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A-MEDICA Publications

Medical technology’s European challenge

AMCHAM Business Journal Nr. 553
– First Quarter 2005

The general public might be less aware of an industrial sector across Europe generating more than 55 billion euro sales with strong growth, close to 400.000 jobs in 8.500companies – while contributing directly to life expectancy and quality of life. This is the Medical Technology industry. The Medical Technology sector (sometimes defined as consisting of “devices” and of medical “Information Technology” solutions) might be mistaken as similar to the Pharmaceutical industry, although fundamentally different in structure and means of action:

The Medical Technology industry is rather fragmented (80% of companies are SMEs) [source: www.eucomed.be] whereas the pharmaceutical industry is very concentrated; Medical Technology is driven by mechanical & electrical means of action instead of chemical reactions; the product life cycles of the Medical Technology are fast and shorter, and – compared to the one billion euro size budget typically required for developing a new successful pharmaceutical compound – with relatively limited capital requirements; in the real world the Medical Technology industry can bring the kind of “disruptive” technological advances that can make the difference for the patient between spending weeks in recovery or going home directly after an ambulatory treatment.

Sometimes the Medical Technology industry’s solutions are substitutive to the Pharmaceutical industry and sometimes synergistic – example of this later could be implantable devices that have been “coated” to release a pharmaceutical drug for improved overall performance. There are also bridges between the Medical Technology with a range of other “state of the art” areas of science, for instance Biotechnology – translating by way of example into implants that are “absorbable” by the body after their effects have occurred, or with Nanotechnology – illustrated by for instance tiny silver particles generating reinforced antibacterial activity.

New technology and capital

Much of new technological concepts in the Medical Technology industry are brought by “start-ups” and entrepreneurs. The first challenge is to go from “idea” to “proof of concept” and then further towards commercial realization. As in many other sectors, there is a disproportionate large number of success-stories originating in the U.S. although we do also see a fair number of brilliant ideas taking shape in Europe.

The risk capital availability for new Medical Technology ventures is subject to the standard drivers of safe, attractive returns and, in particular, the availability of an “exit” for the investment. For the Medical Technology sector this mechanism does to a large extent work in practice, with the large, multinational device groups the natural buyers of upcoming success stories.

During the period 2000 up to mid-2004 the total of all investments in European Venture-Backed Companies for all sectors had fallen from 22 billion euro back in the record year 2000, to 1,7 billion euro for the first half-year 2004 … The “Medical Devices” sub-sector was however one showing resilience under adversity, increasing its share in the total of all investments, from 1,6% of total in 2000 up to 6,9% for the first half of 2004 [source: www.ventureone.com].

European markets

Europe counts as the world’s second largest market place, but the “single market” remains an objective largely to be achieved for the Medical Technology industry because of significant country-by-country variations, amongst other in the reimbursement of treatments. The efficient distribution, marketing & sales of Medical Technology across Europe still represents a major challenge, in particular for SMEs with innovative products.

In fact, after a research & development effort has delivered a new prototype, the “make-or-brake” challenge for Medical Technology entrepreneurs and SMEs is how to succeed in the commercial phase. Frequently there is an underestimated or unsolved need to access key competences and the capital necessary to assure commercial development – given the pace of technological innovation, things must happen decisively and fast in this industry.

In a macro-perspective Europe needs new high-value, sustainable businesses that can generate qualified employment and economic benefits to society at large – we are convinced the Medical Technology offers a significant opportunity for policy-makers and others to further such growth objectives.

Beyond the obvious

Even if in general European distribution poses some difficult challenges in the Medical Technology arena, by looking “beyond the obvious” there are models for clever pan-European marketing & sales for Medical Technology delivering efficient launch and accelerated sales uptake.

Similar insights and skills make the difference in raising capital from the traditional private equity sector, whereas powerful alternative sources for capital can be engineered – to the point that some emerging U.S. Medical Technology firms have adapted their strategy to benefit by setting up their main manufacturing and commercial base in Europe.

Michael Rosen is a co-founder and director of A-MEDICA. A-MEDICA is a Brussels-based business development specialist providing accelerated product launch and sales growth for niche medical devices across Europe. Selectively A-MEDICA also sources capital for industrial and commercial deployment of medical technology.