I’ll keep this brief and to the point because business leaders are busy people. However, if you’re someone who is curious and would like the why behind something then continue reading below for our juicy detailed analysis of this quarter’s MedTech financial report.
Here are the facts we’ve uncovered from the second quarter of 2024 in MedTech.
Every dollar in this report can be traced back to the exact companies and date in Zapyrus. ⚡
*Zapyrus users will be able to access the exact companies, events, and contacts using the key links below. Look out for the lightning bolt emoji (⚡) as an indicator.
The first half of 2024 promises to be an exciting start for MedTech in 2024 where the total funding year to date of $19.81 billion dollars has already surpassed all of 2023 funding of $17.95 billion dollars. With a projected linear decrease of 20% in quarter over quarter funding as a typical year progresses, we can expect that we will close out 2024 with a total funding of approximately $32.44 billion dollars giving 2024 an 81% increase in funding volume compared to 2023.
Market drivers such as regulatory changes in Laboratory developed tests (LDTs) at the start of Q2 injected new investments into the in-vitro diagnostics (IVD) segment. The tragic regulatory oversight that led to the resulting poor practices seen through cases like the Theranos scandal alerted the industry to demand more regulatory guidance on CLIA certified labs and LDT regulation. The result of which were new regulatory guidelines from the FDA implemented in April 2024.
Despite the decrease in total market funding from Q1 to Q2, we see major spikes in key segments in the MedTech market such as Software-as-a-Medical device (SaMD) or Distial therapeutics (DTx) of 1349% growth. This increase is helped by the introduction of large language models (LLM) from the technology sector like ChatGPT by OpenAI in 2022. This opened up many applications combining software with hardware devices in the MedTech sector to enable smarter connected devices or unlocking brand new healthcare applications to address unmet healthcare needs that were unaddressable before through MedTech. This is a unique differentiator as the pharmaceutical industry lacks the ability to connect molecular drugs to technology or software in the application of treating diseases.
In this article, we’ll unpack the meaning behind the financial numbers in Q1 and Q2 of 2024 and what these numbers mean for service providers in the MedTech vertical, innovators, strategics, and investors.
Let’s dive in shall we?!
[1] What is the MedTech financial health in Q1 & Q2 of 2024?
[1.1] How is funding distributed between Q1 and Q2 of 2024?
[1.2] What can we predict from the M&A volume in Q1 & Q2?
[2] How is Q2 2024 funding being distributed?
[2.1] Funding distribution by medical technology segment
[2.2] Funding distribution by major medical technology types
[2.3] Funding distribution by therapeutic area
[3] MedTech clinical breakdown in Q2 of 2024
[4] Future outlook
We experienced a great first half of the year in 2024 when it came to funding volume. Specifically, Q1 showed signs of new life coming off of a tough 2023 year with roughly $11.04 billion dollars injected into the market. We observed a similar growth in Q2 of approximately $8.77 billion dollars, a slight dip in total funding. This is not uncommon or surprising given that investment volumes are cyclical in nature and at the top of the year, investors are looking to spend money to maximize the time they have to see a return on their investment within the calendar year. However, approximately 19% more companies received funding in Q2 than Q1 of 2024 while the total amount of funding in Q2 was 21% lower than that seen in Q1 of 2024. This results in a reduction in average funding distribution per company from $22.73 million dollars to $17.13 million dollars.
Figure 1. MedTech funding summary in USD between Q1 and Q2 of 2024. A) Total funding in Q1 and Q2. B) Total funding between commercialized MedTech companies in the USA vs Pre-commercial companies. C) Total non-grant related funding. D) Grant related funding.
⚡ Zapyrus users can gain access to all of these funded MedTech companies by clicking here.
A closer look into funding distribution by quarter tells us an interesting story. As shown in figure 1B, there is a larger decrease in funding for MedTech companies that are commercialized in the USA at around 23% whereas the pre-commercial stage MedTech companies experienced a smaller decrease in funding of 15%. This indicates more stability for the pre-commercial services segment in the second half of the year with early stage services like design & development, pre-clinical testing, regulatory & quality services, and early clinical trial support. Given that the total amount of funding for commercialized MedTech companies in the USA is still approximately twice that of pre-commercial stage companies, there is still plenty of opportunity for service providers to capture new business at that stage.
Grant funding in figure 1D showed the largest drop in funding of approximately 47% compared to non-grant related funding at 19%. This is most likely due to most grants being awarded at the top of the year and as the year progresses we should see grant funding drop as the grant application windows close. Non-grant related funding captures seed stage funding and includes following stages such as series A to D+, and royalty payments. Given the stability that we see in this type of funding, we can extrapolate that to the overall stability and health in the MedTech market in 2024. In the sections below, we will take a deeper look behind what comprises this funding and where the MedTech market is heading.
When looking at total funding volume, we can agree that a 21% reduction in funding is not great but at the same time, it’s not shocking given the cyclicality of funding volume throughout a typical year. However, less funding from quarter to quarter does not tell us how healthy specific segments of the MedTech market is. Take the graphs in figure 2 for example, we see a growth in funding within the AMEA regions of up to 36% and an 82% and 14% growth within companies that have less than 10 employees and 11-50 employees respectively. These values are not captured in the overall 21% decrease in funding volume in Q2 when compared to Q1.
Figure 2. A) Funding by geographical region per 2024 quarter. B) Funding by employee size per 2024 quarter.
Figure 2A breaks down funding volume by the global regions of Europe, Middle East, and Africa (EMEA), North America (NA), and Asia Pacific (APAC). Taking a look at the two primary regions of EMEA and NA, we see an interesting trend. NA funding makes up almost three times the amount of funding in AMEA in Q2 2024. However, the decrease in NA funding is significantly greater than that of the global average at 21% whereas EMEA funding increased by 36%. This suggests that the funding changes globally is largely due to the dip from NA funding.
This contrast in funding direction between the two major regions can be attributed to the recent changes in the European MDR and IVDR requirements prompting more investment dollars to be injected into that segment of the market. North American regulation, particularly the FDA needs to catch up to the European regulations and significant changes will come that could positively impact the MedTech market such as the new LDT regulations that have been recently put into action Q2 of 2024. Those positive impacts are shown in the funding volume in figure 5.
Figure 2B shows us the spread of funding between Q1 and Q2 by company size. The numbers shocked us. We observed a relatively stable funding volume in companies larger than 1000 employees. Where we see a massive financial reallocation is between the startups and the mid market. MedTech companies that are between 100 and 1000 employees experience the largest funding dip of approximately 61%. Additionally, the total amount of funding also dipped below that of companies at the startup sizes. This is concerning given that larger companies tend to require more cash on hand in order to stay operational and in a growth state. Funding for companies that have less than 10 employees increased by 82% and 11-50 employees increased by 14%. This suggests that investors are betting on new innovative startups that show promise in a rapidly changing regulatory environment. A small portion of this growth in funding comes from the increased M&A volume shown below and suggests a healthy growth in the market.
Mergers and Acquisitions (M&A) volume is often seen as predictors of market health in any market. In a niche and emerging vertical like MedTech, M&A volume has an even greater impact on market health predictions.
Figure 3. M&A volume by quarter between 2023 and 2024.
Figure 3 shows us the M&A volume for 2023 and 2024 broken into their respective Q1 and Q2. Both Q1 and Q2 of 2024 experienced an increase in M&A volume compared to 2023. Additionally within 2024, we see a further increase in M&A volume between Q2 and Q1. These increases suggest that investors and strategics are seeing value in the MedTech market and are strategically spending to acquire companies that they believe can help them achieve growth and provide unmet value to patients.
Taking a closer look at in quarter funding distribution we can see that specific technology types and therapeutic areas are being supported on more than others. Generally speaking, medical devices experienced a decrease in funding while IVD and SaMD showed significant funding growth. Additionally, the evolving regulatory landscape and emergence of large language models in the software industry has caused a significant relocation of investments in MedTech resulting in an observable decrease in traditional implantable devices by 17% and and increase in LDTs and electrical stimulation devices (E-Stim) by 24% and 35% respectively. Sections 2.1-2.3 below dives deeper into what this implies for MedTech innovators and service providers in 2024.
As we predicted in 2023 and earlier this year, the gap between traditional medical devices and IVD/SaMD will continue to rapidly shrink. The days of a slightly better stent or heart valve being an attractive investment are reducing. With a finite amount of money circulating in the MedTech market at any given time, investments will be reallocated towards areas of rapid growth rather than incremental growth. We see this trend on full display in figure 4 below.
Figure 4. Funding distribution by medical technology types between Q1 and Q2 of 2024.
Investments into traditional medical devices has decreased by 23% between Q1 and Q2 of 2024 totalling approximately $2.2 billion dollars. The investment into IVD increased by 25% and an astonishing 1349% growth was observed for SaMD/DTx companies. This large spike in the growth of IVD and SaMD in an overall decrease in the market funding totals suggests that investments are being pulled from traditional medical devices and put into the growing IVD and SaMD segments.
Factors such as regulatory changes and adjacent industry innovation also play a huge part in the growth observed in IVD and SaMD. For example, the recent FDA regulatory updates released at the end of April 2024 mandates LDTs to be upregulated as a subset of IVD products and subjected to rigorous testing and validation contributed to this unconventional spike in IVD investment growth. The LDT contribution to IVD investments in Q2 of 2024 was approximately $4.2 billion dollars. The massive SaMD investment increase is a delayed onset of the global prevalence of machine learning applications, specifically large language models (LLMs) in the application of data and content generation. This innovation in the technology sector fuelled the massive volume of SaMD investments in Q2 2024. Given that LLM applications are novel and that regulators around the globe do not have updated regulatory policies in place to adapt to the rapidly changing SaMD sector, we anticipate a dip in this funding towards the latter half of 2025. This massive spike in funding is similar to the IVD spike during the COVID-19 pandemic although it seems to be much more controlled.
We chose three key medical technology types to present funding distribution. Specifically, we picked implantable devices, LDTs, and E-Stim. We wanted to ensure that each medical technology type can represent the larger medical technology segments. For example, implantable devices are typically high risk class 3 medical devices that require the full gamut of testing, clinical studies, and manufacturing. LDTs represent a growing portion of the IVD segment and E-Stim combines both hardware and software components to represent the impact of software growth in the transitory world of traditional hardware devices to pure SaMD technologies.
Figure 5. Q1 and Q2 2024 funding for implantable devices, LDTs, and E-Stim.
Figure 5 above shows a 17% decrease in funding compared to the 24% and 35% increase in LDTs and E-Stim technologies respectively. The decrease in implantable devices is roughly $1.06 billion dollars where the increase in LDTs and E-Stim combined is approximately $1.79 billion dollars. This indicates a net $730 million investment reallocation towards the growing segments of IVD and SaMD.
Businesses who solely specialize in traditional medical devices or implantable devices only will continue to face growth challenges if they do not pivot and expand their strategy to cover the emerging markets in MedTech. We should expect the growth in IVD and SaMD to continue as we enter the second half of 2024 due to LLMs maturing in real time allowing for smarter IVD and connected device systems to be developed and implemented in the field.
Although therapeutic areas are not the most accurate way to divide the MedTech market, it is a typical way that most businesses, especially CROs view the MedTech market given various medical technologies fit under one type of therapeutic area.
Figure 6. Funding between Q1 and Q2 2024 by therapeutic area.
Figure 6 above shows a major dip in funding for all major classical therapeutic areas with most averaging an 85% decrease and cardiovascular specifically at 38% decrease. This is not surprising given the overall reduction in total funding in Q2 compared to Q1. The surprising piece is that the rate of decrease in therapeutic use is 4x the market funding decrease. This is supported by the fact that investments are being pulled out from traditional medical devices and injected into emerging segments like IVD and SaMD which can solve healthcare challenges outside of the conventional therapeutic areas. This is extremely evident in the increase in growth for other types of therapeutic areas by 1974%.
Clinical trial pipeline is a great predictor of market health and which subsegments of the market are winning and losing. This data is incredibly important for leaders in businesses that provide services to MedTech companies and investors in MedTech. The clinical pipeline in 2024 looks incredibly positive with increasing growth numbers in most of the clinical trial stages.
Figure 7. Funding by clinical development stages and 2024 quarters.
Figure 7 above shows the growth rates amongst each clinical trial stage between Q1 and Q2 of 2024. Immediately, we can see a large growth spike in product approvals of 83% from Q1 of 2024. This spike from product approvals is explained by the delayed results of investments made during the COVID-19 pandemic and the increase in clinical trial volume in 2023. We should expect a decrease in product approval volume as the year continues due to the poor financial health of the MedTech market in 2023. This means that commercial services and contract manufacturing companies are in a good growth stage but they must now focus on strategic hunting for new business as the dip is expected to come over the next few quarters. Being short sighted here and relying on repeat business can and will negatively impact your business in the long term.
When we look into the beginning of the clinical pipeline, Zapyrus AI helps us uniquely identify the volume of clinicals trials that are planned and have not yet been started. We see an increase of 20% in future clinical trials being planned most likely due to the large funding injection from Q1 of 2024. We would expect this volume to increase in Q3 as the funds in this quarter are used to further invest in clinical development. Despite the decrease in funding totals, clinical service providers in MedTech have more project opportunities than ever before in 2024. Additionally, the increase in clinical studies initiated of 6% also indicates great health in the market.
Rescue studies are a big component of success in a medical technology making it through to market. We see an increase of 11% in clinical trials being delayed from various issues like patient recruitment, trial planning, trial execution and more. This increase in clinical trial delays eventually leads to an increase in clinical trials being terminated before they are complete which we see a spike of 13% in Q2 of 2024. Many of these unsuccessful studies can be easily mitigated if the right help and resources were available for the MedTech companies sponsoring these studies. Inevitably the downstream impact of more trials being delayed, more studies being terminated resulting in a decrease of 13% in clinical studies taken to completion between Q1 and Q2 of 2024. MedTech companies should take notes from the pharmaceutical/biotechnology industry and seek guidance and resources from clinical service providers to help mitigate these clinical trial failure risks and maximize their investments. Clinical service providers and contract manufacturers should more proactively engage with MedTech companies at an earlier stage where good education in the value of risk mitigation strategies before starting a clinical study is vital in maximizing the chance of a successful trial completion and eventual regulatory approval.
Future outlook for MedTech service providers heading into H2 of 2024.
The overall health of the MedTech market is looking strong with projected continued growth in the upcoming quarters. The important piece is to find the right companies at the right stage and with the funds to support those projects. There are more companies who did not receive funding than there are that did receive funding, so if you leave it to chance the probability that you encounter a company without funding is much greater. If you spend too much time trying to uncover these qualified opportunities, then you’re either too late to the opportunity or you don’t get to as many opportunities in the market. The startup companies experienced a large increase in funding in Q2 and therefore will be seeking ways to strategically spend those funds in order to maximize their success. Services like regulatory, quality, design & development, and preclinical services should experience a large growth in opportunities. If you are not, then chances are you are not looking in the right place. Manufacturing and commercial services opportunities have increased by 83% based on product approvals, however this is a delayed success from 2023 clinical activity. CDMOs should seek to proactively bolster their new business pipeline as the delayed impact of the COVID cliff from 2023 will arrive over the next few quarters. Service providers that work exclusively with traditional medical devices should look to increase their capabilities into the emerging IVD, connected devices, and SaMD markets as we will continue to see a shrinking of conventional medical devices and an increase in investments towards emerging markets.
Future outlook for MedTech companies heading into H2 of 2024.
The clinical trial pipeline numbers are evident. In order to mitigate failure at the clinical stage, MedTech businesses should proactively seek specialized support from service providers that have encountered these situations before and can help mitigate the risk of failure. European MedTech companies experienced an increase in Q2 funding compared to Q1 which is a great sign given that the natural trend is a decrease in funding as the calendar year proceeds. This means that we should expect the development and clinical outputs to increase over the next few quarters.
Off of the resurgence momentum from Q1 2024, Q2 in MedTech pushed the funding volumes further to the point of superseding the total funding in all of 2023. The total funding from Q1 & Q2 in MedTech was $19.81 billion dollars compared to the $17.95 billion dollars in 2023.
Emerging regulatory policies around the globe and adjacent technology sector development resulted in an increased investment into the segments of IVD and SaMD/DTx. The Q2 funding was heavily focused on increasing the support to startup companies of less than 50 employees in size and bolstering new clinical pipeline development. We observed a 20% increase in future expected clinical trials to be started later this year.
Overall, the MedTech market continues to be on the rise with expected growth in IVD, SaMD, and the connected device segments. Service providers that are looking to ensure a stable business pipeline should consider expanding their capabilities in order to cover the needs of emerging subsegments in the MedTech industry. Additionally, CROs and other clinical service providers should seek to capture business opportunities at an early stage of clinical development before a clinical study begins.
Zapyrus uses a proprietary machine learning system to identify these future development milestones in order to ensure that businesses are making the right connections at the right time to maximize their value towards a MedTech company.
Thank you for reading this report and we wish you all the best in 2024!
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