Swiss medical technology industry 2010 report

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This report provides an industry insight of the Swiss MedTech Industry based on a sample basis of >250 participating companies. Focusing on Growth, Challenges, Management Actions needed, Innovation, Product Positioning. It provides comparison to the SMTI 2008 data.

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Swiss medical technology industry 2010 report

  1. 1. The Swiss Medical Technology Industry2010 Report – "MedTech at the Crossroads" 1
  2. 2. 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
  3. 3. SMTI 2010 – At the crossroads to adapt current business modelsIn recent years, this report helped to provide better insights on the importance of the Swiss Medical Devices Industry (SMTI). We havemonitored 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 generaloutlook on the industry. However, it is highly heterogeneous and therefore our conclusions may vary based on a companys productportfolio 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 theeconomic crisis. High price pressure in export healthcare markets, adverse currency effects of the Euro and US-Dollar against the SwissFranc, reduced investments by the Swiss cantons for hospital equipment, or a declining demand in non-reimbursed products are a fewexamples. Paired with increased pressure by payers and governments in major markets towards cost effectiveness and treatmentoutcome, the Life Sciences industry is now faced with a paradigm shift in its future business model. Today, the "crisis resistance" dueto 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 increasinglyfind themselves at the crossroads, refocusing their R&D spending. Today, manufacturers either drive full cutting-edge networkinnovations 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 ascross-academia (e.g. local and international universities and hospitals) collaboration network allowing radical innovation and obtainingmarket 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-usematerials, local maintenance/service, and/or training) or incremental product innovations (e.g. line-extensions). This secures their matureproduct 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 HofrichterPublisher and authors of the SMTI 2010 Report August 2010 3
  4. 4. Contents PageManagement Summary 5A. State of the MedTech Industry 9B. Trends and Challenges 24C. Strategic Actions 29D. Winning through Innovation 34E. Collaboration and Bundling 44F. International Opportunities and Threats 51G. International Positioning 59H. Outlook 65Appendix 1: Additional Data 69 Abbreviations 70Appendix 2: SMTI Knowledge Base 88 4
  5. 5. Management Summary 5
  6. 6. MANAGEMENT SUMMARYManagement 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 thedatabase 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 abroadSource: SMTI 2010 6
  7. 7. MANAGEMENT SUMMARYManagement 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 well1) 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 sampleSource: SMTI 2010 7
  8. 8. MANAGEMENT SUMMARYThe 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 models1) Are addressed in chapters D-GSource: SMTI 2010 8
  9. 9. A. State of the MedTech Industry 9
  10. 10. A STATE OF THE MEDTECH INDUSTRYSwitzerland is among the global hotspots for MedTechINTERNATIONAL 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 strongEmployment 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 otherGDP 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 1,4Exports 1,7 n.a. 2,81) Data from 2008 or, where not available, from 2007Source: SMTI 2010, Destatis, Eucomed, Eurostat, UK National Statistics 10
  11. 11. A STATE OF THE MEDTECH INDUSTRYSwitzerland 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 2900 3523 6 175 5 329 Roche 2 In-vitro diagnostics CH 1750 10055 4 987 10 387 Diagnostics J&J 3 2) Orthopedics USA 1400 24492 2 1830 7 556 Medical 4 Zimmer Orthopedics USA 1150 4250 -1 213 5 518 5 Sonova Hearing systems CH 1030 1500 20 87 6 221 6 Ypsomed Injection systems CH 1000 254 -8 32 12 212 Active and passive implants, 7 Medtronic USA 900 15151 8 1406 9 399 vascular diseases and diabetes 8 B. Braun Orthopedics, hospital aids DE 840 5992 6 207 3 152 9 Straumann Dental implants CH 800 736 5 39 5 339 10 Stryker Orthopedics USA 600 6977 0 349 5 375 ∑ 12020 Ø 4 Ø 71) Approximately, manufacturers only, figures for reporting year 2009/10, exchange rates: USD/CHF: 1.03, EUR/CHF: 1.49 on 31.12.20091) J&J Medical: Numbers are the total for orthopaedics, surgery, cardiology and diagnosticsSource: SMTI 2010, Annual reports, Companies press offices, Factiva, Oanda 11
  12. 12. A STATE OF THE MEDTECH INDUSTRYSwitzerland 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 institutionsBerne Capital • Regional support organisations are e.g.Area – Basel Area – Berne Capital Area – Bio Alps – Biopolo TicinoBioAlps – 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 manufacturersSource: SMTI 2010, relief swisstopo 12
  13. 13. A STATE OF THE MEDTECH INDUSTRYThe SMTI has a strong home market – Investments in high-classmedical infrastructure meets patients demandsSWISS 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 accordingly1) E = Expected 2) F = ForecastSource: SMTI 2010, BAG, BfS, Healthcare Monitor 2009, KOF 13
  14. 14. A STATE OF THE MEDTECH INDUSTRYThe established SMTI value chain is highly cross-institutional1)Basic Applied Suppliers Manufacturers International Customers andresearch research sales stakeholdersBasic research for Developing Highly specialized Manufacturing Worldwide sales of Worldwideradical product and prototyping and internationally industry with broad Swiss medical customers andinnovations 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 support1) Service providers, depending on their specialization are part of any of the value chain building blocksSource: SMTI 2010 14
  15. 15. A STATE OF THE MEDTECH INDUSTRYSMTI manufacturers are evenly segmented across the differentindustry categoriesMANUFACTURERS 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% forOthers1) hardware biological products 16% 19% • SMTI manufacturers exhibit a broad technological knowledge base andReusable Dental diversificationinstruments technology – Bulk risks are reduced 5% 14% – Benefits interdisciplinary R&DRadiotherapy 5% collaborationsdevices – Strengthens network innovationDisposable 6%items 11% Inactive FURTHER OBSERVATIONSTechnical aids 7% implantsfor disabled 8% 8% • There exists a high degree of collaborationIn-vitro Electro- amongst suppliers, manufacturers, anddiagnostics mechanical academia to – broaden the offering scopen = 320 – obtain key skills and know-how1) Others include, in descending order: lab equipment, ophthalmology, patient aids, anaesthetic and respiratory technology, active implants and biological productsSource: SMTI 2010 15
  16. 16. A STATE OF THE MEDTECH INDUSTRYSuppliers and service providers support the MedTech industry withessential know-how within augmentable value chain processesSUPPLIERS BY CATEGORY [%, 2010] SERVICE PROVIDERS BY CATEGORY [%, 2010] Components,Others1) Financing HR systemsAuxiliary material, 11% 5% Analytics ITgreen 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 processingn = 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 capabilities1) Others (in descending order) include: medical packaging, measuring, ceramics and sterilizationSource: SMTI 2010 16
  17. 17. A STATE OF THE MEDTECH INDUSTRYManufacturers and traders/distributors are highly focused onmedical devices salesSHARE 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 19Turnover from 39% 47other products 56 • Traders and distributors as well as suppliersand services Ø 61 show an increased focus on MedTech compared to 2007 81 85 • Suppliers are more diversified in theirTurnover from 53 44 customer portfoliomedical devices FURTHER OBSERVATIONS Suppliers Manu- Traders Service facturers and providers • A high focus on medical devices is needed in distributors order to meet the industry specific traitsTurnover and sales requirementsfrom medical • On the whole, SMTI remains unchanged 39% 84% 80% 59% Ø 65devices in since 2007, indicating that consolidation has2007 not been triggered yet by the financial crisis • For many suppliers from other industries,2009 n = 212 2007 n = 122 MedTech became highly attractiveSource: SMTI 2010 17
  18. 18. A STATE OF THE MEDTECH INDUSTRYManufacturers form the backbone of the industry –Average turnover per company is CHF 68 millionAVERAGE 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 ofn = 171 payers1) Only with medical devices or components for medical devicesSource: SMTI 2010 18
  19. 19. A STATE OF THE MEDTECH INDUSTRYManufacturers and suppliers provide the highest employment,accounting for 92% of the total SMTI workforceDISTRIBUTION 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 providersn = 199Source: SMTI 2010 19
  20. 20. A STATE OF THE MEDTECH INDUSTRYAverage turnover was influenced by high staff levels – This led toan underperformance of turnover per capita for manufacturersAVERAGE 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 11Suppliers 246 7 530 30Manufacturers 465 5Traders and 683 15distributors 818 12 301 2007 n = 185 18 2007 n = 186Service 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 & salesSource: SMTI 2010 20
  21. 21. A STATE OF THE MEDTECH INDUSTRYPutting past SMTI growth expectations into perspective –Adjustments were taken fast and early in the downturnGROWTH EXPECTATIONS FOR 2008 AND 2009 [%] COMMENTSGrowth Share of responses • In 2008, SMTI expected an average growth ofexpectations 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 itsModerate growth full impact in 2009 on a global scale, SMTI(0 to 10%) companies adjusted their growth expectations – Then, only 54% of companies expected aNeutral (0%) positive growth rateModerate decline – The number of companies expecting a(-5 to 0%) negative impact on sales doubledStrong 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% suffered1) SMTI 2008 data collected in spring and report released end of August 2008Source: SMTI 2010 (based on SMTI survey May 2010), CS Economic Research, OECD 21
  22. 22. A STATE OF THE MEDTECH INDUSTRYThe global economic crisis also hit the MedTech industry –Fears exist regarding severe cuts in public healthcare spendingSTOCK MARKETS – SELECTED INDICES GLOBAL AND CH MANUFACTURING – PMI INDEX110 90100 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 50Compared to the SMI, shares of SIX listed MedTech Since June 2008, the global manufacturingcompanies declined stronger. It anticipates market production rose steadily for 13 month in a row butfears of e.g. tightening healthcare budgets negatively slowed since the beginning of 2010. The Swiss PMIaffecting MedTech companies is currently stable, outperforming other marketsSource: SMTI 2010, Bloomberg, Credit Suisse, JP Morgan 22
  23. 23. A STATE OF THE MEDTECH INDUSTRYReview 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 & inventorySource: SMTI 2010 23
  24. 24. B. Trends and challenges 24
  25. 25. B TRENDS AND CHALLENGESTaking the pulse of the SMTI – Top buzzwordsSource: SMTI 2010, www.wordle.net 25
  26. 26. B TRENDS AND CHALLENGESImminent growth of SMTI companies is shaped by major trends inthree categoriesCOMPANY 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 SMTI1) Harmonization between EU-Directive and Swissmedic leads to faster implementation of new requirements2) Introduction of EUDAMED leads to growing transparency, both at agencies level and towards the companiesSource: SMTI 2010, SMTI Advisory Board 26
  27. 27. B TRENDS AND CHALLENGESCompetition for the SMTI intensified severely since 2008 –Costs and prices are under pressure in a changing marketRANKING 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 first2. Increasing cost pres- 77 4. – Manufacturers of non-reimbursed products sure from purchasers were hit by tighter consumer spending3. Intensified competition 75 5. • Today, the majority of SMTI managers are still in the "crisis mode" observing operational4. Increasing pressure to challenges, e.g. higher price competition, cost 68 - pressure and an intensified competition2) reduce production costs5. Availability of FURTHER OBSERVATIONS 68 1. skilled employees • Current management thinking may fuel6. Access to specialized consolidation to maintain critical mass to 59 2. know-how obtain7. Organizational issues – A more diverse/innovative product portfolio 53 6. resulting from growth – Better access to knowledge poolsn = 232; multiple answers possible1) Challenge is of "high relevance" or "very high relevance" to SMTI companies 2) These represent a "triple challenge" to the SMTISource: SMTI 2010 27
  28. 28. B TRENDS AND CHALLENGESMegatrend – Clinical based evidence requirements forcecompanies to focus on higher product efficacy and communicationDEVELOPMENTS IN HEALTHCARE MARKET[% of answers, 2010]1) COMMENTS • Increasing competition and tightening publicHigher requirements for evidence healthcare budgets force companies to investof product efficacy 87 more into proofing product efficacy • Gaining data from comparative effectivenessIncreasing communication needs with research and cost-benefit-analyses will gainwith authorities/healthcare institutions 73 in importance for many SMTI companies • The communication efforts with customers andGrowth of purchasing cooperatives 61 authorities need to be intensified in order to(among customers) optimally position own productsHigher competition for reim- FURTHER OBSERVATIONSbursement entitlement 56 • Recent healthcare developments will driveHigher requirements for product – Higher costs to register and fulfil increasingpositioning among DRGs 51 compliance requirements – Substantial price decreases in mature marketsNegative impact of DRG introduction 45 • EU wide harmonization of pharma prices ison average product price currently discussed; this will also influence the SMTIn = 1341) Companies describing the development "applicable" or "partially applicable"; no 2008 data existSource: SMTI 2010 28
  29. 29. C. Strategic Actions 29
  30. 30. C STRATEGIC ACTIONSSMTI companies are focusing on profitability to meet currentchallenges at the cost of potentially losing their innovative edgeRANKING OF ACTIONS 2010[% of answers]1) COMMENTS Ranking • In contrast to 2007 CEOs express a strong 2008 shift in priorities1. Improving profitability 85 6. • To support future growth, three rather operational actions are in focus2. Optimizing marketing 77 3. – Improving profitability3. Further development of 77 7. – Optimizing marketing & sales effectiveness org. structure and processes – Enhancing organizational structures and4. Optimizing distribution 67 4. processes5. Strengthening FURTHER OBSERVATIONS 63 1. product innovation • SMTI companies seem to approach business6. 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 expansionn = 232; multiple answers possible – Forming alliances with pharma/biotech1) Strategic actions mentioned as being relevant to SMTI companies 2) Deloitte/The future of the Life Science industriesSource: SMTI 2010 30
  31. 31. C STRATEGIC ACTIONSSMTI companies expect 10-12% growth p.a. in the next two yearsEXPECTED GROWTH FOR 2010 AND 2011 [%, p.a.] COMMENTS • On average SMTI CEOs 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 economicStrong growth situation in May 2010 55% 59%(> 10%) • Start-ups are particularly enthusiastic • Established companies expect moderate growth as they face stronger price pressuresModerate growth(0 to 10%) FURTHER OBSERVATIONSNeutral (0%) 28% 26%Moderate decline(-5 to 0%) • If such up-turn is achievable, a shift towards 6% strategic investments and increasedStrong 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 = 188Source: SMTI 2010, Credit Suisse, SwissRe 31
  32. 32. C STRATEGIC ACTIONSEngaging in the right strategic actions correlates with above-average growth expectationsEXPECTED 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 2011Ø = average growth expectations across all survey participants1) Data does not support a cumulative growth impact of combining the actionsSource: SMTI 2010 32
  33. 33. C STRATEGIC ACTIONSThe majority of SMTI companies face increasing challenges –Negative impact on growth is expectedEXPECTED GROWTH RATE [%, companies that areaffected by the mentioned challenges] COMMENTS Ø 12 • 50% of SMTI companies face a triple challenge 10 – Increasing price pressureØ 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 FURTHER OBSERVATIONS • Tighter public healthcare expenditures will 2010 2011 – Keep the pressure on prices Companies experiencing the "triple challenge"1) – Intensify competition among companiesØ = Average growth expectations across all survey participants – Force them to decrease their costs basis • Within this setting companies tend to invest2010 n = 128, 2011 n = 221 more in product line extensions/renovations1) Companies stating that increased pressure on prices, costs and intensifying competition were of "high relevance" or "very high relevance" to themSource: SMTI 2010 33
  34. 34. D. Winning through Innovation 34
  35. 35. D WINNING THROUGH INNOVATIONInnovation is the major success factor for the SMTI – Dependingon company maturity, different innovation behaviours applyTHE 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, largerNetwork 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 themselvesSource: SMTI 2010, Kyburz 35
  36. 36. D WINNING THROUGH INNOVATIONThe SMTI shows a balanced product portfolio maturity –Especially smaller companies drive product innovationAGE OF PRODUCT PORTFOLIO BY COMPANY SIZE1, 2)[in %, 2010] COMMENTSYears • 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 larger5-10 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 novelties0-3 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 yearsn = 1241) Only manufacturers and suppliers 2) In proportion of their product portfolioSource: SMTI 2010 36
  37. 37. D WINNING THROUGH INNOVATIONRelative R&D expenditure is highest for small companies –Manufacturers spend more on innovation than suppliers BENCHMARKSR&D EXPENDITURES [% of turnover]1,2) [in % of turnover, 2009]4) COMMENTSBY 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 MedicalBY TURNOVER company has, the higher the technology 11[in CHF and % of turnover 2009]3) industry relative spend on R&D 14 FURTHER OBSERVATIONS 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 industry1) Only manufacturers and suppliers 2) R&D expenditure was not weighted to turnover3) Companies with more than CHF 50m turnover were omitted due to a limited sample size 4) Based on a sample of selected companiesSource: SMTI 2010 37
  38. 38. D WINNING THROUGH INNOVATIONShortening of the innovation cycle is of significant relevance,especially to medium and large sized companiesSIGNIFICANCE OF A SHORTENED INNOVATION CYCLE [2010, in %]1)BY COMPANY TYPE BY COMPANY SIZEManu- 45 25 30 Micro 36 26 38facturersSuppliers 62 17 21 Small 60 16 24 No or low significance Medium 80 16 4 High significance Very high significance Large 78 22 0n = 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 requirements1) Only manufacturers and suppliersSource: SMTI 2010 38
  39. 39. D WINNING THROUGH INNOVATIONLaunches during the last three years were difficult – On averagenew products achieved less than 30% of companies turnoverREVENUE SHARE OF PRODUCTS THAT WERE LAUNCHEDSINCE 20071) [in % of each company class, 2010] COMMENTS 29 • Product launches in the last three yearsVery 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 partSmall 37 (less than 30%) to the current turnover(10%-30%) 42 45 • For micro companies there seems to be a clear split: 3Medium 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 ofHigh 18 growing rapidly(50%-70%) 13 • The other companies capture less returns 23 from new product launches 17 MicroVery high 4(>70%) 6 Small 0 Medium Largen = 1281) Only manufacturers and suppliersSource: SMTI 2010 39
  40. 40. D WINNING THROUGH INNOVATIONCompanies with a young product portfolio show above-averagegrowth expectationsEXPECTED GROWTH RATES OF COMPANIES ACCORDINGTO 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, theseØ 10 9 companies need to take into account an 7 average "idea to launch" time of approx. three years FURTHER OBSERVATIONS • 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 rates1) Only manufacturers and suppliers 2) 85% of survey participants stated improving profitability is a key strategic actionSource: SMTI 2010 40
  41. 41. D WINNING THROUGH INNOVATIONCompanies with a high focus on innovation show above-averagegrowth expectationsEXPECTED 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 aØ 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 FURTHER OBSERVATIONS 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 = 181) Only manufacturers and suppliersSource: SMTI 2010 41
  42. 42. D WINNING THROUGH INNOVATIONR&D contribution to growth expectations –Increased R&D expenditureGROWTH EXPECTATIONS BY R&D EXPENDITURES[% of turnover] COMMENTSGrowth R&D expenditures 2009 R&D • The focus of many companies on profitabilityexpectation expenditures2011 2007 improvement measures lead to a decrease of average R&D spend to 10.6%1) from 15% in 0% 2007Neutral 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 notModerate 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 OBSERVATIONSStrong 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 MedTech2010 n = 61, 2008 n = 154 manufacturers1) R&D expenditure was not weighted to turnoverSource: SMTI 2010 42
  43. 43. D WINNING THROUGH INNOVATIONThe 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 servicesSource: SMTI 2010, CTI/KTI 43
  44. 44. E. Collaboration and Bundling 44

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