Urenio Watch Watch: Innovation Clusters

Innovation Financing in the Medical Device Sector

Investments in the Medical Device and Health Technology IndustryThe aim of the “Innovation Financing in the European Medical Device Sector” report is to identify innovation-financing sources for the European medical device sector and to provide a comprehensive overview of the direct, indirect and alternative innovation financing sources for this sector in order to analyse missing links in the financing of innovation in Europe.

According to the report the European market for medical devices is the world’ s second largest market for these devices, valued at more than EUR 41bn. The medical device sector is one of Europe’ s strategic industries based on the number of leading medical device firms situated in Europe that have a long history of research, development and innovation. The sector includes in excess of 7.000 firms and institutions, of which more than 70% are SMEs.

The report investigates direct, indirect and alternative innovation financing in 25 countries within the EU operating in the medical device sector based on data from interviews, industry experts and official statistical data sources. Innovation financing sources and innovation financing options for firms differ significantly across the European economic zone.

The report identifies a number of barriers and challenges that exist at the market, structural and financial levels of the Europe’ s medical devices sector. These barriers/challenges are holding back European progress in innovation and commercialisation of products and services in this industry.

  • First, market deficiencies stemming from differences across the nations of Europe in the design of reimbursement systems and healthcare systems as well as cultural and historical inefficiencies hamper innovation and cross-border collaboration among the various health care systems.
  • Second, the fragmentation of the European medical device markets hinders the ability of European companies to build critical mass in European markets, and influences the access to, and availability of, venture and other risk capital funding sources.
  • Third, the geographic asymmetry of medical device clusters, combined with the lack of cross-regional collaboration, creates distortions in the medical device supply side and maintains isolated national level medical device manufacturing sectors, instead of creating new clusters of excellence through intra-European collaboration, knowledge exchange and cooperation based on complementary resources.
  • Fourth, tax and allowance schemes create the basis for internal competition among the European nations leading to potential welfare losses, instead of promoting transnational innovation, R&D and regional development within the EU.
  • Finally, the lack of proper anchorage for innovation based on combining free market trends with strategic innovation targets for healthcare reimbursement systems produces a system of protection of existing technologies and products at the expense of the introduction of high technology treatments.

As a consequence, the challenges to European innovation financing in the medical device sector are likely to be both on the supply side in terms of capital, R&D facilities and institutional support structures and on the demand side in terms of European weaknesses, e.g., insufficient market size and inflexible national healthcare systems. The result is inadequate financial support to properly sustain the pace of innovation required for the international markets.

The report also provides a number of recommendations for further work to support policy for future European research funding. Legislative measures to foster innovation in the medical device sector are also provided.

Recommendation 1: An investigation of whether there is a requirement for private-sector investors to fund more innovation, and for capital markets and investors to obtain better cross-border access to innovation and venture financing, is suggested.

Recommendation 2: The role of public private partnerships should be developed in order to drive innovation. In addition, expertise on how to structure such processes efficiently without distorting market conditions should be shared across European countries.

Recommendation 3: More risk-taking and entrepreneurial activities are required, a suggestion that relates to both European culture and the incentive systems for exceptional individuals. This specific point is linked to some special qualities of the European national make-up, including entrepreneurial spirit, taxation, business culture and the presence of high net-value individuals.

Recommendation 4: More European regulation and harmonisation is required, and further emphasis should be placed on reducing national regulation. There is wide industry support for the view that European standards must be further promoted in order to ensure interoperability of medical devices, including the harmonisation or abolishment of national regulations that inhibit the free flow of goods and services. However, investigation of whether harmonisation should extend to the European national healthcare systems, which would open up the market for cross-national healthcare services in public and private markets, should also take place.

Recommendation 5: Shaping the demand for new and better medical devices is paramount to developing the European medical sector. The Achilles heel of European entrepreneurs is often seen as the inability to convince investors of the merits of new devices and to establish the crucial trust in the process. In fact, Europeans are not seen as being on a par with US entrepreneurs when it comes to commercialising inventions and R&D results. This point is further supported by the difficulties in achieving critical mass on the near-markets of Europe. Consequently, leading European medical ventures are looking to the US for market introductions and subsequently are also drawing venture capital and profits away from Europe. Benchmarking this situation against the strong European research base, including the presence of world-class researchers and world-leading clusters for research and development, establishes that Europe has a clear commercialisation gap, and not necessarily an innovation gap.

The report on innovation financing in the European medical device sector is prepared as part of the InJection network, a European Commission/DG Enterprise & Industry Europe INNOVA program, funded by the 6th Framework Programme.


Download the “Innovation Financing in the European Medical Device Sector” report (PDF file, 129 pages, 1.148KB)