Time to invest in Swiss medtech1 October 2012
As Europe endures its toughest economic challenge, investment will be the lifeblood of any sustainable recovery. Medical Device Developments summarises the Swiss Medical Cluster’s recently published ‘Swiss Medtech Report’, which advises investors how to maximise the country’s medical technology infrastructure.
Be canny and flexible, and adapt quickly to a changing environment, this has been the attitude of Swiss industry since 1541, when the influential French theologian John Calvin demonised the wearing of jewellery. In response, highly skilled Swiss goldsmiths and jewellers rolled up their sleeves and concentrated their expert knowledge on watch-making. By the end of the century their precise, reliable and high-quality watches and clocks were famous all across Europe.
Today, about 51,000 people put their knowledge and commitment into high-quality, precision and reliability in the Swiss medical technology sector. With 820-860 medical technology manufacturing and supply companies contributing to gross sales of about CHF22.9bn, Switzerland maintains the highest density of medical technology enterprises per capita in the world. In the fields of implants, hearing aids, diagnostics, laboratory instruments, and systems for minimally invasive surgery and surgical navigation, Swiss companies continue to provide cutting-edge technologies that drive global innovation.
Supported by a blooming medical technology infrastructure that links and supports industry players across the whole value chain, Swiss medical technology companies have access to the industry partners and resources they need in order to grow. In manufacturing for instance, novel developments and high-precision, high-quality design are supported by integration into the value chain network through collaborations with research institutions and universities, strong connections to quality-driven Swiss suppliers, and orchestrated access to purchasers.
By working as a team, industry players can have fast feedback from customers, accelerate new research concepts, and integrate corresponding changes to efficiently improve product design, sales, and business activities.
To promote and support innovation, two public funding programmes exist. Firstly, the Swiss National Science Foundation (SNFS) is the major funding body for scientific research in Switzerland. Established and funded by the Swiss Federal Government, SNFS provides grant money to all scientific disciplines ranging from philosophy and biology to nano-science and medicine. Since 2001, SNFS has supported the second major funding body for technology in Switzerland, the National Centre of Competence in Research.
Secondly, there is the Commission for Technology and Innovation (CTI), the Swiss Confederation's innovation promotion agency. The CTI supports market-oriented R&D projects and entrepreneurship, as well as development funding for start-up companies. In 1997, the CTI launched its medical technology initiative, which grants funding to collaboration projects between the universities and industry
Modern Switzerland still boasts the spirit of 16th-century watchmakers through the nurturing and continued growth of its high-quality, high-precision medical technologies sector. With innovation and cutting-edge technologies as the cornerstones of its competitive edge, Swiss medical technology will likely remain one of the global leaders in the sector.
Besides education and training, listening closely to companies and delivering the solutions they need to run their business more efficiently is the task of the Universities of Applied Sciences. The R&D projects bank on intensive cooperation between physicians, engineers and computer scientists, and create the framework for interdisciplinary work for students.
To support cooperation with the private sector and commercialisation of research results, Swiss universities set up the Swiss Technology Transfer Association, SWITT.
If Swiss medical technology wants to be a leading global player in the future, it needs efficient structures to transfer the newest research results into pioneering products and services to achieve maximum market success. Such an institution is Unitectra, the technology transfer organisation of the Universities of Basel, Berne and Zürich. It supports scientists in their collaboration with private industry and other public or private research institutions.
As a non-profit-making limited company it offers researchers a helping hand in the protection and management of intellectual property, among other things. Only with a continuous flow of fresh and unconventional ideas can successful concepts for the future be created, and the high quality be constantly improved in the future.
At the coal face
In 2010, the World Economic Forum ranked Switzerland as the most competitive country in the world and the most innovative in Europe. Switzerland offers one of the most stable economies in the world, based on a highly qualified work force. This also helps Swiss medical technology manufacturers to remain at the front line internationally and acts as a magnet for a range of foreign companies.
But the Swiss medical technology sector endured heavy exchange losses in 2011, which is why the year was marked by declining investments. Here, a change in the way of thinking is necessary. Companies have to focus more than ever on global markets, aligning their strategy to compete successfully in the world league to achieve added value.
The transfer of knowledge between science and industry has to be intensified with firm concepts, and the tried and tested dual education system strengthened. Medical technology manufacturing companies have to achieve more competences in regulatory systems, engage themselves even more in environmentally sound production and top quality, and cooperate closely with clinics for product development according to patients' requirements.
Swiss medical technology companies are metamorphosing into what the market now urgently wants - total solution providers.
Swiss manufacturers are facing an extraordinary challenge. Confronting the global economy and the growing competition from emerging markets, they have to introduce ever-more complex and tailor-made products to the market very rapidly to satisfy customer demand. In the last few years, technology known as additive manufacturing (AM) has been introduced, specially designed to shorten the design and production cycle where limited quantities of precision components are required.
AM makes the costly and time-consuming process of tool-making unnecessary by creating parts directly from computer-generated 3D models. Designers enjoy more freedom in their creations and can implement changes flexibly at any time, without leaving behind obsolete parts. Meanwhile, there is no waste production, no increase in cost nor a time delay because of expensive and time-consuming tool changes.
AM makes sense where the output of conventional methods is unsatisfactory. Due to the fact that it can operate flexibly and without tools, it is especially suited for user-specific, custom-designed products. Nevertheless, success did not happen overnight as manufacturers searched for better ways to make the hearing aid shells as innovative as possible and adapted the adequate process to their needs. This creative and innovative spirit and custom-oriented strategy are the driving forces for successful implementation of new technologies.
Necessity: the mother of invention
Incorporating novel technologies into medical procedures is in some ways a necessity. For instance, many surgeons rely on AM models of bones or tissue to develop strategies for their operations. When designing a new device, it can be difficult to explain or even visualise a design from a 3D drawing. But when a client can hold a physical object in his hand, he will quickly grasp the essentials. Using AM, only a few hours are needed to produce this effect.
Prototyping processes such as milling or vacuum-forming also have great potential. Sophisticated five-axis automation systems are developed exclusively for the efficient handling and milling of dental blanks. With the blank milled in the absolute centre of the machine, an optimal cutting force is ensured, while high-performance servo and torque motors guarantee dynamics and speed.
AM also offers great future potential for the direct manufacture of patient-specific implants on the basis of CT and MRI data. In fact, this fabrication technology makes nearly every product design possible.
The Swiss medical technology location is characterised by quick market access. But the regulatory and safety requirements for medical devices are increasing too. The supervisory authority Swissmedic provides information, training and recommendations on this. For the development, composition or functionality of a product, and for liability reasons, all relevant information must be meticulously documented in manuals and regularly updated.
Depending on the risk class, up to 10,000 pages may be required for technical and clinical documentation. In addition, manufacturers of products on the market are obliged to maintain a system of product surveillance. In this system, information on safety, quality, stability and performance of medical devices in actual use must be collected and evaluated. Here, traceability is becoming ever-more critical. It serves as proof of quality and allows for the efficient recall of products.
Serious events and measures taken to correct them must be reported by manufacturers and users to the Swiss authorisation and regulatory authority for therapeutic products, Swissmedic, and/or coordinated with it. 1,800 reports on medical devices are registered annually. This number has nearly doubled since 2005. The largest increase was recorded between 2009 and 2010, resulting from the revision of the Swiss Ordinance on Medical Devices.
In implementation of the changes to European law, this included, among other things, the reclassification of a few surgically invasive products. In addition to erroneous classifications, labelling and packaging problems, incorrect product descriptions and software errors are the most frequent causes of undesirable events. The corrections carried out are published by Swissmedic, which also issues safety alerts on its own, for example if a manufacturer enters bankruptcy.
"In principle, the manufacturers take their responsibility seriously," says Karoline Mathys, a member of Swissmedic's Management Board. "The surveillance system works, and the SIRIS implant register provides another valuable instrument for quality control."
Hans-Jörg Riedwyl, CEO of Integrated Scientific Services (ISS) also stresses that Swiss medical technology companies have a strong tradition of quality and safety consciousness with respect to patients. For this reason, he cannot imagine cases of fraud, such as that of the PIP implants in France. Ulrich Hofer, head of regulatory affairs and science at ISS, agrees.
"With a time to authorisation of only a few months - in contrast to Japan with up to two years - Switzerland offers an environment that is conducive to innovation," he says. "It often serves as a test market for international companies before entering other countries."
Despite years of effort at global harmonisation of laws covering medical devices, there are still very different regulatory systems and hurdles to overcome. In the US, the federal government's Food and Drug Administration (FDA) controls the market and developing medical technology countries such as Brazil or China barricade themselves against foreign companies by tightening conditions for authorisation.
"As a result of increasing global integration and the development of new technologies, such as in the nano field, the changes in the regulatory environment are accelerating," says Riedwyl. Following incidents with defective products, regulations are being strengthened worldwide, bringing a corresponding increase in administrative expense, from the validation of the production process to the conformity certificate for authorisation, the costs per product run from four to six figures.
"In view of the growing complexity of the requirements, a good knowledge of the laws and directives is needed," says Mathys. "Here, Swissmedic provides information, training and regular recommendations. In order for a company to make its way through the thicket of important regulations, the subject should be part of the business strategy from the start and should be handled by management. A start-up must have this in mind even before the development of its first product, and must train employees to deal with it."
Larger companies hire a regulatory affairs officer and quality manager or form their own department. Small and mid-sized companies, on the other hand, will have to seek other solutions, for financial reasons or due to a lack of medical knowledge. This is all the more so since, as with pharmaceutical products, the review of efficacy requires ever-greater clinical know-how.
Switzerland is a European entry point for foreign investors, and plays an important role in the funding and financing of innovation, notably in high-tech industries such as the medical technology industry. With over 10,000 newly founded companies each year, Switzerland's attractiveness as a place to do business, its strengths as a financial centre and its thriving medical technology industry are all consequences of the collaborative activities between industry, academia, and the financial sector.
Medical technology companies have varying capital needs based on the timeline to profitability as they progress through various stages of development. As such, the stages of the business development lifecycle must be filled with appropriate and adequate forms of capital. Medical technology companies, whose early developmental stages are typically longer than those of firms outside the life sciences sector, require more equity or risk capital to make it through the critical phases of early business.
A company in the pre-marketing phase of any product development is generally looking for seed capital. During this stage the company has a new product or technology with positive market potential though often limited financial resources and business expertise to boost R&D activities and commercialise the product. Overall, seed money amounts to around CHF30m per year or less than 0.10% of Swiss GDP.
Switzerland's financial industry offers several possibilities to get funding during the seed stage such as grants through the Swiss National Science Foundation for basic research, and early stage funding through universities and the two Swiss Federal Institutes of Technology via their specific start-up and entrepreneur consulting departments. These departments maintain strong relationships with a multitude of investors, industry associations, government agencies and state-funded economic development programmes such as the CTI.
Swiss companies can also find seed money through the globally growing pool of business angels who provide specific industry know-how, a network of industry contacts, and pure capital financing. Various foundations play a similar role in supporting research projects with outstanding pioneering potential.
The expansion stage is typically characterised by the extension of the production capacity, further product developments and an increase of marketing activities to boost sales. Similar to the early-stage financing phase, late-stage financing is also supported by venture capital investors in addition to smaller private equity funds.
Switzerland offers a very dynamic private equity industry with many funds focused on investments in the life sciences and medical technology sectors. Approximately 0.3% of Swiss GDP is invested by the private equity industry.
Financing of the expansion step in the company's life cycle usually requires investment by a larger and more diversified investor group such as larger institutions and sometimes private investors or a strategic buyer.
The purchasing of a company often means a liquidity event for the venture capital and private equity investors. This liquidity event or exit can be an initial public offering or trade sale to a strategic buyer. In this event, the SIX Swiss Exchange offers an attractive listings product and allows for an inclusion in its main benchmark index, irrespective of the company's place of incorporation and/or asset and revenue base.
Overall, the Swiss financial centre is an attractive place for domestic and foreign companies seeking capital: it is compact and closely networked, the local banks have strong financing and placing power, and it facilitates a fast regulation process when considering a listing. In addition, Switzerland is an international investor base with roughly CHF4trn of assets available for investment.