The MedTech Europe blog

A current EU Medtech Market Snapshot

Europe is an important and continuously growing market for medical technology products. Driven by budgetary pressure on the payer and provider levels as well as by strong competitive dynamics, the commercial climate for established medical technology companies is, however, deteriorating. The recent industry survey MedTech Barometer 2011 conducted by us (and with ‘us’, I mean global strategy and marketing consultancy Simon-Kucher & Partners) confirms the presence of increasing commercial challenges but still provides an overall positive short-term business outlook. Yet the longer-term outlook is less positive and suggests that in order to remain successful in the European market place, established players will have to adapt their way of doing business in the future.

Nobody, including myself, would dispute that the medtech industry is a bastion of strength compared to other industry sectors in the current state of economic turmoil. Fueled by growth and an aging population which go hand in hand with an increasing prevalence of chronic and prosperity diseases, the EU market for medical technology products is and will continue to be a key place for the industry with growing demand for efficacious and efficient prevention, diagnosis and treatment methods.

Despite increasing budgetary constraints, I would contend that the quality of healthcare in the EU will in the foreseeable future remain an important political sign for any democratic government in the EU member states. As such, and unless member states run into bankruptcy, I think it’s unlikely that governments will put healthcare cost containment measures in place that would significantly compromise the quality of care provided to the local population. Besides this, EU governments have an economic interest in keeping the market for medical technology products in the EU attractive in order to maintain the competitiveness of European industry champions and foster medical technology innovation and new company foundations.

Medical technology is one of the few sectors in which the knowledge societies in the EU can keep a sustainable competitive edge in the near future against China and other emerging economies. The political interest in this sector is largely evident in the continuous governmental funding and support of high-ranked medical research institutions and R&D clusters across Europe. Compared to other geographical areas, the procedure for obtaining approval to commercialize new products is easy and clearly defined in the EU member states. Europe has been and will very likely remain an important platform for clinical development and a key source of new medical technologies. In addition, Europe is the geographical area in which medical technology companies are generally first to launch new products and procedures. As such, EU member states benefit from a comparably early and fast adoption of new technologies. Some important recent examples have been neurostimulation devices, robotic surgery or transcatheter heart valve replacement.

I feel that the fundamentals described above strongly suggest that the market for medtech products in the EU will continue its overall positive development and that Europe will remain a key region for the industry. After taking a second and deeper look at the EU markets, however, I have observed that the environment has become significantly more challenging in the recent years. Stricter reimbursement controls by payers which are increasingly often combined with formal health-technology assessments and/or case-based funding across the EU are putting significant budgetary pressure on caregiver institutions. In response to cost pressure, many caregivers are focusing on the procurement side as a comparably easy area to cut operating costs. This has led to higher procurement professionalism and to an overall decreasing influence of the clinical staff on product and therapy choice. Depending on the budgetary impact, not only procurement managers but also financial administrators today have a significant influence on usage and new technology adoption decisions on the caregiver level.

In recent years, the focus on cutting procurement costs has also led to a high and growing prevalence of different forms of pooled purchasing in the EU member states, be it through private provider chains, group purchasing organizations, national or regional public tenders or international distributors. As a result of these developments, the industry is facing increasing price pressure and business risks as well as decreasing customer commitment and room for competitive differentiation. The level of influence of these procurement trends, however, largely varies with the complexity and maturity of a product or product category. Whereas procurement influence and pooled purchasing is very common e.g. for simple medical supplies, it is less prevalent with new and complex surgical procedures or capital equipment where the purchasing/adoption decision is still predominantly influenced by the clinical and technical staff on the individual institution level.

I see a second unfavorable trend for established industry players in the EU medtech marketplace: the growing emergence of new low-cost competitors. This new form of competition is threatening the market position of established players with good quality and pre-dominantly me-too products at very attractive price points. These low-cost companies strongly embark on the trend of caregiver institutions that focus on cutting procurement costs. Compared to established players that are driven strongly by innovation and have high research & development as well as sales & marketing expenditures, the new competitors follow different low-cost business models. I’ve observed three forms of new low-cost competition in the EU marketplace:

  1. Asian “broad liners”, who are still focused on R&D but benefit from lower personnel costs, scale on the procurement side, favorable currency fluctuations and lean sales and service models
  2. “Copycats”, who are copying established products by intelligently circumventing existing patents and who are comparably small in size and lean on the administration and sales side
  3. “One-stop-shop” distributors, who benefit from procurement and sales scale and who offer their own private label products in addition to established brands

Besides these new competitors, further low-price competition can be found among established players who offer basic and/or mature products at high discounts to protect the remaining part of their business or who offer a low-price product/brand alternative to their premium product by simply keeping an old generation product on the market.

The trends I describe above were largely confirmed by our MedTech Barometer 2011. In this survey more than half of the 70 respondents who are senior decision makers from globally leading medical technology companies with European business responsibility stated that tight budgets on the customer side and increasing price competition are the biggest commercial challenges they currently face in the European marketplace.

The respondents saw a clear mid-term trend in Europe of increasing competitor price aggression in the fight for higher market shares. On the customer side, there is a clear expectation that purchasing department influence and the pooling of purchasing power will strengthen in the coming years.

60% of all respondents expect a “tighter to much tighter” reimbursement and funding environment in the future that is strongly driven by an uncertain fiscal climate and forecasted revisions of reimbursement prices and rates in the EU member states. In a similar context, close to 60% of the respondents expect overall market prices to be “worse or much worse” in the near future. This expected price deterioration can be primarily attributed to competitive dynamics and pressure from the customer side and, to a lesser extent, to unfavorable reimbursement developments.

In response to these unfavorable commercial trends, the surveyed managers across almost all sub-sectors give first priority to the area of increasing sales force effectiveness in dealing with the consolidating buying centers and non-clinical procurement stakeholders. A second priority is the launch of new and enhanced products and services to increase competitive differentiation. In terms of other business goals, winning competitor accounts and increasing market shares was prioritized over raising prices or slowing down price erosion. I think the latter is another strong indicator of the considerable competitive dynamics in the European marketplace that will continue in the coming years.

50 to 60% of the respondents from the different sub-sectors mentioned that they already face strong pressure from low-cost competitors and that this pressure in most sectors is expected to increase. Particularly the diagnostics sector has been heavily exposed to low-cost competition: all respondents representing this sector in the survey have already been affected. Whereas the equipment and supplies sectors expect pressure from low-cost competition to increase, the device side expects this pressure to remain significant but stable. In terms of the forms of low-cost competition that the respondents face, new entrants with low-cost business models and existing competitors and distributors with low-price offers seem to be equally represented.

Increasing innovation, enhancing customer service and processes as well as a better customer segmentation and prioritization are believed to be the most effective responses to best respond to increasing low-cost competition. Only very few respondents believe that trying to match the price points of low-cost competitors by reducing their own prices or introducing low-cost offers/brands is a commercially viable option.

Despite several commercial challenges that the established industry players in Europe are facing, I believe that the short-term business outlook for the coming year remains positive. The respondents across the different sectors expect their operations to grow by +5 to +10% in terms of revenue, with device and diagnostics companies expecting the highest growth rates. At the same time, the surveyed companies expect to increase their market shares moderately in the area of +3%. The companies’ average selling prices are expected to remain stable. In essence, new product launches are compensating for the price erosion among established products.

To summarize my thoughts, the political framework and the demographic developments will continue to make Europe an important, growing and innovation-friendly market environment for medical technology products in the foreseeable future, despite ongoing economic turmoil. However, the market climate for established industry players has and will continue to deteriorate due to stricter reimbursement controls and increasing purchasing professionalism and power on the customer side coupled with consistently strong and increasing competitive dynamics.

For the time being, I think that continued growth in demand and the launch of new products and technologies for the most established players still seem to compensate for the negative impact of price erosion among established products and the growing threat of low-cost competition. As such, the short-term business outlook for established medical technology companies in Europe is, from my perspective, overall positive.

With increasing budgetary pressure on the payer level and economic uncertainty in the EU member states, I still think it’s very likely that the commercial climate in the medical technology sector will further deteriorate. Stricter reimbursement controls, health technology assessments and cost cutting pressure on the provider side combined with strong competitive dynamics will further increase pressure on prices and margins; the adoption pace of new products and technologies will likely slow down. The automatism of continuously compensating for negative developments among established products with new product launches may come to an end at some point.

Without doubt, the European market will remain an innovation-friendly environment. Companies that launch true innovations with convincing clinical and/or economic benefits will continue to face great market opportunities. Still, in my opinion, the vulnerability of companies that only launch regular gradual improvements of existing products and/or companies with a high exposure to very mature product categories will continue to increase in the future. Without completely changing their business model, the long-term success of established players in the European market place will largely depend on a strong innovation pipeline and controlling the price erosion of established products.

It is obvious to me that long-term business success in the European market place will require strategic and tactical adaption from established players, particularly in the area of

  • Prioritizing and steering R&D projects early on according to reimbursement and price potential
  • Producing better clinical and/or health economic evidence to support favorable reimbursement and provider adoption decisions when launching new products
  • Resources, skills and engagement models for effectively interacting with national/regional payers as well as procurement managers and financial administrators
  • Balancing business goals in terms of market share vs. profitability, differentiated by business area and according to its lifecycle stage and the level of competition
  • Offering service support areas to payers and providers that measurably help to drive their organizational efficiency beyond pure price cuts
  • Offering new and intelligent contract models to providers that limit upfront investment burden/that ensure budget compliance while securing customer commitment
  • Pursuing a structured and defendable pricing policy vs. making opportunistic and spontaneous pricing decisions

Joerg Kruetten
Executive Vice-President at Simon-Kucher & Partners and head of the Medtech competence center

Simon-Kucher & Partners is a global consulting firm with 500 professionals in 23 offices worldwide focusing on Smart Profit GrowthSM. Founded in 1985, the company has over 25 years of experience providing strategy and marketing consulting, and is regarded as the world’s leading pricing advisor.

Study details

The MedTech Barometer 2011 reveals commercial trends and challenges in the medical technology industry. The 70 survey respondents come from a pool of C-level executives, regional and BU heads, and senior functional executives representing all key sub-sectors including equipment, supplies, devices, diagnostics and dental.

The management summary of the survey is available on request. Please contact Claudia Schulz at Simon-Kucher & Partners: claudia.schulz@simon-kucher.com, tel: +49 228 98 43 372.

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