Digitalization is driving massive change in the medical device sector which is still considered to be the main route to investing into medical technology (medtech). At the same time demographics put increasing strain on healthcare provision. The hope is that technology will allow cost-efficient delivery of high-quality, client-centred care to aging populations around the world.

 

Executive summary

 

Medical technology (medtech) is mainly investable in via the medical devices sector which has global revenues of around USD370bn per year which corresponds to ~5% of the total health care market worth USD7tr.

 

The U.S. is currently both the biggest market for medical devices (43%) and the domicile of the majority of the sector’s big players, but demographics are helping to boost the importance of emerging markets.

 

At the same time, digitalization is encouraging a shift in the industry’s focus, with individual devices complemented by a more holistic approach to care.

 

This is likely to attract tech firms and other digital entrants: existing firms in the sector may need to collaborate to access a range of skills.

 

At present, U.S. medical device firms’ current focus seems however to be on short-term growth, with medtech-related M&A currently at low levels.

 

These trends could benefit some firms in the medium term but may also create some risks, given strong valuations and marked outperformance relative to the broader market over the past two years.

 

Over the longer term, however, we see significant opportunities as the changes wrought by digitalization and demographics encourage growth and the provision of new high-quality services.

 

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