More mergers, new diabetes devices and the road to MDR: Medtech trends in 2023

For medical device makers – and the patients who rely on them – 2023 is poised to be a year of challenge and change for regulation.

A post-COVID-19 surge in applications for review and the burgeoning role of artificial intelligence and machine learning — combined with swift advances in monitoring technology and wearable sensors — have pushed digital health to the fore.

That’s forcing the Food and Drug Administration to conceive of new ways to address the safety of devices that are continuously updating or even learning on the job. 

In Europe, the European Commission has delayed its implementation of Medical Device Regulation and In-Vitro Device Regulation, while numerous industry observers there fear there won’t be enough capacity to review new and existing devices before the latest deadline arrives.

MedTech Dive asked industry observers in the medtech field for their view on the regulatory challenges facing the sector and the regulators themselves in 2023:

Andrew Fish, president and CEO of the Medical Device Innovation Consortium: The FDA has some key challenges that include both overall workload and developing new regulatory approaches to better address evolving and emerging technologies. On workload, the COVID pandemic brought its own challenges with a huge number of submissions for emergency use authorizations and related work for the agency. The agency is now emerging from that crush, but will have to continue dealing with the challenge of hiring, training and retaining enough staff to stay on top of applications. The recent five-year reauthorization of the Medical Device User Fee Amendments is designed to both set review timeline goals for the agency and provide sufficient funding to support the agency’s medical device review function.

Much of our work at the Medical Device Innovation Consortium, which we do in close in collaboration with FDA as a member of our public-private partnership, is focused on advancing medical device regulatory science to help improve the quality of device submissions and expedite the review process by leveraging modernized approaches to evidence development. Advances like these make it easier for reviewers to efficiently and confidently assess safety and efficacy.

Another fundamental challenge is the pressure that evolving and novel technologies put on the regulatory system in terms of how to evaluate device safety and efficacy in the context of new functions and the proliferation of devices that generate and leverage data. The FDA has wrestled, for example, with how to regulate machine learning software in medical devices because its regulatory review approach is rooted in a one-time approval of a static, unchanging device that often requires a new review of any device modifications. That’s not an approach that moves quickly and doesn’t easily accommodate the great potential benefit of machine learning in medical devices in making fast-paced iterative improvements. So that’s an example of how the agency is challenged to regulate at the speed of innovation and unleash the full potential of the medtech revolution, while still providing assurances of safety and efficacy and finding the optimum outcome for patients and public health. These are the kinds of challenges that MDIC was created to address, by bringing together regulators, manufacturers, and a wide range of stakeholders to develop collaborative solutions that accelerate patient access to medical technologies that save lives and improve quality of life.

Rachel Sher, attorney specializing in FDA regulation with the legal and consulting firm Manatt in Washington, DC:  Congress has spoken: FDA and medical product sponsors must make more progress toward the goal of ensuring better participation in clinical trials by diverse and underserved populations. The Food and Drug Omnibus Reform Act of 2022 (FDORA) established a new requirement that all marketing applications for medical devices and drugs include a “diversity action plan” detailing the ways in which sponsors will meet specified enrollment goals. 

The COVID-19 pandemic underscored the promise that decentralized clinical trials hold in helping to foster greater clinical trial participation by all patients. The continued success of the decentralized clinical trial model relies on more and better use of digital health technologies, like smart and wearable devices. As these technologies evolve, FDA must continue to iterate on the guidance it has issued to date to ensure that developers in this space can speed products that meet FDA’s standards to patients and all of those engaged in the clinical trial enterprise.

Larissa D’Andrea, vice president, Government Affairs, Market Access and Clinical Affairs, ResMed: 2023 is a critical year for digital health in the European Union and the United States, particularly around how policy will affect how digital health is prescribed, administered and, ultimately, further adopted.

In the United States, the pandemic fundamentally accelerated the utilization of telemedicine. For the benefit of the patient, we should build on that momentum through the creation of permanent digital/virtual care pathways that improve patient access and health.

In the EU, I strongly support the opportunity to create consistency around data capture and use, plus privacy regulations that both protect patients and enable their use of digital health solutions.

I am looking forward to working with our legislative, regulatory, payor and distribution partners to advance this agenda on behalf of patients globally.

David Kunz, senior vice president, Global Quality, Clinical and Regulatory Affairs at Zimmer Biomet: Our initial focus items for 2023 with regard to the U.S./EU regulatory horizon are looking for continued progress on EU Medical Device Regulations (MDR) and dealing with resource constraints at notified bodies [the national testing firms or laboratories that certify medical devices in the EU]. We’re also looking closely at supply chain challenges that are driving the need for rapid product change approvals to avoid product supply shortages. Standard regulatory review timelines will limit responsiveness to supply chain challenges.

Roz Burke, senior vice president, Global Quality and Regulatory at Boston Scientific: When we talk about patient safety in a regulatory context, we’re really talking about two things: ensuring that available devices and therapies are safe and effective, and ensuring that industry can continue to develop new solutions for unmet clinical needs to save lives and improve quality of life. It’s vital that the relationship between industry and regulators prioritizes both of these so that we can continue to enable meaningful changes in patients’ lives.

In the U.S., the FDA’s willingness to look at new technologies and rethink traditional submission periods has helped industry to move much more quickly toward superior quality technologies. Machine-based and automated inspection have the potential to offer more robust safeguards than human inspection for certain tasks, and FDA has been thoughtful in how they validate and expedite traditional review periods in light of new technologies becoming available. We look forward to the continued evolution of these approval pathways to encourage broader adoption of these technologies.

We’re also optimistic about the agency’s commitment to agility, especially with regard to software validation and digital health applications. The use of real-time, real-world data and advanced algorithms is turning traditional paradigms on their heads, and we need a more agile approach to maintain strong, effective oversight while responding to patient and physician needs in an increasingly dynamic marketplace.

In Europe, we welcomed the recent publication of the European Commission’s proposal to amend transitional measures in the EUMDR. While we were well-positioned to comply, we recognize the likelihood of challenges for the medical device innovation ecosystem, including costly implementation challenges that could prove prohibitive for many smaller players and logistical hurdles with fewer Notified Bodies to process an influx of submissions.”

Agata Anthony, vice president, head of Global Regulatory Affairs, GE HealthCare:  

In Europe, the most important regulatory development in the medical device space is the anticipated change in the implementation of Medical Device Regulation (MDR). Due to concerns with the ability of Notified Bodies to process the vastly increased demand for audits and certifications and potential for significant disruption to availability of medical technologies in the European market, the legislators are considering a proposal to modify the implementation date for the MDR from 2024 to 2027-2028, depending on device class. This is an encouraging development and if adopted will enable a smoother transition to the new requirements.

In the U.S., the recently passed Omnibus funding bill expanded FDA’s authority in enforcing requirements to assure cybersecurity of medical devices. This will enable the Agency to verify that new technologies submitted after the law comes into force contain cybersecurity protections, and that manufacturers have a plan to manage those devices and provide patches throughout the product life cycle. 

Another significant trend relates to the rapid growth in devices utilizing Artificial Intelligence and Machine Learning. The FDA signaled that a guidance document describing use of algorithm change protocols is on the list of guidance priorities for 2023. This guidance would describe the types of changes, which could under certain conditions be implemented without the need to file an additional submission. This would be an important development for innovative AI/ML technologies, as it allows the faster pace of innovation to proceed while maintaining appropriate regulatory oversight.

Updates with comments from Andrew Fish, president and CEO of the Medical Device Innovation Consortium

Diabetes technology companies including Dexcom and Medtronic are preparing for a year of new product launches and expected regulatory changes that could expand their customer base.

Dexcom is gearing up for a planned launch of its new G7 continuous glucose monitor in the U.S., while Insulet begins to roll out its new Omnipod 5 insulin pump in Europe. Meanwhile, Medtronic awaits a resolution to a Food and Drug Administration warning letter, which it received for a delayed recall after problems were identified with its MiniMed 600 series pumps, before it can seek clearance for new diabetes products.

Companies also are preparing to expand their technologies to a wider group of patients, as well as developing new software features and physical form factors for their products. 

MedTech Dive spoke with six medical device executives and two analysts about their plans and predictions for 2023. Here are their responses.

These interviews have been edited for length and clarity. 

Kevin Sayer, CEO of Dexcom: We are building inventory. When we launched our G6 product back in 2018, our user base was at most a third the size of what we have now. We didn't launch it overseas [or] to Medicare patients at the start. Because it was such a great product, it grew much faster than we anticipated. 

With G7, we're learning from that. So we're building inventory, we're getting our ducks in a row so we can get it out the door. And we'll continue to roll it out in [Europe]. We haven't pushed the ads yet because the start was in the fourth quarter and over the holidays in several of these markets, things slow down significantly at the doctor's office. You still need a prescription in many places too.

Elizabeth Gasser, Tandem Diabetes Care’s chief strategy officer: This year, we're looking at the introduction of Mobi, which is a smaller form factor, no screen but still a tube pump. … We announced that we made our FDA submission. We're in back-and-forth mode. This remains a 2023 target for us to bring this product to market to our customers. What's going into that is a whole lot of preparation and planning for an exciting new addition to the portfolio.

Ali Dianaty, senior vice president for product innovation and operations, Medtronic Diabetes: We remain in active review with the FDA on our submission of the MiniMed 780G system with the Guardian 4 sensor. Outside the U.S., we continue to receive positive customer feedback on the performance of the MiniMed 780G, which is now available in over 60 countries, and we look forward to making it available in new geographies next year. We also look forward to continuing to drive access of our Medtronic Extended Infusion set, which is the first and only set that doubles wear time up to 7 days.

In our CGM pipeline, we submitted our next-generation sensor, Simplera, for CE Mark. Simplera is disposable, it’s easier to apply and it’s half the size of Guardian 4 sensor. The Simplera file is ready to submit to the FDA, and we’re waiting to submit it as we’re prioritizing the 780G/Guardian 4 review.

We've been focused on the long-term lifting of the warning letters as it is critically important not just about 780G but our future pipeline. We've got a lot of technology that's right behind 780G.

We’ve completed 100% of our commitments to the FDA and have informed FDA that we are ready to welcome the agency for re-inspection.

Jim Hollingshead, CEO of Insulet: Growing adoption in the U.S. and bringing Omnipod 5 to our European customers will be our focus this year. We intend to launch Omnipod 5 in our first European market in mid-2023 with a broader rollout in 2024. We achieved CE mark in September 2022, and now we are ensuring that our data privacy, security and our cloud infrastructure complies with CE rules as well as country-by-country regulations. We are excited to launch in our first European market in 2023. We will also continue to drive adoption of Omnipod 5 in the U.S. and we intend to launch a pivotal trial for a Type 2 indication for Omnipod 5 this year.

Jared Watkin, senior vice president of Abbott’s diabetes care business: The FreeStyle Libre 3 system, with the world’s smallest and thinnest sensor, is now available in 11 countries across Europe and the U.S.

In the U.S., in particular, we’re seeing a lot of excitement, and we’ll likely see that continue throughout 2023. Outside the U.S., we just announced that the FreeStyle Libre 3 sensor now works with the myLife Loop automated delivery system in Germany. We’ll be expanding that into more countries in Europe in 2023.

Matt Rainville, chief commercial officer of Bigfoot Biomedical: We are continuing to develop technologies, products and solutions which help people with diabetes who are currently underserved by current diabetes medical technology. In the near term, that means expanding the insulin pen options where Bigfoot Unity is compatible, but longer term, we are working on ways to continue to put the burden of insulin dosing in the background for people who are on [multiple daily injections]. 

Marie Thibault, analyst at BTIG: CMS put out a proposed Local Coverage Determination last year, and there's some expectation by both of the two large CGM players, Abbott and Dexcom, that Medicare coverage could go into effect in the second half of this year. So we're looking forward to that, and then to expand CGM access to something like 1.5 million patients in the U.S. who are under Medicare. Of course, the other big piece of that is if we'll see some commercial insurers follow. We think many of them will gradually, and that would become a total of approximately 3 million patients in the U.S. [who] would fit under that broader criteria. That would be a whole lot more CGM users, and certainly would be making it a pretty mainstream technology. 

Kevin Sayer, Dexcom:  We've planned for this for quite some time. We ran the study that provided the clinical evidence that was a primary factor in CMS offering this coverage decision by putting CGMs on a very large group of basal patients in a very regulated real-time clinical trial. And we saw the same outcomes with basal insulin patients that we saw with intensive insulin users: significant reduction in A1c, hypoglycemia risk gone.

And we know the majority of these individuals see primary care doctors; they don't go to endocrinologists. We doubled the size of our sales force in 2021 in an effort to get more coverage on the primary care side, and to get more relationships there.

Jared Watkin, Abbott: Abbott supports the proposal by the Centers for Medicare and Medicaid Services to expand coverage for continuous glucose monitors to the more than 3.3 million Medicare beneficiaries who use insulin and recognizes that it is an important step to removing barriers to care. By eliminating multiple daily injections as a criterion, more people will have access to the FreeStyle Libre portfolio, critical technology that helps them manage their care more stably, and in turn the potential to reduce complications from this chronic condition.

Ali Dianaty, Medtronic Diabetes: It is great to see CMS introducing policies that put people with diabetes first and empowers them to make personal decisions around how they wish to manage their diabetes. Although Medtronic’s Guardian Connect CGM is broadly indicated for diabetes, it will continue to not be covered under the new policy because the system does not include a receiver, which is a requirement to meet the CMS definition of durable medical equipment.

Margaret Kaczor, analyst at William Blair: Given the pricing that seems to be implied by CMS, that should leave a lot of room for sales and marketing on both Abbott’s as well as Dexcom’s perspective to drive growth, adoption and awareness.

A lot of these patients ultimately are being seen by primary care physicians, so you need a broader sales and marketing force to try to educate those clinicians and gather approval.

It’s rare to see this, but the clinical societies, [American Diabetes Association] and other organizations said all insulin users should be on CGMs. When you have alignment between the payers as well as the physicians, that should really open coverage. 

Jared Watkin, Abbott:  In many countries, FreeStyle Libre technology is only reimbursed for people with Type 1 diabetes or certain people with Type 2 diabetes who meet specific criteria, such as having to do multiple daily injections or poorly controlled HbA1c levels. 

We’d like to see this access expanded to more people with Type 2 diabetes. We have compelling clinical data showing the use of FreeStyle Libre 2 significantly reduces acute diabetes events among people living with Type 2 diabetes using basal-only (once daily) insulin therapy. Our hope is that this type of evidence will help make innovative CGM technology accessible to all people living with diabetes, not just those on intensive insulin therapy.

Ali Dianaty, Medtronic Diabetes: One in 10 adults in the U.S. are living with diabetes and current rates are projected to double by 2040, including a sizeable increase in those living with T2D, especially in the U.S. This provides an opportunity for Medtronic to go beyond our service to those living with T1D, which has historically been our core market.

In the near term, we are ensuring access to those living with T2D through easy-to-use products, like InPen, and the full-service support we offer our pump patients. In the long term, our focus is on optimizing our presence across channels and improving the simplicity of our therapy through our future pipeline. 

Jim Hollingshead, Insulet: We are seeing increased interest in pump therapy from people with insulin-requiring Type 2 diabetes. Our Omnipod DASH product, which has the same form factor – a tubeless, wearable, disposable Pod – has been extremely popular with people with Type 2 diabetes. We are following this trend closely and have submitted a 510(k) to the FDA for a basal-only Pod for the Type 2 market. We plan to begin U.S. commercialization in 2024.

Matt Rainville, Bigfoot Biomedical: We sure hope so and believe that all people with diabetes should have the ability to access cutting edge technology that will help them better manage their diabetes and live healthier lives where diabetes doesn’t need to be their focus. As you know, much of this technology has been created to serve engaged people with Type 1 diabetes. This is great, but what about the other segments of the T1 and T2 population who don’t fit this description? They deserve options as well. 

Kevin Sayer, Dexcom:  We've made some strategic acquisitions over the years that we're very proud of. We bought a company called TypeZero in Virginia that is the basis of the Control-IQ algorithm for Tandem, and we're working on a lot of science and analytics with that group that we bought. We think it will be very important for us going forward in the future. So we look at that type of technology, some skills or some software that we don't have.

We haven't found big things that can move the needle yet, and we've worked so hard organically growing our business that that hasn't been a focal point of our strategy. We're big enough that we probably should start thinking more about that. But for today, we're happy where we are. 

Marie Thibault, BTIG: I'm not going to put any companies in play, but I think general trends for M&A are software apps that allow more data insights to make it easier for patients to manage their condition. We might see interest in technologies that reach the really broad diabetes population. So we're not talking just for Type 1 patients, but possibly non-insulin using [Type 2] patients or even prediabetes. And so these could be things like, easier ways to take your blood glucose measurements, easier ways to administer your insulin. All of these sorts of additional features or convenience benefits, those kinds of technologies will be interesting to watch.

Margaret Kaczor, William Blair: You've got the interest right now on the patch-pump side and there are a couple of smaller patch competitors out there that are working on products. Tandem acquired something there [in AMF Medical]. Does Medtronic want to do the same? Would Embecta try to do that? Would Beta Bionics try to do that? I'm not sure, but I think that a lot of the interest is there. 

I think the other angle of potential activity within diabetes is going to be on the software side and the training side. 

Kevin Sayer, Dexcom: We watch all the software experience companies very closely and we look and see what we can learn from them. We certainly also monitor everything in the glucose monitoring space. The last thing you want to do is wake up and be asleep behind the wheel while some disruptive technology would come in and cause us problems, so we monitor all that. We're still very bullish on ourselves and the scale that we built in our business; the ability to manufacture hundreds of millions of these things is going to be a tremendous asset for us.

Elizabeth Gasser, Tandem: I do remain very interested on the CGM side in the progress that can be made with additional analyte sensing. So if you've been adding ketones and other analytes into your CGM, can you do more with your algorithms in terms of the quality of the automation we can provide?

There's a long-standing conversation about less invasive and non-invasive CGMs, whether they're doing that through micro needles or radiofrequency or optical sensing. A lot of that feels a fair way out. It comes around every year. I know there are companies making progress.

One that you might not be expecting: battery technology.  It's consistent with my general anxiety around how we as an industry are better stewards of the environment. Where should we be looking in terms of novel battery technologies over time?

Jim Hollingshead, Insulet: We’re particularly excited about data, AI and machine learning. We have more than 20,000 person-years on Omnipod 5, thanks to our continuous cloud connection. We will use this data to produce actionable insights for users and providers, which will help deliver better care and better outcomes for people with diabetes. 

We continue to advance our robust innovation pipeline with a focus on future [automated insulin delivery] offerings as well as building our digital and data capabilities. Our iOS integration work is ongoing as is our development work to integrate Omnipod 5 with Dexcom's G7 and Abbott's CGMs. We remain committed to building on our product offering and also providing CGM of choice to our customers.

Jared Watkin, Abbott: We’re developing a first-of-its-kind sensor that will enable people with diabetes to continuously monitor both glucose and ketones in the same sensor. We believe this dual analyte sensor is the next big advancement in diabetes tech. It will redefine diabetes care, especially for those who are at risk of developing diabetic ketoacidosis, a life-threatening condition when ketones build up in their blood.

Marie Thibault, BTIG: We're also looking at non-invasive glucose monitoring hopefully becoming more accurate. We're looking at wearable technologies for consumers, whether it's a watch or ring or that sort of thing, moving toward being able to monitor glucose for consumers. And then other trends we like to see are accessibility and user friendliness, and less burden of managing the disease, whether that's using apps or software or smart insulin pens — things outside of the CGMs and the insulin pumps that we typically don't talk a lot about play a big part for patients in making the disease more manageable.

Medtech companies hit the brakes on large mergers and acquisitions last year with 11 transactions valued above $1 billion compared with 21 “megadeals” in 2021, according to data from consulting and accounting firm EY.

The slowdown may be short-lived, industry observers say.

While medtech dealmakers and advisers expect a slow start to 2023, they point out that despite higher interest rates and a volatile stock market, there are signs that buying and selling medtech companies in whole or in part is is poised to rebound.

For example, digital health innovations from AI-guided surgery to remote care and wearables are attractive as potential bolt-on acquisitions for bigger companies. GE HealthCare said on Jan. 11 that it will pay an undisclosed sum for France’s Imactis, whose CT-Navigation system helps surgeons in minimally invasive operations and reduces procedure time.

Others like Medtronic and Johnson & Johnson are divesting entire divisions this year, presenting acquisition opportunities. Meanwhile, device makers with a footprint in China may look to exit the world’s most populous country amid a combination of protectionist trade policies, lower prices and the COVID-19 pandemic.

What do all these signals mean for medtech M&A? MedTech Dive reached out to industry observers for their views on potential activity in 2023. 

Their comments have been edited for length and clarity.

Jeff Haxer, Chicago-based partner in healthcare and life sciences at consulting firm Bain:

I just think everybody hit pause a bit, but [for] ‘23, if you just take two data points: the market is still rewarding growth more than margin improvement, and there's a lot of cash on the sidelines. And then I'll add a third piece: the IPO markets aren't really available for a ton of other assets. So you have this confluence, where ‘23 is going to be a big M&A year for medtech. As soon as there's any clarity in the debt markets, you're going to see a lot of activity: A couple of large-category leadership plays where people are filling out their portfolio, exploration of “what do I do with my China assets?” Because with the uncertainty there, even with the reopening, it's not clear how you monetize anything in China. You’re going to see some interesting exits from strategics or JV’s, as companies ask “How do I monetize whatever the heck I have in China?” You might see some folks either exit what they have in China to a JV or just say, look, it's too expensive, and it's too risky to play there. The bulk pricing [means] it is going to be difficult for folks to make any money directly in China. You take the margin out, and that market is not particularly attractive. There's more skepticism now on China than I've seen in the last 10 years, [and] the “Can I make money in China?” question no longer has a clear answer. [Particularly for] people that have a large footprint, they're trying to figure out what to do with that footprint. 

Digital may be another growth area for M&A in ‘23, particularly when you talk about how do I use something other than hardware to drive revenues? And that can be interconnected devices, that can be how do I take data from all the procedures that I do and monetize it in some way? There are a lot of players there, and there's not a clear winner. And there's a lot of investors there, which means you can place relatively smaller bets, and place multiple bets with different deal theses in the hopes that you bet on a winner. It's a way to deploy capital in a smaller way.

Dave Sheppard, co-founder and director of MedWorld Advisors, which counsels small- and medium-size medtechs, and a former senior executive at Medtronic:

On the on the strategic side, you've got a few spinoffs taking place, like GE HealthCare, just spun off from from from GE, that's going to drive some some M&A on their side, because they haven't been able to make their own decisions for quite some time, they've had to get the cash flow back to the mothership at GE, and now they don't have to do that. Now, they can put that capital to work, to be able to help them grow GE HealthCare. Johnson & Johnson's putting up its consumer health unit, Medtronic is about to split off their respiratory group. Getting these new planets in orbit out there, that's going to be helpful to M&A overall. And I think you will see some additional portfolio pruning because of that on both sides where they might even divest further, but they also will acquire a few things. 

The strategics have difficulty disrupting themselves, so they're always looking for new technology. Right now we're really in a renaissance of technology for medtech, mostly in digital health. You’ll see that drive a lot of M&A on the strategic side. On the private-equity side, there's still so much dry powder out there, funds continue to get raised, they have money to spend. Private-equity people don't make money unless they put it to use, and what they have come to realize over the years is that the medtech industry is a great place to be when the rest of the economy is unstable. Because [with an aging population] the demographics are in the favor of more medtech procedures taking place. Private equity understands that and so it's a safe bet for them to put their money to work in medtech. 

[The past decade’s investment in digital health] has created a great ecosystem for new technology, new innovators, but now that money is starting to dry up because the valuations are too crazy. And so what we're already starting to see in our practice is some consolidation: The pure winners are either going to get snapped up for a nice valuation from a strategic, or they're going to go IPO, as they continue to build their company. And solid middle players are going to combine with each other or have to buy a smaller player to strengthen themselves to survive. And the players that are just don't have the strength or don't have their game together, they're going to be swallowed up or they're going to go away.

One area that's pretty hot is hospital-to-home, getting patients out of expensive, money-losing beds. But nobody's really executed on that really well yet. The technology and the channels are there, but they’re ahead of policy, so the reimbursement is holding that back. Still, people are snapping up some of that technology, because sooner or later that's going to have to change — it’s just pure economics. Private equity has come in to kind of help drive some of the change, buying ambulatory surgery centers. They see it's technology that's going to drive some of the M&A, with growth in procedures, in cardio and respiratory areas.

Jim Welch, global medtech leader for Ernst & Young:

With the activity so far down in 2022, the 2023 outlook is certainly going to be a little bit more active than that. But we're still seeing valuations for high-growth medtechs at really high levels. Organizations that can demonstrate high cash flow or low technology risk are still commanding significant valuations in the marketplace. And given all the spinoffs and portfolio moves by the bigger players, we think in the back half of the year, that'll create their need to do bolt-on acquisitions and shore up the remaining parts of their portfolios.The IPO market is still going to be pretty slow. A lot of the private-equity organizations are looking to exit some of their portfolio plays in the back half of the year when the market comes back a little bit. So you'll see a little bit more of going in that direction. 

That said, the middle-market debt market is still still open for business. We're seeing with all the technology advances that are coming and the need for more technology to deal with the [skilled labor shortage]. So, if you’ve got a potential for cash flow and a technology solution that is going to address some of the macro risks, then you should still have a pretty good opportunity to get funding, it's just going to be a higher hurdle than it was before. And I would argue that is a little bit more realistic than in the past, when there was so much cash being thrown around. So I wouldn't I don't look at it as a dire situation. 

For the strategics, the model is looking at the portfolio, and trying to understand the assets that you've acquired over time, with markets and healthcare delivery changing, do they still fit together logically? Not only GE [with the healthcare spin off], but announcements by Medtronic and Baxter and others. It’s the natural course of evolution of large companies, looking at the portfolio, and better understanding where you can apply capital for growth, and where capital competes inside an organization that's healthy or unhealthy. What we've seen is that allowing capital to be deployed inside of a smaller organization that's more focused is going to drive innovation. And that's good for the smaller companies coming up — their ability to sell or license with or partner with companies like this is going to be much better so that we think this is accretive to the overall market, top to bottom, especially at this time, given all the technology advances.

What are those advances? In the diagnostic space you've gotten AI on imaging diagnostics, which has been the fastest growing space for several years, genomics. But also from a healthcare delivery standpoint, around clinical communications and being able to connect to platforms that the healthcare systems are using both inside or outside the hospital, to help improve workflow to better integrate the data from your particular devices or equipment, into decision making and eventually outcomes. Remote monitoring, clinical communications workflow, advanced decision making, being able to use data to not only demonstrate good outcomes across populations, but also predict outcomes before they actually happen. And they're all commanding more investment from both from the big players and the VC firms as well. So I think that the shifts and healthcare delivery, I think, continue to make it a technology-based play.

Mark Goldwasser, CEO of Ceros Financial Services, who fundraises for early stage medical technology companies focused on diagnostic and non-invasive procedures. 

You've got to think about American healthcare in the post-Covid environment. Hospitals have been overrun, and they failed, particularly for patients who were waiting in line for elective surgery or other surgeries. So what we're doing now is looking for minimally invasive, artificial intelligence, digital companies, robotics, data: the better, cheaper, and more economic solutions for hospitals. And we've found something interesting. People prefer an ambulatory setting to the hospital if they're going to have surgery. So all the devices [we are looking at investing in] are smaller, lighter, they can fit in and work with ambulatory outfits. I can't mention names, but one has a medical waste disposal business, another is involved in acute kidney injury — they have a delivery system and a therapeutic that goes in once they get to the right spot. Non-invasive surgery is another big area we are looking at: An Israeli firm that has a less invasive way to perform hysterectomies, another that does non-invasive brain surgery and a remote monitoring system for people with congestive heart failure. 

The big picture is there's no shortage of people with cash. I get emails almost every second. The majors are sitting on cash. Johnson and Johnson just paid $16.6 billion for Abiomed. When they see something, they’ll find the cash to buy it. We are hoping that the public markets open up in the new year because we in the space of small privately held companies know there is a relationship between the public companies and the private market in the same space. So if public companies are in the tank, it's very, very difficult to get the private stuff. The IPO market has been dead the last six months as well as the stock market. That said, prices have come down. What was 12 to 18 times revenue is now six to 12 times revenue.

Post-COVID, we are at a fulcrum point where people are going to decide what they want to be. Some people will want to get out of certain lines of business, and they're going to go into new lines of business. And devices are going to be smaller, cheaper, quicker, more economic. And they'll be able to fit into surgical centers in ambulatory settings. And hospitals, which have lost a lot of money during COVID are very wary about cost. So if you've got something smaller, cheaper, quicker, less invasive, it's your product that’s going to be bought by somebody.

Consulting firm KPMG, in their 2023 Healthcare and Life Sciences Investment Outlook, subtitled “Sustained turbulence in a post-pandemic market,” based on a survey by the firm of corporate and private-equity dealmakers:

A surge in demand for some device makers could help shape the medical device deal-making outlook. But 51% of survey respondents expect medical device deal-making to be characterized by small strategic tuck-ins. Only 29% anticipate strategic partnerships, and only 20% expect large consolidations. In last year’s survey, small strategic tuck-ins had only a slight edge over strategic partnerships. [And] 88% of survey respondents said their plans are being influenced by the FTC’s increasing scrutiny of industry consolidation. 

Wearable tech for remote monitoring of blood pressure, oxygen saturation, falls, and other vital signs continue to gain popularity, and the use of virtual reality for training, pain management, and other applications is increasing. With more and more devices connected to the internet, the need for cybersecurity is also getting attention from medical device companies, with blockchain technology expected to be a crucial resource.

The resumption of elective surgery and procedures across most medical specialties that began in 2021 continued in 2022 and should encourage deal-making for medical device manufacturers in 2023. If public markets trend upward while potential sellers become more realistic about valuations, it could release pent up demand for M&A.