The medical technology (medtech) sector of the health care industry has been highly attractive to investors for more than a decade, delivering total shareholder returns of nearly 350% between 2001 and 2015. In the first few years of the 2000s—the golden age for medtech—sales grew by double digits. But sales growth has leveled off considerably in recent years and now hovers at around 4%. (See Exhibit 1.) There are many reasons for this, including the pressure to reduce health care costs, the increasing power of economic stakeholders in purchasing decisions, more consolidated and sophisticated health systems, new low-cost competitors, and the ubiquity of information with which to assess value.
Despite slowed growth across the health care industry, market forecasts for the medtech sector—as measured by investors’ expectations and growth predictions—are still high: between 2009 and 2015, valuation multiples rose 42%. These high expectations are justified in part by the sector’s healthy earnings before interest and taxes (EBIT) margins, which have remained steady at approximately 20% over the past decade.
Times are still good for medtech—but the health care industry as a whole is undergoing a period of significant change. These changes could create a downward spiral for companies that cling tightly to business as usual. But those that build their capabilities and adapt their business models will find enormous opportunities to grow and thrive. In this report, we identify the major forces that are reshaping the industry and outline the transformative actions that medtech companies should take in response to them. We also describe how to manage such a transformational effort. By leveraging BCG’s proven transformation framework, medtech companies can improve their financial positions, close performance gaps, and establish a winning position.