Life Sciences Practice
What to expect from
medtech in 2024
Our medtech predictions for the year ahead were inspired by
conversations with more than 200 industry leaders and informed
by McKinsey’s latest decade-ahead medtech report.
by Karsten Dalgaard, Gerti Pellumbi, Peter Pfeiffer, and Tommy Reid
February 2024
The medtech industry posted an uneven year Since the September 2023 publication of our com
in 2023. Among the reasons for celebration were prehensive report Medtech Pulse: Thriving in
expectation-beating revenue growth, a record the next decade, we have spoken to more than 200
number of novel-product approvals, and a spate medtech executives. In this article, we draw from
of divestitures that helped companies refocus on the insights and questions that emerged from those
their core capabilities. conversations and offer seven predictions about the
evolving industry landscape in the coming year.
On the flip side, the growing popularity of glucagon-
like peptide-1 (GLP-1) drugs for weight loss led
investors to move away from many obesity-related- 1. Industry growth will likely
device stocks. Profitability did not meet investor stabilize at a higher level than
expectations in an environment where margins the prepandemic average
increasingly became a key point of focus for valua Growth in medtech has accelerated since the
tions. And companies continued to struggle to COVID-19 pandemic, bringing with it higher expec
perform consistently across geographies, especially tations for medtech companies. The uptick in
outside the United States. patient volumes due to the pandemic dampened in
2023. Other underlying growth factors driving
Indeed, 2023 marked the fourth consecutive patient volumes continue to persist, though, including
challenging year for medtech, following a boom from demographic shifts because of aging populations
2012 to 2019.1 Despite many advances, a value and the availability of innovative technologies that
creation slowdown may force companies to make address high unmet needs across such disease
bold moves to reset their trajectories in areas as diabetes, heart failure, and stroke. Growth
response to investor skepticism and other is also being fueled by patients accessing new
macroeconomic headwinds.
Despite many advances, a value creation
slowdown may force companies to make
bold moves to reset their trajectories
in response to investor skepticism and
other macroeconomic headwinds.
1
S&P Capital IQ, S&P Global Market Intelligence, accessed on November 15, 2023.
What to expect from medtech in 2024 2
and nontraditional sites of care, including 2. Investors will continue to seek
alternative surgery centers (ASCs), medical offices, profitable growth
and outpatient settings. While sales growth remains chief in value creation,
profitability and cash flow are increasingly coming
Going into 2024, we expect overall medtech into focus. The correlation between profit margin
revenue growth to stabilize at 100 to 150 basis improvement and valuation has almost tripled since
points above prepandemic rates (Exhibit 1). 2019.3 The top-quartile value creators in medtech
And as industry leaders look forward to the next improved their profitability in the past two years and
five years, cardiovascular health, digital healthcare, are expected to continue expanding EBITA margins
and robotics are expected to be among the by at least 200 basis points over the next two years.
fastest-growing segments.2
In conversations with medtech executives on
These trends present several hurdles for medtech profitability, we heard a common refrain: margin
companies. First, as market growth rises, companies expansion will decrease in importance when
will find it more challenging to outperform expec interest rates decline. Historically, this line of
tations. Second, the widening growth rates between thinking has been true. From 2014 to 2022, medtech
segments will require conglomerates to reallocate valuations were inversely correlated with real
resources more thoughtfully. And third, the race to treasury rates (Exhibit 2); as interest rates declined,
serve ASCs, medical offices, and outpatient investors focused more on revenue growth than on
settings will continue to intensify. earnings growth, and valuations rose.
Web <2023>
<ExpectFromMedtech>
Exhibit
Exhibit <1>1 of <4>
Medtech growth rates are starting to stabilize to prepandemic levels.
Top 20 global medtechs’ organic revenue growth rate, year over year,¹ %
15
10
0
2018 2019 2020 2021 2022 2023 2024
¹Growth rate is based on the weighted average of revenues of the top 20 global medtechs. Top 20 is defined by the largest publicly traded medtech companies
globally by market cap, as of Nov 2023; 2024 projected organic growth rate is based on S&P Capital IQ analyst consensus for revenue.
Source: S&P Capital IQ, S&P Global Market Intelligence, Nov 22, 2023
McKinsey & Company
2
“Global medtech market analysis & projections (MAP),” Life Science Intelligence, accessed on December 4, 2023.
3
S&P Capital IQ, S&P Global Market Intelligence, accessed on November 15, 2023.
What to expect from medtech in 2024 3
However, valuations have never been as in interest rates in 2024 may not necessarily boost
disconnected from real rates as they have been medtech valuations. Against this macrodynamic,
in the past 18 months: even as interest rates investors will remain keenly focused on companies’
rose dramatically, medtech valuations declined ability to expand margins.
only modestly. As such, the expected decline
Web <2023>
<ExpectFromMedtech>
Exhibit 2 of <4>
Exhibit <2>
If treasury rates remain high, medtech multiples could decline further.
Real 10-year US treasury rate, %
2.5
Area of highlight
2.0
1.5
1.0
0.5
–0.5
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Medtech next 12 months, P/E multiples¹
50
40
30
20
10
0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
¹Median top 30 medtech companies, by market cap.
Source: S&P Capital IQ, S&P Global Market Intelligence, Dec 15, 2023
McKinsey & Company
What to expect from medtech in 2024 4
3. The industry will deliver another Based on our conversations with medtech execu
banner year for innovation tives, we expect the pace of innovation in 2024
In 2023, the US Food and Drug Administration to exceed 2020 to 2022 levels, with cardiovascular,
(FDA) approved more novel medical technologies digital-health-device, and neuromodulation
than it has in any single year ever before (Exhibit 3). segments gaining momentum. Advanced imaging,
Several factors contributed: approvals of AI and microelectronics, miniaturization, and new treatment
machine-learning-enabled medtech products modalities, such as renal denervation, are spurring
reached an all-time high; miniaturization and innovation in underserved disease areas. These
improved visualization continued to drive approvals exciting advances can fuel the next wave of growth
in cardiovascular and urology segments, among and improvements in patients’ quality of life. The
others; and digitally enabled categories, such as pace of innovation also means more competition for
neuromodulation and robotics, continued to grow medtech companies. Increasingly, it’s the big, novel
steadily. Also, waiting times for FDA reviews receded innovations that will drive commercial relevance and
by almost 15 percent from 2020 to 2022.4 growth—incrementalism won’t be enough.
Web <2023>
<ExpectFromMedtech>
Exhibit 3 of <4>
Exhibit <3>
The innovation pipeline is opening, with medtech generating the industry’s
most novel approvals ever.
Novel FDA approvals,¹ number All FDA approvals, AI/ML-enabled,² number
185
139
124
113 107
97 102
92 93
82 82 77
66 63
62
26
18
5
2015 2016 2017 2018 2019 2020 2021 2022 2023 2015 2016 2017 2018 2019 2020 2021 2022 2023
estimate estimate
Note: Projected 2023 approvals.
¹US Food and Drug Administration approvals include original premarket approvals (PMA), panel track PMA, and 510(k) De Novo approvals.
²The FDA publishes lists of approved AI/machine learning–enabled medical devices primarily based on information provided in the summary descriptions of the
submitter’s marketing authorization document. The 2023 estimates are annualizations via linear regression.
Source: Evaluate Medtech; FDA database
McKinsey & Company
4
“2023 device approvals,” US Food and Drug Administration, updated on December 22, 2023.
What to expect from medtech in 2024 5
4. Performance across geographies models representing complex structures have
will continue to be lumpy already been used in many insight-generating tasks,
In 2024, we project that China, Japan, and the particularly in product development. For example,
United States will contribute two-thirds of near- digital-twin technologies (virtual representations of
term industry growth in medtech. Across more physical medtech devices paired with deep-learning
established markets, such as Japan and the United models) have been used to validate alternative, and
States, growth continues to be driven by innovation more effective, device designs. Most of the gen-AI-
and the adoption of innovative technologies. In the related activity in medtech to date has focused
United States, commercial execution and innovation on device enablement, functionality, and R&D, with
will be the hallmarks of growth. untapped opportunities in commercial, supply
chain, and other business functions.
The market in Japan will likely behave similarly,
though CFOs and finance leaders there will need Medtech companies that adopt gen AI are starting
to be thoughtful about managing currency risk to gain productivity benefits, starting with low-
(for example, through hedging strategies). Domestic hanging fruit such as “copilots” for workers in HR, IT,
and international companies are facing foreign- finance, and legal roles. Companies are beginning
exchange challenges in Japan, making the US market to explore the impact of gen AI on commercial and
even more critical to overall industry growth. operational roles. Because of regulatory require
ments, the deep integration of AI in medical products
Growth in Europe will likely slow after a year in which and services remains years away. However, some
price increases saw a step-up in the underlying companies will start integrating gen AI into their
growth rate. Medtech companies that thrive in the products and software, such as by leveraging voice
European market will tap fresh solutions to help prompts. New capabilities and talent will be needed
providers manage workforce shortages and improve to capture the business value fully. Given the rapid
health economics through reduced readmissions pace of innovation, early adopters are likely to have
and shorter hospital stays. an advantage over the competition.
Elsewhere, medtech leaders are tackling difficult
strategic choices. China has delivered tremendous 6. M&A deal volumes will likely remain
growth over the past decade. However, increasing stable, with a continued balance of
complexity, local competition, and volume-based growth and at-scale transactions
procurement have posed challenges for multinational Medtech M&A slowed in 2023 amid earnings
corporations. India will begin to make a bigger challenges, macroeconomic uncertainty, and rising
splash, thanks to favorable governmental-policy interest rates. Meanwhile, large buyers set a
changes, increased investment flow, a maturing precedent of paying premiums at or above 52-week
tech ecosystem, and the emergence of growing highs.5 Many of these buyers were in pursuit of
local businesses that are increasing provider meeting rising growth expectations and unlocking
access to technology and training. margin expansion.
While growth-focused tuck-in deals will remain
5. Leaders in AI adoption will start to critical to value creation, they are not always available
see benefits of scale to companies at attractive valuations. Another
The underlying technologies of generative AI (gen tool that companies are increasingly exploring is
AI)—namely, foundational models—have a long at-scale transactions. Larger acquisitions can
history in life sciences and medtech. Foundational offer operating leverage, which can help medtech
5
LSEG Data & Analytics, London Stock Exchange, accessed on August 28, 2023; S&P Capital IQ, S&P Global Market Intelligence, accessed on
August 28, 2023.
What to expect from medtech in 2024 6
companies improve margins that currently sit near profitable targets remain scarce. Interested
2018 levels (Exhibit 4); they can also help companies acquirers will need to act quickly, given the scarcity
in lower-growth markets improve their commercial of options.
presence with more end-to-end solutions that help
care teams streamline operations and focus on
patient care. 7. Penetration of GLP-1 drugs will
continue but is unlikely to have
We anticipate that the volume of M&A activity will meaningful impact on medtech growth
remain low but that the deals that are executed GLP-1 therapies have been deployed to treat type 2
will show more balance across deal sizes. Medtech diabetes since 2005. Recently, their indications have
companies continue to have “dry powder” that expanded to obesity, and emerging data suggest
accumulated during the COVID-19 pandemic, with that these drugs could help even more patients,
approximately $55 billion of cash and cash including those with cardiovascular or chronic kidney
equivalents.6 However, high-growth, at-scale, and disease. The market has responded, with shares
Web <2023>
<ExpectFromMedtech>
Exhibit 4 of <4>
Exhibit <4>
Profit margins for global medtechs have not improved since 2018 and remain
lower than they were in 2021.
EBITA margin of top 30 global medtechs, Quarterly Annual
by median and upper and lower quartiles,¹ % 75th percentile
Median
25th percentile
40
30
20
10
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2019 2020 2021 2022 2023
¹Top 30 global medtechs, based on 2022 sales with data available from 2018 to the current Q4 estimate for 2023.
Source: S&P Capital IQ, S&P Global Market Intelligence, Nov 15, 2023
McKinsey & Company
6
Ibid.
What to expect from medtech in 2024 7
of GLP-1 drug manufacturers rising 26 percent in two become long-term users of the therapy. In the
Find more content like this on the
months after trial readouts.7 At the same time, meantime, GLP-1 drugs are much on the mind of
McKinsey Insights App
medtech stocks, particularly those that are obesity analysts, executives, investors, and patients,
related and in adjacent categories (such as cardio so medtech companies will need proactive, fact-
vascular health, diabetes, orthopedics, sleep apnea, based narratives to describe the potential
and surgery), dipped 17 percent amid concerns business impacts.
that GLP-1 therapy adoption will dramatically
reduce the need for device-enabled diagnostics
and interventions.8
While reflecting on the past year’s growth and
Scan • Download • Personalize
Indeed, GLP-1 drugs may meaningfully aid many challenges, industry leaders have reason to
patients, but they will likely have minimal effect be energized by the promise of 2024. The new year
on most medtech markets. Long-term use of GLP-1 will bring innovations that improve more lives,
therapy will depend on patient adherence to the opportunities to create value, and fresh approaches
prescription, payer coverage, and prescription rates. that adapt to market-shaping trends. Although
Our analysis across scenarios suggests that, for obstacles remain, the medtech industry is poised to
most indications across medtech sectors, low-single- continue to deliver benefits to all its stakeholders.
digit percentages of patient populations will
Karsten Dalgaard is a senior partner in McKinsey’s Stockholm office; Gerti Pellumbi is a senior partner in the Washington, DC,
office; Peter Pfeiffer is a senior partner in the New Jersey office; and Tommy Reid is a partner in the Austin office.
The authors wish to thank Helen Hultin, Brett Klosterhoff, and Elea Medina for their contributions to this article.
Designed by McKinsey Global Publishing
Copyright © 2024 McKinsey & Company. All rights reserved.
7
S&P Capital IQ, S&P Global Market Intelligence, accessed on October 13, 2023.
8
Ibid.
What to expect from medtech in 2024 8
