Five Major Trends in Medical Technology for 2024

After about three years of a COVID-19 environment filled with uncertainty and complexity, medical device companies returned to a degree of normalcy in 2023. Challenges such as low surgical volumes, hospital staffing shortages, and supply chain instability either improved or companies developed strategies to address them. Meanwhile, macroeconomic pressures eased, allowing some medical technology companies to resume more normal growth margins.

"I feel like 2023 was really the first post-pandemic year where medtech actually saw strong revenue growth," said Shagun Singh, analyst at RBC Capital Markets. However, Singh added that medtech stocks "were somewhat of a rollercoaster" last year due to concerns about inpatient procedure volumes and the popularity of weight-loss drugs.

Industry executives reported improving business trends and a solid operating environment on third-quarter 2023 earnings calls. Medtronic, typically the last of the large medtech companies to report earnings, even suggested that similar stability continued into the final months of the year. Singh noted that macroeconomic factors such as potential interest rate cuts and inflation remain open questions that will influence industry trends this year.

Amid the many dynamics in the medtech sector, Wall Street analysts and medical experts helped MedTech Dive identify financial trends, regulatory developments, and product categories worth watching in 2024:

1. M&A pace will accelerate

After an active 2021, medtech deals slowed over the past two years. BTIG analyst Marie Thibault said that with medtech companies launching new products or gaining regulatory clearances, and macroeconomic conditions improving, M&A activity will "pick up" this year.

"Large companies may be more interested in M&A because interest rate hikes could stop and reverse in 2024," Thibault said. "They can more easily make the math work on return on invested capital, right? If your benchmark is no longer high interest rates and cash yields, you can look around for innovative products or innovative companies that are still at valuation troughs."

Thibault noted that new products in pulsed field ablation, mitral and tricuspid valve repair and replacement, as well as commercial monopolies such as mechanical circulatory support and intravascular lithotripsy (a treatment for kidney stones), could attract interest from large companies.

Boston Scientific kicked off M&A activity in 2024 with its $3.7 billion acquisition of Axonics on Monday. Several deals were also announced in the final months of 2023, possibly signaling that companies are more willing to spend this year: Johnson & Johnson said it would spend $400 million to acquire Laminar to strengthen its position in the growing left atrial appendage closure market; Zimvie plans to sell its spine business for $375 million; Integra plans to acquire J&J's Acclarent subsidiary for $275 million.

"From an IPO perspective, it's hard to get much worse from zero, right?"

— Richard Newitter, analyst at Truist Securities

Michael Weinstein, senior analyst at Moody's Investors Service, said that last year, as M&A slowed, companies prioritized R&D spending and executed more bolt-on acquisitions, a trend that could continue. "I think we'll see continued focus on R&D spending and internal innovation. But if the right deal comes along — and I think we could have seen some deals this year but didn't — it depends on what's for sale," Weinstein said.

Truist Securities analyst Richard Newitter said companies may also have an appetite to explore IPOs, given the medtech investment community's interest in growth opportunities after two years of few new listings. "From an IPO perspective, it's hard to get much worse from zero, right?" Newitter said. "There's demand for new growth areas and new issuance. Obviously, lower interest rates and a rebound, or at least the start of a rebound, in small- and mid-cap valuations could make it easier for exits and small- and mid-cap companies to explore the 2024 IPO market."

2. Tougher financial comparisons

Although medtech companies reported more stable financial conditions and growth, the positive environment could set up more difficult year-over-year comparisons for 2024. "I think this goes back to what the industry looked like pre-pandemic: innovation matters, growth matters — revenue is the primary driver of the industry and the market," said Mayuri Shah, partner at Bain & Company.

Some companies may preview full-year performance at this week's J.P. Morgan Healthcare Conference and in the fourth-quarter earnings season that begins later this month. One factor that could make this year more difficult is the depletion of pent-up surgical demand. Thibault said companies that rely on more urgent procedures, such as cardiac surgeries, have largely worked through the backlog. Meanwhile, Newitter said orthopedic companies may still benefit from pent-up demand for hip and knee replacements in the U.S., but the boost "won't be anywhere near the peak seen in the first half of 2023."

"I think this goes back to what the industry looked like pre-pandemic: innovation matters, growth matters — revenue is the primary driver of the industry and the market."

— Mayuri Shah, partner at Bain & Company

3. Escalating LDT controversy?

One of the most controversial regulatory measures of the past few years is the FDA's proposed rule to strengthen oversight of laboratory-developed tests (LDTs). The rule drew thousands of responses during the public comment period, with industry groups and hospitals claiming it would limit patient access to essential tests. The American Clinical Laboratory Association, which represents companies like Labcorp and Quest Diagnostics, asked the agency to withdraw the proposal. Despite this, the Biden administration has scheduled the release of the final rule for April.

TD Cowen analyst Eric Assaraf questioned in an email to MedTech Dive whether the Department of Health and Human Services "would actually issue a final rule given the opposition, and if it does, I fully expect it to be challenged in court." Assaraf said that whether or not the agency finalizes the rule, Congress will need to codify FDA's authority to regulate LDTs into law. However, the opportunity to do so this year may be limited. "The next legislative vehicle that could attach LDT reform might be the next spending bill in January or February, but I think the odds of inclusion are low," Assaraf wrote. "As the election approaches, the chances of getting bills done will diminish, so it may have to wait until the lame-duck session or 2025."

4. Pulsed field ablation takes off

At the end of the year, several major announcements were made in the pulsed field ablation (PFA) space. Medtronic received the FDA's first approval for a PFA device, and Boston Scientific said it expects the agency to approve its Farapulse system in the first quarter of 2024, earlier than the previously expected second half. Several analysts who spoke with MedTech Dive listed PFA as a product category to watch, and the announcements from Medtronic and Boston Scientific may signal a breakout year.

"(Adoption) will be very rapid," Thibault said. "Physicians are very excited about it; they've heard their European counterparts have had access to some of the technology and are eager to try it. Even if we haven't seen higher efficacy yet, the procedures are faster and the technology is safer. I think you'll see that shift happen quickly." With multiple competitors, including Medtronic's PulseSelect system, potentially entering the U.S. market this year, the key question is who will ultimately dominate the space. Thibault said that although Farapulse is slightly behind in the rollout of Medtronic's PulseSelect (which the company says will begin commercialization in early 2024), it "could ultimately come out on top." Singh said Farapulse could be one of the biggest product launches of the year, calling PFA a brand-new technology in the massive electrophysiology market of "about $8 billion."

5. End of the GLP-1 scare

The surge in interest in weight-loss drugs was one of the biggest developments in healthcare last year. In the medtech sector, interest in GLP-1 drugs sparked investor panic, ultimately leading to a sell-off in stocks. Some trial results showed these drugs are associated with improved heart health and even helped some patients reduce or completely stop insulin use, fueling concerns that demand for device treatments could decline. Shares of diabetes technology companies like Insulet and Tandem Diabetes Care fell, while surgical robot maker Intuitive Surgical faced analyst questions about a slowdown in weight-loss surgeries related to the drugs.

Several CEOs downplayed the risks on third-quarter earnings calls. Analysts believe concerns about the drugs' impact have peaked. However, interest in and concerns about the drugs are unlikely to disappear entirely. "I don't think we'll see the same level of concern and panic in 2024. I think that's behind us," said BTIG's Thibault. "But I don't think the topic is over." Truist's Newitter said companies are taking a more pragmatic view of the potential impact on the medical device industry. The drugs could eventually hurt certain procedure categories, but not anytime soon. "That would be very far in the future, not even within an investable time frame," Newitter said. Given the underpenetration of medical technology and therapies in many disease areas, weight-loss drugs "are unlikely to make even a dent in the growth opportunity by then... not enough to justify the market cap destruction that occurred in the fall of 2023 or anything close to it," he said.