June 20, 2024

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4 megatrends driving the future of medtech

Medtech companies can capitalize on these trends by embracing innovation, prioritizing strategic partnerships, and implementing a proactive approach to AI adoption and IP management.

By David J. Dykeman and Roman Fayerberg, Greenberg Traurig

Adobe Stock image shows a masked and gowned surgeon with robotic surgery arms around him using some kind of augmented reality program hanging in the air to symbolize artificial intelligence and medtech.

[Image from Adobe Stock]

The medtech industry is positioned for continued growth as the aging world population faces many unmet medical needs. According to market analysts, industry revenue is predicted to grow to nearly $600 billion in 2024, with the cardiovascular, orthopedic, neurological, urological, and diabetes sectors driving that growth.

Several trends are shaping the medtech industry, presenting opportunities and challenges for both early stage and established medtech companies. From raising capital to building a strategic intellectual property (IP) portfolio to the growing influence of artificial intelligence (AI), below are four megatrends impacting medtech.

1. Funding challenges persist

Today, venture capitalists are highly selective and more discerning in choosing and valuing their medtech investments. Fundraising is challenging, particularly for early stage medtech companies, as institutional investors are prioritizing existing investments, risk mitigation, and more immediate returns on their investment capital.

Investors are placing greater emphasis on factors such as clinical evidence, large market opportunity, product differentiation, and scalability. Medtech companies with innovative technologies backed by robust clinical data for a major unmet medical need are more likely to secure funding, while those lacking substantive evidence may face heightened skepticism and greater difficulty raising capital.

When traditional venture capital is scarce, medtech innovators should explore alternative funding sources to fuel their growth, such as family offices, strategic industry partnerships, government grants, disease foundations, and non-dilutive funding opportunities. By diversifying funding sources, medtech companies can advance product development, mitigate risk, maintain greater control over their IP, and access capital that may otherwise be unavailable through conventional channels.

2. M&A activity intensifies

While the IPO window in the public stock markets remains closed for the medtech sector and fundraising remains challenging, mergers and acquisitions (M&A) have become the primary exit strategy for medtech companies. Several factors are driving M&A deals, including investor confidence, market consolidation, high regulatory and compliance costs, and global expansion. In the coming months, M&A activity should intensify as companies seek strategic alliances to drive growth and market expansion.

To position themselves as attractive M&A targets, medtech companies must prioritize de-risking their commercial, regulatory, and IP strategies. Large medtech companies have money to spend on M&A deals, and many major players have signaled an appetite for M&A targets that will increase revenue. Due diligence for M&A is becoming deeper and more thorough, so both buyers and sellers need a comprehensive understanding of market dynamics, the competitive landscape, and potential synergies. Companies that proactively address these considerations will be better equipped to successfully navigate the M&A process to find the best acquirer at a desired valuation.

3. AI is ubiquitous

AI is transforming the medtech industry by driving innovation and efficiency. While AI-powered image recognition has been used in radiology for some time, the use of AI has been expanding into other areas of medtech. AI solutions offer unprecedented opportunities to streamline healthcare delivery and improve R&D, clinical trials, patient testing, diagnostics, and personalized treatment. Connected devices and telehealth platforms are increasingly prevalent, facilitating remote patient monitoring and enhancing accessibility to healthcare services.

Despite many benefits, the integration of AI into the medtech industry presents unique challenges. While the FDA regulatory pathway has become more predictable for the implementation of AI in recent years, privacy and security concerns regarding patient data must be addressed to ensure compliance with state and federal standards such as HIPAA. Additionally, there is a need for robust validation and testing processes to ensure the safety, reliability, and effectiveness of AI-powered medical devices. The increasing use of AI could cause the emergence of product liability lawsuits rooted in defective product design, unreliable code, or bias in training data.

Investing in AI capabilities is important to remain competitive in an increasingly digitalized and crowded healthcare landscape. Medtech companies must embrace AI advancements and harness the power of data analytics to drive actionable insights and clinical decision-making to improve patient care. Innovative AI solutions with proven efficacy can also help medtech companies raise funds.

4. IP propels success

In a competitive medtech market, IP serves as a cornerstone for differentiation and value creation. Building a strategic IP portfolio encompassing patents, trademarks, and trade secrets is essential for attracting investment and facilitating M&A transactions. A well-protected IP portfolio de-risks technology and enhances company valuation for investment and M&A.

Investors are drawn to companies with strong IP portfolios. These portfolios signify a commitment to innovation and represent potential revenue streams through product sales, licensing agreements, or royalties. A robust patent portfolio is also a barrier to entry for competitors, safeguarding market share and bolstering the attractiveness of investment opportunities. Investors recognize that companies with a solid IP foundation are better positioned to weather market uncertainties and capitalize on market trends, making them compelling prospects for funding.

Similarly, IP serves as a key driver of M&A transactions. Acquiring emerging companies with valuable patents or proprietary technologies can provide immediate access to cutting-edge innovations, shortening the acquirer’s time-to-market and enhancing its competitive advantage as a larger company may be in a better position to enforce the newly acquired patents. IP assets can be leveraged as bargaining chips during negotiations to influence deal terms and increase deal valuation.

For smaller medtech companies, acquisition by a larger company offers a pathway to liquidity and scalability, allowing them to monetize their intellectual assets and gain access to resources and expertise that can fuel further innovation and growth. By strategically acquiring companies with complementary IP portfolios, larger medtech players can consolidate their market positions and fortify their place as industry leaders.

Companies should adopt a proactive approach to IP management, focusing on innovation, patent filing strategies, and enforcement measures. Collaborations with research institutions and strategic partners can further bolster IP assets, fostering a culture of innovation and driving company growth.

The future for medtech looks bright

A portrait of David Dykeman, a lawyer at Greenberg Traurig

David Dykeman [Photo courtesy of Greenberg Traurig]

These four trends will continue to shape the medtech industry for years to come. By embracing innovation, prioritizing strategic partnerships, and implementing a proactive approach to AI adoption and IP management, medtech companies can embrace these trends and emerge stronger in the evolving healthcare ecosystem. Staying agile and responsive to market dynamics will be essential for driving sustainable growth and delivering value to patients and stakeholders alike.

David J. Dykeman, who serves as co-chair of Greenberg Traurig’s global Life Sciences & Medical Technology Group and as co-managing shareholder of the firm’s Boston office, is a registered patent attorney with over 25 years of experience in patent and IP law. He focuses on securing worldwide IP protection and related business strategy for medtech clients, with particular experience in medical devices, robotics, life sciences, and digital health.

A portrait of Roman Fayerberg, a patent attorney at Greenberg Traurig.

Roman Fayerberg [Photo courtesy of Greenberg Traurig]

Roman Fayerberg, who serves as co-chair of Greenberg Traurig’s Boston office Intellectual Property practice group, is a registered patent attorney with broad experience helping clients to strategically protect and leverage their innovations globally. He has represented clients ranging from startups to global companies in a variety of technical areas, including medical devices, robotics, diagnostic and imaging systems, microfluidic devices, and biotechnology.

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The opinions expressed in this blog post are the author’s only and do not necessarily reflect those of Medical Design & Outsourcing or its employees.