Emergo survey: Medical device R&D spending expected to rise through 2018
EMERGO SUMMARY OF KEY POINTS:
- A May 2017 Emergo survey finds that smaller medical device companies (less than 50 employees) are planning more aggressive R&D investments over the next 12 months.
- Pricing pressures are a larger factor for large firms’ R&D plans, while product development and commercialization are key drivers for small and start-up companies.
- More than 70% of survey respondents say they will begin R&D efforts for new devices over the next 12 months.
An Emergo survey of medical device companies finds that a higher percentage of smaller firms plan to increase their research and design spending over the next year than mid- and large-sized firms.
The survey of 543 medical device executives in North America, Europe and Asia revealed not only planned R&D spending differences between smaller respondents (those with 50 or fewer employees) and larger firms (those with 50 or more employees), but also different business priorities driving those R&D spending plans.
Medical device R&D spending overall set to increase in 2018
A majority of survey participants (53%) indicated they would increase their R&D investments over the next 12 months, while another 29% of firms said they would invest about the same amount as in 2016. These percentages did not change significantly when comparing firms based on geographic location—the same spending trends applied for respondents in North America, Europe, Asia and other regions.
Size of respondents played a much more interesting role, however, in whether they planned to increase R&D spending in 2017: 61% of firms with fewer than 50 employees said they would spend more on R&D this year, while only 42% of firms with 50 or more employees said they planned similar increases for 2017.
More mid-sized and larger firms than smaller ones also indicated plans to keep R&D spending levels at current levels rather than increase them over the next 12 months. Only 27% of smaller respondents reported their R&D spending would remain the same as in 2016, compared to 32% of mid- and large-sized firms. Overall, only 6% said they would decrease spending.
It is also worth noting that more mid- to large-sized companies (19%) said they did not know or could not disclose whether their R&D spending would increase or decrease than small firms; only seven percent of small respondents did not disclose their near-term R&D spending plans.
Our findings are generally in line with those of other investigators. In early 2017, market research provider Kalorama published an industry analysis noting that medical device firms continue spending an average of 7% of revenues on R&D, and that many firms have been increasing such spending as part of their product innovation efforts. Another early 2017 study by Frost & Sullivan cited falling R&D productivity tied to pricing pressures at established manufacturers, in line with Emergo findings that larger firms plan less aggressive R&D investments over the near term.
Why the disparity in R&D spending projections?
The greater willingness among small medical device companies to increase spending on R&D can be attributed to the fact that many small firms that may have only one or two devices commercialized or still under development. Larger firms, on the other hand, more likely have well-established devices registered for sale in one or more markets, and are thus able to rely more on their existing product lines and spend less on new product development.
Our survey also asked how long respondents have been in business; according to responses, about 60% of smallest participants—those with nine or fewer employees—have been operating for less than five years. Thus, many of these companies must ramp up their short-term R&D spending to develop their product pipelines.
Different business drivers
Different business drivers also played a big factor in respondents’ R&D spending plans for the next 12 months. Among small companies that planned increases in R&D spending, nearly three quarters of all respondents said their spending decisions were tied to having identified a market need for a new device still under development.
Not so at mid- to large-sized firms: 67% of these firms identified the need to stay ahead of competition as the key driver behind their R&D spending increases. Furthermore, a higher percentage of medium and large companies (36%) cited the need to update dated or obsolete technologies as a factor, as opposed to just 22% of small firms still getting their product lines up and running (but without legacy system headaches).
Conversely, firms indicating that they would reduce their R&D investments over the next 12 months most often cited pricing pressures leaving less money for R&D spending.
Research and development plans for new medical devices
Another key finding of the survey pertained to respondents’ plans to begin R&D efforts for new medical devices over the next year.
Overall, 72% of survey respondents intend to start R&D initiatives for new devices. This applies to firms of all sizes and geographic locations. Similar percentages of firms reported plans to start selling new devices (66% of firms) and upgrade existing product lines (68%) over the next 12 months, as well.
Effects of European MDR becoming apparent
Regarding existing devices, however, a remarkable difference emerged between respondents based in North America and those in Europe. A higher percentage of European firms (31%) indicated plans to discontinue selling existing devices, compared to only 19% of North American firms. Explanations for this difference may have to do with looming implementation of the new Medical Device Regulations (MDR) in Europe, which will introduce new CE Marking rules as well as Notified Body obligations; these changes may be prompting some manufacturers to wind down product lines less likely to meet MDR requirements. These percentages may also be showing the effects of fewer Notified Bodies operating in Europe as stringent new regulatory requirements for these entities take effect; fewer Notified Bodies available to help manufacturers obtain and maintain CE Marking, tackle MDR compliance and prepare for ISO 13485:2016 quality system compliance could be prompting some firms to withdraw devices from the European market.
Participant size and location
Some characteristics of the total number of survey participants:
- 40% of firms are located in North America; 36% are based in Europe, 15% are in Asia and another nine percent are from other regions.
- 32% of firms report having fewer than 10 employees; 29% have between 10 and 49 employees, while 18% of firms report staff sizes of 50 to 249 employees. Another 13% of participants have 1,000 or more employees.
- 35% of firms have been in business for 20 or more years. 23% of firms have been in business for one to five years, and 17% of participants have been around for between six to 10 years.