The top companies in med tech: 2014 revenue results

Big med tech companies come in three types: med tech pure-plays; major conglomerates that include non-healthcare businesses; and mixed drug/device players. All three of these groups have been making big moves to transform themselves this year.

These changes will undoubtedly make our 2015 top med tech revenue list look substantially different from this one.*

The largest pure-play med techs are barreling ahead with a strategy of consolidation among themselves, while trimming out their poorest performers and selectively adding innovation. The closed or planned Medtronic-Covidien, Zimmer-Biomet and Becton Dickinson-CareFusion deals will mean that each of those acquirers will have a radically altered status next year.

Some will disappear, but the remaining companies will leap ahead of some of their diversified conglomerate peers--not only in terms of sheer revenue but also in growth rates. Pure-play med techs on our list had the best revenue increases last year already among their peers on the list.

Medtronic ($MDT) may head the list next year--bumping off long-term head med tech giant Johnson & Johnson ($JNJ). The combined 2014 med tech revenue for Medtronic and Covidien was $28.2 billion, narrowly outstripping the $27.5 billion in med tech revenue at Johnson & Johnson.

The largest multi-industry med tech conglomerates are having a tough time maintaining their med tech growth rates, with all of them increasing in the very low single digits or even decreasing.

Royal Philips ($PHG) seems to be the most aggressive among them in pursuit of med tech and future innovation in the sector. It's in the process of hiving off its lighting assets via a sale and an IPO; it plans to use the resulting cash to plow back into a newly combined consumer and healthcare group dubbed HealthTech.

Philips seems determined to make bets, big and little, across the med tech spectrum in an effort to find its way toward a new direction. Its biggest deal so far has been a planned acquisition of catheter-based imaging company Volcano ($VLC) for $1.2 billion that Wall Street has frowned on because Volcano was in its own growth slump already.

Philips also partnered with last June to develop a clinical cloud-based platform and has declared health informatics core to its renewed efforts. Every few weeks it's announcing another "wearable" or "cloud" or "hand-held" related deal that screams of its efforts at relevance and innovation.

Similarly, J&J is working to embrace med tech change and innovation--supported by its elaborate early stage venture cultivation. It's also quite proud of its high-performing electrophysiology business Biosense Webster. This is one conglomerate that likely will continue to aggressively pursue med tech innovation, while pruning out its worst performing units. It recently announced plans to sell its Cordis vascular devices unit to Cardinal Health for $1.9 billion because the division's devices are mature products that are not ripe for further innovation.

GE ($GE) and Siemens, by contrast, are conglomerates that have been much more conservative on the healthcare front. Neither are getting much, if any, revenue growth in med tech--but both established businesses throw off enormous piles of cash.

The longtime healthcare strategy at GE has been to try to reduce expenses while maintaining revenue. That works when you're looking for profitability but doesn't move the needle on sales--in fact it could start to erode them. In GE's defense, it made an executive from its business development side the new CEO of GE Healthcare last fall. That could translate into some M&A or spinoff action in the next few years.

Siemens, however, is waving the white flag when it comes to med tech and revenue growth. It is set to spin off its healthcare business as a separate company by May 1; the business is already a separately managed unit and has been since Oct. 1.

As for the mixed drug/device players, Abbott ($ABT) is also puzzling out how to gain some med tech momentum. It has been quite aggressive in working to create some traction in the next few years with the addition of electrophysiology last year, as well as by playing up its existing strength in optics and trying to regain its strength in diabetes devices. It also sold its developed market generics drugs business to Mylan ($MYL), marking its continued shift toward the device world, ever since its spinoff from pharma bigwig AbbVie ($ABBV).

But Roche ($RHHBY) is having greater success by focusing on diagnostics, including analytical equipment, molecule and genetic tests and diabetes care devices; the devices also strengthen its core pharma business by being a source of companion diagnostics and data to improve clinical trials.

But regardless of the form these enormous med tech businesses take, at least half of them should look very different this time next year. As the conglomerates become even more unglued and the pure-plays get bigger and broader, we all hold on to our hats and watch these giant ships navigate the treacherous waters as the fundamental industry pressures remain unchanged.

Undoubtedly, healthcare cost pressure will only continue to intensify. This could mean great things for the biggest med tech players as their global reach will enable elaborate, inclusive bargaining with healthcare providers that are themselves growing ever larger.

And on the technology side, things are just starting to get really interesting in med tech as it stands poised for breakthroughs on the order of those achieved by biotech in recent years with the rapid infusion of information technology, connectivity, advanced materials, nanotechnology and their ilk.

Diagnostics, for its part, is also starting to emerge as a field that might diversify beyond a handful of very large and a sea of very small players as biopharma companies start to partner more aggressively with diagnostics companies for drug discovery and genomics continues on its steady march toward real integration into the clinic.

-- Stacy Lawrence (email | Twitter) and Varun Saxena (email | Twitter)

* This 2014 med tech top revenues list is based on data provided by Evaluate Medtech. Adjustments have been made to derive the med tech revenues at the conglomerates with the definition of "med tech revenue" including medical devices and diagnostics. The data for companies that use fiscal years has been modified so that the data is for 2014 only, or as close to it as possible. Finally, the percent change in sales was calculated at constant currencies. Actual changes are generally less favorable to the companies due to the strengthening dollar.

The top companies in med tech: 2014 revenue results