Over the past four years, investors have left medtech. Leadership teams shouldn’t assume they will simply rotate back when the investment cycle turns. The sector’s fundamentals appear healthy, but performance has plateaued. Meanwhile, investors have more choices, higher expectations, and less patience for companies with stale strategies.
The industry’s fall has been mostly self-inflicted. After a decade of acceleration from 2012 to 2022, growth, margin, and ROIC have largely plateaued.1 Companies that have maintained strong fundamentals have lost investor confidence with execution missteps such as recalls, clinical trial misses, or incorrectly forecasted guidance. Weak investor communications have compounded the sector’s issues. As a result, medtech’s share of the S&P 500 has decreased by more than half in the past four years.
Many executives believe that investors have rushed into AI stocks and will simply return to medtech when the market cycles away from AI. This thinking places too much weight on the macro environment and not enough on medtech performance. Take the materials sector after the tech bubble or the energy sector after the global financial crisis: Even as macro conditions improved, investors did not always return to industries if performance was in question, and those sectors’ share of the S&P 500 did not recover to precrisis levels. If medtech companies do not demonstrate stronger performance and more compelling investment cases, investor capital will end up in other sectors.
The burden of proof now sits with medtech leadership teams. Regaining investor confidence will require more than fine-tuning current performance. To succeed, companies must instead show investors why their business can be different, better, and more resilient in the future. In this article, we describe three management shifts that will drive these changes: capturing new profit pools, seizing the AI opportunity for growth, and strengthening portfolio focus and synergies.
Access new profit pools historically not tapped by medtech companies
Medtech’s traditional innovation model and profit pools may be reaching their limits. Novel product approvals have flattened for the past seven years, and venture funding has declined since 2021, though 2025 showed an increase over 2024, according to our research. Development and regulatory hurdles have grown, and payers and hospitals around the world have become more stringent about adopting new technologies at scale. This has made innovation more costly, slower, and harder to commercialize. And since the industry is 50 percent larger today than it was in 2019, it now requires more launches and faster scale-ups to sustain growth.
We believe companies need to find “hidden” patients by looking beyond traditional sources, toward other opportunities.
Serving patients historically treated with pharmaceuticals
Medtech companies have typically only nibbled around the edges in areas where pharmaceuticals are the standard of care. But devices such as left atrial appendage occluders (now a $2 billion market) and sacral nerve stimulators (now a $1 billion market) have shown that devices can serve patients in ways that drugs cannot: more locally, more precisely, with lower adherence burden, and with fewer systemic side effects.2 Medtechs looking for their next opportunity should explore innovations in cancer ($260 billion pharmaceutical market size in 2026) and autoimmune diseases ($160 billion).
In cancer, medtechs could move beyond liver cancer to cancers where leading physicians are vocal about looking beyond traditional pharmaceuticals,3 including lung (2.5 million patients), prostate (1.5 million), and pancreatic (0.5 million). Local drug delivery devices could be more effective (especially for so-called cold tumors, which are less responsive to immunotherapy), while energy-based treatments could unlock new, more sustainable approaches to tumor treatment.
In autoimmune diseases, technologies such as neuromodulators and energy-based treatments have begun challenging the traditional boundaries between medtech and pharma. Historically, devices have addressed mechanical needs, while pharmaceuticals have delivered systemic therapies.
Chronic disease drug treatment requires lifelong adherence and can cause unfavorable side effects. Minimally invasive devices can help improve outcomes while also easing patient adherence and lifestyle burden. Diabetes devices, such as continuous glucose monitors and automated insulin delivery pumps (both multibillion-dollar device categories, growing at double-digit rates), offer outstanding examples for how devices can succeed in these markets. Early-stage technologies are also demonstrating promising clinical results, such as hydrothermal ablation, which shows sustained weight loss in patients with obesity after taking glucagon-like peptide-1s (GLP-1s), and pulsed field ablation, which improves blood sugar control and ameliorates the effects of diabetes.4
Figuring out the ‘consumerization’ opportunity at scale
Despite several high-profile failures, certain device companies have figured out how to “consumerize” their devices. In certain cases, such as with continuous glucose monitors, companies have built businesses that sell directly to consumers. In other cases, such as left atrial appendage occluders or colon cancer screeners, medtechs have engaged with patients directly to generate demand. We see opportunities for both strategies in several categories with motivated patient populations, such as cardiac and other physiological monitoring, urology, and women’s health.
For cardiac monitoring, tech companies have put heart rhythm sensors on tens of millions of wrists and taught consumers how to watch their own data. Medtech companies with clinical-grade capabilities have the opportunity to help hospitals reduce lengths of stay and readmissions with at-home monitors. Technologies such as cuffless blood pressure devices could unlock massive new markets with the right workflow and reimbursement efforts from medtechs.
In urology, especially sexual dysfunction and incontinence, almost half of women above age 50 (and a smaller but substantial share of men) live with incontinence, and most never see a physician about it.5 Telehealth pharmacies have shown that these patients will pay out of pocket when the path is easy and private. While pharmaceutical companies have partnered with these players to access consumers, device makers have been mostly silent.
Women’s health, such as fertility monitoring, menopause symptom management, and pelvic health, is underserved, involves mostly cash payments, and has motivated patients who research aggressively, based on our experience. The category is fragmented across small consumer brands with limited clinical credibility, which is precisely what an established medtech could supply.
Developing connected devices for clinicians
We know the graveyard of device businesses that have tried to sell solutions to health facilities is crowded. But don’t be too quick to dismiss this strategy. In recent years, however, medtechs have increasingly turned physical devices into connected systems that generate data, improve workflows, or unlock clinical insights that improve patient outcomes. This strategy also elevates the medtech company from a device provider to an enterprise partner. Software-based products such as Smith & Nephew’s LEAF system have begun to take hold in hospital settings, helping clinicians prevent pressure injuries by prompting them to reposition the patient. There are several major applications for device companies to focus on, including supply and inventory management.
Turn AI into growth, not just cost savings
Most medtech AI initiatives today are productivity stories, such as automating back-office functions or reducing service costs. These applications often have the clearest near-term ROI, but they capture only part of AI’s potential.
One growth opportunity is in product innovation. AI can help companies explore new materials, designs, and product configurations more rapidly. For example, it can help improve the durability of orthopedic implants or enhance the performance of intraocular lenses. AI can also shorten development timelines through simulation and virtual testing, and compress clinical trials by improving trial design and patient selection and enrollment.
A second opportunity is commercial acceleration. Leading medtech companies are using AI to capture more demand by helping health facility customers plan purchases and giving sales teams deeper customer intelligence. AI can analyze product utilization, seasonality, procedure or testing volumes, and broader market trends to recommend stocking levels for hospitals and laboratories. This helps facilities optimize inventory while enabling medtechs to improve customer retention and expand share of wallet. AI can also make sales representatives more effective by providing a fuller view of each physician. It can supplement customer relationship management data with information on training, professional relationships, collaborations, and current practice.
Additionally, AI can be deployed on large claims data sets to surface “hidden” patients and quantify the opportunity by health facility, allowing medtechs to help them attract these untreated patients for care with their device offerings. Some medtech leaders combine claims, electronic health records, and referral‑pattern data to identify facilities with high volumes of eligible patients but low procedure utilization, then partner with those facilities on targeted outreach and care pathway redesign.
Finally, health facilities must also ensure that their operations can fulfill the demand AI helps unleash. AI-enabled inspections, demand forecasting, and production planning can increase manufacturing throughput and reduce the risk of supply constraints undermining commercial success.
Be honest about your right to own a business—and shape your portfolio accordingly
Too many medtech companies lack synergies across their business units. While M&A has created value for many, it has created complexity, reduced focus, and destroyed value for others. While diversified companies have achieved high margins, they have underperformed less diversified companies on revenue growth and total shareholder returns. Management and boards should put their portfolios through six tests to determine whether they are the natural owner of each of their business units:
- Value proposition: Does owning these different business units give clinicians or health facilities something they value (and pay for) that they could not receive if the businesses were owned separately? Examples include a wider product selection, connected devices that improve outcomes, or more streamlined service operations. Conversely, is our focus fragmented across too many customers in a way that makes us less relevant to each?
- Operational: Does owning these different business units allow us to operate at lower cost than they would be able to achieve individually? Examples include better supplier relationships, shared manufacturing equipment or sites, or common distribution channels. Conversely, does the combination of these businesses add costs and fail to create synergies due to more complex processes or overhead that would not be needed if each business were a stand-alone?
- Skill and capability: Do we, as the corporate parent, bring distinctive skills or capabilities that accelerate each of our businesses—and do we apply them to each business? Examples include reimbursement expertise, product launch strategies, or scientific and clinical capabilities. Conversely, are the capabilities to run our businesses distinct, creating additional work for our managers as they must learn multiple business models?
- Insight and foresight: Does owning these different business units give us an information edge that lets us make better decisions for each business than it could make alone? Examples include predicting future site-of-care shifts in one business unit based on historical trends in another, or knowing best practices for launching into new international markets based on another business unit’s experiences. Conversely, are the businesses different enough that insight doesn’t transfer, so we make worse calls by generalizing from an irrelevant analogy?
- Access to capital or talent: Does owning these different business units give our company privileged access to capital or talent that each business unit could not secure as a stand-alone? Examples include lower financing costs, resource allocation practices that boost cash flow, or a stronger employer brand. Conversely, do we spread capital too thin and starve our highest-return businesses or trap talent where it is less productive than it could be elsewhere?
- Investors: Does owning these different business units together give shareholders value they could not create for themselves by holding the businesses separately? Examples include the operating synergies from tests one through five showing up as higher cash flow or internal capital allocation that beats external markets. Conversely, does our wide portfolio confuse investors or force them to diversify with fewer choices and higher costs than they could achieve themselves?
If you test your portfolio and find that it is failing one or more of these tests, you can create value by finding better owners for certain business units and increasing your company’s focus. Alternatively, if you find that your businesses do have synergies, you must ask if you are capitalizing on these opportunities.
We remain optimistic about medtech’s long-term outlook. Aging populations, growing clinical needs, and advances in technology should continue to create attractive opportunities. But opportunity alone will not bring investors back. The next era of medtech value creation will belong to companies that can convert innovation into faster growth, build markets rather than only compete within them, use AI to expand revenue, and reshape portfolios with an investor’s mindset. In today’s more selective capital market, medtech companies must earn their place in an investor’s portfolio.
