a means to provide healthcare. One of the biggest changes for me is prevention. Preventative testing and diagnostics – these things have moved to the forefront of a lot of people’s minds, which means there are opportunities.
From a medtech perspective it’s not just about selling products but also finding a way to improve prevention. If you’re in bariatrics, it’s not just about treating more obese patients, it’s about helping to reduce obesity.
A lot of these companies have various forms of dietary and preventive programmes. For hospitals, they don’t just want to partner to do more operations – they want the best products for the operation, but also they want help to manage and prevent through early diagnosis and testing. That will definitely provide opportunities, and I think digitisation will play a big part.
CL: What is the outlook for medtech manufacturers and equipment suppliers looking to raise funds or secure investments in 2021?
OA: We all try to imagine scenarios of how we come out of Covid-19. Now, obviously with the vaccines coming out – assuming we’re coming out of the crisis I believe things will pick up. If we’re set for further lockdowns, it will make it more difficult to raise money, especially for products for electives that are not critical at this point in time.
Having said that, with the private equity (PE) and venture capital (VC) companies we’ve spoken to, obviously just when the lockdown happened, they took a precautionary [approach] as the impact of Covid-19 was unknown. I believe a lot of PE/VCs have now learned from the crisis, and also know where to spot opportunities.
Bottom line, I do believe it will pick up. Obviously, we need to come out of lockdown, and obviously PE/VC companies are looking at opportunities to make some good investments in the right sectors, because the prices may have been suppressed.
Another important thing that investors have also started looking at is how a company has handled themselves during the crisis, as an indicator of how resilient that company is, in terms of cost management.
CL: In your view, what are the key ways that medtech firms can differentiate themselves from the competition today?
OA: On differentiation I come back to my first point – I think it’s about solution selling, value-based healthcare and offering digital services as a solution that’s beyond products. To differentiate oneself, provide the full solution if possible – if you don’t have the right size or partnership agreements, then make sure that your product has some linkage to economic benefits.
The concept of ‘this product is good enough’ is quite prevalent within healthcare. ‘Good enough’ means incremental don’t really drive the differentiation. It has to have benefits beyond purely clinical. That is probably the danger right now – this ‘good enough’ mentality will probably be more simplified because why pay for an extra innovation that only has minimal benefits? To differentiate, you have to go beyond clinical into economic benefits.
I believe companies will bounce back in the mid to long-term, but the companies that will really stand out are the ones that have some form of digital service or solution that adds economic value beyond the clinical benefit. For example, digital health; digital tools built around products that drive efficiencies at the hospital are where companies will succeed. If you look at the big companies, Medtronic or any of them, you can see how much they’re doing on value-based healthcare and digitisation versus others. The winners will be the ones who can tackle and target the change in dynamics in the ‘new normal’, and use digital technologies for their enhancement.