Increasing innovation in, and consumer demand for, healthcare technology continue to transform the Medtech industry, including in digital health, wearables, diagnostics, telemedicine and other health IT solutions. MedTech innovators are working collaboratively with global regulators and policymakers to leverage such innovations to increase access to value-based care while navigating a growing patchwork of laws and regulatory guidance across the world. Here are ten global
Medtech themes we are tracking in the coming year:
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- Continued focus on digital tuck-in acquisitions in Medtech M&A
The challenging macroenvironment, marked by funding challenges, valuation declines and a near-shut IPO market, raised expectations for growing Medtech M&A activity in 2023. However, this past year continued to see fewer and smaller deals, most of which involved tuck-in acquisitions of smaller companies that could be easily integrated into buyers’ existing infrastructure, as opposed to significantly sized takeovers and mergers. We expect the pace of Medtech acquisitions to pick up in 2024, as Medtech targets continue to experience shrinking valuations and divest their non-core assets. We further expect acquirors to capitalize on the lower valuations to gain or expand their Medtech capabilities, particularly in areas such as telehealth and health IT that continue to revolutionize healthcare delivery.
- New normal in Medtech funding
The Medtech industry is entering a new normal of reduced funding and deal volume after hitting record highs in 2021 fuelled by the shift to telehealth and remote patient monitoring technologies during the COVID-19 pandemic. In 2024, we expect to see a continued shift in Medtech funding towards digital health products and services that support complex disease treatment, non-clinical workflow and value-based care. We expect Medtech companies that can link revenue to successful patient outcomes to continue to capture a significant portion of Medtech venture funding, particularly in high-cost therapeutic areas such as behavioral health.
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- Strategic AI-driven Medtech collaborations
This past year saw Medtech companies continuing to build collaborative partnerships with other players in the digital healthcare ecosystem. Collaborations between Medtech companies and digital solution providers are becoming increasingly common as both the Medtech and technology industries seek to leverage AI/ML and other cutting-edge technologies to develop and enhance diagnostic tools and treatments. In the coming year, we expect Medtech companies to continue to partner with tech and AI companies to develop innovative solutions as well as effectively harness wider pools of real-world patient data to extract insights that can be applied to deliver meaningful clinical outcomes.
- Continued scrutiny by antitrust and competition authorities
Medtech companies have continued to face scrutiny from global antitrust regulators throughout 2023, and we expect that scrutiny to continue throughout next year. In particular, we expect the anticipated adoption of the AI Act (the European Commission, the Council and the Parliament reached political agreement on the provisional rules that will comprise the European Union’s Artificial Intelligence Act, with further negotiations to come on the technical elements of the Act before final adoption) to have a significant impact on the ongoing use and development of AI-based solutions in the industry. Companies that develop or operate medical devices will become subject to far-reaching requirements, including the need to make significant data disclosures to national competition authorities in Europe, as well as the European Commission. Further, global antitrust regulators remain keenly focused on data, including who has access to data, how companies use or could use that data, and whether that data gives companies market power. We expect this focus to be of increasing relevance in the Medtech sector as the utility of AI continues to closely correlate with, and depend on, having access to high quality data.
- Growing importance of data privacy and security
We expect to see continued regulatory attention on the processing and use of personal data, particularly health data, by digital health companies. The FTC, in particular, has ramped up its enforcement activities in this context, including by announcing proposed orders against BetterHelp, GoodRx and other companies, as well as its plans to strengthen its Health Breach Notification Rule. Recent data privacy developments on the state level, which are set to take effect in 2024, add additional complexity for digital health companies and their data management practices. These new state privacy laws aim to provide heightened protections for consumer health data that fall outside the scope of federal laws such as HIPAA. The FTC actions and new state laws add to the ever-growing patchwork of laws and regulations that digital health companies must navigate in the United States. In the EU, digital health companies will need to assess how the European Health Data Space and other related laws slated to take effect in the next year or two could impact their data practices.
- More active engagement with health regulatory authorities
2023 saw global health regulatory authorities collaborate with life sciences and Medtech stakeholders to provide additional guidance on digital health technologies and the use of AI/ML in drug development and manufacturing. In the US, the FDA recently formed the Digital Health Advisory Committee to navigate the benefits, risks and clinical outcomes associated with digital health technologies, including AI/ML and remote patient monitoring. The EMA has been similarly focused on the development and deployment of AI, including in the context of drug products, as evidenced by the expected adoption of the AI Act. As digital health continues to evolve and touch upon various issues such as decentralized trials, sensitive patient data and cybersecurity, we expect regulators and innovators to continue to work together to facilitate the safe and effective development of digital health technologies to meet the needs of diverse populations.
- Focus on contractual dispute resolution terms in Medtech collaborations
High capital costs and ongoing inflation in the prices of materials and labor continue to put pressure on the economics of Medtech products that have not yet reached commercialization, or for which increased costs cannot be passed on to users. This cocktail of unexpected costs has precipitated a marked increase in the number of Medtech companies seeking to exit or renegotiate collaborations, supply agreements and other contractual relationships. The ensuing disputes give center stage to contractual terms that often receive limited attention at the time the contract is negotiated and raise important questions, including whether the parties must perform during dispute resolution and whether a party can claim lost profits in the event of the counterparty’s breach. As challenging market conditions persist, we expect Medtech companies negotiating new agreements or renegotiating existing ones to continue to focus such contractual dispute resolution terms as they seek to hold counterparties to the parties’ bargain or leverage a renegotiation or exit an unprofitable contract with limited cost.
- Growth of Japan’s Medtech industry
The growth of Japan’s Medtech industry continues to be driven by a confluence of factors, including the country’s aging population, advanced health IT infrastructure and digitization of healthcare. In response, the Japanese government has been seeking ways to streamline regulatory guidance on cutting-edge digital health technologies. Recently, the Ministry of Health, Labour and Welfare (MHLW) revised its Telemedicine Guidelines to allow for remote diagnosis and treatment of patients through telemedicine. The Japanese government has also taken steps to regulate the development and use of generative AI in healthcare, including holding the first AI Strategy Council meeting earlier this year and planning the development of a generative AI program to be used for medical research. In the coming years, we expect Japanese regulators and Medtech companies to continue collaborating on digital health and AI-driven innovations that aim to ease the country’s healthcare burden and increase the quality of healthcare delivery.
- Addressing inequities in the implementation of digital health technologies
Medtech innovators and regulators are continuing to pay close attention to the inequities in the healthcare system. This year, a historically high number of Medtech companies collaborating to provide technologies aimed at improving patient outcomes across populations. In parallel, there has been increased regulatory and legal focus on reducing bias in digital health technologies. For example, attorneys general representing half of the U.S. recently signed a letter demanding that the FDA take urgent action to address the technological issues that cause pulse oximeters to deliver inaccurate results for people of color. Additionally, a recent study found that states have proposed more legislation intended to promote health equity than ever in the past few years, with a focus on racial and economic disparities and a lack of access to maternal and infant healthcare. In light of this increased focus, in 2024, Medtech companies should continue to evaluate their health equity priorities to ensure that they align with the rapidly evolving regulations and guidance on addressing the inequities in the development and deployment of digital health technologies.
- Rise of generative AI
Recent AI-based advances, particularly in generative AI, have placed the spotlight squarely on the impact of AI and data-driven offerings on the future of healthcare. Generative AI can be used to streamline billing and medical claims, increase coordination among hospitals, vendors and health systems, and improve patient outcomes by way of patient-specific analyses and recommendations. We expect the integration of generative AI to drive innovation in wearable technology as well. In parallel, this past year has witnessed increased regulation of generative AI technology, as regulators and policymakers around the world scrutinize the data privacy and AI compliance practices of Medtech companies. As AI-based solutions become increasingly integrated into Medtech offerings, we anticipate that Medtech companies will continue to prioritize generative AI’s highest-impact use cases and design AI governance and accountability structures that integrate AI policies into their daily operations.
In conclusion, we expect the Medtech industry to continue to make advances towards transforming healthcare delivery in 2024. The rise of AI, in particular, presents an opportunity for Medtech companies to integrate emerging technologies into new product offerings. At the same time, innovators in the space must continue to navigate the complex regulatory and legal landscape in order to successfully compete in the evolving global Medtech industry and ultimately, improve patient outcomes and increase access to healthcare across the world.
Photo: Feodora Chiosea, Getty Images
Editor’s Note: The post has been updated to reflect that the European AI ACT is expected be adopted and has not been adopted yet.
Vinita Kailasanath, a partner in the Silicon Valley office of Freshfields, has extensive experience in strategic intellectual property and data-driven transactions in life sciences and technology, and particularly at their intersection. She represents life sciences companies, technology companies, healthcare companies and providers, private equity firms and other investors in connection with the execution of their cutting-edge MedTech and digital health strategies in addition to their other complex licenses and collaborations, strategic investments, and R&D and supply agreements. Ms. Kailasanath has advised clients on transactions involving medical devices (including SaMD), wearables, mobile apps, telemedicine, artificial intelligence/machine learning, software, hardware, pharmaceutical products and biologics. Vinita also routinely advises on the intellectual property aspects of mergers, acquisitions and joint ventures. Vinita avidly tracks trends in MedTech and the associated legal considerations and publishes a quarterly MedTech Update.
Sora Park is an Associate at Freshfields and focuses her practice on a variety of life sciences and technology transactions. Her experience includes assisting clients in drafting and negotiating agreements involving the research, development and commercialization of new technologies and products, software licensing, and manufacturing and supply relationships. Sora also provides support on the intellectual property aspects of mergers and acquisitions.
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