Stability: SHS Medical Technology Index holds its own in the crisis
- Medical technology market in Germany to remain at a high level in 2020, but with slight declines
- Pandemic leaves both positive and negative traces on medical technology companies
- SHS expects better development for medical technology than for the overall economy in Germany in 2021 despite Corona
- The new regulatory requirements (MDR) continue to burden many small and medium-sized enterprises (SMEs)
The SHS Medical Technology Index has fallen slightly in the first year of the pandemic. After the strong increase in 2019, the index fell by 0.3 percentage points last year – but is still at a high level.
After very strong growth in 2019, German medical technology took a breather in 2020. This can be seen very clearly in the SHS Medical Technology Index 2020, reports SHS Gesellschaft für Beteiligungsmanagement mbH from Tübingen, which developed the index together with Professor Dr. Christian Koziol, Chair of Finance at the Eberhard Karls University of Tübingen.
The SHS Medical Technology Index, which is being compiled for the first time in 2019, tracks the growth capacity, innovative strength and economic performance of the medical technology sector since 2010 in comparison with the economy as a whole. The following data series are used in the calculation of the index: Number of patents granted, turnover or GDP, number of employees and share prices.
“The figures obtained indicate”, says Professor Koziol, “that even in the first year of the Corona pandemic, medical technology is less volatile overall compared to the overall economy. However, a more differentiated look shows that the pandemic has in part had very opposite effects on companies in individual sub-sectors in medical technology. Medical technology companies in the field of elective procedures, such as manufacturers of dental implants and even heart catheters, suffered more because operations or examinations were postponed. Suppliers in the respiratory support and diagnostics space have grown significantly in some cases.”
The decline in the medical technology index is due to several factors that are included in the index calculation. Although the medical technology sector was able to increase sales slightly by approx. 2 percent compared to the previous year (in the opposite direction to the decline in GDP in Germany), the number of employees in the sector fell substantially by 4 percent, i.e. more than 7,500 jobs were cut. This step was probably taken primarily by the companies negatively affected in terms of sales for precautionary reasons. At the same time, the DAX Pharma & Healthcare index on the stock exchange fell by 6 percent – against the positive overall trend of the DAX 30. Most striking, however, is the sharp decline in medical technology patents granted in 2020, which showed a slump of 13 percent. Whether this decline is directly or indirectly related to the pandemic cannot be said with certainty at present. It is possible that the industry has substantially reduced spending on innovation in light of the uncertain situation. However, a survey conducted by the industry association BVmed among its member companies in the fall of 2020 points in this direction. 22 percent of the companies surveyed there had to reduce their research spending – in the previous year, the figure was 7 percent. Another possible cause, however, may be the aftermath of the major regulatory changeover to the MDR, which has meant that smaller and medium-sized companies, which are otherwise so strong in innovation, have had to focus on the new approval requirements and have been able to invest less in R&D for cost as well as capacity reasons. “If this is indeed the case, it would be a fatal development, as SMEs in particular are dependent on such innovations. The necessity of innovations for the survival of SMEs is shown by the fact alone that a new medical technology product is replaced by a more advanced product after only a few years on average,” explains Dr. André Zimmermann, partner at SHS.
For the current year 2021, the creators of the SHS Medical Technology Index are cautiously optimistic and continue to expect a better performance of the medical technology sector compared to the overall economy. “The Corona crisis left its mark on the German medical technology industry in 2020 and will continue to do so in 2021,” says Dr. Zimmermann. “However, we expect a gradual return to more normality across the entire sector in 2021, which will then hopefully be fully achieved again in 2022. In any case, the pandemic has shown how vital a well-functioning healthcare system is, and it’s clear to see the industry’s status among the population has risen.”
Germany’s medical technology industry, which is dominated by small and medium-sized enterprises, will have to deal with further tasks in the near future after the pandemic. Regulatory hurdles and digitalization are fields that require substantial investments, but which no company can avoid. Added to this is the increasing cost pressure in order to be able to continue financing healthcare systems in aging societies. For small and medium-sized medical technology companies in particular, these are major challenges that must be addressed quickly in order to remain competitive, according to the industry investor’s recommendation.
“An increasing number of medium-sized entrepreneurs in medical technology are realizing that investments in regulation and, above all, digitization are necessary in order to be able to position themselves well in the market in the future,” says Manfred Ulmer-Weber of SHS. “In this context, the Corona pandemic has once again greatly accelerated the pressure for digitalisation. We believe that especially now active companies can expand their market position through a smart strategy and sufficient equity. As an experienced industry investor, we have successfully accompanied and supported companies on this path several times in the past. We intend to continue this form of partnership in the coming quarters. We want to support innovative medium-sized medical technology companies in a very targeted manner by strengthening their equity ratio and facilitate their expansion with the additional financial resources as well as through our network.”
The SHS Medical Technology Index
The SHS Medical Technology Index was developed by SHS Gesellschaft für Beteiligungsmanagement in cooperation with Professor Dr. Christian Koziol from Eberhard Karls University in Tübingen. It looks at the development of the medical technology sector since 2010. The value in the base year 2010 corresponds to 100 percent. The index records and compares the growth potential, innovative strength and economic performance of the German medical technology sector with the German economy as a whole. To this end, economic indicators (number of patent registrations, turnover or GDP, number of employees, share prices) are recorded and analysed for both the medical technology sector and the economy as a whole. The data was standardized with the help of a mathematical model and weighted into the index. The index is updated annually.
About SHS Gesellschaft für Beteiligungsmanagement mbH:
“Building European Healthcare Champions” is the guiding principle of the Tübingen-based sector investor SHS. With this in mind, the investor specialising in healthcare investments finances and develops its portfolio companies. Since its foundation in 1993, the focus of its investments has been on expansion financing, shareholder changes and succession situations. In doing so, SHS takes both minority and majority stakes. Investors in SHS funds include pension funds, funds of funds, family offices, entrepreneurs, strategic investors and the SHS management team. The equity investment of the AIFM-registered company is up to EUR 20 million. Volumes exceeding this can be realised with a network of co-investors. In its investment decisions, SHS attaches great importance to the consideration of ethical aspects. The investment company is committed to the principle of Socially Responsible Investing (SRI) and is a member of UN PRI, an investor initiative launched by the UN-Environment Programme. Its members contractually agree to comply with ecological and social guidelines in their investments. SHS portfolio companies include, for example, Phenox GmbH from Bochum, which specialises in stroke treatment, the drug delivery expert Develco Pharma AG, which is based in Switzerland and Germany, and the Dutch growth company Salvia BioElectronics B.V., which uses minimally invasive neurostimulation to treat neurological diseases. SHS is currently investing from its fifth fund, which was launched in 2018.
More information at: http://www.shs-capital.eu