Trend reversal: SHS Medical Technology Index points upwards again

• SHS sees medical technology back on track for success in Germany in 2019
• Medical technology sector increases turnover by 10% in 2019
• In spite of COVID-19, SHS expects the medical technology industry to outperform the German economy as a whole in 2020 as well
• Effects of the EU Medical Device Regulation (MDR) not yet digested

The SHS Medical Technology Index rose again in 2019. After the two weaker previous years of 2017 and 2018, the SHS Medical Technology Index climbed by more than four percentage points last year. The 10% increase in turnover among German medical technology companies was the main driver of the index.

After the two rather subdued years of 2017 and 2018, the German medical technology industry was back on track for success in 2019. This is indicated in the 2019 SHS Medical Technology Index as reported by SHS Gesellschaft für Beteiligungsmanagement mbH based in Tübingen, which developed the index in cooperation with Christian Koziol, Professor and Chair of Finance at the Eberhard Karls University of Tübingen.

The SHS Medical Technology Index, first compiled in 2019, tracks the growth capacity, innovativeness and economic performance of the medical technology sector compared to the economy as a whole since 2010. The following data is included when calculating the index: number of patents issued, turnover and GDP, employment figures and share prices.

“Our figures indicate that the medical technology sector is less volatile and less dependant on economic cycles than the economy as a whole”, says Professor Koziol. “This key technological industry is also highly innovative.” This strength of innovation is reflected in the number of patents, according to the creators of the SHS Medical Technology Index. 1,222 newly issued patents in the German medical technology sector in 2019 indicate growth of 11.9% compared to the previous year. By comparison, the figure for the economy as a whole was 1.89%. A similar picture emerges for the trend in turnover in the medical technology sector. While German gross domestic product (GDP) rose 2.7% to €3.4 billion in 2019 compared to 2018, German medical technology companies reported a year-on-year increase in turnover of 10.4% to €33.4 billion in 2019.

The Tübingen-based experts at industry investor SHS have identified a number of possible factors for the good performance of the medical technology industry, including anticipatory effects. According to SHS, the approach of Brexit may have prompted UK customers to stockpile in 2019. The prospect of tariff barriers and trade disputes may also have caused customers in the US to replenish their warehouses with medical technology goods from Germany. Trade conflict between the US and China probably also led to increased demand from Chinese customers for German medical technology products. In addition, the introduction of the European Medical Device Regulation, which was originally planned for May 2020 and had prompted fears of certification bottlenecks, may have led to a fundamental restock among many medical technology customers.

“All of the activity regarding the availability of medical technology products in the current coronavirus pandemic has shown how important the industry is to Germany”, says SHS Managing Director Hubertus Leonhardt. “Some 210,000 people work in the medical technology sector here in approximately 13,500 companies. Politicians should do everything possible to strengthen Germany as a place of research and production for the medical technology industry instead of putting up new hurdles. While the entry into force of the EU Medical Device Regulation (MDR) has been postponed until May 2021 due to the coronavirus, we have seen the extent to which companies were already preoccupied with this regulation in 2019.”

The creators of the SHS Medical Technology Index are cautiously optimistic for the current year 2020 and still expect the index to rise and the medical technology sector to outperform the economy as a whole in spite of the expected decline in turnover due to the anticipatory effects in 2019. “Of course, the coronavirus pandemic will not go unnoticed by the German medical technology industry”, says Dr. André Zimmermann, a partner at SHS. “However, the effects will be felt differently: medical technology companies that operate in the area of elective surgery, such as manufacturers of dental implants and even cardiac catheters, will suffer more because operations have been postponed and this is still happening in some cases. Some providers in the field of intensive care and diagnostics will gain significantly.”

The industry investor recommends that the German medical technology sector, which is dominated by medium-sized companies, actively confront the challenges. In its view, the digital transformation, cost pressure, international competition and the regulatory hurdles for medical products are major challenges, especially for medical technology SMEs.

“German medical technology companies are innovators when it comes to product development. However, the approval of new medical technology products and the subsequent global marketing have now become much more capital intensive”, says Hubertus Leonhardt of SHS. “In the current situation, we expect that companies that act right now will be able to expand their market position through clever strategy and sufficient equity. In this area, we intend to continue to invest in the next few quarters in companies that want to bring products through international approval processes, plan buy-and-build options or change their shareholder structure. We want to support innovative medical technology SMEs with a clear USP in a very targeted way by improving their equity ratio.”

SHS Medical Technology Index

The SHS Medical Technology Index was developed by SHS Gesellschaft für Beteiligungsmanagement in cooperation with Professor Dr. Christian Koziol of the Eberhard Karls University of Tübingen. It has observed the trend in the medical technology industry since 2010. The value in base year 2010 equals 100%. The index records the growth potential, innovativeness and economic performance of the German medical technology sector and offers a comparison with the German economy as a whole. To this end, key economic indicators (number of patents issued, turnover and GDP, employment figures and share prices) are recorded and analysed for both the medical technology sector and the economy as a whole. The data is normalised using a mathematical model and weighted before being incorporated into the index. The index is updated annually.