Swiss medical technology industry 2010 report

The Swiss Medical Technology Industry
2010 Report – "MedTech at the Crossroads"

1

On the mind of the SMTI CEO community

"The MedTech business of non-reimbursed
"The MedTech pioneer era is
products has started to reach a plateau in
over, the industry is now mature
traditional markets. The business is now cyclical
and competition is global."
and growth is not endless."

"Our business model will
change – We need to grow from
a simple box-mover to a full "IP protection and proprietary
solution provider." systems have become essential
to secure market shares."
“Pace of innovation and
changes in health care system
are faster than a decade ago.”

"The crisis has demanded to set
"Market access management is key for
priorities and to constantly remain
growth – start-ups should engage in out-
focused on optimizing these
licensing deals to Big MedTech."
priorities."

Source: SMTI 2010, Advisory Board 2

SMTI 2010 – At the crossroads to adapt current business models

In recent years, this report helped to provide better insights on the importance of the Swiss Medical Devices Industry (SMTI). We have
monitored this industry closely since 2005, have seen it mature and are now in a position to derive first lessons from a vast data set.
Thus, we are now able to analyse trends that may shape SMTIs mid- to long-term future. This report intends to provide a general
outlook on the industry. However, it is highly heterogeneous and therefore our conclusions may vary based on a company's product
portfolio and economic situation.
As already identified in Spring 2009, mainly manufacturers of non-reimbursed products and suppliers with a high proportion of non-
healthcare clients were strongly exposed to the downturn. As external pressures grew, other players were exposed to the effects of the
economic crisis. High price pressure in export healthcare markets, adverse currency effects of the Euro and US-Dollar against the Swiss
Franc, reduced investments by the Swiss cantons for hospital equipment, or a declining demand in non-reimbursed products are a few
examples. Paired with increased pressure by payers and governments in major markets towards cost effectiveness and treatment
outcome, the Life Sciences industry is now faced with a paradigm shift in its future business model. Today, the "crisis resistance" due
to cash-rich reimbursement systems may be history as healthcare markets are changing rapidly.
Therefore, cost consciousness continues to influence many management actions. The management of SMTI companies increasingly
find themselves at the crossroads, refocusing their R&D spending. Today, manufacturers either drive full cutting-edge network
innovations or they focus on incremental innovation.
The first group are "network innovators". Their strengths reside in a cross-industries (e.g. MedTech/pharmaceutical/biotech/IT) as well as
cross-academia (e.g. local and international universities and hospitals) collaboration network allowing radical innovation and obtaining
market premium prices for the novel niche products in major markets.
The second group are "renovators". They focus less on innovation, but rather drive bundling (device/technology, software, single-use
materials, local maintenance/service, and/or training) or incremental product innovations (e.g. line-extensions). This secures their mature
product portfolio in mature markets. Additionally, renovators increasingly shift their attention to emerging economies to extend the life-
cycle of their products, catering to a growing and quality conscious middle class.

Peter Biedermann, Dr. Patrick Dümmler, Beatus Hofrichter
Publisher and authors of the SMTI 2010 Report August 2010

3

Contents Page

Management Summary 5

A. State of the MedTech Industry 9

B. Trends and Challenges 24

C. Strategic Actions 29

D. Winning through Innovation 34

E. Collaboration and Bundling 44

F. International Opportunities and Threats 51

G. International Positioning 59

H. Outlook 65

Appendix 1: Additional Data 69
Abbreviations 70
Appendix 2: SMTI Knowledge Base 88

4

Management Summary

5

MANAGEMENT SUMMARY

Management summary (1/2)
This report was written in the summer of 2010 involving 252 companies in the field of medical devices in Switzerland. It makes use of the
database of the Medical Cluster, Advisory Board input, additional expert interviews and desk research
• The SMTI consists of 720 - 740 suppliers and manufacturers, as well as 630 - 660 traders and distributors and service
providers
• The manufacturing base is highly diversified across all product categories, many companies are among international
thought and market leaders
• The SMTI value chain is well established and is facilitated by a vast network of academia, specialized service providers,
suppliers and institutions, forming a national MedTech cluster
• The Swiss MedTech cluster is highly attractive for leading international MedTech companies, not only for headquarter
functions but also for development and manufacturing

• Total gross revenue is CHF 22.9bn, own value added is CHF 11.1bn, representing 2.0% of the Swiss GDP
CHF • The turnover per employee is about CHF 460,000; manufacturers realize 81% of their turnover with medical devices
• The expected SMTI growth rate is 10% and 12% for 2010 and 2011 respectively; this is significantly above expected
growth rates for the Life Sciences industry (6.5%) and Swiss GDP (1.9%)
• Above 75% of SMTI CEOs are still focusing on crisis management activities
• However, engaging in the right strategic actions will drive above-average growth, i.e. strengthening R&D know-how,
establishing new production/service facilities, and engaging in new business models

• Today around 49,000 employees work for the SMTI, this equals 1.4% of the Swiss workforce
• 75% of SMTI companies have less than 50 employees, building a strong innovation basis
• The total number of employees during the last two years increased by 10%
• In the next two years SMTI companies expect further growth in headcount; the authors anticipate approximately 55,000
employees by 2013
• Especially micro and small companies hire predominantly in Switzerland while large companies also expand their
workforce abroad

Source: SMTI 2010 6

MANAGEMENT SUMMARY

Management summary (2/2)

• 10.6% of the turnover is invested into research and development (R&D)1)
• Approximately 25% of the overall SMTI product portfolio was developed in the last three years
• Shortening of the innovation cycle is of significant relevance especially to medium and large sized companies
• Focusing on R&D and fostering a young product portfolio leads to an additional 6% of above-average growth expectation
• However, today companies need to spend more on R&D to generate strong growth rates
• More than 50% of SMTI companies are engaged in network innovation across industry and academia functions
• Collaboration along the value chain is excessive between suppliers and manufacturers, especially large companies tend to
renovate and bundle their current product portfolio
• Many companies focus on collaboration for applied research, quality control and to a lesser extent, on post-launch activities

• The average rate of export is 63%; manufacturers and suppliers export 78% and 53% of products, respectively
• For more than 70% of SMTI companies, registration and introduction of new products are perceived as less difficult in
Europe than in other markets
• Compared to 2008 higher growth in 2010 is expected from Switzerland, the EU and the BRIC countries
• International opportunities will continue to drive SMTI growth; export-oriented manufacturers expect a growth rate of 18%

• The SMTI is well positioned for the future
• Two megatrends influence the industry
– the triple challenge of price and cost pressures and intensifying competition
– the clinical evidence requirements for cost-benefit of treatment
• The focus on profitability to meet current challenges is at the cost of potentially losing the competitive innovative edge
• Larger companies may review their current business models, the R&D strategy as well as offerings to improve future
growth potential
• The authors anticipate increased global consolidation activities impacting SMTI companies as well

1) The average R&D expenditure is not weighted to turnover, thus is may be skewed upwards by the large number of small companies in our sample
Source: SMTI 2010 7

MANAGEMENT SUMMARY

The house of MedTech by 2012 – Our working hypotheses1)

SMTI
PRODUCT VIEW MARKET VIEW
COLLABORATION & INTERNATIONALI-
INNOVATION POSITIONING
BUNDLING SATION
• Above-average growth • Price pressure leads • Growth in international • Smaller companies lack
expectations due to an companies to push markets correlates with export strength due to
innovative, young product bundled offerings in order innovation shortage of know-how and
portfolio or best in class to maintain their turnover commercial co-operations
• Success in emerging
products level and market share
economies is highly • Sound, long-term patient
• Higher cost pressure leads • Companies that focus on correlated to strong outcome data will ensure
to a shift from radical bundling tend to reduce regulatory affairs positive sales impact in
innovation towards their R&D expenditures capabilities mature markets
incremental innovation in
• A bundling strategy • Healthcare system • Improved market
established/mature
favours collaboration within changes and arising orientation becomes a
segments
the same value chain for opportunities propel export priority due to an increase
• Companies that focus on incremental innovation levels of suppliers and of competitiveness
network innovation can manufactures amongst providers and
• Demand of buyers will
expect above-average pressures from payers
drive “solutions”, forcing
growth
companies to change their
business models

1) Are addressed in chapters D-G
Source: SMTI 2010 8

A. State of the MedTech Industry

9

A STATE OF THE MEDTECH INDUSTRY

Switzerland is among the global hotspots for MedTech

INTERNATIONAL MEDTECH FOCUS [% of respective total]1) COMMENTS

1,1 Switzerland • Switzerland possesses an active medical
0,3 Germany technology industry that can rely on a strong
Employment 0,2 UK network of related companies and institutions
EU that create an ideal breeding ground for the
0,2
USA industry (cluster)
0,2
• Compared to other countries the relative
1,9 domestic share of the SMTI is significantly higher
0,7 • Remarkable – and in line with several other
GDP 0,6 Swiss industries – is the high relative share of
0,5 exports reflecting the international strength of
0,5 Swiss MedTech products

5,0
1,4
Exports 1,7
n.a.
2,8

1) Data from 2008 or, where not available, from 2007
Source: SMTI 2010, Destatis, Eucomed, Eurostat, UK National Statistics 10


Switzerland is highly attractive for international companies –
Top 10 companies employ around ¼ of SMTI employees1)

1 Year sales R&D Sales/
Head- Employees in Sales R&D/sales
No. Company Sub-section of market growth expenses employee
quarters Switzerland [CHFm] [%] 3)
[%] [CHFm] [CHFk]

1 Synthes Orthopedics USA 2'900 3'523 6 175 5 329

Roche
2 In-vitro diagnostics CH 1'750 10'055 4 987 10 387
Diagnostics

J&J
3 2) Orthopedics USA 1'400 24'492 2 1'830 7 556
Medical

4 Zimmer Orthopedics USA 1'150 4'250 -1 213 5 518

5 Sonova Hearing systems CH 1'030 1'500 20 87 6 221

6 Ypsomed Injection systems CH 1'000 254 -8 32 12 212

Active and passive implants,
7 Medtronic USA 900 15'151 8 1'406 9 399
vascular diseases and diabetes

8 B. Braun Orthopedics, hospital aids DE 840 5'992 6 207 3 152

9 Straumann Dental implants CH 800 736 5 39 5 339

10 Stryker Orthopedics USA 600 6'977 0 349 5 375

∑ 12'020 Ø 4 Ø 7

1) Approximately, manufacturers only, figures for reporting year 2009/10, exchange rates: USD/CHF: 1.03, EUR/CHF: 1.49 on 31.12.2009
1) J&J Medical: Numbers are the total for orthopaedics, surgery, cardiology and diagnostics
Source: SMTI 2010, Annual reports, Companies press offices, Factiva, Oanda 11


Switzerland is a strong medical technology cluster –
Several organizations and institutions support the industry

Greater Zurich COMMENTS
Basel Area Area • Switzerland has a strong
medical technology network,
supported by several
organisations and institutions
Berne Capital • Regional support
organisations are e.g.
Area
– Basel Area
– Berne Capital Area
– Bio Alps
– Biopolo Ticino
BioAlps – Greater Zurich Area
• National institutions are e.g.
– CTI/KTI
– FASMED
– Medical Cluster
– Medtech Switzerland
– Osec
Biopolo
– SIX Swiss Exchange
Ticino – Swiss Life Science
Marketing Alliance
Location of suppliers
Location of manufacturers

Source: SMTI 2010, relief swisstopo 12


The SMTI has a strong home market – Investments in high-class
medical infrastructure meets patients demands

SWISS HEALTHCARE EXPENDITURES [CHF bn per year] COMMENTS

• Continuous investments in up-to-date medical
infrastructure leads to rising healthcare
expenditures – during the last ten years by
CAGR 63,3 nearly 50%
4,0% 61,0
58,1 • The CAGR of healthcare expenditures of
55,2
52,8 4.0% is significantly higher than the
51,0 52,0
47,4
49,3 respective GDP growth of 1.1%
45,6
42,8 FURTHER OBSERVATIONS

• Today Switzerland has the third highest GDP
share of healthcare expenditures (10.6%)
after the USA (16% in 2007) and France
(11% in 2007)
• To constrain rising national healthcare costs,
policies will increasingly focus on cost-
benefit comparison of treatments
• The SMTI companies will have to monitor
upcoming policy changes and be ready to
2000 2001 2002 2003 2004 2005 2006 2007 2008E1) 2009E 2010F1)
adapt the business model accordingly
1) E = Expected 2) F = Forecast

Source: SMTI 2010, BAG, BfS, Healthcare Monitor 2009, KOF 13


The established SMTI value chain is highly cross-institutional1)

Basic Applied Suppliers Manufacturers International Customers and
research research sales stakeholders

Basic research for Developing Highly specialized Manufacturing Worldwide sales of Worldwide
radical product and prototyping and internationally industry with broad Swiss medical customers and
innovations supported by sought-after range of high-tech technology products stakeholders, e.g.
• National • CTI/KTI MedTech suppliers in key products, e.g. by traders and • Patients, esp. in
universities and • R&D programs technologies, e.g. • Active- and non- distributors out-of-pocket
international e.g. ManuFuture- • Information- and active implants supported by markets
knowledge CH Communication • Anaesthetic and • Company • Individual
networks • Universities and technology (ICT) respiratory affiliates hospitals, hospital
• Five university universities of • New materials, devices • Export Platform chains and
hospitals in applied sciences, surface • Dental Medtech purchasing
Geneva, incl. technology technology • Electro- Switzerland associations
Lausanne, Berne, transfer • Robotics and mechanical • Osec together • Healthcare
Basel and Zurich organizations nanotechnology equipment with its Swiss professionals
• National research • Specialized • Micro-technology • Hospital hardware business hubs • Diagnostic
organizations like companies, e.g. • Metal-, plastics-, • Diagnostics abroad laboratories
PSI and EMPA for contract and ceramic • Ophthalmology • Swiss pavilions at • Research
• National research engineering processing • Reusable and international laboratories
programs • International • Automation and single-use exhibitions/fairs • Key Opinion
• European knowledge assembly instruments • International Leaders (KOLs)
framework networks • Tool and mould • Technical aids for industry • Reg. authorities
programs manufacturers disabled associations • Certification
support

1) Service providers, depending on their specialization are part of any of the value chain building blocks
Source: SMTI 2010 14


SMTI manufacturers are evenly segmented across the different
industry categories

MANUFACTURERS BY CATEGORY [%, 2010] COMMENTS

• The manufacturing base of SMTI is
segmented into 16 categories, ranging from a
Hospital share of 16% for hospital hardware to 1% for
Others1)
hardware
biological products
16%
19% • SMTI manufacturers exhibit a broad
technological knowledge base and
Reusable Dental diversification
instruments technology – Bulk risks are reduced
5%
14%
– Benefits interdisciplinary R&D
Radiotherapy
5% collaborations
devices
– Strengthens network innovation
Disposable 6%
items 11%
Inactive
FURTHER OBSERVATIONS
Technical aids 7%
implants
for disabled 8% 8% • There exists a high degree of collaboration
In-vitro Electro- amongst suppliers, manufacturers, and
diagnostics mechanical academia to
– broaden the offering scope
n = 320 – obtain key skills and know-how

1) Others include, in descending order: lab equipment, ophthalmology, patient aids, anaesthetic and respiratory technology,
active implants and biological products


Suppliers and service providers support the MedTech industry with
essential know-how within augmentable value chain processes

SUPPLIERS BY CATEGORY [%, 2010] SERVICE PROVIDERS BY CATEGORY [%, 2010]

Components,
Others1) Financing HR
systems
Auxiliary material, 11% 5%
Analytics IT
green ware 1%
5% 25%
18% 30%
Electronics 7%
Surface
8%
treatment
19% 20%
Machines, auto- 11% Metal Engineering,
mated devices processing planning, 26%
13% Management
design
Plastics consulting
processing

n = 410 n = 410

• The SMTI supplier base is broadly specialized, • IT and management consulting are the most
although components, systems and material prominent categories among service providers
processing contribute to more than 55% • Support SMTI with growth capabilities

1) Others (in descending order) include: medical packaging, measuring, ceramics and sterilization


Manufacturers and traders/distributors are highly focused on
medical devices sales

SHARE OF TURNOVER [%, 2009] COMMENTS

• Many SMTI companies are not exclusively
100 100 100 100 focused on medical technology – the share
15
of sales to other industries and consumers is
19
Turnover from
39%
47
other products 56 • Traders and distributors as well as suppliers
and services Ø 61 show an increased focus on MedTech
compared to 2007
81 85
• Suppliers are more diversified in their
Turnover from 53
44 customer portfolio
medical devices

Suppliers Manu- Traders Service
facturers and providers • A high focus on medical devices is needed in
distributors order to meet the industry specific traits
Turnover and sales requirements
from medical • On the whole, SMTI remains unchanged
39% 84% 80% 59% Ø 65
devices in since 2007, indicating that consolidation has
2007 not been triggered yet by the financial crisis
• For many suppliers from other industries,
2009 n = 212 2007 n = 122 MedTech became highly attractive



Manufacturers form the backbone of the industry –
Average turnover per company is CHF 68 million

AVERAGE COMPANY TURNOVER1) [CHF m, 2009] COMMENTS

• The SMTI has a manufacturer centric market
model
68
• Turnover with medical devices is driven by
– Offering/portfolio strategy, i.e. niche vs. big
player
– Company size
– Upfront investments, i.e. machinery, IP
– Position within the value chain
– Competitive landscape, i.e. number of
competitors within/adjacent to the industry
22 FURTHER OBSERVATIONS

• Future sustainable turnover is mainly
11
determined by the following influencers
3 – Overcome critical mass
– Achieve higher expertise to maintain
Suppliers Manu- Traders and Service compliance
facturers distributors providers – Anticipate power shift towards payers
– Meet changes in sourcing strategies of
n = 171 payers
1) Only with medical devices or components for medical devices


Manufacturers and suppliers provide the highest employment,
accounting for 92% of the total SMTI workforce

DISTRIBUTION OF EMPLOYEES [%, 2009] COMMENTS

• The surveyed companies employ around
27% of the total SMTI sector workforce
56%
• Traders, distributors and service providers
account for 8% of the surveyed workforce
• Across all SMTI firms approximately an
average of 59 people are employed
36% – 126 by manufacturers
– 55 by suppliers
– 25 by traders and distributors
– 7 by service providers
• However, a significant bandwidth has to be
taken into account; of all surveyed companies
– 94% employ less than 250 employees
5% – 75% employ less than 50 employees
3%
– 42% employ less than 10 employees

Suppliers Manu- Traders and Service
facturers distributors providers

n = 199



Average turnover was influenced by high staff levels – This led to
an underperformance of turnover per capita for manufacturers

AVERAGE TURNOVER PER EMPLOYEE AVERAGE GROWTH IN NUMBER OF EMPLOYEES
[CHF k] [% change vs. previous two years]

2008/2009 Ø = +10% 2006/2007 Ø = +20%

244 11
Suppliers
246 7
530 30
Manufacturers
465 5
Traders and 683 15
distributors 818 12
301 2007 n = 185 18 2007 n = 186
Service providers
287 2009 n = 163 21 2009 n = 164

• Traders/distributors experienced growth in turnover per capita, the others remained stable or declined vs. 2007
• The build-up of employees in 2006/2007 led to an overcapacity in 2008/2009, SMTI companies responded by
adapting their recruitment policies
• Unlike many other Swiss industries the SMTI continue to hire above market average, but at a slower pace,
continuing to provide attractive jobs for skilled employees, especially in the fields of R&D, regulatory affairs and
international marketing & sales



Putting past SMTI growth expectations into perspective –
Adjustments were taken fast and early in the downturn

GROWTH EXPECTATIONS FOR 2008 AND 2009 [%] COMMENTS

Growth Share of responses • In 2008, SMTI expected an average growth of
expectations 100% 6%. 77% of CEOs predicted a positive growth
rate1)
Strong growth • The "crisis resistance" of the MedTech
(> 10%) industry became attractive for non-industry
players (mainly suppliers), they were
– Trying to enter a profitable market
– Broaden sales channels and offerings
• As the market turned in Q3 2008 and took its
Moderate growth full impact in 2009 on a global scale, SMTI
(0 to 10%) companies adjusted their growth expectations
– Then, only 54% of companies expected a
Neutral (0%) positive growth rate
Moderate decline – The number of companies expecting a
(-5 to 0%)
negative impact on sales doubled
Strong decline
– Suppliers with a higher non-MedTech
(< -5%)
product portfolio proportion were hit harder
2008 2009 – Manufacturers of non-reimbursed product
n = 280, Ø = 6% n = 21, Ø = 0.1% suffered

1) SMTI 2008 data collected in spring and report released end of August 2008
Source: SMTI 2010 (based on SMTI survey May 2010), CS Economic Research, OECD 21


The global economic crisis also hit the MedTech industry –
Fears exist regarding severe cuts in public healthcare spending

STOCK MARKETS – SELECTED INDICES GLOBAL AND CH MANUFACTURING – PMI INDEX

110 90
100 80
90 70
80 60
70 50
60 40
50 30
40 20
Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10

SIX Bio and Medtech Europe-DS Pharm & Bio Swiss PMI Index Global New Order Index
SMI MSCI World Global PMI Index Global Price Index
DJ Euro Stoxx 50

Compared to the SMI, shares of SIX listed MedTech Since June 2008, the global manufacturing
companies declined stronger. It anticipates market production rose steadily for 13 month in a row but
fears of e.g. tightening healthcare budgets negatively slowed since the beginning of 2010. The Swiss PMI
affecting MedTech companies is currently stable, outperforming other markets

Source: SMTI 2010, Bloomberg, Credit Suisse, JP Morgan 22


Review of crisis 2008/09 and impact on SMTI – Lessons learned

TRADERS &
SUPPLIERS MANUFACTURERS SERVICE PROVIDERS
DISTRIBUTORS
• Right customer and portfolio mix • Focus on relevant R&D projects • Sales force excellence • Investing/acquiring know-how
• Innovation leadership fosters a and innovative products • Good product mix with high and teams
special, high value product and • Positioning in markets and reimbursement • Proactive positioning to
"To strengthen"

component portfolio preparing NPIs consistently • High focus on industry segment anticipate revitalization of sector
• Networked innovation applying • Acquiring know-how • High service competency • Develop solution offerings
unconventional know-how • Continue to recruit, especially • Very good understanding of copying other industry
• Closeness to IT industry and to abroad buyer‟s needs and buying successes
new materials • Focus on business model culture • Engage SMTI interfaces
• Continuous recruitments optimization • Profit from strong CHF (as management
• Scouting and M&A • Lean/efficient processes importer) • Strong skill set and high value
• Well managed S-curve of core • Strong regulatory capabilities return offerings
competencies • Closeness to pharma/biotech • High flexibility to support
• Foreign exchange issues with challenges
an impact on margins

• Depending on single large • Weak or reactive attitudes (e.g. • Mismanagement of currency • "Copy cat" and no sound track
customers and reactive market engaging too late in cost cutting) hedges records
strategy • Lack of listening to customers • No product portfolio • "Me-too" approach
• Over-capacities in production • Mismanaged generation jump
"To avoid"

differentiation
• Large capital investments made within product portfolio • High inventories
based on boom forecasts • Non value based pricing • Decline in demand for
• Tight EBIT margins strategy commodities
• High diversity of client portfolio • High OPEX/Sales ratio • Lack of service offerings
(non-LS/non-core business) • Me-too product sales decline
• Lack of international clients with non proprietary goods
• High inventories and poor • Late shift in crisis management
liquidity management • High COGS & inventory


B. Trends and challenges

24

B TRENDS AND CHALLENGES

Taking the pulse of the SMTI – Top buzzwords

Source: SMTI 2010, www.wordle.net 25


Imminent growth of SMTI companies is shaped by major trends in
three categories

COMPANY REGULATION1) MARKET
• Solutions will meet future offering • Tightening of regulatory • Patient centric models arise due to
demand requirements2) in mature markets on – external/remote patient monitoring
• Networked innovation is rising quality, testing, safety and off-label – ICT and improved RFID technology
(led by micro/start-up firms) usage • Bundling of purchasing power among hospitals,
• Broader know-how is needed to • Growing/tightening regulatory clinics, and specialists; they will
meet regulatory requirements requirements in Asian markets – drive margin erosion
(e.g. market access, conformity, • Introduction of DRGs will – favour broader offerings
patent infringements, out- – increase pressure on pricing – seek solution providers
licensing) – delay or decrease investments into • Convergence (MedTech & pharma/biotech)
• Improved clinical trial design radical innovation – drives innovation opportunities
needed to demonstrate cost- • Demonstrating comparative – exposes the MedTech industry to additional
benefit effectiveness drives the need to compliance/regulatory measures
• Institutional patient registries generate relevant treatment outcome • Export shift to emerging markets due to growing
arising in multiple core markets, data middle-class with rising public and private health
driving segmentation • Non-reimbursed/cosmetic/or capital expenditures
intensive investments products face a • Consolidation of "Big MedTech" towards
stronger toll in sales conglomerates ("The winner takes it all")
• Growing niche potentials for start-ups,
especially with new technologies (e.g. ICT)

IMMINENT GROWTH OF THE SMTI

1) Harmonization between EU-Directive and Swissmedic leads to faster implementation of new requirements
2) Introduction of EUDAMED leads to growing transparency, both at agencies level and towards the companies
Source: SMTI 2010, SMTI Advisory Board 26


Competition for the SMTI intensified severely since 2008 –
Costs and prices are under pressure in a changing market

RANKING OF MAJOR CHALLENGES
[% of answers, 2010]1) COMMENTS
Ranking • As of 2009, SMTI companies experienced
2008
1. Increasing price
intensifying competitive pressures
79 3.
competition – Suppliers with a high proportion of non-
healthcare clients were hit first
2. Increasing cost pres-
77 4. – Manufacturers of non-reimbursed products
sure from purchasers
were hit by tighter consumer spending
3. Intensified competition 75 5. • Today, the majority of SMTI managers are still
in the "crisis mode" observing operational
4. Increasing pressure to
challenges, e.g. higher price competition, cost
68 - pressure and an intensified competition2)
reduce production costs

5. Availability of FURTHER OBSERVATIONS
68 1.
skilled employees
• Current management thinking may fuel
6. Access to specialized consolidation to maintain critical mass to
59 2.
know-how
obtain
7. Organizational issues – A more diverse/innovative product portfolio
53 6.
resulting from growth – Better access to knowledge pools
n = 232; multiple answers possible
1) Challenge is of "high relevance" or "very high relevance" to SMTI companies 2) These represent a "triple challenge" to the SMTI


Megatrend – Clinical based evidence requirements force
companies to focus on higher product efficacy and communication

DEVELOPMENTS IN HEALTHCARE MARKET
[% of answers, 2010]1) COMMENTS

• Increasing competition and tightening public
Higher requirements for evidence healthcare budgets force companies to invest
of product efficacy 87
more into proofing product efficacy
• Gaining data from comparative effectiveness
Increasing communication needs with research and cost-benefit-analyses will gain
with authorities/healthcare institutions 73
in importance for many SMTI companies
• The communication efforts with customers and
Growth of purchasing cooperatives
61 authorities need to be intensified in order to
(among customers)
optimally position own products

Higher competition for reim- FURTHER OBSERVATIONS
bursement entitlement 56
• Recent healthcare developments will drive
Higher requirements for product – Higher costs to register and fulfil increasing
positioning among DRGs 51 compliance requirements
– Substantial price decreases in mature markets
Negative impact of DRG introduction
45 • EU wide harmonization of pharma prices is
on average product price
currently discussed; this will also influence the
SMTI
n = 134
1) Companies describing the development "applicable" or "partially applicable"; no 2008 data exist

C. Strategic Actions

29

C STRATEGIC ACTIONS

SMTI companies are focusing on profitability to meet current
challenges at the cost of potentially losing their innovative edge

RANKING OF ACTIONS 2010
[% of answers]1) COMMENTS
Ranking • In contrast to 2007 CEOs express a strong
2008
shift in priorities
1. Improving profitability 85 6.
• To support future growth, three rather
operational actions are in focus
2. Optimizing marketing 77 3.
– Improving profitability
3. Further development of
77 7. – Optimizing marketing & sales effectiveness
org. structure and processes
– Enhancing organizational structures and
4. Optimizing distribution 67 4. processes

5. Strengthening FURTHER OBSERVATIONS
63 1.
product innovation
• SMTI companies seem to approach business
6. Developing new
business models
62 5. conservatively before returning to a "growth
mode"
7. Integrating new partners 59 8.
• An international Life Sciences survey2)
8. Geographic expansion/ indicated contrary management responses
56 2.
internationalization – Developing a robust R&D pipeline
– Accelerating geographical expansion
n = 232; multiple answers possible – Forming alliances with pharma/biotech
1) Strategic actions mentioned as being relevant to SMTI companies 2) Deloitte/The future of the Life Science industries

C STRATEGIC ACTIONS

SMTI companies expect 10-12% growth p.a. in the next two years

EXPECTED GROWTH FOR 2010 AND 2011 [%, p.a.] COMMENTS

• On average SMTI CEO's are highly confident
Ø =10% Ø =12%
100% – 10% growth for 2010
– 12% growth for 2011
• Some caution should remain; these
expectations are related to the economic
Strong growth situation in May 2010
55% 59%
(> 10%)
• Start-ups are particularly enthusiastic
• Established companies expect moderate
growth as they face stronger price pressures
Moderate growth
(0 to 10%)
Neutral (0%) 28%
26%
Moderate decline
(-5 to 0%) • If such up-turn is achievable, a shift towards
6% strategic investments and increased
Strong decline 1% 13%
(< -5%) 10% convergence will occur
1% 1% • Current economic forecast for the Swiss Life
2010 2011 Sciences sector as a whole is 6.5%
n = 194 n = 188

Source: SMTI 2010, Credit Suisse, SwissRe 31

C STRATEGIC ACTIONS

Engaging in the right strategic actions correlates with above-
average growth expectations

EXPECTED GROWTH RATES 2010 AND 2011
[%, companies having the respective strategic action in focus] COMMENTS
16
Companies focusing
15 • Several CEOs focus on a set of strategic
on strengthening Ø 12 actions to enhance their growth potential
regulatory know- Ø 10
how/studies, e.g.
– Strengthening regulatory know-
cost-benefit analyses how/studies
n = 51
– Establishing new production/service
facilities
17 – Engaging in new business models
Companies focusing
on establishing new
12
Ø 12
• If a company focuses e.g. on strengthening
production/service Ø 10 of regulatory know-how/studies, they expect
facilities, e.g. in a growth rate that is 6% above the average
emerging markets
n = 42 for 20101)

15 FURTHER OBSERVATIONS
Companies focusing
on engaging in new
10 Ø 12
business models,
Ø 10 • Companies focusing on new business models
e.g. new kind of do not expect an immediate above-average
services n = 64 effect on their growth rate
2010 2011
Ø = average growth expectations across all survey participants
1) Data does not support a cumulative growth impact of combining the actions

C STRATEGIC ACTIONS

The majority of SMTI companies face increasing challenges –
Negative impact on growth is expected

EXPECTED GROWTH RATE [%, companies that are
affected by the mentioned challenges] COMMENTS

Ø 12 • 50% of SMTI companies face a triple
challenge
10 – Increasing price pressure
Ø 10 – Increasing cost pressure
8
– Intensifying competition
• These companies
– Expect a below average growth rate for
2010/2011
– Cannot hope for a fast improvement of their
situation
• All survey participants face at least one of the
three mentioned challenges

• Tighter public healthcare expenditures will
2010 2011
– Keep the pressure on prices
Companies experiencing the "triple challenge"1) – Intensify competition among companies
Ø = Average growth expectations across all survey participants – Force them to decrease their costs basis
• Within this setting companies tend to invest
2010 n = 128, 2011 n = 221 more in product line extensions/renovations
1) Companies stating that increased pressure on prices, costs and intensifying
competition were of "high relevance" or "very high relevance" to them

D. Winning through Innovation

34

D WINNING THROUGH INNOVATION

Innovation is the major success factor for the SMTI – Depending
on company maturity, different innovation behaviours apply

THE INNOVATION BEHAVIOUR MODEL COMMENTS
Currently three different innovation behaviours can be observed:
1 Network 1 • "Network innovators" are innovation winners and
innova-
extended

tors – Responsible for product innovations, accounting for 25%
~25% of the total SMTI products on the market (20% by start-
2 Renovators ups and micro/small companies; 5% by mature, larger
Network type

firms)
– Are considered to be the innovation engine of the SMTI
~25% – Strengthen the SMTI long-term value growth
2 • "Renovators"
– Contribute 25% to the total of SMTI products
~50%
– Adopt a fast renovator strategy for early line extensions
restricted

3 Commodity 3 • "Commodity exploiters/bundlers"
exploiters/ – 50% of total SMTI products, that were neither innovated
bundlers nor renovated during the last three years
explorative exploitative – Adopt a niche/market expansion strategy per product
Innovation type

1• Use extended networks of adjacent industries,explorative way, leading
institutions and FURTHER OBSERVATIONS
academia to develop radical innovations in an
to product innovation
• Larger companies tend to acquire innovation as they are
2• Focus on the innovation network within their value chain (e.g. suppliers,
traders) to exploit the current portfolio with product renovation, i.e. cash-rich to balance their lack of own product innovations
incremental innovation to expand the product life cycles
• Smaller and start-up companies are averse to out-licensing
3• Focus only on exploiting the current product portfolio and desire to exploit their product innovations themselves

Source: SMTI 2010, Kyburz 35


The SMTI shows a balanced product portfolio maturity –
Especially smaller companies drive product innovation

AGE OF PRODUCT PORTFOLIO BY COMPANY SIZE1, 2)
[in %, 2010] COMMENTS

Years
• In general, the maturity of the product
portfolio is well balanced – but the larger the
100%
company, the more mature the portfolio
+10 20%
26% 27% • 25% of the (weighted) SMTI product portfolio
33% is younger than three years
• 81% of the product portfolio of larger
5-10 21% companies is older than three years
27% FURTHER OBSERVATIONS
33% 20%

3-5 25% • Lower priority of product innovation
combined with cost constraining measures
20%
25% is likely to
24% – Lead to fewer novelties
0-3 34% – Prompt more renovation activities
27% • Close attention should be paid to the
22%
16%
maturing product portfolio (see strategic
actions) in order not to fall into an
Micro Small Medium Large innovation gap, as average product
development time is around three years
n = 124
1) Only manufacturers and suppliers 2) In proportion of their product portfolio


Relative R&D expenditure is highest for small companies –
Manufacturers spend more on innovation than suppliers

BENCHMARKS
R&D EXPENDITURES [% of turnover]1,2) [in % of turnover, 2009]4) COMMENTS

BY COMPANY TYPE • R&D expenditures remained
12 12 stable or even increased since
10 Biotech 22 2007, but were increasingly
5 shifted to incremental innovation
• Manufacturers drive SMTI
innovation; their share of R&D
Pharma 16
2007 2009 spending is higher than for
n = 90
suppliers
• The less turnover a SMTI
Medical
BY TURNOVER company has, the higher the
technology 11
[in CHF and % of turnover 2009]3) industry relative spend on R&D
14
11 10
9 Ø 10.6 Electronics
7 7 5 • Compared with adjacent
industry
industries, the SMTI spends
less on R&D than the biotech
and pharma industry, but
< 5m 5-10m 11-50m n = 90 Machine significantly more than the
4
industry mechanical engineering and
Suppliers Manufacturers electronics industry
1) Only manufacturers and suppliers 2) R&D expenditure was not weighted to turnover
3) Companies with more than CHF 50m turnover were omitted due to a limited sample size 4) Based on a sample of selected companies


Shortening of the innovation cycle is of significant relevance,
especially to medium and large sized companies

SIGNIFICANCE OF A SHORTENED INNOVATION CYCLE [2010, in %]1)
BY COMPANY TYPE BY COMPANY SIZE

Manu-
45 25 30 Micro 36 26 38
facturers

Suppliers 62 17 21 Small 60 16 24

No or low significance Medium 80 16 4
High significance
Very high significance
Large 78 22 0
n = 129

• The majority of companies feel the market and • Micro companies seem to be flexible enough to adapt
competitive pressures to shorten innovation to shortened innovation life cycles. Their dependency
cycles in order to launch new or improved products on often only one or two products makes it a critical
more rapidly task to stay ahead of competitors
• It seems that manufacturers are partly passing on • The larger a company is, the less flexible it seems to
this pressure, evaluating different suppliers for the speed-up the innovation cycle, mainly because of
most innovative and cost effective solution internal processes and compliance requirements
1) Only manufacturers and suppliers


Launches during the last three years were difficult – On average
new products achieved less than 30% of companies turnover

REVENUE SHARE OF PRODUCTS THAT WERE LAUNCHED
SINCE 20071) [in % of each company class, 2010] COMMENTS

29 • Product launches in the last three years
Very small 16 were also affected by the global economic
(0%-10%) 13 setbacks
16
• A majority of companies stated that new
31 products contribute only to a minor part
Small 37 (less than 30%) to the current turnover
(10%-30%) 42
45 • For micro companies there seems to be a
clear split:
3
Medium 25 – Either they are older companies with a
(30%-50%) 26 mature "cash-cow" product portfolio
16 – Or they are start-ups with a successful
20
product launch just on the brink of
High 18 growing rapidly
(50%-70%) 13 • The other companies capture less returns
23 from new product launches
17 Micro
Very high 4
(>70%) 6 Small
0 Medium
Large
n = 128


Companies with a young product portfolio show above-average
growth expectations

EXPECTED GROWTH RATES OF COMPANIES ACCORDING
TO PRODUCT PORTFOLIO MATURITY1) [%] COMMENTS

• Companies with a young product portfolio
17
have significantly higher growth expectations
16 • Companies with a more mature product
portfolio may face – especially if combined
with decreased R&D rates – an innovation
Ø 12
gap that harms future growth rates
• In order to increase growth rates again, these
Ø 10 9 companies need to take into account an
7 average "idea to launch" time of approx. three
years

• The SMTI is an innovation-centred
industry based on network innovation
2010 2011 – Launching new products is an essential
growth factor
Older portfolio (companies with less than 15% of the product portfolio
younger than three years), n = 42 – High priority on profitability2) drives bottom-
Younger portfolio (companies with more than 15% of the product portfolio
line improvements, but does not lead to
younger than three years), n = 56 higher growth rates
1) Only manufacturers and suppliers 2) 85% of survey participants stated improving profitability is a key strategic action


Companies with a high focus on innovation show above-average
growth expectations

EXPECTED GROWTH RATES AND INNOVATION FOCUS1)
[%] COMMENTS

• Compared to 2008, strategic priority moved
away from strengthening product innovation
15 to profitability improvement measures
14
• Additionally, relative R&D expenditures have
– on average – declined
Ø 12
• Both of these two findings lead to assume a
Ø 10 9 lower focus on innovation
8
• However, firms that still focus on innovation
expect significantly higher growth rates
• They outperform expected average growth by
6% and 3% for 2010 and 2011 respectively,
assigning them a leading role in the further
development of the SMTI

2010 2011
Low focus on innovation (low R&D ratio and strengthening of
product innovation not a priority), n = 33
• Listen to/involve patient groups in prototyping
High focus on innovation (high R&D ratio and strengthening of reviews to enable product generation jumps
product innovation a priority), n = 18



R&D contribution to growth expectations –
Increased R&D expenditure

GROWTH EXPECTATIONS BY R&D EXPENDITURES
[% of turnover] COMMENTS

Growth R&D expenditures 2009 R&D • The focus of many companies on profitability
expectation expenditures
2011 2007
improvement measures lead to a decrease of
average R&D spend to 10.6%1) from 15% in
0%
2007
Neutral 1
(0% p.a.) • However, a few exceptions exist: suppliers
n.a. 5% and manufacturers must invest more in order
to achieve moderate growth
8 2% • Companies that hardly invest in R&D do not
Moderate growth
(0-10% p.a.)
expect a positive growth rate, strengthening
10 6% the assumption that R&D is a key driver for
SMTI growth
7 10% FURTHER OBSERVATIONS
Strong growth
(> 10% p.a.)
16 15% • Suppliers needed to invest heavily into R&D
to meet shorter innovation cycle time
Suppliers' expenditures on R&D
• They may find themselves in a R&D trap due
Manufacturers' expenditures on R&D
to a high dependency on MedTech
2010 n = 61, 2008 n = 154 manufacturers
1) R&D expenditure was not weighted to turnover


The Innovation Promotion Agency CTI – From Science to Market

The CTI is the Confederations Innovation Promotion Agency

As such its main three areas of activities are the following:
• Market-oriented R&D projects, in which companies and universities work together
to develop products and services
• The creation and expansion of scientifically-based companies
• Knowledge and technology transfer through platforms and networks

KEY • In 2009 CTI had an absolute record year by processing a total of 717 R&D funding
FIGURES applications
• 25 Entrepreneurs received the CTI Start-up Label in 2009
• The total of generated venture capital by the CTI-coached Start-ups was CHF 170m last year
• Start-ups with the CTI Start-up Label have an above-average success rate of 85%
• 2800 students and graduates participated in the venturelab courses in 2009
• Fifteen regional and thematic networks help SME‟s and universities to better share
knowledge and efficiently convert their ideas into products and services

Source: SMTI 2010, CTI/KTI 43

E. Collaboration and Bundling

44

E COLLABORATION AND BUNDLING

SMTI companies focus on collaborations between manufacturers
and suppliers – Strengthening incremental innovation

SHARE OF COMPANIES WITH COLLABORATIONS
[% of answers, by inter-industry collaboration type, 2010] COMMENTS

• The majority of SMTI companies closely
Manufacturers/ 88 collaborate with other manufacturers and
suppliers 82 suppliers, positioning themselves often as
"Renovators" working on improvements of
43 existing products
Universities
59
• Already second are collaborations with
Technology/IT service 13 universities; there SMTI companies often act
providers 28 as "Network innovators", working on
product innovations
12
Support organizations
24 • On average manufacturers show a higher
degree of collaboration – this is mainly due to
Private research 9
institutes 24 – Technology leadership in projects with
several collaborating parties
Strategy 9 – Higher value chain integration
consultants 4 • Not very widespread are collaborations with
service providers
Suppliers
Manufacturers • Roughly less than a quarter of SMTI
companies have respective collaborations
n = 122, multiple answers possible


SMTI companies focus on applied research to drive incremental
innovations

FUNCTIONAL COLLABORATION WITH PARTNERS
[% of answers, by type, 2010] COMMENTS

SMTI companies, particularly manufacturers,
Applied research 43
61 engage in functional collaboration. Predominantly,
such activities are sought in the field of:
Quality control 45
46 • Applied research; underlining the focus on
25 incremental innovation
Basic research
35
• Quality control and production certification
Product certification 12 – Strengthening compliance and regulatory
41 know-how
Marketing/sales 30 – Managing innovation cycle
20 – Shifting innovation risks to suppliers
Distribution 17 • Basic research; focus on break-through
28
technology and materials
Training 12
13 • Training, launch/post launch, and after sales
After sales 7
collaborations are of minor importance to SMTI
services 7 firms despite
– Under-proportional returns on new products
5
Product launch
7 – Rising OPEX to sales ratios and process costs
Suppliers – Expected shifts in business models and
offerings
Manufacturers
n = 106, multiple answers possible


The national innovation programs of CTI/KTI reach 29% of SMTI
companies – More than twice as much as international programs

NATIONAL PROGRAMS INTERNATIONAL PROGRAMS
[% of participation in innovation promotion programs1), 2010] [participation in %, 2010]

65 100 87
OTHER OTHER
CTI/KTI 22 EU

29
35
6

32
29 17 13
2
11

NO YES CTI/KTI micro small medium large NO YES
(distribution by company type)
n = 154 n = 155
EU programs: e.g. FP6, FP7
Other: e.g. COST, EUREKA
1) Suppliers and manufacturers


The SMTI gets an influx of new ideas from the technological
development in four other major industries

RESEARCH AREA (ILLUSTRATIVE) COMMENTS

• Two main research trends can be identified:
Visualization/ Teleservices/
ICT
Combined – Many SMTI companies apply electronics
Simulation Telemetry products and mechanical engineering know-how to
Navigation RFID medical devices
- New combinations of different disciplines
provide input for highly innovative
ELECTRONICS
INDUSTRY PHARMA products (network innovation)2) through
software engineering
- Especially ICT plays an increasingly
important role as a key component to
innovative products and services (e.g.
Software MedTech Convergence e-Health), and is a success factor due to
engineering
the flexibility and ease of operation
Biomarkers – Technological developments fuel the
convergence between pharma/biotech and
MECHANICAL MedTech, creating novel products with a
BIOTECH
ENGINEERING combination of different action principles
(device/drug or drug/device)
Genetic
Materials Robotics Nanotech SoHo1) • These developments will – together with
Engineering
regulatory changes – lead to the creation of
MedTech research area new business models

1) Substances of human origin 2) Swiss universities are important contributors to the heterogeneous, networked innovation landscape
Source: SMTI 2010, CCMT, CTI/KTI 48


The SMTI business model will change – A stronger focus on
bundled offerings and a higher patient centricity arises

BUSINESS MODEL
DIMENSIONS DEGREE PER CHARACTERISTIC FOR 2012 COMMENTS

Knowledge • Major shifts in business models are
creation In-house External foreseen due to
– Changes in health care systems
Innovation Me-too Novelty – Growing cost pressures by payers
product product – Increased transparency demand
(e.g. DRG, CER)
Offering Single Bundled • Expressed strategic focus is
products offering
– Driving bundled offerings (proven
Market products paired with novelties)1
Technology Market
orientation push pull – Becoming further patient centric
– Focusing on market pull activities
Production Make Buy
capability FURTHER OBSERVATIONS

Sales channels GP/provider Patient • Notions regarding long-term strategic
centric centric
orientation are
Reimbursement No reim- Full
– "From Box-Mover to Solution
bursement coverage Providers"
n=6
– "Best in class" vs. "One Stop Shop"
Degree of Change Start point 2010 End point 2012

1) Combined offering such as a) "own device/technology, software, consumables materials, local maintenance/service, and/or training", or b) "combined
products" (pharma/biotech and medical devices incl. third party product, or c) enhancements through value added "solutions"


Offerings are challenged by price pressures –
Changes ahead for 2012

POSITIONING AND BREADTH OF
OFFERINGS [illustrative] CHARACTERISTICS OF OFFERING STRATEGIES BY 2012

With reduced funding in health care systems, price pressure will
Best in Class
further increase. Paired with DRG, transparency on patient outcome
high

becomes available to payers
Own product This will influence the companies„ offering strategy – thus they may
choose from the following positioning in the future:
Price

Multiple
indications Commodity • "Best in Class" products
– Unique IP, processes, technology or materials and best
Commodity treatment outcome, thus often benefit drivers
product, single – Yield premium price positions
indication
• "Commodity" (less innovative or "me too"/single) products
low

low
Benefits
high – Aim at high volumes/lower margins pricing
Product categories
– Must provide supply flexibility/reliability
Single product Bundling types
• "Bundling" (to obtain an overall higher price benefit ratio)
own product – Own products, services, consumables, training and IT updates
convergence product – Convergences (combined pharma/biotech and MedTech
solutions product)
– Solutions1 (extended value creating services or complementary
products for a full DRG treatment incl. competitor products)
1) Solutions serving DRG related treatments are currently in early stage discussions amongst leading firms; positioning here is rather indicative

F. International Opportunities and Threats

51

F INTL OPPORTUNITIES AND THREATS

SMTI companies still perceive the strongest growth potential in the
Swiss home market, closely followed by the EU

COUNTRIES WITH HIGHEST EXPECTED GROWTH
POTENTIAL FOR THE NEXT 2 YEARS [% of mentions, 2010]1) COMMENTS
Switzerland Abroad • Compared to 2008, there were no significant
2010: 35% 2010: 65%
changes:
2008: 34% 2008: 66%
– The Swiss market is still expected to have the
35 34 highest growth potential
– More than half of the SMTI companies expect
30 the highest potential in the EU, USA and BRIC
29
markets

• For the other geographical regions, Swiss
companies tend not to expect important growth
13 13 contributions:
11
10 – In Japan registration and regulatory
7 requirements, as well as cultural differences,
6
are a major hurdle
3 3
2 2
1 1 – The rest of the world market does not yet
contribute significantly to the growth of SMTI
Switzerland EU USA / Japan BRIC Other Other Other companies
Canada countries countries countries
in Asia in Latin
2010 n = 141 America
2008 n = 132
1) Includes suppliers, manufacturers, traders/distributors and service providers


Manufacturers are more internationalized than suppliers – More
than 50% perceive strongest growth outside EU and Switzerland

COUNTRIES WITH HIGHEST EXPECTED GROWTH
POTENTIAL FOR THE NEXT 2 YEARS [% of mentions, 2010] COMMENTS
Switzer- • Companies expect the strongest stimulus from EU
land Abroad
countries, followed by Switzerland
• Overall manufacturers seem to be more
35 internationalized than suppliers
32 – About 54% of manufacturers expect highest
30 growth from business with countries outside the
EU and Switzerland
– In the focus are EU, USA/Canada, the BRIC
20 countries and only fourth the Swiss home
18
16 market
14 – Suppliers have a higher focus on the EU and
the Swiss home market, representing for more
8 8 than two thirds of companies the regions with
6 6
the highest growth potential
2 2 2
0 1
Switzerland EU USA / Japan BRIC Other Other Rest of
Canada countries countries the world • Suppliers seem to need a geographical closeness
in Asia in Latin to manufacturers in order to optimally fulfil their
Suppliers n = 49 America
customer requirements
Manufacturers n = 72



The economic outlook for main SMTI export markets is positive –
Return to growth expected

GDP GROWTH [% change vs. previous year] COMMENTS

• Most of the main SMTI export markets are
3,1 expected to return to growth in 2010 (0.8 and
2,7 3.1%) and 2011 (1.5 and 2.7%)
2,4
2,1
1,8 1,8 • The OECD average growth rate is expected
1,6 1,5 to slightly outperform Switzerland and to
0,8 recover considerably faster than in the EU-27
0,7
0,5 0,4 • This increases the growth potential through
sales – both in Switzerland and abroad
• Growth prospects are even brighter outside
the traditional European markets, e.g. in the
Switzerland emerging economies in Asia and South
OECD America
-2,4 EU-27
-2,5
USA
-3,3

-4,2
2008 E 2009 E 2010 F 2011 F

E = Estimate, F = Forecast
Source: SMTI 2010, BAG, BfS, KOF 54


A world of opportunities and threats by 2012

Selected global highlights
WORLDWIDE
4 2
• Faster increase of "Western 1 2
diseases" e.g. diabetes, obesity, etc. 6 7 2 8

• Growing demand for 5 2
established/new 2
treatments/technologies 9 Regional opportunities
3 Regional threats

1 • USA is the world‟s largest MedTech market 3 • South Africa‟s MedTech industry is expected 7 • 7„000 new hospitals and medical centres
(close to 40% of total) with an expected to grow at CAGR of 7.1% to 2015 planned in China
CAGR of 2.8% until 2015 • Around 90% supplied by imports
• Growing MedTech know-how with new and
• Expected pricing pressure on MedTech smarter competitors arising with a significant
manufacturers due to financial alliances 4 • Russian MedTech market is estimated at lower cost basis
between hospitals and doctors USD 5.6bn
• New regulations, e.g. 510 k, CER and excise • Around 81% supplied by imports 8 • Japan is the second largest MedTech market
tax burden (next 10 years around USD 20bn worldwide
anticipated) 5 • Indian market valued at around USD 3bn and • Latest reimbursement price revisions favour
expected to grow around 10% a year innovative products

• For BRIC countries (incl. Turkey), the • IT service providers cater for MedTech needs • Expensive distribution system
2
expected aggregated growth is around 10- • Price increases anticipated
12% for Life Sciences industry 6 • Rising of new competitors? Chinese & Indian
• High potential for multiple-brand strategy in generics manufacturers ready to substitute 9 • Increased regulation to be implemented in
developing markets OEM products Australia, Singapore and India

Source: SMTI 2010, Espicom, IMS Health, Moody's Investor Service, Reuters 55


A world of opportunities and threats by 2012

Selected European highlights
EUROPE WIDE
• EU price harmonization plans for pharma 5
sector is expected to affect the MedTech
industry 3 6
10
• EU to boost high-tech budget for research 7
& innovation to EUR 6.4bn in 2012 2 8
4
• eHealth policy implementation project en 1 9 National opportunities
route for 2020 National threats

1 • The Spanish MedTech market is valued at 4 • Per capita spending on MedTech in 8 • Expected MedTech market growth of 4.7% in
USD 4.8bn in 2010 Switzerland is among the highest in the world Austria
• Government budget cuts ahead due to debt with USD 544

• France continues to lag behind its EU markets, 5 • Small scale of domestic MedTech production in 9 • Italy is the fourth largest MedTech market in
2
e.g. in imaging and radiotherapy equipments Norway with anticipated higher import needs Europe
(high-tech in hospitals) • Expected to be one of Europe‟s slower
6 • Central patient registers in Denmark
growing MedTech markets over the next five
• Several reform programmes planned for the
7 • Focused MedTech “Research for Health years with a potential impact on Swiss export
healthcare sector in France
2011”program launched in Germany with
3 • In UK, the expected MedTech market growth is budget of EUR 1.2bn 10 • In Poland, around 85% of the MedTech
at around 3.6% • Increasing regulations (MPKPV regulation market is supplied by imports
• Current government plans involve a 15% cut in early 2010) in Germany and growing power of • Healthcare spending accounts for about 6.2%
health spending as of 2011 purchasing organisations (DRGs) of GDP

Source: SMTI 2010, DeviceMed, Espicom, Meditec, Specatris 56


The US Healthcare Reform will also influence SMTI companies

CONVERGENCE OF FOUR FORCES [illustrative] EXPECTED OPPORTUNITIES

• Higher numbers of patients
• Opportunity for highly innovative treatment
demand
• Opportunity to position bundled offerings/solutions
to buying consortiums
• Increased opportunities for preventive/early
indication devices
EXPECTED THREATS

• Higher price transparency
• Higher compliance and registration efforts for new
products, incl. registration fees
• Higher re-negotiation costs of existing products
• Tighter reimbursement for me-too products
• Higher tax burden



Registration and introduction of new products are perceived to be
less difficult in Europe than in other markets

ESTIMATED DIFFICULTIES FOR PRODUCT REGISTRATION
AND INTRODUCTION [% of mentions, 2010]1) COMMENTS

• Registration and introduction of new products
1 2 are expected to be a challenging task for 45%
Very difficult 15 13 of manufacturers and suppliers
23
27
26 • However, Switzerland as well as the EU
42 (almost the same processes and structures)
are expected to be less complex than
Difficult 30 38 registration in the US, Japan or BRIC markets
• Japan is considered to be a very difficult
39
52 market due to high requirements regarding
51 28 sensible documents (drawings, IP etc.), high
fees, and long approval times
Neutral 43
• US FDA regulations are perceived as hard to
46 be met, even for large companies
30
20
27 • FDA recently announced higher regulatory
Easy 20 requirements, increasing registration
Very easy 11
4 5 complexity and processing time
1 0 0 0 3 0 3
• Especially smaller SMTI companies face the
Total Switzerland EU USA JAPAN BRIC challenge to meet these requirements due to
n = 90 the lack of internal expertise
Source: SMTI 2010, SMTI Advisory Board, Swissmedic 58

G. International positioning

59

G INTERNATIONAL POSITIONING

For the first time the SMTI work-force abroad grew at a higher rate
than in Switzerland, showing an increasing internationalization

GROWTH IN LOCAL VS. FOREIGN EMPLOYMENT
[% over last 2 years, end 2007 & 2009]1) COMMENTS

• SMTI companies continue to hire – but at a
21 reduced rate
Switzerland
7
• For the first time growth of employee
16 numbers has been bigger abroad and signals
Abroad
8 a shift in management focus
2007
2007: n = 186 • This result documents the increasing
2009
2009: n = 81 internationalization effort of SMTI companies
• The survey results indicate that no significant
WORKFORCE ABROAD work-force shifts from and to Switzerland
[% of total workforce according to company size, 2009]1) have taken place
• Micro to small companies employ around 4%
Micro 4 of their workforce abroad compared to 20-
40% of medium to large sized companies
Small 4

Medium 20 FURTHER OBSERVATIONS

Large 42
• Micro and small companies are lacking
access to experienced hires in order to obtain
n = 139 international expert know-how


Manufacturers and suppliers are strongly export driven and
achieve on average 63% of revenues abroad

AVERAGE SHARE OF EXPORTS
[% of turnover, 2009] 1) COMMENTS

78 • Manufacturers generate around 78% of sales
abroad

Ø 63
• Suppliers play an important role in the local
53 market as 47% of their products and services
are sold within Switzerland
35 • Their export share decreased significantly,
reflecting economical difficulties in many
Ø 29
markets, e.g. declining demand, fiercer
16 competition, and adverse currency
fluctuations
• The same applies to a majority of
Suppliers Manu- Traders Service traders/distributors; they only achieved an
facturers and providers2) export share of 16% (-50% vs. 2007)
distributors
• Service providers are generating 35% of their
2007 data 62% 74% 34% turnover abroad, benefitting from the high
expertise gained in the home market

n = 174
1) Average for suppliers and manufacturers , based on average export share of all companies, not based on value of exports. Therefore varies from the
value mentioned in the management summary 2) Share of export of service providers was not surveyed in 2008


A young product portfolio helps manufacturers to increase their
export share

EXPORT SHARE
[%, according to age of product portfolio, 2010] COMMENTS

• Suppliers and manufacturers realize different
82 export shares in respect to the age of their
Ø 78 product portfolio
72
• Suppliers
61
– Can export above-average mature
products
Ø 53
46 – Were faced with difficulties in capturing
export shares with young product

• Manufacturers
– Can capitalize on an innovative product
range in export markets
Younger PP1) – Tend to introduce new products or line
extensions faster abroad
Older PP2)
– Expect below avg. growth from mature
Suppliers Manufacturers products

n = 93
1) More than 50% of product portfolio younger than 5 years
2) More than 50% of product portfolio older than 5 years


Growth expectations and export share – Positive correlation for
manufacturers, negative correlation for suppliers

EXPECTED GROWTH ACCORDING TO EXPORT SHARE
[%, only manufacturers and suppliers, 2010] COMMENTS

• Export is a “Must do” for growth
18
• Manufacturers are much stronger export
focused than suppliers
• Manufacturers with an above-average export
share
– expect significantly higher growth rates
10 – will outperform the market
Ø 10
– will outperform suppliers by far
7
• For suppliers, the situation is reversed – the
home market remains the key to growth.
4 They face difficulties to
– Overcome the external market access trap
Suppliers
– Find niches in a growing commodity market
Manufacturers
• By focusing on export, firms can
Low export share1) High export share2)
– Expand the potential customer base
– Drive regional account management
n = 114
1) Defined as less than 44%/81% of revenue from exports for suppliers/manufacturers
2) Defined as more than 44%/81% or revenue from exports for suppliers/manufacturers


To exploit export growth potentials the new organization "Medtech
Switzerland" will support SMTI companies

"Medtech
Switzerland" is a
federal platform to
promote Swiss
Medical Technology
worldwide

• Provide extensive information • Connect different actors to
Main objectives of identify business opportunities
on target markets the Export
• Provide guidance when • Facilitate market exploration
Platform "Medtech
entering a new market and Switzerland" is to and match making
expanding in existing markets bring together • Drive target group tailored
• Support communication via Swiss Medtech campaigns
an integrated portal, specific supply with foreign • Prepare targeted information
events, and delegation visits Medtech demand about focus markets
• Build-up MedTech brand and • Position Switzerland as a major
image MedTech competence hub

Source: SMTI 2010, Medtech Switzerland 64

H OUTLOOK

SMTI 2012 and beyond – Selected success factors for growth

BUSINESS MODELS INNOVATION INTERNATIONAL GROWTH COMPLIANCE
• Review of current “crisis” • Strengthen network • Drive international product • Optimize key markets
strategy innovation beyond 20% to launch earlier regulatory know-how
• Review and overhaul of maintain innovation base • Engage in out-licensing (by and approach
current business models for • Conduct product portfolio start-ups) to convergence • Achieve high compliance
larger companies and R&D strategy review partners (i.e. zero complaint) in
• Define strategic shift or • Engage in extra-industry • Focus on growth markets/ all markets
desired repositioning (i.e. technology scouting niche segments • Align pricing strategy to
convergence or innovation • Actively search talents respond on agency
leader) globally harmonization efforts
OPERATIONS COLLABORATION & BUNDLING POSITIONING INTERN. MARKET WATCH
• Expand business knowledge • Form stronger, early stage • Drive for global innovation • Track purchasing
via increasing in- alliances leadership position in organizations and price
sourcing/recruiting of • Active collaboration in IT promising niches pressures
software capabilities and platform developments • Establish/provide supportive • Strengthen legal
material science needed CER data on key products capabilities regarding
• Drive rigorous cost • Expansion of business and markets out-licensing or patent
optimization programs knowledge via increasing in- • Build-up value proposition infringements
• Strengthen alliance culture sourcing of software and solution orientation • Master growing
and processes capabilities and material • Establish proximity to international competition
science specialists/clinics and substitute products

IMPROVING THE GROWTH POTENTIALS OF THE SMTI COMPANIES

H OUTLOOK

Strategic key guiding principles for future growth of the SMTI at
the crossroads

INNOVATIONS • Secure sufficient influx of networked innovative products to expand current product portfolio
• Ensure the ability to drive radical innovation and/or incremental innovation of products depending
on market environment
• Check technology strategy to include IP development for in- and/or out-licensing
• Adopt a high degree of network innovation, using complementary know-how pools

COLLABORATION • Evaluate me-too portfolio strategy for bundling possibilities in order to increase volumes and
& BUNDLING turnover
• Shorten development cycles and time-to-peak-sales through the use of more collaborations
• Evaluate possibilities to maximize product value proposition by integrating services and creating
end-to-end solutions

INTERNATIO- • Ensure build-up of comparative effectiveness data sets to ensure access to key markets
NALIZATION • Build-up or ensure access to local markets to exploit opportunities in growing economies
• Check geographical out-of-pocket markets for additional growth opportunities
• Plan multiple market introductions for new products, including possible out-licensing to selected
key players in local markets

POSITIONING • Ensure timely switch of the strategic priorities in correlation to market movements
• Make use of national support institutions to maximize growth potential
• Emphasize customer segmentation and adopt an international account strategy


H OUTLOOK

SMTI companies have to choose their individual future R&D focus
in a quickly changing business environment

INFLUENCERS FUTURE R&D FOCUS
COMPANY
Different degrees of future product portfolio development
• Future solution offerings are possible, depending on the company strategy
• Network innovation
• Regulatory know-how
• Clinical trial design
• Patient registries

REGULATION
• Healthcare reforms
• Regulatory requirements RENOVATORS NETWORK INNOVATORS
• Rising payer power • Bundling of products, services or know-how • Leading with cutting-edge innovations
• Comparative effectiveness • Exploiting the current product portfolio • Strengthening basic research
• eHealth enabled processing • Engaging in scouting and M&A • Building up a high value product portfolio
• Driving innovation by adapting and integrating • Engaging on inter-industry collaborators
• Collaborating within existing value chain • Focusing on out-licensing
MARKET
• Growing through volume focused exports • Adopting a niche-growth strategy as early mover
• Patient centricity
• Bundling
• Convergence
• Global competition • Collaborate to acquire know-how
• Consolidation • Drive operational excellence
• New competitors • Strengthen regulatory capabilities
• Establish supportive CER data


Appendix 1: Additional Data

69

Abbreviations

BAG Schweizer Bundesamt für Gesundheit m Million
Micro-sized
bn Billion Less than 10 employees
company
CAGR Compound Annual Growth Rate MPKPV regulation Regulation on clinical trials of medical products
CER Comparative Effectiveness Research NPI New product introduction
CTI/KTI Innovation Promotion Agency CTI NOGA Nomenclature Générale des Activités Économiques
Swiss Centre for Electronics and Microtechnology, Inc./Suisse
CSEM OPET Federal Office for Professional Education and Technology
d'Electronique et de Microtechnique SA
Osec Business Network Switzerland; an association under
DRGs Diagnosis Related Groups Osec
private law supporting Swiss foreign trade
E Expected Manufacturers Companies producing medical devices under their own brand
Swiss Federal Laboratories for Materials Testing and
EMPA PMI Purchasing Managers Index
Research
Eidgenössische Technische Hochschule/Ecole Polytechnique
ETH/EPF PSI Paul Scherrer Institut
Federale
Companies providing specialized services to medical device
EUCOMED European Medical Technology Industry Association Service providers
companies or for medical devices
F Forecast Small company Between 10 and 49 employees
FTE Full-time equivalent SMI Swiss Market Index
GDP Gross Domestic Product SMTI Swiss medical technology industry
GP General Practitioner SoHo Substances of human origin
Companies supplying major components to the medical
ICT Information- and Communication technology Suppliers
technology industry (and others) without having their own brand.
Traders and Companies trading in or selling medical devices, such as local
IT Information technology
distributors wholesalers and affiliates of national or international companies
k Thousand


Additional SMTI 2010 data

1 2 3 4 5
HEALTHCARE CHALLENGES STRATEGIC INNOVATION AND GROWTH
MARKET TREND ACTIONS SUPPORT EXPECTATIONS

6

SMTI 2010 REPORT DATA BASE

71

1 HEALTHCARE MARKET TRENDS

Healthcare market developments by company category and
collaboration intensity

COMPANY CATEGORY1) COLLABORATION INTENSITY2)
Supp- Service
DEVELOPMENTS Manuf. liers Traders prov. None Medium High
Higher regulatory requirements
for product accreditations 1 1 2 2 1 1 1
Higher requirements for evidence
of product efficacy 3 2 1 2 2 3 3

for process compliance 2 2 2 1 4 2 2
Selective perception of only a
few manufacturers by consumers 4 4 4 2 4 5
Increasing communication needs
with authorities 4 4
Delays during product
accreditation 4 5 5 5 5 4

The ranking is based on the number of mentions and degree of importance of the respective developments. Only those developments appearing in the
top 5 are listed

1) n = 188 2) n = 164

1 HEALTHCARE MARKET TRENDS

Healthcare market developments by company size and age

COMPANY SIZE1) COMPANY AGE2)

DEVELOPMENTS Micro Small Medium Large <5 y 5 y or older
for product accreditations 2 1 1 2 3 1
Higher requirements for evidence
of product efficacy 1 3 2 1 2 3

for process compliance 3 2 3 3 1 2
Selective perception of only a
few manufacturers by consumers 5 4 4 5 4 4
Increasing communication needs
with authorities 4
Delays during product
accreditation 5 5 4 5 5

top 5 are listed

1) n = 189 2) n = 159

2 CHALLENGES

Challenges by company category and collaboration intensity

Supp- Service
CHALLENGES Manuf. liers Traders prov. None Medium High
Increasing price competition
1 1 1 4 1 1 2
Cost pressure from purchasers
and health care institutions 3 3 2 2 2 3 3

Intensified national & inter-
national competition 1 4 3 2 2 2 1
Increasing pressure to reduce
production costs 4 1 4 4 4
Availability of skilled employees
5 5 5 1 5 5 5
Access to know-how
4 4
Organizational issues due to
growth 4

top 5 are listed

1) n = 188 2) n = 164

2 CHALLENGES

Challenges by company size and age

COMPANY SIZE1) COMPANY AGE2)

CHALLENGES Micro Small Medium Large <5 y 5 y or older
Increasing price competition
2 1 1 1 1 1
Cost pressure from purchasers
and health care institutions 3 1 3 3 2 2

Intensified national & international
competition 1 4 3 1 3 4
Increasing pressure to reduce
production costs 3 2 3 2
Availability of skilled employees
4 5 5 3 3 5
Access to know-how
5 5

top 5 are listed

1) n = 189 2) n = 159

3 STRATEGIC ACTIONS

Strategic actions by company category and collaboration intensity

Supp- Service
STRATEGIC ACTIONS Manuf. liers Traders prov. None Medium High
Improving profitability
3 1 2 3 1 1 1
Optimizing marketing
1 3 3 2 5 2 3

Further development of org.
structure and processes 5 2 4 4 2 3 2
Optimizing distribution
4 5 1 5 5
Strengthening product innovation
1 4 5 3 3

Developing new business
models 4 1
Geographical growth/
internationalization 4 4 3

top 5 are listed

1) n = 188 2) n = 164

3 STRATEGIC ACTIONS

Strategic actions by company size and age


STRATEGIC ACTIONS Micro Small Medium Large <5 y 5 y or older
Improving profitability
1 2 1 1 2 1
Optimizing marketing
2 3 2 3 3 2

Further development of org.
structure and processes 3 1 3 1 3
Optimizing distribution
4 3 3 4
Strengthening product innovation
5 5 1 5

Developing new business
models 4 5 3 4
Geographical growth/
internationalization 5 3 5

top 5 are listed

1) n = 189 2) n = 159

4 INNOVATION AND SUPPORT

Share of newly introduced products and distribution of product
portfolio

SHARE OF SALES OF NEWLY INTRODUCED DISTRIBUTION OF PRODUCT PORTFOLIO
PRODUCTS (SINCE 2007) ACCORDING TO PRODUCT AGE
[% of answers, 2010] [% of answers, 2010]

28 28
27
Very small proportion 21
25
(0% - 10%) 18 24
23 23
22
Small proportion 36
(10% - 30%) 38

Medium proportion 21
(30% - 50%) 16

High proportion 16
(50% - 70%) 20

Very high proportion 6
(> 70%) 8
0-3 years 3-5 years 5-10 years `+10 years

Suppliers
Manufacturers
n = 127


Share of inter-industry collaborations by partner

BY COMPANY CATEGORY [% of partners, 2010] BY COMPANY SIZE [% of partners, 2010]

88 94
Manufacturers/ Manufacturers/ 88
suppliers 81 suppliers 83
73
50
43 43
Universitites Universitites
59 55
91

13 9
IT service providers IT service providers 18
28 28
36
13
12 20
Support organizations Support organizations
24 14
27

9 16
Private research Private research 15
institutes 24 institutes 21
18 Micro
Suppliers 6 Small
9 8
Strategic consultants Manu- Strategic consultants Medium
4 facturers
7
9 Large

n = 105, multiple answers possible n = 105, multiple answers possible



Share of functional collaborations

BY COMPANY CATEGORY [% by type, 2010] BY COMPANY SIZE [% by type, 2010]

43 54
Applied research Applied research 39 52
61 80
50
Quality control 45 Quality control 55
46 37
30
21
25 27
Basic research Basic research 37
35 40
21
12 24
Product certification Product certification 30
41
30
30 29
Marketing/sales Marketing/sales 21 33
20
17 15 25
Distribution Distribution
28 19 40
4
12 15
Training Training 19
13
20
7 Micro
After sales service 7 After sales service
Suppliers 7 Small
7 20
Manu- 4 Medium
Product launch 5 Product launch
7 facturers 3 11 Large
10
n = 105, multiple answers possible n = 105, multiple answers possible



Selected sample of highly innovative, networked start-ups

Overview of selected companies
Research
Year University area
No. Product and service offering Key differentiator
founded spin-off
M E B
1 2007 X Tissue engineering Cutting-edge bioprinting solutions on a versatile and cell-friendly printing platform X X X
Computer assisted soft Real-time visualization and simulation of surgical tools and soft tissue leveraging or navigation
2 2009 X X X
tissue surgery (similar to GPS navigation)
MicroCT services (data Analysis of samples or biomaterials in a reproducible and cost-efficient manner (service
3 2008 X X
analysis) provider)
Repeatable, observer independent, objective and reproducible forensic assessment method
4 2004 X Virtual forensic autopsy X
(based on MRI technology)
3D physical web-based simulation technology (pictures uploaded to internet and simulated
5 2008 X Plastic surgery simulation X
surgery outcome available in short period of time)
Gel which is introduced into tumor and heated up (only locally) using magnetic field to destroy
6 2007 Tumor removal X
the tumor
7 2007 Surgical simulation High fidelity, realistic simulation including e.g. instrument force feedback system X X
8 1996 Robotic rehabilitation therapy Innovative new rehabilitation therapy products leveraging motion sequence X X
9 2003 Injectable medical devices Monophasic reabsorbable gels (a genuine revolution in the world of aesthetic dermatology) X X
10 2006 Medical diagnostic tests Inexpensive, portable and simple-to-use quantitative laboratory-quality immunoassays X X
Artificial muscles incorporated in devices which are then deployed to mimic the action of
11 2004 Artificial muscle technology X X X
sphincters
Stroke and brain injuries Optical spectroscopy & imaging based on near infrared spectroscopy (NIRS) which is a
12 2007 X X X
diagnosis paradigm shift from pulse oximetry
System of carefully positioned polystyrene pearls and inflatable air chambers to e.g. reduce
13 2008 X Devices for medical scanning X
MRI time
Automated and miniaturized New particles handling concept – resolving in a unique way the particles agglomeration and
14 2004 X X X X
systems therefore opens new perspectives in bio-assays in micro-fluidic environment
Micro-systems for medical Contact lenses with integrated eye pressure sensor. An external system sends RF power to
15 2003 X X X
devices the sensing site and receives in return measurement information (similar to RFID)
16 2008 X Catheter system Innovative system to treat cardiac fibrillation using two different sensors X X
17 2009 X Therapy system Bed in constant motion to avoid e.g. decubitus ulcers X X
Legend: Research areas – M: Mechanical engineering, E: Electronics, B: Biotech


CTI/KTI initiatives are well known – The use of knowledge transfer
institutions is limited

KNOWLEDGE ABOUT CTI/KTI INNOVATION
PROMOTION PROGRAMS1) USE OF KNOWLEDGE AND TECHNOLOGY
[% of respondents that know CTI/KTI, 2010] TRANSFER INSTITUTIONS1) [%, 2010]

77 69

53

27
26 25

4

R&D Project Start-up Innovation Platform & No Yes Do not know any
Promotion Promotion Check Network Transfer Institutions
Promotion

n = 81, multiple answers possible n = 154

1) Suppliers and manufacturers


Companies of all sizes use CTI/KTI services and support

DISTRIBUTION OF CTI/KTI USERS ACCORDING TO
COMPANY TURNOVER [%, 2010] COMMENTS

SUPPLIERS • If analyzed by company turnover, the
56 distribution of CTI/KTI users roughly
Ø 56
represents the total survey sample
32
• One major exception are manufacturers,
Ø 24 where companies with more than CHF 50m in
Ø 17
6 6 turnover are overrepresented
Ø3 – 50% of manufacturers that use CTI/KTI
programs have more than CHF 50m
CHF m <5 5-10 10-50 > 50
n = 16
turnover
– But only 23% of companies in the sample
have a turnover of more than CHF 50m
MANUFACTURERS 50
• However, these findings should not be over-
Ø 36
interpreted, as
19 19 Ø 23 Ø 23 – larger manufacturers usually have several
Ø 18 12 R&D projects running in parallel
– one CTI/KTI supported project therefore
only represents a fraction of all R&D
CHF m <5 5-10 10-50 > 50 projects
n = 16 – early CTI start-ups are not covered by this
Distribution of total SMTI sample, n = 105 report


Distribution of CTI/KTI users according to company age shows
little deviation

DISTRIBUTION OF CTI/KTI USERS ACCORDING TO
COMPANY AGE1) [%, 2010] COMMENTS

61 • If analysed according to company age, the
Ø 61
distribution of CTI/KTI users shows little
deviation from the survey average

• Very young companies (< 5 years) account
for 15% of CTI/KTI users – slightly more
than their 12% share of the survey

• Young companies (5 to 10 years) make up
Ø 26 24 24% of CTI/KTI users – slightly less than
their 26% survey share
15
Ø 12 • Older companies (> 10 years) account for
61% of both CTI/KTI users and share of
overall survey participants

Very young Young Older
(< 5 years) (5 to 10 years) (> 10 years)
n = 41
= Distribution of total sample n = 137

1) Suppliers and manufacturers, CTI/KTI start-up support is not represented

5 GROWTH EXPECTATIONS

Growth expectations by segment and company size

GROWTH EXPECTATIONS BY SEGMENT GROWTH EXPECTATIONS BY COMPANY SIZE
[% of answers] [% of answers]

9 13
Suppliers Micro
11 14

13 9
Manufacturers Small
12 11

Tracers and 9 8
Medium
distributors 9 11

10 8
Service Providers Large
16 7

2010 2011
n = 215

6 SMTI REPORT DATABASE

Results are based on 252 participating companies –
A solid database

Distribution of participating companies according to category

Companies that trade or Traders and Suppliers Companies that supply
sell medical distributors major components to the
devices, such as local medical technology
14%
wholesalers and industry without having
affiliates of national or their own brand
international companies
3.9% 37% Usually these companies
also supply components
to other related industries
25%

Companies that Services
provide specialized providers
services to medical
technology companies
or for medical devices
24%
Manufacturers Companies that produce
medical devices under
their own brand

n = 227, the other survey participants did not indicate their category

6 SMTI REPORT DATABASE

The SMTI 2010 survey sample represents the whole industry
fairly well

Distribution of participating companies according to turnover

ACCORDING TO COMPANY TURNOVER ACCORDING TO COMPANY SIZE
[CHF] [number of employees]

Large
> 50m (250 and more)
8% 7%

Medium
(50 to 249) Micro
21%
11-50m
24% 40% (< 10)

68%
< 11m

32%
Small (10 to 49)


Appendix 2: SMTI Knowledge Base

88

Three strong parties joined forces to examine the SMTI in 2010

SHARING TOP EXPERTISE

• About Medical Cluster
Medical Cluster brings together manufacturers, suppliers, service
providers and research and development companies from all over
Switzerland. We offer platforms and assistance to ensure that
medical technology in Switzerland continues to enjoy the optimal
conditions for growth. The main focus is on supporting innovation,
knowledge exchange, technology transfer, and exports
• About Roland Berger Strategy Consultants
The Roland Berger Pharma & Healthcare Competence Center
supports life-science players in seizing opportunities and mastering
challenges. Besides traditional consulting areas such as marketing,
organization, cost-cutting and M&A, we also provide input from our
intensive analysis of current market trends and developments
• About Deloitte
Deloitte is one of Switzerland's leading professional services firms,
offering services in Audit, Tax, Consulting and Corporate Finance.
We are investing heavily and for the long term in Switzerland. We
currently have more than 1000 professionals operating out of 7
cities: Basel, Bern, Dübendorf, Geneva, Lausanne, Lugano and
Zurich


This is the fifth report on the SMTI

2005 2006 2008 2009 2010

REPORT

Wissensbasierte Cluster Herausforderungen und SMTI 2008 Schweiz – weiterhin SMTI 2010
in der Schweiz: Realität Chancen der Schweizer führend in
DESCRIPTION oder Fiktion? – Das MedTech Branche Medizintechnik
Beispiel der Medizinal- Quick-Check on SMTI
technikbranche 2008

• MedTech Industry • MedTech Industry • MedTech Industry • MedTech Industry • MedTech Industry
• Innovation • Challenges and • Challenges and • Growth expectations • Challenges and
FOCUS • Knowledge based opportunities strategic actions • Challenges and strategic actions
actors • R&D strategic actions • Development of
• Structure and cluster healthcare market
of the SMTI • R&D

Dr. Patrick Dümmler Dr. Patrick Dümmler Dr. Patrick Dümmler Beatus Hofrichter Dr. Patrick Dümmler
Beatus Hofrichter Beatus Hofrichter René Willhalm Beatus Hofrichter
AUTHORS René Willhalm
Peter Biedermann

ETH Zürich Helbling Medical Cluster Helbling Medical Cluster
JOINTED Helbling Roland Berger
PARTIES Roland Berger Deloitte,
CTI/KTI


An in-depth survey, selected interviews and additional advisory
board reviews form the basis of the SMTI 2010 Report

OBJECTIVE METHODOLOGY APPROACH

• The SMTI 2010 Report • A questionnaire-based approach • Under the umbrella of the
– Aims to embrace the widest with six focal points was used Medical Cluster, three strong
industry sample possible – General company data and parties joined forces to carry out
– Provides an up-to-date micro- profile a sound industry analysis
and macro-economic overview – Business development • The results are comparable with
of this important industry – Challenges along the MedTech other studies on an international
– Reflects on the trends, value chain level, as internationally
challenges and priorities along – Management response recognized definitions are used
the SMTI value chain – Developments in the
– Highlights and interprets healthcare market • The intention is to update the
changes in the industry – Innovation, R&D and report every two years, allowing
compared to the situation collaboration tracking of SMTI trends and
reported in the "SMTI 2008 issues
• Direct market insight and current
Report" management thinking was
accessed through an Advisory
Board
• Additional subject matter
expertise interviews and desk
research helped to complete the
report


The publisher of the SMTI 2010 Report and your main contact

PETER BIEDERMANN
Medical Cluster

• Peter Biedermann is Managing Director of Medical Cluster in Berne
• He is author of various publications on the Swiss Medical Device Industry and co-author of the "Swiss MedTech Report 2008"
• Within the national Swiss Life Science Marketing Alliance, he is in charge of the Medical Device Industry
• Mr. Biedermann is involved in various innovation programs in Switzerland, such as ManuFuture-CH
• Prior to joining Medical Cluster he was Director of the innovation agency innoBE AG in Berne. Here, he was responsible for various
management consulting projects in different industries, including machining, micro-technology and microelectronics
• Peter Biedermann studied Chemistry and Environmental Sciences at the Universities of Applied Sciences in Berne and Basel

Mail: peter.biedermann@medical-cluster.ch
Tel.: +41 76 324 31 15

The publisher and the authors would like to thank the following persons and organizations:
• The SMTI Advisory Board; the subject matter experts; René Willhalm; Celinda Hampe (Medical Cluster); Aleksandar Ruzicic, Roland
Mathys, Georg Thomas, and Sara Schaufelberger (all Roland Berger); Andrin Waldburger, Robert Reppas, Lukas Lang (all Deloitte) for
their input and support in preparing the SMTI 2010 Report
• CTI/KTI for their financial support in conducting and publishing this report

92

The authors of the 2010 SMTI Report

DR. PATRICK DÜMMLER BEATUS HOFRICHTER
Roland Berger Strategy Consultants Deloitte Consulting AG

• Dr. Patrick Dümmler is Project Manager at Roland Berger • Beatus Hofrichter is a Senior Manager in Deloitte Consulting –
Strategy Consultants in Zurich and the designated Managing Life Science practice in Zurich
Director of the Export Platform Medtech Switzerland (starting
• He is co-author of the "Swiss MedTech Industry 2008 Report"
on September 1st)
and the 2006 Helbling Report "Challenges & Opportunities of
• He has published over 65 articles and books, including the Swiss MedTech Industry"
numerous reports about the medical devices industry, e.g. the
• He has more than 10 years of consulting experience in a
2006 and 2008 SMTI Reports
variety of industries, predominately in the biotech, chemicals,
• He has large experience from various consulting projects within medical devices and pharma
the medical devices industry
• Beatus Hofrichter worked at Helbling Management Consulting
• Dr. Patrick Dümmler studied Economics at the University of AG, KPMG/BearingPoint Consulting, and Cilag AG
Zürich and completed his PhD at the ETH Zurich. His PhD International (a Johnson&Johnson Company)
thesis was entitled "Knowledge-based clusters in Switzerland:
• He is a specialist in strategy, business transformation and
Reality or fiction? The example of the Medical Devices
operational excellence
Industry" (2005)
Mail: patrick.duemmler@medtech-switzerland.com Mail: bhofrichter@deloitte.ch
Tel.: +41 76 532 53 16 Tel.: +41 79 254 09 68


Renowned industry leaders and subject matter experts supported
the SMTI 2010 Report

SMTI 2010 – ADVISORY BOARD SMTI 2010 – SUBJECT MATTER EXPERTS

Gilbert Achermann Christoph Eigenmann Stefan Blum
Director BB MedTech Fund
Chairman of the Board Business Unit Director - DePuy Bellevue Asset Management AG
Straumann Spine DACH

Martin Bopp
Section Start-up & Entrepreneurship CTI MedTech
Federal Department of Economic Affairs (DEA)

Sonja Keppler
Roland Marti Lutz-P. Nolte Investment Manager EPS Value Plus AG
CEO B. Braun Medical Head of the CTI MedTech
Schweiz Initiative
Pasqual Kyburz
MBA Graduate at ETH Zürich, MTEC

Erwin Locher
Director MedTech Switzerland

Richard Fritschi Eric Perucco Patrick Roth
Director Competence Center Medical Technology (CCMT)
CEO Ypsomed CEO Stryker Osteonics
Switzerland
Dr. Margit Widmann
Head of Medical Device Division Swissmedic

94 9

Input on thought leadership – Further reading1)

MEDICAL CLUSTER ROLAND BERGER DELOITTE

Exportplattform Umfrage über die Trends in European Pharma at the Destination 2025 - 2010 Survey of Health
Medtech Switzerland Bedürfnisse nach health care – How to crossroads – Choosing Future of the Medical Care Consumers in
Exportunterstützung create value in a directions in a trans- Device Industry Switzerland:
dynamic environment forming healthcare world Behaviors, attitudes
and unmet needs

Medical Cluster Medical Cluster Strategische Möglichkeiten SwissDRG – Chancen The future of the Life The future of the Life
Booklet 2009 Booklet 2011 dank eHealth – Neue und Risiken für Science industries: Science industries:
Angebote, neue Schweizer Spitäler Transformation amid Aftermath of the
Wettbewerber rising risk global recession

1) These publications can be obtained upon request from the respective parties
Source: SMTI 2010 95 9

How to order additional copies

"A4rb_standard" – 20100111 – do not delete this text object!
DRAFT, AUGUST 17 –
NOT to be published
An additional copy of this
report can be ordered on

www.medical-cluster.ch

at the price of CHF 390.-

Please note that no part of this
report may be reprinted, sold,
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retrieval system or transmitted
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1
photocopying, recording or
otherwise, without the prior
written permission of the
publisher and the authors.

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Disclaimer

No part of this publication may be reprinted, sold, redistributed, stored in a retrieval system or transmitted in any form by any means, electronic,
mechanical, photocopying, recording or otherwise, without the prior written permission of the publisher and the authors.

This report was written in the summer of 2010 involving 252 companies in the field of medical devices in Switzerland. It makes use of the database of the
Medical Cluster, Advisory Board input, additional expert interviews and desk research. The statistical data presented reflects the opinion of the
participating companies at the time of the data gathering (April to May 2010) and may therefore not reflect the current market environment at the time of
reading.

The parties involved in the study confirm that the collection, analysis and interpretation of all data was carried out carefully and anonymously. This
publication contains information in summary form and is therefore intended for general guidance only. The publisher and the authors cannot accept any
responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication

© All rights relating to this publication are the exclusive property of the publisher, authors and their respective companies (Medical Cluster, Roland
Berger AG Strategy Consultants, Deloitte, Innovation Promotion Agency CTI)

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Swiss medical technology industry 2010 report

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