The medtech industry is emerging from global recession but faces a series of longer-term challenges, such as increased payer pressure and regulatory obstacles.

That is the key message from Pulse of the industry, Ernst & Young’s annual report on the medical technology sector. It notes that net income for non-conglomerates in the USA and Europe last year totalled $17.4 billion, a 43% increase from 2009, while capital raised $23.6 billion, a 66% increase over 2009. However, this increase was "driven by a handful of mature companies that took advantage of historically low interest rates to issue debt" and excluding debt transactions, the amount raised fell 7.7%.

The study notes that venture capital investment fell 13% in 2010 compared to the prior year, though the amount raised is still consistent with levels seen in 2005 and 2006, "years at the height of the 'easy money' era". Interestingly, VC funding fell 15% in the USA, to $3.5 billion, while in Europe it was up 4.7% to $707 million.

Nine medtech companies in the USA or Europe completed initial public offerings, compared to two in 2009, grossing a total of $568 million. The total value of mergers and acquisitions rebounded $30.6 billion in 2010, up from an historically low $15.7 billion the year before.

However, the report notes "a growing disconnect between the performance of the medtech industry and investor perceptions". John Babitt, the consultant's medtech leader for the Americas, notes that "from increased payer pressure to demonstrate value, heightened regulatory scrutiny, a continued tight funding climate and a rapidly changing customer base, the industry’s ability to innovate is under increasing strain".

He adds that to respond effectively, "companies will need to expand beyond the products they have historically offered to solutions built for an increasingly outcomes-focused system". Glen Giovannetti, E&Y's global life sciences leader, concluded by saying that "risk now stems not only from product development, but also from a host of other pressures. To respond, companies will need to innovate new business models".