While the medtech industry has fared better than many industries during the current economic downturn, new challenges will put increasing strain on the industry’s long-standing business model, according to an Ernst & Young report released during last month’s AdvaMed 2010.

Though net income for the industry rose 10.8% in 2009, Ernst & Young’s Medtech Leader for the Americas John Babitt, says the industry will need ways to fund innovation. “As hospitals consolidate purchasing decisions and payors look to comparative effectiveness research, companies will need to demonstrate value as never before, and with revenues plateauing—particularly in mature markets—they will have to find new sources of growth.”

The report finds that companies will need to emphasize diversification in all aspects of their businesses: new product lines better aligned with delivering improved health outcomes, expansion into non-product offerings such as consulting services and solutions, and geographic expansion into emerging markets. Meanwhile, 510(k) reforms may result in lengthier approval processes making it more difficult to sustain innovation while emerging companies will face “a continued constrained funding environment.”

Emerging markets, however, are expected to provide the industry with new opportunities, says Heinrich Christen, E&Y’s medtech leader for Europe, Middle East, India and Africa. “Seizing the opportunity will require fundamental changes to business models, partnering with nontraditional players, creative pricing, and product development approaches to capture growth opportunities in emerging markets—and, above all, demonstrating the value of their products before someone else establishes their value for them.”