Europe is the second largest medical technology market in the world, representing approximately 27% of global market share. Within the European Union, Germany is, by far, the leader of the pack, commanding 27.4% market share (followed by France at 15%). Recognized for its innovation and peerless craftsmanship, Germany’s medtech sector has consistently outperformed the country’s economy as a whole in terms of growth. The tide may be turning, however, according to a German private equity company focused on the medtech and life sciences sectors.
SHS Gesellschaft für Beteiligungsmanagement (Tübingen, Germany) has been tracking the economic performance of Germany’s medtech sector since 2010 via the Medical Technology Index, which it developed in collaboration with Professor Christian Koziol from Tübingen’s Eberhard Karls University. While the index continues to show growth, the rate of growth has been trending downward since it reached its apex of 112% in 2016. The index dropped to 110.5% in 2017 and contracted again to 109.7% in 2018, according to SHS. The new Medical Device Regulation may be partly responsible for the slowing, said the investment firm, especially among small and medium-sized businesses, which constitute the lion’s share of the medtech sector.
“The Medical Device Regulation places significantly higher demands on approval and testing procedures than the previous directive did,” explained SHS. “This increases development time and costs, which can result in a financial burden and a difficult equity situation, especially for small and medium-sized companies. Many businesses of this size have difficulty managing the additional expenditures required for innovation projects and recertification of existing products.”
Another measure of the sector’s economic health—patent approvals— is also showing signs of fraying. Between 2010 and 2016, patent approvals for the medical technology sector more than doubled, while patent approvals across all economic sectors increased by about 50%, according to SHS. In 2016, medical technology related patents reached an all-time high of 1,075 approvals. Since then, however, the medical industry has stagnated at a little more than 1,000 patent approvals annually, while total patents for all sectors has continued to increase by around 10% each year.
There is no reason to sound the alarm yet, said Hubertus Leonhardt, a partner at SHS, but the trend shows how “fundamentally advantageous framework conditions can quickly be squandered, especially if an industry's innovativeness is inhibited by regulatory measures.” He draws a contrast between the United States, where the tendency is to reduce regulatory constraints, with Europe, which is “threatened with losing its lead due to the increasing density of its regulations.”
The SHS Medical Technology Index measures the medtech sector's potential for innovation and growth based on four indicators: Turnover, employment figures, patent approvals and share price development. The index is updated annually.
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