The global medical technology (medtech) industry grew by 5% in 2016, a pace last seen before the financial crisis. This strong performance was fueled by mergers and acquisition (M&A) and portfolio optimization strategies, as well as continued focus on capital efficiency and research and design (R&D) investments, according to Pulse of the industry, the 2017 EY medical technology industry report.

Overall, revenue from U.S.- and Europe-based medtechs grew to $364.4 billion in 2016 after a 3% decline in the prior year. Meanwhile, net income for these companies soared 17% to $16 billion, compared with a 20% dip to US$13.7 billion in 2015. Additionally, total R&D spending by pure-play medtechs rose 5% to US$16 billion in 2016.

Pamela Spence, EY Global Life Sciences Industry Leader, says:

“Medtechs continue to use M&A, collaborations with new entrants and new technology investments to navigate an array of uncertainties.To achieve sustainable growth though, medechs must embrace more data-driven strategies that co-create value for all industry stakeholders and participate in emerging outcomes-driven care delivery platforms that are highly personalized. They also need to balance internal R&D investments with innovations in the new, connected economy such as augmented reality (AR), additive manufacturing (AM) and artificial intelligence (AI) so their R&D bets deliver a lasting, competitive edge. Embracing ‘The 4th Industrial Revolution,’ which fuses the physical, digital and biological, is a current – not future – imperative.”

The report shows financing for medtechs, including early-stage companies, is available. Overall, U.S. and European medtech financing increased 101% in 2016, to $43.9 billion, the second-highest total in the past decade. Venture capital financing climbed to $7.7 billion, a 23% year-on-year increase and a positive sign for future medtech innovation.

Additionally, the flow of capital is increasingly becoming more global. In 2016-17, China vaulted to become one of the leading regions for total equity capital, as medtechs raised more than US$1 billion in 16 financings. Asia-based investors were also active backers of US and European medtechs, participating in three of the year’s largest venture rounds.

John Babitt, John Babitt, Partner, Ernst & Young LLP – Life Sciences, Transaction Advisory Services says:

“There is financing for medtechs, particularly those that are developing tools for the biopharma industry, which is eager for novel technologies that either improve drug development or deliver differentiated therapies. At the same time, as companies continue to implement longer term strategies built on new technologies and partnerships, they must continue to focus on capital efficiency to maintain – or improve – future growth trajectories.”

Other key results highlighted in the report include:

• Strong deal-making environment persists: In all, medtech companies in the U.S. and Europe announced deals worth nearly $100.4 billion, an increase of 46% over the prior 12 months and an industry record.

• IPO climate cools: Excluding one of the industry’s largest medtech IPOs last year US and European medtechs raised just $547 million in IPO capital during 2016-17, an 8% drop over the prior year’s total.

• Industry market cap increases: The industry’s cumulative market cap increased 26% from 1 January through 31 August, lifted by strong earnings reports and an active deal-making climate.