swissmedicaltechnologyindustry2010report-110225052853-phpapp02

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

2On the mind of the SMTI CEO community

"The MedTech business of non-reimbursed products has started to reach a plateau in traditional markets. The business is now cyclical and growth is not endless."

"The crisis has demanded to set priorities and to constantly remain focused on optimizing these priorities."

"Our business model will change We need to grow from a simple box-mover to a full solution provider."

"IP protection and proprietary systems have become essential to secure market shares."

"Market access management is key for growth start-ups should engage in out-licensing deals to Big MedTech."

"The MedTech pioneer era is over, the industry is now mature and competition is global."

Pace of innovation and changes in health care system are faster than a decade ago.

Source: SMTI 2010, Advisory Board

3SMTI 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 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 company's 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 Dmmler, Beatus HofrichterPublisher and authors of the SMTI 2010 Report August 2010

4Contents 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

5Management Summary

6Management summary (1/2)

Source: SMTI 2010

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

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

CHF

MANAGEMENT SUMMARY

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

7Management summary (2/2)

Source: SMTI 2010

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

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

MANAGEMENT SUMMARY

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

8The house of MedTech by 2012 Our working hypotheses1)

SMTI

MARKET VIEWPRODUCT VIEW

COLLABORATION &

BUNDLINGINNOVATION POSITIONING

INTERNATIONALI-

SATION

Source: SMTI 2010

Above-average growth expectations due to an

innovative, young product

portfolio or best in class

products

Higher cost pressure leads to a shift from radical

innovation towards

incremental innovation in

established/mature

segments

Companies that focus on network innovation can

expect above-average

growth

Price pressure leads companies to push

bundled offerings in order

to maintain their turnover

level and market share

Companies that focus on bundling tend to reduce

their R&D expenditures

A bundling strategy favours collaboration within

the same value chain for

incremental innovation

Demand of buyers will drive solutions, forcing companies to change their

business models

Smaller companies lack export strength due to

shortage of know-how and

commercial co-operations

Sound, long-term patient outcome data will ensure

positive sales impact in

mature markets

Improved market orientation becomes a

priority due to an increase

of competitiveness

amongst providers and

pressures from payers

Growth in international markets correlates with

innovation

Success in emerging economies is highly

correlated to strong

regulatory affairs

capabilities

Healthcare system changes and arising

opportunities propel export

levels of suppliers and

manufactures

1) Are addressed in chapters D-G

MANAGEMENT SUMMARY

9A. State of the MedTech Industry

10

Switzerland is among the global hotspots for MedTech

Exports

2,8

1,7

1,4

5,0

GDP

0,5

0,6

0,7

1,9

Employment

0,2

0,2

0,2

0,3

1,1

0,5

USA

EU

UK

Germany

Switzerland Switzerland possesses an active medical technology industry that can rely on a strong

network of related companies and institutions

that create an ideal breeding ground for the

industry (cluster)

Compared to other countries the relative domestic share of the SMTI is significantly higher

Remarkable and in line with several other Swiss industries is the high relative share of exports reflecting the international strength of

Swiss MedTech products

Source: SMTI 2010, Destatis, Eucomed, Eurostat, UK National Statistics

1) Data from 2008 or, where not available, from 2007

n.a.

INTERNATIONAL MEDTECH FOCUS [% of respective total]1) COMMENTS

A STATE OF THE MEDTECH INDUSTRY

11Source: SMTI 2010, Annual reports, Companies press offices, Factiva, Oanda

Switzerland is highly attractive for international companies Top 10 companies employ around of SMTI employees1)

No. Company Sub-section of marketHead-

quarters

Employees in

Switzerland

Sales

[CHFm]

1 Year sales

growth

[%]

R&D

expenses

[CHFm]

R&D/sales

[%]

Sales/

employee

[CHFk]3)

1 Synthes Orthopedics USA 2'900 3'523 6 175 5 329

2Roche

DiagnosticsIn-vitro diagnostics CH 1'750 10'055 4 987 10 387

3J&J

Medical2) Orthopedics USA 1'400 24'492 2 1'830 7 556

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

7 MedtronicActive and passive implants,

vascular diseases and diabetesUSA 900 15'151 8 1'406 9 399

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 4 7

1) 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 diagnostics


12

Switzerland is a strong medical technology cluster Several organizations and institutions support the industry

Source: SMTI 2010, relief swisstopo

Switzerland has a strong medical technology network,

supported by several

organisations and institutions

Regional support organisations are e.g.

Basel Area

Berne Capital Area

Bio Alps

Biopolo Ticino

Greater Zurich Area

National institutions are e.g.

CTI/KTI

FASMED

Medical Cluster

Medtech Switzerland

Osec

SIX Swiss Exchange

Swiss Life Science Marketing Alliance

COMMENTS

BioAlps

Berne Capital

Area

Basel AreaGreater Zurich

Area

Biopolo

Ticino

Location of suppliers

Location of manufacturers


13

Continuous investments in up-to-date medical infrastructure leads to rising healthcare

expenditures during the last ten years by nearly 50%

The CAGR of healthcare expenditures of 4.0% is significantly higher than the

respective GDP growth of 1.1%

The SMTI has a strong home market Investments in high-class medical infrastructure meets patients demands

Source: SMTI 2010, BAG, BfS, Healthcare Monitor 2009, KOF

CAGR

4,0%

2010F1)

63,3

2009E

61,0

2008E1)

58,1

2007

55,2

2006

52,8

2005

52,0

2004

51,0

2003

49,3

2002

47,4

2001

45,6

2000

42,8

SWISS HEALTHCARE EXPENDITURES [CHF bn per year] COMMENTS

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

adapt the business model accordingly

FURTHER OBSERVATIONS

1) E = Expected 2) F = Forecast


14Source: SMTI 2010

Basic research for

radical product

innovations

National universities and

international

knowledge

networks

Five university hospitals in

Geneva,

Lausanne, Berne,

Basel and Zurich

National research organizations like

PSI and EMPA

National research programs

European framework

programs

Developing

and prototyping

supported by

CTI/KTI MedTech R&D programs

e.g. ManuFuture-

CH

Universities and universities of

applied sciences,

incl. technology

transfer

organizations

Specialized companies, e.g.

for contract

engineering

International knowledge

networks

Highly specialized

and internationally

sought-after

suppliers in key

technologies, e.g.

Information- and Communication

technology (ICT)

New materials, surface

technology

Robotics and nanotechnology

Micro-technology Metal-, plastics-,

and ceramic

processing

Automation and assembly

Tool and mould manufacturers

Manufacturing

industry with broad

range of high-tech

products, e.g.

Active- and non-active implants

Anaesthetic and respiratory

devices

Dental Electro-

mechanical

equipment

Hospital hardware Diagnostics Ophthalmology Reusable and

single-use

instruments

Technical aids for disabled

Worldwide sales of

Swiss medical

technology products

by traders and

distributors

supported by

Company affiliates

Export Platform Medtech

Switzerland

Osec together with its Swiss

business hubs

abroad

Swiss pavilions at international

exhibitions/fairs

International industry

associations

Applied

research

Suppliers Manufacturers International

sales

Customers and

stakeholders

Worldwide

customers and

stakeholders, e.g.

Patients, esp. in out-of-pocket

markets

Individual hospitals, hospital

chains and

purchasing

associations

Healthcare professionals

Diagnostic laboratories

Research laboratories

Key Opinion Leaders (KOLs)

Reg. authorities Certification

support

The established SMTI value chain is highly cross-institutional1)

Basic

research

1) Service providers, depending on their specialization are part of any of the value chain building blocks


15

MANUFACTURERS BY CATEGORY [%, 2010] COMMENTS

The manufacturing base of SMTI is segmented into 16 categories, ranging from a

share of 16% for hospital hardware to 1% for

biological products

SMTI manufacturers exhibit a broad technological knowledge base and

diversification

Bulk risks are reduced

Benefits interdisciplinary R&D collaborations

Strengthens network innovation


There exists a high degree of collaboration amongst suppliers, manufacturers, and

academia to

broaden the offering scope

obtain key skills and know-how

SMTI manufacturers are evenly segmented across the different industry categories

19%

5%

6%

8%

14%

16%

5%

7%

8%

11%

Source: SMTI 2010

1) Others include, in descending order: lab equipment, ophthalmology, patient aids, anaesthetic and respiratory technology, active implants and biological products

n = 320

Others1)

Radiotherapy

devices

Disposable

items

Technical aids

for disabled

In-vitro

diagnostics

Reusable

instruments

Hospital

hardware

Inactive

implants

Electro-

mechanical

Dental

technology


16

SERVICE PROVIDERS BY CATEGORY [%, 2010]

Engineering,

planning,

design

IT

HR

Management

consulting

Suppliers and service providers support the MedTech industry with essential know-how within augmentable value chain processes

18%

26%

30%1%

5%

20%

Source: SMTI 2010

SUPPLIERS BY CATEGORY [%, 2010]

The SMTI supplier base is broadly specialized, although components, systems and material

processing contribute to more than 55%

IT and management consulting are the most prominent categories among service providers

Support SMTI with growth capabilities

n = 410 n = 410

Others1)

Electronics

Surface

treatment

Auxiliary material,

green ware

Metal

processing

Components,

systems

Plastics

processing

Financing

Analytics

1) Others (in descending order) include: medical packaging, measuring, ceramics and sterilization

Machines, auto-

mated devices

19%

11%

5%

11%

25%

7%

8%

13%


17

Manufacturers and traders/distributors are highly focused on medical devices sales

56

19 15

47

61

Turnover from

medical devices

Turnover from

other products

and services

Service

providers

100

53

Traders

and

distributors

100

85

Manu-

facturers

100

81

Suppliers

100

44

2009 n = 212 2007 n = 122

39%

Turnover from medical devices in 2007

84% 80% 59%

Source: SMTI 2010

SHARE OF TURNOVER [%, 2009] COMMENTS

Many SMTI companies are not exclusively focused on medical technology the share of sales to other industries and consumers is

39%

Traders and distributors as well as suppliers show an increased focus on MedTech

compared to 2007

Suppliers are more diversified in their customer portfolio

65

A high focus on medical devices is needed in order to meet the industry specific traits and sales requirements

On the whole, SMTI remains unchanged since 2007, indicating that consolidation has not been triggered yet by the financial crisis

For many suppliers from other industries, MedTech became highly attractive



18

Manufacturers form the backbone of the industry Average turnover per company is CHF 68 million

3

22

68

11

Service

providers

Traders and

distributors

Manu-

facturers

Suppliers

1) Only with medical devices or components for medical devices

n = 171

Source: SMTI 2010

AVERAGE COMPANY TURNOVER1) [CHF m, 2009] COMMENTS

The SMTI has a manufacturer centric market model

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


Future sustainable turnover is mainly determined by the following influencers

Overcome critical mass Achieve higher expertise to maintain

compliance

Anticipate power shift towards payers Meet changes in sourcing strategies of

payers


19

Manufacturers and suppliers provide the highest employment, accounting for 92% of the total SMTI workforce

n = 199

Source: SMTI 2010

DISTRIBUTION OF EMPLOYEES [%, 2009] COMMENTS

The surveyed companies employ around 27% of the total SMTI sector workforce

Traders, distributors and service providers account for 8% of the surveyed workforce

Across all SMTI firms approximately an average of 59 people are employed

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 75% employ less than 50 employees 42% employ less than 10 employees

Service

providers

3%

Traders and

distributors

5%

Manu-

facturers

56%

Suppliers

36%


20

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

Average turnover was influenced by high staff levels This led to an underperformance of turnover per capita for manufacturers

AVERAGE TURNOVER PER EMPLOYEE

[CHF k]

AVERAGE GROWTH IN NUMBER OF EMPLOYEES

[% change vs. previous two years]

530

301

683

244

287

818

465

246

Manufacturers

Suppliers

Service providers

Traders and

distributors

11

5

21

18

15

30

12

7

2006/2007 = +20%2008/2009 = +10%

2009 n = 164

2007 n = 186

Source: SMTI 2010

2009 n = 163

2007 n = 185


21

GROWTH EXPECTATIONS FOR 2008 AND 2009 [%] COMMENTS

100%

Strong decline

(< -5%)

Moderate decline

(-5 to 0%)

Neutral (0%)

Moderate growth

(0 to 10%)

Strong growth

(> 10%)

20092008

n = 280, = 6% n = 21, = 0.1%

Source: SMTI 2010 (based on SMTI survey May 2010), CS Economic Research, OECD

Putting past SMTI growth expectations into perspective Adjustments were taken fast and early in the downturn

In 2008, SMTI expected an average growth of 6%. 77% of CEOs predicted a positive growth

rate1)

The "crisis resistance" of the MedTech 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 full impact in 2009 on a global scale, SMTI

companies adjusted their growth expectations

Then, only 54% of companies expected a positive growth rate

The number of companies expecting a negative impact on sales doubled

Suppliers with a higher non-MedTech product portfolio proportion were hit harder

Manufacturers of non-reimbursed product suffered

1) SMTI 2008 data collected in spring and report released end of August 2008

Growth expectations

Share of responses


22

40

50

60

70

80

90

100

110

Jan 10Jan 09Jul 08 Jul 09 Jul 10

MSCI World

Europe-DS Pharm & Bio

DJ Euro Stoxx 50

SMI

SIX Bio and Medtech

GLOBAL AND CH MANUFACTURING PMI INDEXSTOCK MARKETS SELECTED INDICES

20

30

40

50

60

70

80

90

Jul 10Jan 10Jul 09Jan 09Jul 08

Global Price Index

Global New Order Index

Global PMI Index

Swiss PMI Index

Compared to the SMI, shares of SIX listed MedTech

companies declined stronger. It anticipates market

fears of e.g. tightening healthcare budgets negatively

affecting MedTech companies

The global economic crisis also hit the MedTech industry Fears exist regarding severe cuts in public healthcare spending

Since June 2008, the global manufacturing

production rose steadily for 13 month in a row but

slowed since the beginning of 2010. The Swiss PMI

is currently stable, outperforming other markets

Source: SMTI 2010, Bloomberg, Credit Suisse, JP Morgan


23

Review of crisis 2008/09 and impact on SMTI Lessons learned

Source: SMTI 2010

Right customer and portfolio mix Innovation leadership fosters a

special, high value product and

component portfolio

Networked innovation applying unconventional know-how

Closeness to IT industry and to new materials

Continuous recruitments Scouting and M&A Well managed S-curve of core

competencies

SUPPLIERS MANUFACTURERSTRADERS &

DISTRIBUTORSSERVICE PROVIDERS

"To

str

en

gth

en

"

Focus on relevant R&D projects and innovative products

Positioning in markets and preparing NPIs consistently

Acquiring know-how Continue to recruit, especially

abroad

Focus on business model optimization

Lean/efficient processes Strong regulatory capabilities Closeness to pharma/biotech Foreign exchange issues with

an impact on margins

Sales force excellence Good product mix with high

reimbursement

High focus on industry segment High service competency Very good understanding of

buyers needs and buying culture

Profit from strong CHF (as importer)

Investing/acquiring know-how and teams

Proactive positioning to anticipate revitalization of sector

Develop solution offerings copying other industry

successes

Engage SMTI interfaces management

Strong skill set and high value return offerings

High flexibility to support challenges

Depending on single large customers and reactive market

strategy

Over-capacities in production Large capital investments made

based on boom forecasts

Tight EBIT margins High diversity of client portfolio

(non-LS/non-core business)

Lack of international clients High inventories and poor

liquidity management

Weak or reactive attitudes (e.g. engaging too late in cost cutting)

Lack of listening to customers Mismanaged generation jump

within product portfolio

Non value based pricing strategy

High OPEX/Sales ratio Me-too product sales decline

with non proprietary goods

Late shift in crisis management High COGS & inventory

Mismanagement of currency hedges

No product portfolio differentiation

High inventories Decline in demand for

commodities

Lack of service offerings

"Copy cat" and no sound track records

"Me-too" approach

"To

avo

id"


24

B. Trends and challenges

25

Taking the pulse of the SMTI Top buzzwords

Source: SMTI 2010, www.wordle.net

B TRENDS AND CHALLENGES

26

Imminent growth of SMTI companies is shaped by major trends in three categories

Source: SMTI 2010, SMTI Advisory Board

COMPANY REGULATION1) MARKET

IMMINENT GROWTH OF THE SMTI

Solutions will meet future offering demand

Networked innovation is rising (led by micro/start-up firms)

Broader know-how is needed to meet regulatory requirements

(e.g. market access, conformity,

patent infringements, out-

licensing)

Improved clinical trial design needed to demonstrate cost-

benefit

Institutional patient registries arising in multiple core markets,

driving segmentation

Tightening of regulatory requirements2) in mature markets on

quality, testing, safety and off-label

usage

Growing/tightening regulatory requirements in Asian markets

Introduction of DRGs will

increase pressure on pricing delay or decrease investments into

radical innovation

Demonstrating comparative effectiveness drives the need to

generate relevant treatment outcome

data

Non-reimbursed/cosmetic/or capital intensive investments products face a

stronger toll in sales

Patient centric models arise due to

external/remote patient monitoring ICT and improved RFID technology

Bundling of purchasing power among hospitals, clinics, and specialists; they will

drive margin erosion favour broader offerings seek solution providers

Convergence (MedTech & pharma/biotech)

drives innovation opportunities exposes the MedTech industry to additional

compliance/regulatory measures

Export shift to emerging markets due to growing middle-class with rising public and private health

expenditures

Consolidation of "Big MedTech" towards conglomerates ("The winner takes it all")

Growing niche potentials for start-ups, especially with new technologies (e.g. ICT)

1) 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 companies


27

Ranking

2008

53

59

68

68

75

77

79

6. Access to specialized

know-how

7. Organizational issues

resulting from growth

5. Availability of

skilled employees

4. Increasing pressure to

reduce production costs

3. Intensified competition

2. Increasing cost pres-

sure from purchasers

1. Increasing price competition

Competition for the SMTI intensified severely since 2008 Costs and prices are under pressure in a changing market

1) Challenge is of "high relevance" or "very high relevance" to SMTI companies 2) These represent a "triple challenge" to the SMTI

n = 232; multiple answers possible

Source: SMTI 2010

3.

4.

5.

-

1.

2.

RANKING OF MAJOR CHALLENGES

[% of answers, 2010]1) COMMENTS

As of 2009, SMTI companies experienced intensifying competitive pressures

Suppliers with a high proportion of non-healthcare clients were hit first

Manufacturers of non-reimbursed products were hit by tighter consumer spending

Today, the majority of SMTI managers are still in the "crisis mode" observing operational

challenges, e.g. higher price competition, cost

pressure and an intensified competition2)

Current management thinking may fuel consolidation to maintain critical mass to

obtain

A more diverse/innovative product portfolio

Better access to knowledge pools


6.


28

Increasing competition and tightening public healthcare budgets force companies to invest

more into proofing product efficacy

Gaining data from comparative effectiveness research and cost-benefit-analyses will gain

in importance for many SMTI companies

The communication efforts with customers and authorities need to be intensified in order to

optimally position own products

45

51

56

61

73

87

Negative impact of DRG introduction

on average product price

Higher requirements for product

positioning among DRGs

Higher competition for reim-

bursement entitlement

Growth of purchasing cooperatives

(among customers)

Increasing communication needs with

with authorities/healthcare institutions

Higher requirements for evidence

of product efficacy

Megatrend Clinical based evidence requirements force companies to focus on higher product efficacy and communication

1) Companies describing the development "applicable" or "partially applicable"; no 2008 data exist

n = 134

Source: SMTI 2010

DEVELOPMENTS IN HEALTHCARE MARKET

[% of answers, 2010]1) COMMENTS


Recent healthcare developments will drive

Higher costs to register and fulfil increasing compliance requirements

Substantial price decreases in mature markets

EU wide harmonization of pharma prices is currently discussed; this will also influence the

SMTI


29

C. Strategic Actions

30

56

59

62

63

67

77

77

85

8. Geographic expansion/

internationalization

7. Integrating new partners

6. Developing new

business models

5. Strengthening

product innovation

4. Optimizing distribution

3. Further development of

org. structure and processes

2. Optimizing marketing

1. Improving profitability

Ranking

2008 In contrast to 2007 CEOs express a strong

shift in priorities

To support future growth, three rather operational actions are in focus

Improving profitability

Optimizing marketing & sales effectiveness

Enhancing organizational structures and processes

6.

3.

7.

4.

1.

5.

8.

2.

SMTI companies are focusing on profitability to meet current challenges at the cost of potentially losing their innovative edge

1) Strategic actions mentioned as being relevant to SMTI companies 2) Deloitte/The future of the Life Science industries

n = 232; multiple answers possible

Source: SMTI 2010

RANKING OF ACTIONS 2010

[% of answers]1) COMMENTS


SMTI companies seem to approach business conservatively before returning to a "growth

mode"

An international Life Sciences survey2)

indicated contrary management responses

Developing a robust R&D pipeline

Accelerating geographical expansion

Forming alliances with pharma/biotech

C STRATEGIC ACTIONS

31

28%26%

55% 59%

100%

Strong decline

(< -5%)

Moderate decline

(-5 to 0%)

Neutral (0%)

Moderate growth

(0 to 10%)

Strong growth

(> 10%)

2011

1% 1%

13%

2010

10%

1%6%

SMTI companies expect 10-12% growth p.a. in the next two years

EXPECTED GROWTH FOR 2010 AND 2011 [%, p.a.] COMMENTS

n = 194 n = 188

Source: SMTI 2010, Credit Suisse, SwissRe

On average SMTI CEO's are highly confident

10% growth for 2010 12% growth for 2011

Some caution should remain; these expectations are related to the economic situation in May 2010

Start-ups are particularly enthusiastic

Established companies expect moderate growth as they face stronger price pressures


If such up-turn is achievable, a shift towards strategic investments and increased

convergence will occur

Current economic forecast for the Swiss Life Sciences sector as a whole is 6.5%

=10% =12%

C STRATEGIC ACTIONS

32

15

12

2011

Engaging in the right strategic actions correlates with above-average growth expectations

16

10

n = 51

n = 42

n = 64

Several CEOs focus on a set of strategic actions to enhance their growth potential

Strengthening regulatory know-how/studies

Establishing new production/service facilities

Engaging in new business models

If a company focuses e.g. on strengthening of regulatory know-how/studies, they expect

a growth rate that is 6% above the average

for 20101)

Companies focusingon strengthening regulatory know-how/studies, e.g. cost-benefit analyses

Companies focusing on establishing new production/service facilities, e.g. in emerging markets

Companies focusing on engaging in new business models, e.g. new kind ofservices

Source: SMTI 2010

EXPECTED GROWTH RATES 2010 AND 2011

[%, companies having the respective strategic action in focus]

= average growth expectations across all survey participants

1) Data does not support a cumulative growth impact of combining the actions


Companies focusing on new business models do not expect an immediate above-average

effect on their growth rate

15

12

12

10

17

12

10 10

2010

COMMENTS

C STRATEGIC ACTIONS

33

The majority of SMTI companies face increasing challenges Negative impact on growth is expected

50% of SMTI companies face a triple challenge Increasing price pressure Increasing cost pressure 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

8

10

2010

Companies experiencing the "triple challenge"1)

Source: SMTI 2010

EXPECTED GROWTH RATE [%, companies that are

affected by the mentioned challenges] COMMENTS

2010 n = 128, 2011 n = 2211) Companies stating that increased pressure on prices, costs and intensifying

competition were of "high relevance" or "very high relevance" to them

= Average growth expectations across all survey participants


Tighter public healthcare expenditures will Keep the pressure on prices Intensify competition among companies Force them to decrease their costs basis

Within this setting companies tend to invest more in product line extensions/renovations

10

12

2011

C STRATEGIC ACTIONS

34

D. Winning through Innovation

35

Currently three different innovation behaviours can be observed:

"Network innovators" are innovation winners and Responsible for product innovations, accounting for 25%

of the total SMTI products on the market (20% by start-ups and micro/small companies; 5% by mature, larger firms)

Are considered to be the innovation engine of the SMTI Strengthen the SMTI long-term value growth

"Renovators" Contribute 25% to the total of SMTI products Adopt a fast renovator strategy for early line extensions

"Commodity exploiters/bundlers" 50% of total SMTI products, that were neither innovated

nor renovated during the last three years Adopt a niche/market expansion strategy per product

THE INNOVATION BEHAVIOUR MODEL COMMENTS

exte

nd

ed

re

str

icte

d

Innovation typeexplorative exploitative

Ne

two

rk t

yp

e

Innovation is the major success factor for the SMTI Depending on company maturity, different innovation behaviours apply

Source: SMTI 2010, Kyburz

Network

innova-

tors

~50%

Commodity

exploiters/

bundlers

Renovators

~25%

Use extended networks of adjacent industries, institutions and academia to develop radical innovations in an explorative way, leading to product innovation

Focus on the innovation network within their value chain (e.g. suppliers, traders) to exploit the current portfolio with product renovation, i.e. incremental innovation to expand the product life cycles

Focus only on exploiting the current product portfolio

1

2

3

1

2

3


Larger companies tend to acquire innovation as they are cash-rich to balance their lack of own product innovations

Smaller and start-up companies are averse to out-licensing and desire to exploit their product innovations themselves

1

2

3

~25%

D WINNING THROUGH INNOVATION

36

Lower priority of product innovation combined with cost constraining measures

is likely to

Lead to fewer novelties

Prompt more renovation activities

Close attention should be paid to the maturing product portfolio (see strategic

actions) in order not to fall into an

innovation gap, as average product

development time is around three years

The SMTI shows a balanced product portfolio maturity Especially smaller companies drive product innovation

In general, the maturity of the product portfolio is well balanced but the larger the company, the more mature the portfolio

25% of the (weighted) SMTI product portfolio is younger than three years

81% of the product portfolio of larger companies is older than three years

Source: SMTI 2010

AGE OF PRODUCT PORTFOLIO BY COMPANY SIZE1, 2)

[in %, 2010] COMMENTS

n = 1241) Only manufacturers and suppliers 2) In proportion of their product portfolio


34%27%

16%22%

21%

27%33% 20%

20%26% 27%

33%

3-5

5-10

Large

25%

Medium

0-3

+10

100%

25%

Micro

20%

24%

Small

Years


37

Relative R&D expenditure is highest for small companies Manufacturers spend more on innovation than suppliers

77

119

10

14

10.6

11-50m< 5m 5-10m

Suppliers Manufacturers

Source: SMTI 2010

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

R&D expenditures remained stable or even increased since

2007, but were increasingly

shifted to incremental innovation

Manufacturers drive SMTI innovation; their share of R&D

spending is higher than for

suppliers

The less turnover a SMTI company has, the higher the

relative spend on R&D

COMMENTS

BY COMPANY TYPE

BENCHMARKS

[in % of turnover, 2009]4)R&D EXPENDITURES [% of turnover]1,2)

10

5

1212

20092007 n = 90

11

Machine

industry4

Pharma

Electronics

industry

16

5

Biotech

Medical

technology

industry

22


Compared with adjacent industries, the SMTI spends less on R&D than the biotech and pharma industry, but significantly more than the mechanical engineering and electronics industry

BY TURNOVER

[in CHF and % of turnover 2009]3)

n = 90


38

26

16

16

22

38

24

4

Large 78 0

Medium 80

Small 60

Micro 36

Shortening of the innovation cycle is of significant relevance, especially to medium and large sized companies

25

17

30

21Suppliers 62

Manu-

facturers45

n = 129

The majority of companies feel the market and competitive pressures to shorten innovation

cycles in order to launch new or improved products

more rapidly

It seems that manufacturers are partly passing on this pressure, evaluating different suppliers for the

most innovative and cost effective solution

Micro companies seem to be flexible enough to adapt to shortened innovation life cycles. Their dependency

on often only one or two products makes it a critical

task to stay ahead of competitors

The larger a company is, the less flexible it seems to speed-up the innovation cycle, mainly because of

internal processes and compliance requirements

Very high significance

High significance

No or low significance

Source: SMTI 2010

SIGNIFICANCE OF A SHORTENED INNOVATION CYCLE [2010, in %]1)

BY COMPANY SIZEBY COMPANY TYPE

1) Only manufacturers and suppliers


39

Launches during the last three years were difficult On average new products achieved less than 30% of companies turnover

17

45

20

3

31

29

4

18

25

37

16

6

13

26

42

13

0

23

16

16

Very high

(>70%)

High

(50%-70%)

Medium

(30%-50%)

Small

(10%-30%)

Very small

(0%-10%)

Micro

Small

Medium

Large

Product launches in the last three years were also affected by the global economic setbacks

A majority of companies stated that new products contribute only to a minor part (less than 30%) to the current turnover

For micro companies there seems to be a clear split:

Either they are older companies with a mature "cash-cow" product portfolio

Or they are start-ups with a successful product launch just on the brink of growing rapidly

The other companies capture less returns from new product launches

Source: SMTI 2010

REVENUE SHARE OF PRODUCTS THAT WERE LAUNCHED

SINCE 20071) [in % of each company class, 2010]

n = 128


COMMENTS


40

Companies with a young product portfolio show above-average growth expectations

Companies with a young product portfolio have significantly higher growth expectations

Companies with a more mature product portfolio may face especially if combined with decreased R&D rates an innovation gap that harms future growth rates

In order to increase growth rates again, these companies need to take into account an average "idea to launch" time of approx. three years

7

16

10

2010

1) Only manufacturers and suppliers 2) 85% of survey participants stated improving profitability is a key strategic action

9

17

12

2011

Source: SMTI 2010

EXPECTED GROWTH RATES OF COMPANIES ACCORDING

TO PRODUCT PORTFOLIO MATURITY1) [%] COMMENTS


The SMTI is an innovation-centred industry based on network innovation

Launching new products is an essential growth factor

High priority on profitability2) drives bottom-line improvements, but does not lead to higher growth rates

Older portfolio (companies with less than 15% of the product portfolio

younger than three years), n = 42

Younger portfolio (companies with more than 15% of the product portfolio

younger than three years), n = 56


41

Low focus on innovation (low R&D ratio and strengthening ofproduct innovation not a priority), n = 33

Companies with a high focus on innovation show above-average growth expectations

Compared to 2008, strategic priority moved away from strengthening product innovation to profitability improvement measures

Additionally, relative R&D expenditures have on average declined

Both of these two findings lead to assume a lower focus on innovation

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

Source: SMTI 2010

EXPECTED GROWTH RATES AND INNOVATION FOCUS1)

[%] COMMENTS

High focus on innovation (high R&D ratio and strengthening ofproduct innovation a priority), n = 18


8

15

10

2010

9

14

12

2011FURTHER OBSERVATIONS

Listen to/involve patient groups in prototyping reviews to enable product generation jumps


42

2010 n = 61, 2008 n = 154

The focus of many companies on profitability improvement measures lead to a decrease of

average R&D spend to 10.6%1) from 15% in

2007

However, a few exceptions exist: suppliers and manufacturers must invest more in order

to achieve moderate growth

Companies that hardly invest in R&D do not expect a positive growth rate, strengthening

the assumption that R&D is a key driver for

SMTI growth

0%

5%

2%

6%

10%

15%

R&D contribution to growth expectations Increased R&D expenditure

Source: SMTI 2010

GROWTH EXPECTATIONS BY R&D EXPENDITURES

[% of turnover] COMMENTS

R&D expenditures 2007

7

8

1

16

10

Strong growth

(> 10% p.a.)

Moderate growth

(0-10% p.a.)

Neutral

(0% p.a.)n.a.

Manufacturers' expenditures on R&D

Suppliers' expenditures on R&D

Growth expectation 2011

R&D expenditures 2009


Suppliers needed to invest heavily into R&D to meet shorter innovation cycle time

They may find themselves in a R&D trap due to a high dependency on MedTech

manufacturers

D

1) R&D expenditure was not weighted to turnover

WINNING THROUGH INNOVATION

43


Source: SMTI 2010, CTI/KTI

The Innovation Promotion Agency CTI From Science to Market

In 2009 CTI had an absolute record year by processing a total of 717 R&D funding

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 SMEs and universities to better share

knowledge and efficiently convert their ideas into products and services

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

FIGURES

44

E. Collaboration and Bundling

45

12

43

9

9

13

88

4

24

24

28

59

82

Strategy

consultants

Private research

institutes

Support organizations

Technology/IT service

providers

Universities

Manufacturers/

suppliers

SMTI companies focus on collaborations between manufacturers and suppliers Strengthening incremental innovation

Source: SMTI 2010

The majority of SMTI companies closely collaborate with other manufacturers and

suppliers, positioning themselves often as

"Renovators" working on improvements of

existing products

Already second are collaborations with universities; there SMTI companies often act

as "Network innovators", working on

product innovations

On average manufacturers show a higher degree of collaboration this is mainly due to

Technology leadership in projects with several collaborating parties

Higher value chain integration

Not very widespread are collaborations with service providers

Roughly less than a quarter of SMTI companies have respective collaborations

SHARE OF COMPANIES WITH COLLABORATIONS

[% of answers, by inter-industry collaboration type, 2010]

n = 122, multiple answers possible

COMMENTS

Manufacturers

Suppliers

E COLLABORATION AND BUNDLING

46

30

5

7

12

17

12

25

45

43

7

7

13

28

20

41

35

46

61

Product launch

After sales

services

Training

Distribution

Marketing/sales

Product certification

Basic research

Quality control

Applied research

SMTI companies focus on applied research to drive incremental innovations

Source: SMTI 2010

FUNCTIONAL COLLABORATION WITH PARTNERS

[% of answers, by type, 2010] COMMENTS

n = 106, multiple answers possible

Manufacturers

Suppliers

SMTI companies, particularly manufacturers,

engage in functional collaboration. Predominantly,

such activities are sought in the field of:

Applied research; underlining the focus on incremental innovation

Quality control and production certification Strengthening compliance and regulatory

know-how

Managing innovation cycle Shifting innovation risks to suppliers

Basic research; focus on break-through technology and materials

Training, launch/post launch, and after sales collaborations are of minor importance to SMTI

firms despite

Under-proportional returns on new products Rising OPEX to sales ratios and process costs Expected shifts in business models and

offerings


47

22

29

32

17

100

largemediumsmallmicroCTI/KTI

The national innovation programs of CTI/KTI reach 29% of SMTI companies More than twice as much as international programs

87

YES

13

11

2

NO

1) Suppliers and manufacturers

n = 155

EU programs: e.g. FP6, FP7

Other: e.g. COST, EUREKA

6

65

YES

35

29

NO

EU

OTHER

CTI/KTI

OTHER

n = 154

NATIONAL PROGRAMS [% of participation in innovation promotion programs1), 2010]

(distribution by company type)

INTERNATIONAL PROGRAMS [participation in %, 2010]

Source: SMTI 2010


48

The SMTI gets an influx of new ideas from the technological development in four other major industries

RESEARCH AREA (ILLUSTRATIVE) COMMENTS

MedTech research area

Source: SMTI 2010, CCMT, CTI/KTI

1) Substances of human origin 2) Swiss universities are important contributors to the heterogeneous, networked innovation landscape

MedTech Convergence

PHARMA

MECHANICAL

ENGINEERINGBIOTECH

RoboticsMaterials SoHo1)Genetic

EngineeringNanotech

Combined

products

Two main research trends can be identified:

Many SMTI companies apply electronics and mechanical engineering know-how to

medical devices

- New combinations of different disciplines

provide input for highly innovative

products (network innovation)2) through

software engineering

- Especially ICT plays an increasingly

important role as a key component to

innovative products and services (e.g.

e-Health), and is a success factor due to

the flexibility and ease of operation

Technological developments fuel the convergence between pharma/biotech and

MedTech, creating novel products with a

combination of different action principles

(device/drug or drug/device)

These developments will together with regulatory changes lead to the creation of new business models

Software

engineering

ELECTRONICS

INDUSTRY

RFID

ICTVisualization/

Simulation

Teleservices/

Telemetry

Navigation

Biomarkers


49

The SMTI business model will change A stronger focus on bundled offerings and a higher patient centricity arises

Major shifts in business models are foreseen due to Changes in health care systems Growing cost pressures by payers Increased transparency demand

(e.g. DRG, CER) Expressed strategic focus is

Driving bundled offerings (proven products paired with novelties)1

Becoming further patient centric Focusing on market pull activities

BUSINESS MODEL

DIMENSIONS

In-house

Me-too

product

Single

products

Technology

push

Make

GP/provider

centric

No reim-

bursement

External

Novelty

product

Bundled

offering

Market

pull

Buy

Patient

centric

Full

coverage

Knowledge

creation

Innovation

Offering

Market

orientation

Production

capability

Sales channels

Reimbursement


1) Combined offering such as a) "own device/technology, software, consumables materials, local maintenance/service, and/or training", or b) "combined products" (pharma/biotech and medical devices incl. third party product, or c) enhancements through value added "solutions"

DEGREE PER CHARACTERISTIC FOR 2012 COMMENTS

Notions regarding long-term strategic orientation are

"From Box-Mover to Solution Providers"

"Best in class" vs. "One Stop Shop"


Start point 2010 End point 2012Degree of Changen = 6


50

Offerings are challenged by price pressures Changes ahead for 2012

POSITIONING AND BREADTH OF

OFFERINGS [illustrative] CHARACTERISTICS OF OFFERING STRATEGIES BY 2012

Pri

ce

Benefits

hig

hlo

w

highlow

Multiple

indications

Best in Class

Own product

Commodity

product, single

indication

Commodity


With reduced funding in health care systems, price pressure will further increase. Paired with DRG, transparency on patient outcome becomes available to payers

This will influence the companies offering strategy thus they may choose from the following positioning in the future:

"Best in Class" products

Unique IP, processes, technology or materials and best treatment outcome, thus often benefit drivers

Yield premium price positions

"Commodity" (less innovative or "me too"/single) products

Aim at high volumes/lower margins pricing

Must provide supply flexibility/reliability

"Bundling" (to obtain an overall higher price benefit ratio)

Own products, services, consumables, training and IT updates

Convergences (combined pharma/biotech and MedTech product)

Solutions1 (extended value creating services or complementary products for a full DRG treatment incl. competitor products)

1) Solutions serving DRG related treatments are currently in early stage discussions amongst leading firms; positioning here is rather indicative

Product categories

Single product Bundling types

own product

convergence product

solutions


51

F. International Opportunities and Threats

52

11

6

11

3

13

30

35

22

10

7

3

13

29

34

Other

countries

in Asia

BRICJapan Other

countries

in Latin

America

Other

countries

USA /

Canada

EUSwitzerland

Compared to 2008, there were no significant changes:

The Swiss market is still expected to have the highest growth potential

More than half of the SMTI companies expect the highest potential in the EU, USA and BRIC

markets

For the other geographical regions, Swiss companies tend not to expect important growth

contributions:

In Japan registration and regulatory requirements, as well as cultural differences,

are a major hurdle

The rest of the world market does not yet contribute significantly to the growth of SMTI

companies

SMTI companies still perceive the strongest growth potential in the Swiss home market, closely followed by the EU

Abroad

2010: 65%

2008: 66%

Switzerland

2010: 35%

2008: 34%

2010

2008

n = 141

n = 132

Source: SMTI 2010

COUNTRIES WITH HIGHEST EXPECTED GROWTH

POTENTIAL FOR THE NEXT 2 YEARS [% of mentions, 2010]1) COMMENTS

1) Includes suppliers, manufacturers, traders/distributors and service providers

F INTL OPPORTUNITIES AND THREATS

53

10

88

2

14

35

32

22

6

18

6

20

30

16

Rest of

the world

Other

countries

in Latin

America

Other

countries

in Asia

BRICJapanUSA /

Canada

EUSwitzerland

Companies expect the strongest stimulus from EU countries, followed by Switzerland

Overall manufacturers seem to be more internationalized than suppliers

About 54% of manufacturers expect highest growth from business with countries outside the

EU and Switzerland

In the focus are EU, USA/Canada, the BRIC countries and only fourth the Swiss home

market

Suppliers have a higher focus on the EU and the Swiss home market, representing for more

than two thirds of companies the regions with

the highest growth potential

Manufacturers are more internationalized than suppliers More than 50% perceive strongest growth outside EU and Switzerland

AbroadSwitzer-

land

Suppliers

Manufacturers

n = 49

n = 72

Source: SMTI 2010

COUNTRIES WITH HIGHEST EXPECTED GROWTH

POTENTIAL FOR THE NEXT 2 YEARS [% of mentions, 2010] COMMENTS


Suppliers seem to need a geographical closeness to manufacturers in order to optimally fulfil their

customer requirements


54

The economic outlook for main SMTI export markets is positive Return to growth expected

1,6

2010 F

3,1

0,8

2,4

1,8

2009 E

-2,4

-4,2

-3,3

-2,5

2008 E

0,40,7

0,5

1,8

2011 F

2,7

1,5

2,1

USA

EU-27

OECD

Switzerland

Source: SMTI 2010, BAG, BfS, KOF

GDP GROWTH [% change vs. previous year] COMMENTS

Most of the main SMTI export markets are expected to return to growth in 2010 (0.8 and

3.1%) and 2011 (1.5 and 2.7%)

The OECD average growth rate is expected to slightly outperform Switzerland and to

recover considerably faster than in the EU-27

This increases the growth potential through sales both in Switzerland and abroad

Growth prospects are even brighter outside the traditional European markets, e.g. in the

emerging economies in Asia and South

America

E = Estimate, F = Forecast


55

A world of opportunities and threats by 2012

Source: SMTI 2010, Espicom, IMS Health, Moody's Investor Service, Reuters

For BRIC countries (incl. Turkey), the expected aggregated growth is around 10-

12% for Life Sciences industry

High potential for multiple-brand strategy in developing markets

2

Japan is the second largest MedTech market worldwide

Latest reimbursement price revisions favour innovative products

8

Expensive distribution system Price increases anticipated

Russian MedTech market is estimated at USD 5.6bn

Around 81% supplied by imports

4

Rising of new competitors? Chinese & Indian generics manufacturers ready to substitute

OEM products

6

Indian market valued at around USD 3bn and expected to grow around 10% a year

IT service providers cater for MedTech needs

5

South Africas MedTech industry is expected to grow at CAGR of 7.1% to 2015

Around 90% supplied by imports

3 USA is the worlds largest MedTech market (close to 40% of total) with an expected

CAGR of 2.8% until 2015

1

Expected pricing pressure on MedTech manufacturers due to financial alliances

between hospitals and doctors

New regulations, e.g. 510 k, CER and excise tax burden (next 10 years around USD 20bn

anticipated)

Regional opportunities

Regional threats

4

8

3

6

2

2

22

2

1 7

5

9

Increased regulation to be implemented in Australia, Singapore and India

9

7000 new hospitals and medical centres planned in China

7

Growing MedTech know-how with new and smarter competitors arising with a significant

lower cost basis

Selected global highlights

WORLDWIDE

Faster increase of "Western diseases" e.g. diabetes, obesity, etc.

Growing demand for established/new

treatments/technologies


56

A world of opportunities and threats by 2012

Source: SMTI 2010, DeviceMed, Espicom, Meditec, Specatris

France continues to lag behind its EU markets, e.g. in imaging and radiotherapy equipments

(high-tech in hospitals)

Several reform programmes planned for the healthcare sector in France

2

In Poland, around 85% of the MedTech market is supplied by imports

Healthcare spending accounts for about 6.2% of GDP

10

The Spanish MedTech market is valued at USD 4.8bn in 2010

1

National opportunities

National threats

Italy is the fourth largest MedTech market in Europe

9

Expected to be one of Europes slower growing MedTech markets over the next five

years with a potential impact on Swiss export

Selected European highlights

EUROPE WIDE

EU price harmonization plans for pharma sector is expected to affect the MedTech

industry

EU to boost high-tech budget for research & innovation to EUR 6.4bn in 2012

eHealth policy implementation project en route for 2020

5

63

107

42

1 9

8

In UK, the expected MedTech market growth is at around 3.6%

Current government plans involve a 15% cut in health spending as of 2011

3

Small scale of domestic MedTech production in Norway with anticipated higher import needs

5

Increasing regulations (MPKPV regulation early 2010) in Germany and growing power of

purchasing organisations (DRGs)

7

Central patient registers in Denmark6

Per capita spending on MedTech in Switzerland is among the highest in the world

with USD 544

4 Expected MedTech market growth of 4.7% in Austria

8

Focused MedTech Research for Health 2011program launched in Germany with budget of EUR 1.2bn

Government budget cuts ahead due to debt


57

The US Healthcare Reform will also influence SMTI companies

EXPECTED THREATS

Higher numbers of patients

Opportunity for highly innovative treatment demand

Opportunity to position bundled offerings/solutions to buying consortiums

Increased opportunities for preventive/early indication devices

EXPECTED OPPORTUNITIES CONVERGENCE OF FOUR FORCES [illustrative]

Source: SMTI 2010

Higher price transparency

Higher compliance and registration efforts for new products, incl. registration fees

Higher re-negotiation costs of existing products

Tighter reimbursement for me-too products

Higher tax burden


58

n = 90

2327

38

28

39

30

13

42

2615

3

27

USA

05

BRIC

Very easy

Easy

Neutral

Difficult

Very difficult

0 3

46

30

EU

0

20

JAPAN

2

Switzerland

4

20

5251

Total

1

11

43

0

1

Registration and introduction of new products are perceived to be less difficult in Europe than in other markets

Source: SMTI 2010, SMTI Advisory Board, Swissmedic

ESTIMATED DIFFICULTIES FOR PRODUCT REGISTRATION

AND INTRODUCTION [% of mentions, 2010]1) COMMENTS

Registration and introduction of new products are expected to be a challenging task for 45%

of manufacturers and suppliers

However, Switzerland as well as the EU (almost the same processes and structures)

are expected to be less complex than

registration in the US, Japan or BRIC markets

Japan is considered to be a very difficult market due to high requirements regarding

sensible documents (drawings, IP etc.), high

fees, and long approval times

US FDA regulations are perceived as hard to be met, even for large companies

FDA recently announced higher regulatory requirements, increasing registration

complexity and processing time

Especially smaller SMTI companies face the challenge to meet these requirements due to

the lack of internal expertise



59

G. International positioning

60

For the first time the SMTI work-force abroad grew at a higher rate than in Switzerland, showing an increasing internationalization

42

20

4

4

Large

Small

Medium

Micro


n = 139

7

16

21

8

Switzerland

Abroad

2007: n = 1862009: n = 81

Source: SMTI 2010

GROWTH IN LOCAL VS. FOREIGN EMPLOYMENT

[% over last 2 years, end 2007 & 2009]1) COMMENTS

WORKFORCE ABROAD

[% of total workforce according to company size, 2009]1)

SMTI companies continue to hire but at a reduced rate

For the first time growth of employee numbers has been bigger abroad and signals

a shift in management focus

This result documents the increasing internationalization effort of SMTI companies

The survey results indicate that no significant work-force shifts from and to Switzerland

have taken place

Micro to small companies employ around 4% of their workforce abroad compared to 20-

40% of medium to large sized companies


Micro and small companies are lacking access to experienced hires in order to obtain

international expert know-how

2007

2009

G INTERNATIONAL POSITIONING

61

Manufacturers and suppliers are strongly export driven and achieve on average 63% of revenues abroad

AVERAGE SHARE OF EXPORTS

[% of turnover, 2009] 1)

Manufacturers generate around 78% of sales abroad

Suppliers play an important role in the local market as 47% of their products and services

are sold within Switzerland

Their export share decreased significantly, reflecting economical difficulties in many

markets, e.g. declining demand, fiercer

competition, and adverse currency

fluctuations

The same applies to a majority of traders/distributors; they only achieved an

export share of 16% (-50% vs. 2007)

Service providers are generating 35% of their turnover abroad, benefitting from the high

expertise gained in the home market

1) Average for suppliers and manufacturers , based on average export share of all companies, not based on value of exports. Therefore varies from the value mentioned in the management summary 2) Share of export of service providers was not surveyed in 2008

n = 174

2007 data 62% 74% 34%

Source: SMTI 2010

COMMENTS

78

53 63

Suppliers Manu-

facturers

35

16

29

Traders

and

distributors

Service

providers2)


62

A young product portfolio helps manufacturers to increase their export share

Source: SMTI 2010

EXPORT SHARE

[%, according to age of product portfolio, 2010]

1) More than 50% of product portfolio younger than 5 years2) More than 50% of product portfolio older than 5 years

Suppliers and manufacturers realize different export shares in respect to the age of their

product portfolio

Suppliers Can export above-average mature

products

Were faced with difficulties in capturing export shares with young product

Manufacturers Can capitalize on an innovative product

range in export markets

Tend to introduce new products or line extensions faster abroad

Expect below avg. growth from mature products

n = 93

COMMENTS

46

61

Suppliers

53

82

72

Manufacturers

78

Younger PP1)

Older PP2)


63

Growth expectations and export share Positive correlation for manufacturers, negative correlation for suppliers

Source: SMTI 2010

EXPECTED GROWTH ACCORDING TO EXPORT SHARE

[%, only manufacturers and suppliers, 2010]

1) Defined as less than 44%/81% of revenue from exports for suppliers/manufacturers2) Defined as more than 44%/81% or revenue from exports for suppliers/manufacturers

Export is a Must do for growth

Manufacturers are much stronger export focused than suppliers

Manufacturers with an above-average export share

expect significantly higher growth rates

will outperform the market

will outperform suppliers by far

For suppliers, the situation is reversed the home market remains the key to growth.

They face difficulties to

Overcome the external market access trap

Find niches in a growing commodity market

By focusing on export, firms can Expand the potential customer base

Drive regional account managementn = 114

COMMENTS

7

10

18

4

10

Low export share1) High export share2)

Suppliers

Manufacturers


64

To exploit export growth potentials the new organization "Medtech Switzerland" will support SMTI companies

Connect different actors to identify business opportunities

Facilitate market exploration and match making

Drive target group tailored campaigns

Prepare targeted information about focus markets

Position Switzerland as a major MedTech competence hub

Provide extensive information on target markets

Provide guidance when entering a new market and

expanding in existing markets

Support communication via an integrated portal, specific

events, and delegation visits

Build-up MedTech brand and image

Source: SMTI 2010, Medtech Switzerland

Main objectives of the Export

Platform "Medtech Switzerland" is to

bring together Swiss Medtech

supply with foreign Medtech demand

"Medtech Switzerland" is a

federal platform to promote Swiss

Medical Technology worldwide


65

H. Outlook

66

OPERATIONS COLLABORATION & BUNDLING POSITIONING INTERN. MARKET WATCH

SMTI 2012 and beyond Selected success factors for growth

BUSINESS MODELS INNOVATION INTERNATIONAL GROWTH

IMPROVING THE GROWTH POTENTIALS OF THE SMTI COMPANIES

Review of current crisis strategy

Review and overhaul of current business models for

larger companies

Define strategic shift or desired repositioning (i.e.

convergence or innovation

leader)

Strengthen network innovation beyond 20% to

maintain innovation base

Conduct product portfolio and R&D strategy review

Engage in extra-industry technology scouting

Drive international product launch earlier

Engage in out-licensing (by start-ups) to convergence

partners

Focus on growth markets/ niche segments

Actively search talents globally

COMPLIANCE

Optimize key markets regulatory know-how

and approach

Achieve high compliance (i.e. zero complaint) in

all markets

Align pricing strategy to respond on agency

harmonization efforts

Source: SMTI 2010

Drive for global innovation leadership position in

promising niches

Establish/provide supportive CER data on key products

and markets

Build-up value proposition and solution orientation

Establish proximity to specialists/clinics

Form stronger, early stage alliances

Active collaboration in IT platform developments

needed

Expansion of business knowledge via increasing in-

sourcing of software

capabilities and material

science

Track purchasing organizations and price

pressures

Strengthen legal capabilities regarding

out-licensing or patent

infringements

Master growing international competition

and substitute products

Expand business knowledge via increasing in-

sourcing/recruiting of

software capabilities and

material science

Drive rigorous cost optimization programs

Strengthen alliance culture and processes

H OUTLOOK

67

Strategic key guiding principles for future growth of the SMTI at the crossroads

Secure sufficient influx of networked innovative products to expand current product portfolio Ensure the ability to drive radical innovation and/or incremental innovation of products depending

on market environment

Check technology strategy to include IP development for in- and/or out-licensing Adopt a high degree of network innovation, using complementary know-how pools

INNOVATIONS

Evaluate me-too portfolio strategy for bundling possibilities in order to increase volumes and turnover

Shorten development cycles and time-to-peak-sales through the use of more collaborations Evaluate possibilities to maximize product value proposition by integrating services and creating

end-to-end solutions

COLLABORATION

& BUNDLING

Ensure build-up of comparative effectiveness data sets to ensure access to key markets

Build-up or ensure access to local markets to exploit opportunities in growing economies

Check geographical out-of-pocket markets for additional growth opportunities

Plan multiple market introductions for new products, including possible out-licensing to selected key players in local markets

INTERNATIO-

NALIZATION

Ensure timely switch of the strategic priorities in correlation to market movements

Make use of national support institutions to maximize growth potential

Emphasize customer segmentation and adopt an international account strategy

POSITIONING

Source: SMTI 2010

H OUTLOOK

68

SMTI companies have to choose their individual future R&D focus in a quickly changing business environment

INFLUENCERS FUTURE R&D FOCUS

Source: SMTI 2010

COMPANY

Future solution offerings

Network innovation

Regulatory know-how

Clinical trial design

Patient registries

REGULATION

Healthcare reforms

Regulatory requirements

Rising payer power

Comparative effectiveness

eHealth enabled processing

MARKET

Patient centricity

Bundling

Convergence

Global competition

Consolidation

New competitors

NETWORK INNOVATORS

Leading with cutting-edge innovations

Strengthening basic research

Building up a high value product portfolio

Engaging on inter-industry collaborators

Focusing on out-licensing

Adopting a niche-growth strategy as early mover

Collaborate to acquire know-how

Drive operational excellence

Strengthen regulatory capabilities

Establish supportive CER data

Different degrees of future product portfolio development

are possible, depending on the company strategy

RENOVATORS

Bundling of products, services or know-how

Exploiting the current product portfolio

Engaging in scouting and M&A

Driving innovation by adapting and integrating

Collaborating within existing value chain

Growing through volume focused exports

H OUTLOOK

69

Appendix 1: Additional Data

70

Abbreviations

Source: SMTI 2010

BAG Schweizer Bundesamt fr Gesundheit m Million

bn BillionMicro-sized

companyLess than 10 employees

CAGR Compound Annual Growth Rate MPKPV regulation Regulation on clinical trials of medical products

CER Comparative Effectiveness Research NPI New product introduction

CTI/KTI Innovation Promotion Agency CTI NOGA Nomenclature Gnrale des Activits conomiques

CSEMSwiss Centre for Electronics and Microtechnology, Inc./Suisse

d'Electronique et de Microtechnique SAOPET Federal Office for Professional Education and Technology

DRGs Diagnosis Related Groups OsecOsec Business Network Switzerland; an association under

private law supporting Swiss foreign trade

E Expected Manufacturers Companies producing medical devices under their own brand

EMPASwiss Federal Laboratories for Materials Testing and

ResearchPMI Purchasing Managers Index

ETH/EPFEidgenssische Technische Hochschule/Ecole Polytechnique

FederalePSI Paul Scherrer Institut

EUCOMED European Medical Technology Industry Association Service providersCompanies providing specialized services to medical device

companies or for medical devices

F Forecast Small company Between 10 and 49 employees

FTE Full-time equivalent SMI Swiss Market Index

GDP Gross Domestic Product SMTI Swiss medical technology industry

GP General Practitioner SoHo Substances of human origin

ICT Information- and Communication technology SuppliersCompanies supplying major components to the medical

technology industry (and others) without having their own brand.

IT Information technologyTraders and

distributors

Companies trading in or selling medical devices, such as local

wholesalers and affiliates of national or international companies

k Thousand

71

Additional SMTI 2010 data

HEALTHCARE MARKET TREND

CHALLENGES STRATEGIC ACTIONS

INNOVATION AND SUPPORT

GROWTH EXPECTATIONS

1 2 3 4 5

SMTI 2010 REPORT DATA BASE

6

72

Healthcare market developments by company category and collaboration intensity

Source: SMTI 2010

1) n = 188 2) n = 164

DEVELOPMENTS

Higher regulatory requirements for product accreditations

Higher requirements for evidence of product efficacy

Manuf.Supp-liers Traders

Serviceprov.

COMPANY CATEGORY1)

None Medium High

1 1 2 2 1 1 1

COLLABORATION INTENSITY2)

3 2 1 2 2 3 3

Higher regulatory requirements for process compliance

Selective perception of only a few manufacturers by consumers

Increasing communication needs with authorities

Delays during product accreditation

2 2 2 1 4 2 2

4 4 2 4 5

4

4

4 4

5 4555

1 HEALTHCARE MARKET TRENDS

The ranking is based on the number of mentions and degree of importance of the respective developments. Only those developments appearing in the top 5 are listed

73

Healthcare market developments by company size and age

1) n = 189 2) n = 159

DEVELOPMENTS

Higher regulatory requirements for product accreditations

Higher requirements for evidence of product efficacy

Micro Small Medium Large

COMPANY SIZE1)

74

Challenges by company category and collaboration intensity

Source: SMTI 2010

1) n = 188 2) n = 164

CHALLENGES

Increasing price competition

Cost pressure from purchasers and health care institutions

Intensified national & inter-national competition

Increasing pressure to reduce production costs

Availability of skilled employees

Access to know-how

Manuf.Supp-liers Traders

Serviceprov.

COMPANY CATEGORY1)

None Medium High

1 1 1 1

COLLABORATION INTENSITY2)

3 2 2 3 3

22

4 4

4

2 CHALLENGES

Organizational issues due to growth

4

1 2

3 2

1 4 3 2 1

1 4 4

55 555 5 1

4

4

The ranking is based on the number of mentions and degree of importance of the respective developments. Only t

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