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.

1. The Swiss Medical Technology Industry
2010 Report – "MedTech at the Crossroads"
1

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. 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

4. 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

5. Management Summary
5

6. 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

7. 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

8. 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

9. A. State of the MedTech Industry
9

10. 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

11. A STATE OF THE MEDTECH INDUSTRY
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

12. A STATE OF THE MEDTECH INDUSTRY
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

13. A STATE OF THE MEDTECH INDUSTRY
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

14. A STATE OF THE MEDTECH INDUSTRY
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

15. A STATE OF THE MEDTECH INDUSTRY
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
Source: SMTI 2010 15

16. A STATE OF THE MEDTECH INDUSTRY
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
Source: SMTI 2010 16

17. A STATE OF THE MEDTECH INDUSTRY
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
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 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
Source: SMTI 2010 17

18. A STATE OF THE MEDTECH INDUSTRY
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
Source: SMTI 2010 18

19. A STATE OF THE MEDTECH INDUSTRY
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
Source: SMTI 2010 19

20. A STATE OF THE MEDTECH INDUSTRY
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
Source: SMTI 2010 20

21. A STATE OF THE MEDTECH INDUSTRY
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

22. A STATE OF THE MEDTECH INDUSTRY
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

23. A STATE OF THE MEDTECH INDUSTRY
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
Source: SMTI 2010 23

24. B. Trends and challenges
24

25. B TRENDS AND CHALLENGES
Taking the pulse of the SMTI – Top buzzwords
Source: SMTI 2010, www.wordle.net 25

26. B TRENDS AND CHALLENGES
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

27. B TRENDS AND CHALLENGES
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
Source: SMTI 2010 27

28. B TRENDS AND CHALLENGES
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
Source: SMTI 2010 28

29. C. Strategic Actions
29

30. 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
Source: SMTI 2010 30

31. 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%)
FURTHER OBSERVATIONS
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

32. 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
Source: SMTI 2010 32

33. 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
FURTHER OBSERVATIONS
• 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
Source: SMTI 2010 33

34. D. Winning through Innovation
34

35. 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

36. D WINNING THROUGH INNOVATION
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
Source: SMTI 2010 36

37. D WINNING THROUGH INNOVATION
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
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 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
Source: SMTI 2010 37

38. D WINNING THROUGH INNOVATION
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
Source: SMTI 2010 38

39. D WINNING THROUGH INNOVATION
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
1) Only manufacturers and suppliers
Source: SMTI 2010 39

40. D WINNING THROUGH INNOVATION
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
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 rates
1) Only manufacturers and suppliers 2) 85% of survey participants stated improving profitability is a key strategic action
Source: SMTI 2010 40

41. D WINNING THROUGH INNOVATION
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
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 = 18
1) Only manufacturers and suppliers
Source: SMTI 2010 41

42. D WINNING THROUGH INNOVATION
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
Source: SMTI 2010 42

43. D WINNING THROUGH INNOVATION
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

44. E. Collaboration and Bundling
44

45. 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
Source: SMTI 2010 45