29 October 2020 - Newsletter

Radical change in medtech!

Coronavirus, digitalisation, regulation, Brexit: What are the challenges facing the medtech sector, and why do we need a solid equity position now in particular?

Dr. André Zimmermann is a partner of Tübingen-based industry investor SHS. An expert in business development, Dr. Zimmermann has superb connections to the medtech sector. With a PhD in the natural sciences, he helps SHS portfolio companies in the venture and SME field gain direct and quick access to key opinion leaders in medicine and to decision-makers in international medtech groups from Europe, the USA and Asia

Dr. Zimmermann, the medtech sector is also struggling in the wake of the coronavirus pandemic. Where do you see the key challenges for these companies?

Dr. André Zimmermann: As we are all learning at the moment, the autumn will present us with another critical phase of this pandemic. No matter whether we are entering an intense second wave or – hopefully – a less problematic turn of events. Germany has fared well thus far, but as a glance beyond our borders shows, the virus strikes whenever the opportunity arises. For the producing medtech companies, the impact of a second lockdown would be as negative as it was in the spring. This is something we must by all means prevent. Sales and specifically logistics currently pose a real problem for many companies. Freight capacities are simply much tighter now than they were before the coronavirus struck. If you want to send enzyme kits from Leipzig to New York quickly, for instance, this is a challenge. If Germany experiences a significant increase, with a tightening of measures in response, this problem could grow worse.

What about the Medical Device Regulation, the MDR?

Introduction of the tighter approval requirements was postponed until May 2021. This created some leeway for the companies. If the pandemic continues, however, smaller and medium-sized medtech manufacturers could be hit hard by this deadline. At SHS, we are trying to leverage our experience and expertise to assist our portfolio companies wherever we can. And speaking of approvals, we must not forget Brexit. As things look, the CE label will not be sufficient for the UK market. From 2021, the British will require an approval of their own for medical devices. This will also apply to products that have already been approved; they will face approval again beginning in 2023. This is an annoying, difficult hurdle for SMEs in the European medtech industry.

What framework conditions still need to be considered?

Implementation of the German DVG (Act for Better Care through Digitalisation and Innovation, in short: Digital Care Act) is in full swing, although with some delays due to the surrounding circumstances. Germany has an opportunity here to position itself at the forefront worldwide where digital health is concerned. We should seize the opportunities that digitalisation offers to improve patient care and boost the efficiency of our healthcare system – an important factor against the backdrop of rising spending due to the coronavirus, among other things. A patient should not have to have multiple X-rays made for different specialists just because they cannot be made available centrally.

The DVG provides a solid framework; my hope now is for all stakeholders to set their ideologies aside and work to ensure quick and successful implementation. A bureaucratic non-starter would also harm the image of our medtech companies, which have operations all over the world.

The pandemic has already demonstrated the benefits of digital technologies in healthcare: With tele-consulting and tele-monitoring, a lot has happened in a short period of time. Hopefully, this will continue. Another portfolio company of ours, Selfapy, offers qualified psychotherapeutic assistance through an app. This is an important offer for those affected, and not just during the coronavirus pandemic.

What does digitalisation mean for SMEs in the medtech sector?

Digitalisation will lead to changes in the medtech industry as well. Business models will have to adapt, or else they will disappear. Young, tech-savvy companies are tapping new business opportunities, with great benefits for patients and the healthcare system. Our Finnish portfolio company Neuro Event Labs, for instance, offers efficient remote diagnosis of epileptic seizures. These data aid doctors with individual treatment and adjustment of their patients’ medications, even if they live hundreds of kilometres away. This is an impressive thing!

Given the challenges that lie ahead, what support do SMEs need?

Digitalisation and the major requirements for regulatory approval – ‘EU-MDR’ is the operative term – can push even established medtech SMEs to their limits. Particularly if there is a need to promote international expansion at the same time. All of this calls for a solid equity position. SHS stands ready to realise growth opportunities together with the entrepreneurs while at the same time bearing risk in a spirit of partnership. We have been an industry investor in medical technology for nearly 30 years, supporting innovative companies with equity, experience and a vast international network.

Shall we take a look at the future of healthcare, Dr. Zimmermann?

In Germany, the coronavirus has led many people to realise how important a well-functioning healthcare system and a powerful medtech and life-science industry are. I assume that policymakers will remain supportive and nurturing in future as well. Under the DVG, digital technologies will catch on that work, bring substantial added value and are secure. This situation of change and new directions presents real opportunities for entrepreneurs. Established firms need to resolutely face up to the challenges rather than simply react. When developing new products, it is crucial to get all of the stakeholders involved (physicians, hospitals, health insurance companies, patient representatives). The keyword here is ‘cooperation’. This is the approach to work that we have been cultivating for years at SHS. The healthcare market will continue to grow overall over the medium and long term, driven not only by the coronavirus but also by the changing age structure in many developed countries and the growing needs of emerging markets.