Cautious growth: SHS Medical Technology Index grows slightly in second year of Corona crisis

• Medical technology market in Germany with slight growth in 2021
• Pandemic leaves positive as well as negative traces on medical technology companies in second year, with the former predominating
• SHS expects a good development for medical technology in Germany in 2022 due to the improvement in the pandemic situation
• The new regulatory requirements (MDR/IVDR) will come into focus again in 2022 and place a burden on many small and medium-sized enterprises (SMEs), which can lead to supply problems in some cases.

Tübingen, 20 December 2022

The SHS Medical Technology Index has returned to growth mode in the second year of the pandemic, albeit modestly. After the slight decline in 2020, the index rose by 0.3 percentage points last year and is now roughly back at the same level as in 2019.

After the slight decline in 2020, German medical technology returned to growth mode in 2021, with the individual sub-sectors showing partly contrasting developments. While sales have risen by around 6% and also the healthcare index on the stock exchange by 20%, the number of patents granted as an indicator of innovation in the sector has fallen sharply for the second time in a row by a double-digit percentage (18%). This somewhat mixed picture can be read very well in the SHS Medical Technology Index 2021, 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 was 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 to the economy as a whole. The following data series are included 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 medical technology has returned to the growth zone in the second year of the Corona pandemic and this despite the restrictions brought about by the Corona waves. In sum, medical technology has thus returned to its pre-crisis level from 2019, which should be seen as positive. However, when looking at the individual sub-indices of the medical technology index, a mixed picture emerges, the impact of which on the future development of the sector will have to be closely monitored."

The slight overall increase in the medical technology index is due to several factors that are included in the index calculation. For example, the medical technology sector was able to substantially increase turnover by around 6% compared to the previous year (and is thus in line with GDP growth in Germany), and the performance of the healthcare sector on the stock market (plus 20%) was also above the increase in value of the Dax index (16%), but in return the number of employees remained roughly at the previous year's level and thus significantly below 2019. Most striking, however, is the further sharp decline in medical technology patents granted in 2021, which show a slump of 18%. After the already substantial 13% drop in 2020, this is not only striking but also quite potentially concerning. As in the first pandemic year, this could possibly be related to the uncertain further development. Another possible cause, however, could be the major regulatory changeover to the MDR/IVDR, which is now coming more into focus again. The medical technology associations have already pointed out several times that especially the innovative smaller and medium-sized companies see major problems ahead of them in this area. This may even lead to some established products disappearing from the market and investments in new developments being cut back. "The sharp decline in patent grants in two consecutive years is worrying from the point of view of the German medical technology sector. SMEs in particular are dependent on such innovations and at the same time form the backbone of the sector. Without an early reversal of the trend, such a development in Germany can lead to SMEs as the foundation of the industry getting into substantial difficulties in the coming years due to high regulatory hurdles as well as costs and with a simultaneous weakness in innovation," explains Dr André Zimmermann, Partner at SHS.

For the current year 2022, the compilers 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. "It is to be expected that certain sub-sectors of the German medical technology industry will show catch-up effects in 2022," says Dr Zimmermann. "We see a gradual return to more normality across the entire sector in 2022, which will then hopefully be fully achieved again in 2023, although the impact of the Ukraine conflict, the further development of the pandemic in China and the supply chain issue remain major factors of uncertainty. "

However, regulatory requirements and digitalisation require substantial investments, which are increasingly difficult for SMEs to manage, but without which it is also not possible. Added to this is the increasing cost pressure (keyword inflation) and the supply chain problems that still exist in some cases. All in all, these are major challenges for small and medium-sized medical technology companies that could overwhelm many a company, according to the industry investor's assessment.

A possible solution to the dilemma could lie in the expansion and further internationalisation of companies, if this is possible, says Manfred Ulmer-Weber, Managing Partner at SHS. "We believe that companies that are active right now can expand their market position with a smart strategy and sufficient equity. As an experienced sector 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 years with the new SHS VI Fund. We want to support innovative medium-sized medical technology companies in a very targeted way by strengthening their equity ratio and making it easier for them to expand with the additional financial resources and 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 of the 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. For this purpose, economic indicators (number of patent registrations, turnover or GDP, number of employees and share prices) are recorded and analysed both for the medical technology sector and for the economy as a whole. The data were standardised with the help of a mathematical model and flow into the index with a weighting. The index is updated annually.

About SHS Gesellschaft für Beteiligungsmanagement mbH
SHS Capital is a private equity provider founded in 1993 that invests in healthcare companies in Europe. The focus of the investments is on expansion financing, shareholder changes and succession situations. "Building European Healthcare Champions" is the investment philosophy according to which SHS finances and develops portfolio companies. The Tübingen-based investor takes both minority and majority stakes. The national and international investors in SHS funds include pension funds, funds of funds, foundations, family offices, strategic investors, entrepreneurs and the SHS management team. The equity investment of the AIFM-registered company is up to EUR 50 million. Volumes in excess of this can be realised with a network of co-investors. In its investment decisions, SHS attaches great importance to the consideration of ESG aspects and has therefore committed itself to the guidelines of the UN PRI. SHS is currently investing more than € 200 million from its sixth fund, which was launched in 2022.             

More information at: http://www.shs-capital.eu

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Sarah Stelzer
SHS Gesellschaft für Beteiligungsmanagement mbH
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sas@shs-capital.eu