More than 435,000 people across Europe work in the medical technology sector, making it a significant part of the EU economy. Expenditure on medical technology equipment within Europe exceeded the US in 2005 and a rising elderly population means sales trends will continue to rise for the foreseeable future.
For medical technology manufacturers seeking to establish a base in Europe, it would be hard to dismiss Germany as a prime location. The size of its market and abundance of highly skilled workers alone make it ideal. But Nicola Henneberg, senior manager at Invest in Germany, believes reputation is also a strong motivating factor.
"The German medical technology industry (medtech) has a long tradition," says Henneberg. "The industry combines German engineering skills with medical innovation, two areas where Germany has been traditionally strong.
"Today, German medtech is a highly research and technology-intensive economic sector. The excellent research and development (R&D) environment provides a steady stream of both innovative ideas and a new skilled workforce which can put those ideas into competitive new products, meeting the growing global demand, especially in the developed countries for novel treatment options and processes."
Germany is home to medical device industry giants such as Siemens and Fresenius AG. But large industries represent a tiny portion of medtech companies operating within the country. Small and medium-sized enterprises (SME) make up 86% of the German medical technology sector and government incentive programmes have been geared to favour these companies, many of which have less than 100 employees.
"The German government's 'Medical Devices Action Plan' provides special incentive programmes emphasising intelligent implants, innovative rehabilitation methods, imaging and regenerative medicines," says Henneberg. "From 2006 until 2009, the Federal Ministry of Education and Research (BMBF) plans to spend €1.2bn on life science research. Nearly €100m is designated for the Medical Devices Action Plan."
The most important incentives programmes for enterprises of the medical devices industry can be classified into two areas: R&D incentives programmes and investment incentives for setting up production facilities.
"At the national level, all R&D incentives programmes are subsumed under the Federal Government's four-year High-Tech Strategy," explains Henneberg. "Each sector of the High-Tech Strategy comprises technology-specific R&D programmes worth €12bn in total until the end of 2009.
"Funding is allocated in the form of grants. On average, these grants cover up to 50% of all costs related to an R&D project. The relevant ministry publishes and regularly calls for proposals which define the research topics and funding requirements."
For the specific area of medical devices, a special action plan has been set up which pools the varied funding activities and different programmes under three main topic areas. These are:
- medical technology in rehabilitation and care – intelligent implants
- molecular imaging in medicine
- medical technology for regenerative medicine.
R&D incentive programmes at the national level also exist for projects outside the specific areas outlined above.
Medical device manufacturers can benefit not only from Germany's national programme but also from the Seventh Research Framework Programme (FP7) established by the EU. The programme offers generous grants for trans-national R&D projects that support cooperation between universities, research centres and public authorities.
"In addition, there are R&D grant programmes at regional level, usually targeted at SMEs," says Henneberg. "Some states have focused their funding policy on specific industry clusters, but generally, funding programmes are available for R&D projects regardless of their technological focus. In general, enterprises participating in R&D grant programmes also have to commercialise the R&D results in the region of the relevant programme."
According to Henneberg, investors can also count on direct grants to reimburse investment-related costs such as setting up a medical devices production facility. The amount of these grants, which are not focused on a specific industry field, generally depends on three factors: project scope, investor company size and the new investment location. Incentives can reach up to 50% of eligible expenditures once these factors have been considered.
"Nearly 20 years after German reunification, investors can still benefit from enhanced investment grant levels in the region which was the former East Germany," explains Henneberg. "Investment incentives can be granted in the form of cash grants, a tax credit on premises and equipment purchases, or as interest-reduced loans made available by state development banks or in the form of public guarantees usually provided by state governments."
Challenge and opportunity
But the German market is not without its challenges. Although Germany represents the largest medical devices market within the EU, domestic sales performance has remained almost unchanged for several years. According to Henneberg, normal growth drivers such as shifting demographics (an estimated 20% of Germans are aged over 65) and increased health awareness within the population are impacted by cost containment measures imposed through government health reforms.
"This is reflected in the fact that while the export of the German medtech industry is booming, domestic sales levels remain stable," she says. "During the last ten years, foreign sales grew by about 12% annually and the export ratio increased from 41 to 63%."
However, Henneberg believes the steady growth in the German medical devices market is more opportunity than challenge for the right medtech company.
"Germany is a safe bet for medical device manufacturers to make investments now and looking to the future. The demographic shift and technological advancements will further fuel demand. Manufacturers who offer innovative solutions to address the increased demand for care of the elderly population while at the same time providing solutions to the challenge of cost containment requirements of the overall healthcare system, have the best chances to benefit. Addressing the health economic aspects of a given medical treatment method will become more important. This is a global trend in the industrialised countries.
"Companies operating from Germany have further advantages," she continues. "They are close to the German customer which is a plus with respect to quick response to customer needs and optimal service. Germany further offers an excellent research landscape and special clusters and network organisations are present which facilitate the interactions between all players along the value chain (such as TSBmedici, Forum MedTech Pharma e.V.). Manufacturers can benefit from the highly qualified personnel and the excellent international image of the quality label "Made in Germany". "
Henneberg points out that strong export sales further underline the quality and excellence of German-manufactured medical devices. Looking to the future, she believes medical device manufacturers operating in Germany might want to focus on innovative technologies and products offering solutions to reduce the direct and indirect costs of the ageing society. Within the complex structure of the German healthcare system, obtaining data during the development process to evidence the benefits of these specialised products would help to initiate dialogue and translate into obtaining reimbursement early on.
"The global healthcare market and the demand for medical device products are growing significantly," says Henneberg. "Reasons for this high dynamic are the demographic shift and morbidity trends in developed countries and a better infrastructure and increasing incomes in a number of emerging markets, allowing for better medical care of the population. However, cost containment measures in some countries may continue to adversely impact on growth rates.
"Germany is the third-largest medical device market worldwide. Its size, sophistication and innovative spirit make Germany an ideal location for production as well as a distribution hub for national and international players. The country's medical device industry is an important labour market within the German economic system. In the last ten years, the annual turnover increased by 7% to €15.9bn. In comparison to the previous year, domestic sales were up by 3.2% to €5.2bn in 2006.
"Furthermore, the country's strength is the medical device export business and the increasing investments for medical device research. This dynamic is expected to hold going into the future because existing medtech companies in Germany have well developed product ranges and expertise in medical engineering. The country's medical device producers are among the world's best and often global leaders in their specific sub segment."
Germany's well-trained engineers make the country a prime location for investment money well-spent according to Henneberg. Germany has proportionally more natural science PhDs than the US or Japan, and its researchers strive to put theory into practice. Germany has a highly skilled workforce based on 630,000 employed and self-employed doctors and 720,000 employed engineers, chemists, physicists and mathematicians. Germany has 343 institutions of higher education including 103 universities and comprehensive universities and 176 general universities of applied sciences with a total of roughly two million students. Nearly 40 national universities offer studies in the field of medical engineering.
According to the European Patent Office in Munich, medical technology heads the lists of registered inventions with over 15,700 patents. Approximately 11.4% of patent applications originate from the medtech field, followed by telecommunications (10%) and EDP (6.7%).
"The medical technology industry is dynamic and highly innovative," says Henneberg. Germany ranks second place behind the US in its share of patents and worldwide commerce. German medical technology manufacturers achieve approximately a third of their business volume with products which are less than three years old. Research companies in the medtech sector invest an average of 9% of their sales revenues back into research and development projects. "Germany as a venue for innovation and research thus plays a particularly important role for the medtech companies," Henneberg concludes.
A growing market
In terms of future growth, the German medical devices industry is expected to expand rapidly, particularly in the area of "innovative products" such as:
- computerisation – computer-based diagnosis, therapy planning and survey
- molecularisation – biotechnology, cell and tissue engineering
- miniaturisation – microsystem technologies, nanotechnology and optical technologies.
Deutsche Bank Research conducted in 2006 forecasts overall annual growth rates of 8% for the German medical devices market until 2015, with double-digit growth in export markets.