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Medtech Innovation Lifecycle
Management Framework - Preapre
for an Innovation Makeover
Discussion in Mexico City
April 2014
Medtech needs to innovate differently
2
The market is demanding a different approach to
innovation
1
R&D-focused innovation no longer generating as much growth and profitability
2
3
Increasing competition from emerging markets and new entrants
4
Regulatory reform demanding value not volume
5
6
PwC
VC funding and deal value/activity still below pre-Great Recession levels
Global emphasis on increased access, lower costs & better outcomes
Social, Mobile, Analytics and Cloud (SMAC) disruptive technologies
3
1
Significant slow down in revenue growth and
slight improvement in operating performance
Revenue growth rates decreased at an
annual rate of 12% from ’05-’12
Operating profits increased slightly at an
annual rate of 2% from ’05-’12
Improvements in operating efficiency insufficient to
compensate for decline in innovation led growth
PwC
Source: PwC’s “Operating performance in the Medtech industry: Trends and imperatives” report..
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2
Declining medtech funding and deal activity
Between 2007 and 2012…
Venture
Capital
Deal
Value
Deal
Activity
• Investment in venture capital funds decreased by $1.2B
• The number of deals completed annually declined by 20%
• Annual deal volume declined by more than two-thirds from 173 to 57 deals
• Deal value declined by over 40% from $51B to $29B
PwC
Source: PwC/National Venture Capital Association MoneyTreeTM Report
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3
Competition is growing from emerging markets
Emerging markets are catching up to the US in
medical device patents…
…and in medical device output
CAGR
CAGR
Brazil : 8%
India: -7%
China : 23%
Brazil : 13%
India: 13%
China : 23%
20%
21%
Largely driven by China, emerging countries are expanding rapidly
in both intellectual property and manufacturing domains
PwC
Source: Epsicom: China Medical Device Intelligence Report Q4 2013, India Medical Device Intelligence Report Q4 2013, Brazil
Medical Device Intelligence Report Q4 2013; WIPO Statistics Database (accessed 09/2013).
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3
Competition is also growing from new entrants
76% of the Fortune 50 are now in the health
industry or have a health division
AMI uses natural language
processing technology to review
EHRs & assign codes. Reduces
human coders required.
Retail
Entertainment
& Media
Financial
Services
Health
Marketplace
Telecomm
Hospitality
Transportation
PwC
Examples of ways companies are entering
the healthcare market
This architecture firm designs
spaces to decrease wait times
and take advantage of
underutilized areas. Saves
clinicians’ time & reduces costs.
Walgreens is now offering
services to diagnose and manage
chronic conditions positioning
themselves as the entry point for
patients.
Cisco is using its telepresence
technology to enable patients to
receive consultations with a
physician over a video link
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3
Competition is also growing from new entrants
76% of the Fortune 50 are now in the health
industry or have a health division
In Q1 2013, Telefonica Digital,
part of carrier giant Telefonica,
acquired Axismed, a chronic care
management provider based in
Brazil to enter m-health market
Retail
Entertainment
& Media
Financial
Services
Health
Marketplace
Telecomm
Hospitality
Transportation
PwC
Examples of ways companies are entering
the healthcare market
In Q3, 2012, South Korea’s
largest mobile telecom carrier
bought a 49% stake in China’s
X’ian Tianlong Science and
Technology Co, a producer of
medical diagnosis equipment
In Q2 2012, UPS acquired
Hungarian Healthcare Logistics
company CEMELOG to
strengthen healthcare reach and
expertise in Europe
In Q2 2013, China -founded
medtech company Mindray
announced it will acquire
ZONARE Medical Systems, an
U/S leader based in California
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4
Globally, there is also pressure to provide value over
volume
Decreased health
spending
Public spending on
healthcare has slowed
dramatically since the
financial crisis
+
Increasing
demand for
value over
volume!
Increased
incidence of
chronic diseases
Chronic diseases i.e. obesity
combined with longer life
spans are increasing the
burden of care
PwC
Source: OECD 2013 & OECD 2011
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5
Examples of medtech companies orienting towards
global dynamics
PwC
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6
SMAC is transforming all industries, forcing the
creation of new digital innovation operating models
Examples of ways companies are entering
the healthcare market
European telco Orange ‘s
healthcare division is planning
to utilize ICTs to enhance
healthcare delivery in Africa
In Q3 2013, Samsung launched a
health app for its Galaxy S4 to
help users balance calorie intake
with hours of exercise through
use of an avatar that grows fatter
or thinner with the user
In Q2, 2013, WellDoc, which
sells a type 2 diabetes
management program on a
mobile device, launched
BlueStar, a FDA approved
prescription version of its
Diabetes Manager Program. This
is the first disease therapy to be
prescribed through an app.
PwC
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Innovating the way we innovate
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The scope of innovation is forcing medtech
companies to innovate the way we innovate
Type
Context
Value
PwC
Products
Solutions
Point
Continuum
Volume
Performance
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CEOs are focused on innovation like never before,
seeing it as the primary path to growth
In a survey of 246
global CEOS…
64%
say innovation and
operational
effectiveness are
equally important to
the success of their
company
PwC
Source: PwC’s “Unleashing the power of innovation” report, 2013.
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But innovation requires a very different approach
than operational effectiveness
Operational
Effectiveness
Innovation

Short-term focused

Long-term focused

Organized

Chaotic

Stability

Change

Efficient

Wasteful

Produces incremental change

Produces radical invention

Lean Six Sigma

Innovating Operating Model
PwC
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Innovation has to occur across the entire
innovation lifecycle and organization
In the past innovation was focused in R&D but focus is now needed across…
…the entire innovation cycle
R&D
…and entire organization.
PwC
PwC’s Breakthrough Innovation Framework
To link innovation life cycle to the entire organization & its operations…
Strategy
•
New Value Creation?
•
Market Expansion?
•
Diversification?
•
M&A?
Type of
innovation
Operating
model
….it is critical to align strategy, type of innovation & operating model.
PwC
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Successful innovative operating models rely on
alignment across 12 key dimensions
1. Business Objectives and Rationale
2. Innovation Strategy
Combined, these building
blocks provide an integrated
framework for structuring the…
What: Innovation Strategy,
Portfolio, Funding
Who: Organization, Team
Resources, Ecosystem and
Partnership
Operating Model Dimensions
3. Portfolio
8. Governance
4. Funding
9. Process
5. Organization
10. Culture
6. Team/Resources
11. Metrics &
Motivators
7. Ecosystem
12. Leadership
PwC
How: Process, Culture, Metrics &
Motivators
Why: Business Objectives &
Rationale
…of Breakthrough Innovation
(with Governance guiding all these
dimensions)
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Finding from the largest innovation survey. Ever.
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Heart of the matter
The medtech industry was on the forefront of innovation for decades, but
now return on innovation investment is declining. The mere definition of
innovation needs redefining in a new health ecosystem that rewards value.
Medtech companies must get ready to compete in this new environment or
risk being displaced by new entrants to the industry .
Percentage of executives surveyed by PwC’s Health Research Institute
(HRI) who view innovation as a competitive necessity.
PwC
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Key findings – 1
The value of devices is no longer only in the product itself.
•
Today the value is in medtech companies’ ability to provide information and
services to customers to solve larger problems such as improving outcomes,
operating room efficiency, reducing length of hospital stays, and avoiding
unnecessary readmissions.
Informat
ion
Improved
outcomes, OR
efficiency,
reduces LOS
and
readmissions
Services
PwC
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Key findings – 2
New integrated services and business models that address
clinician and consumer needs are becoming as or more important
than product innovation.
PwC
•
Focus on product innovation remains
king.
•
Medtech executives were almost 2X
likely than other industry executives to
say that product innovation was top
priority in the coming year (46%
compared to 28%).
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Key findings – 3
Medtech executives expect a higher level of innovation over the
next three years, but they lack formal innovation processes and
structures to help them achieve their goals.
•
PwC
More balanced focus on
incremental, breakthrough and
radical innovation over the next
three years.
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Key findings – 4
Few medtech companies are aggressively using social, mobile,
analytic, and cloud (SMAC) technologies.
•
50% of medtech companies appear to
be using SMAC to at least some
degree in order for patient
engagement, health management
and remote monitoring.
•
Few companies (11%) are using
SMAC aggressively to create new
business models.
PwC
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Key findings – 5
Medtech companies are looking to open innovation as a key
approach to drive future growth.
•
Finding the right external partners to collaborate with is difficult.
•
Medtech companies co-create with customers or external partners on less than onethird of their innovative products and services.
PwC
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Key findings – 6
New entrants are staking their claim in medtech.
•
17 Fortune 50 companies have entered the medtech space in a variety of ways.
•
These new entrants are driving innovation at the pace of technology, not healthcare,
change.
•
Medtech companies must get ready to compete with or partner with them or risk
being displaced.
PwC
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Collaboration with patients
Opportunities exist for medtech companies to bridge the gap of
time and distance between patients and clinicians.
•
Innovating and changing those
interactions and monitoring more
closely and in real-time what is
happening to patients in their daily
lives can create a different business
model, a new and distinct source of
revenue for medtech companies.
•
Medtech companies must integrate
into the broader patient experience
and the healthcare industry itself.
PwC
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Recommendations
Be ambidextrous.
•
Innovation is all about the concept of fast frequent frugal failure through rapidly
iterating MVPs. Companies that create an environment conducive to this notion will
develop high value solutions over time through a Lean Startup approach.
Collaborate to get closer to the patient.
•
Opportunities exist for medtech companies to bridge the gap of time and distance
between patients and clinicians.
•
Medtech companies must integrate into the broader patient experience and the
healthcare industry itself. They must develop a consumer orientation.
Measure innovation in new ways.
•
PwC
Companies should create new methods for accounting and tracking the mechanics
for fostering innovation at an operational level. An innovation scorecard approach
should look at innovation inputs, outputs, activities, and impact.
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Business Model Innovation to create a competitive
advantage
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5
Business Model Innovation – Owning the Disease
Case Study 4
Business Model
Innovation
Diagnosis
Treatment
Merck’s Insertable
Cardiac Monitor
helps doctors
identify whether
unexplained
fainting is related
to an irregular
heartbeat or other
cardiac related
problems.
PwC
Merck’s cardiac
resynchronization
therapy devices
help the heart
beat in a more
coordinated
fashion
Engagement
Support
Cardiocom‘s
telescale and
other telemonitoring
devices will help it
provides instant
feedback to
patients and can
reduce
readmissions
Medtronic’s
CareLink
Network helps
doctors check a
patient’s
condition and
device status
remotely when
the patient is
traveling
Data
CardioSight
Reader can be
used to obtain
important details
on a patient; a
Heart Failure
Management
Report or Cardica
Compass Trends
Report is quickly
sent to the doctor.
Analysis
Data allows
doctors to see
how well device
and medications
are working
together and
how heart
function may
change over time
Medtronic’s acquisition of Cardiocom helps it offer more comprehensive
heart failure treatment value to hospitals under cost-cutting pressure
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Questions
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Follow-on Questions
• Do you have a defined innovation strategy?
• How are you implementing against your innovation strategy?
• How do you see your competitive landscape evolving?
• How are you bringing social, mobile, analytics, and cloud (SMAC)
technologies into your innovation strategy?
• How effective are you at business model innovation?
PwC
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