United Kingdom Medtech Market 2011 July 2012 osec.ch
Title:
United Kingdom Medtech Market 2011 Report Summary
Language:
English
Number of Pages:
8
Author:
Published by:
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The UK has the second largest medical device market in Europe. The majority of healthcare is provided by the National Health Service (NHS), which is free – with some exceptions such as dental care - at the point of use for all residents of the UK. The private sector accounts for just a small proportion of total healthcare provision, although recently it has seen a rise in NHS contracts. England accounts for around 85% of the market, and is also the location of most private provision. Devolved governments in Scotland, Wales and Northern Ireland over the past decade have generally proved less keen on developing the private sector. The UK has historically spent less on health than most comparable countries. Real spending has been rising for decades, but a number of specific areas, such as cancer diagnosis or dental care, were underfunded. The NHS has also concentrated on treating people cheaply, which led to long waiting lists for treatment, and complaints about the patient experience when in hospital. From 2002, the Labour government began to hugely increase public health spending, a process which only came to a halt with the financial crisis of 2008. Whether this extra spending has been efficient in terms of patient outcomes remains debatable – and politically contentious – but the positive effect on the medical device market is undeniable. The 2010 Conservative/Liberal Democrat coalition government is committed to maintaining spending levels, although the scope for further growth is limited in the near term. Most medical equipment is imported. The UK has few large manufacturers, and those that do exist, such as Smith & Nephew or Smiths Medical, tend to concentrate on the US market. Between 80% and 90% of the market is therefore supplied by imports, a percentage which rising demand has boosted in recent years. In 2011, the UK medical device market is estimated at £5,717.0 million and £91 per capita. The market remains heavily reliant on imports in most sectors, as local manufacturing capacity is more geared to exports and has not proved able to supply the rapidly rising demand of the 2002-08 period. Per capita expenditure remains on the low side in comparison with the other major EU markets such as Germany. The UK market is dominated by the National Health Service (NHS), which accounts for around 85% of expenditure. Long term public investment projects generally continue to be funded under Private Finance Initiative (PFI) schemes. The private sector remains small – if well equipped – and largely based in England. There are noticeably lower levels of private spending in Scotland and Wales.
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Analysis of the Market Demographics Rating Trend Comment
Economic performance Rating Trend Comment
Strong + The United Kingdom has a population of approximately 62.7 million people in 2011, of whom 16.6% are aged 65 or over. Population growth has been faster in recent years; between 1991 and 2001 the population increased by an annual rate of 0.3%, compared with 0.5% per year since 2001, and 0.6% in the past two years. The infant mortality rate is 4.8 per thousand live births. Life expectancy at birth was 77.6 years for males and 81.7 years for females in 2007.
Fair According to the EIU, GDP is estimated to be £1,559 billion in 2011, equal to £24,884 per capita. Real growth is estimated to be 1.3% in 2011, rising to 2.0% in 2016. Rising levels of inflation are causing concern in 2011, although they still remain low by historic standards.
Healthcare expenditure Rating Strong Trend / Comment The previous government made a pledge to increase healthcare expenditure when it took office in 1997. Since then record levels of investment have been seen, with hospital waiting lists for acute operations being measured in weeks rather than months. In 2011, healthcare expenditure is estimated to be £143.9 billion, equal to 9.2% of GDP. The English NHS budget is £97.6 billion in 2009-10, and is planned to rise to £101.5 billion in 2010-11. However, as a result of the economic downturn, NHS funding in capital areas is likely to fall significantly.
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Healthcare system Rating Trend Comment
Import performance Rating Trend Comment
Strong + The UK has good provision in terms of healthcare infrastructure, beds and trained staff. Although there is a private sector, this is much smaller than the public sector. New technology has a good uptake; positive appraisal by NICE does not have any effect on product sales. Funding is devolved from central government and guidelines are in place regarding how the NHS can make money and become more efficient. Primary healthcare provides good access for the entire population. Strong / Imports account for approximately 81% of the market. The value of imports rose by a CAGR of 8.7% in the period between 2004 and 2008. In 2008, imports increased by 9.0% to £5.5 billion, but have fallen back by around 12% in 2009, as currency depreciation has hit the UK’s ability to import.
Domestic manufacturing Rating Strong Trend + Comment There are a limited number of large domestic manufacturers in the UK. The manufacture of medical supplies represents the largest area and the production of orthopaedic & prosthetic appliances also represents a significant share of domestic manufacturing capability. In 2010, domestic production was £3.3 billion. However, the majority of domestic production is aimed for export, not the local market. Health policies Rating Trend Comment
Strong / The new coalition government has radical plans for the restructuring of the NHS. These center on the elimination of Primary Care Trusts and the handing over of much of their
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function to General Practitioners. Hospitals are also to be given more control over their finances where possible. These reforms have run into major opposition in 2011, both from within and outside the NHS. Ratings go from: ‘Poor’, ‘Below average’, ‘Fair’, ‘Strong’, ‘Very Strong’. Trends run from ‘- -‘, to ‘-‘, ‘/’, ‘+’, ‘+ +’.
SWOT Analysis Strengths
Weaknesses
Healthcare remains in the political spotlight
NHS is extremely bureaucratic
NHS has a highly skilled workforce
UK population is used to good quality care
Lots of small, under-capitalized domestic manufacturers Private sector largely underdeveloped
UK market is one of the largest in the world Opportunities
Threats
Market is increasingly import-led
Post-2009 funding levels set to increase at a much slower rate, and face real capital cuts from 2011
Receptive to new technology, especially in government target areas such as cancer care etc.
More restructuring upheaval due in the next five years due to government reforms
Increasing use of private companies to manage and operate facilities
Medical Device Regulations Medicines and Healthcare Products Regulatory Agency (MHRA) The regulatory authority in the UK is the Medicines and Healthcare products Regulatory Agency (MHRA), an executive agency of the Department of Health. The MHRA is the primary source of expertise within the Department for matters relating to the safety, quality and performance of medical devices. In addition to its UK role, the MHRA is also an internationally-respected device regulator.
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In addition to being responsible for the investigation of adverse incidents involving medical devices, the MHRA is able to advise on medical products and provide evaluation reports. MHRA guidelines set out responsibilities for the purchase, deployment and maintenance of medical equipment and devices, both in hospitals and in the community. The MHRA is responsible for ensuring the compliance to British regulations and European directives for all medical devices placed on the market in the UK. It was established to ensure medical devices operate at acceptable safety levels.
Medical Device Legislation As a member of the EU, the UK‘s medical device regulations are governed by three EU directives. These are: Council Directive 90/385/EEC on Active Implantable Medical Devices (AIMDD) (1990).
Council Directive 93/42/EEC on Medical Devices (MDD) (1992).
Council Directive 98/79/EC on In Vitro Diagnostic Medical Devices (IVDMD) (1998).
Medical devices are regulated by legislation which is developed in Europe. The Medical Devices Directives are transposed into UK law and enforced by MHRA. A CE mark signifies that a device conforms to the Directives. The MHRA website, www.mhra.gov.uk contains useful information, regulations and forms for medical device companies. There are three main vehicles to demonstrate benefits of new medical devices: clinical investigations, health economic studies and independent review of existing evidence. Manufacturers are recommended to consider as early as possible in the new product development process how new product evaluation should be designed and implemented for their particular device category (e.g. product-specific regulations as defined in the relevant EC Medical Directives). A 2011 report by UK government agency proposed a three-step model to simplify and explain the general evaluation and adoption landscape for novel medical devices: Step 1 (mandatory for most categories of medical devices): CE certification for a novel medical device. Step 2 (optional): Health economics studies. Step 3 (optional): Independent review of existing evidence gathered in Step 1 and 2.
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Target Sub-sectors Consumables Wound Care The market for wound care products is estimated at £437.3 million in 2011. Around 80% is supplied via imports. The market is projected to grow to £595 million by 2016, a compound annual growth rate of 6.4% Reagents, Ostomy Products and Surgical Gloves The market for other consumable products, such as blood grouping reagents, ostomy appliances and surgical gloves, is estimated at £198.1 million in 2011. Around 86% of these are imported. The market is projected to grow to £246 million in 2016, a compound annual growth rate of 4.4%.
Diagnostic Imaging Electrodiagnostic Equipment The market for electrodiagnostic products is estimated at £378.8 million in 2011. Around 83% is imported, with the USA and Germany the principal supplier countries. The market is projected to grow to £446.5 million in 2016, a compound annual growth rate of 3.3%. Radiation Equipment The market for X-ray and other radiation apparatus is estimated at £262 million in 2011. Over 90% of the market is supplied by imports, largely from the USA, Germany and the Netherlands. It is projected to grow to £331.8 million in 2016, a compound annual growth rate of 4.8%.
Dental Products Dental Equipment The market for dental capital equipment - drills, chairs and X-rays - is estimated at £40 million in 2011. This sector has long suffered from a relative lack of investment, and provision of dental services, particularly in the public sector, remains weak in the UK. Dental drills and X-ray apparatus is generally supplied by Germany, with Italy and Japan strong in the import of dentists chairs. The market is projected to grow to £50.1 million in 2016, a compound annual growth rate of 4.6%
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Dental Instruments The market for dental instruments and supplies is estimated at £329.6 million in 2011. Germany and the USA are the leading suppliers. The market is projected to grow to £406 million in 2016, a compound annual growth rate of 4.3%
Orthopaedic & Prosthetic Devices Orthopaedic Appliances The market for orthopaedic appliances is estimated at £241.5 million in 2011 and is projected to grow to £262.1 million in 2016, a compound annual growth rate of 3.9%. The U.S. and Germany are leading suppliers. Artificial Body Parts The market for artificial body parts is estimated at £198.5 million in 2011 and is projected to grow to £246.2 million in 2016, a compound annual growth rate of 4.4%. The U.S. and Germany are leading suppliers.
Patient Aids Portable Aids The market for portable patient aids such as hearing aids and pacemakers is estimated at £658.5 million in 2011 and is projected to grow to £882.8 million in 2016, a compound annual growth rate of 6%. Denmark, Germany and Australia are leading suppliers.
Market Strategies In building a market entry strategy, time is a crucial factor. The building of an intelligence system and creating an image through promotion takes time, effort and money. Large investments in promotion campaigns are needed. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. Costs include search and bargaining costs. Physical distance, language barriers, logistics costs and risk limit the direct monitoring of trade partners. Enforcement of contracts may be costly and weak legal integration between countries makes things difficult. Also, these factors are important when considering a market entry strategy. Typical ways of expanding the markets are by expansion of product line, geographical development or both. It is important to note that the more the product line and/or the geographic area is expanded the greater will be the managerial complexity. New market opportunities may be made available by expansion but the risks may outweigh the advantages, in fact it may be better to concentrate on a few geographic areas and do things well.
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Ways to concentrate include focusing on geographic areas, reducing operational variety (more standard products) or making the organizational form more appropriate. In the latter the attempt is made to "globalize" the offering and the organization to match it. Global strategies include "country centred" strategies (highly decentralized and limited international coordination), "local market approaches" (the marketing mix developed with the specific local [foreign] market in mind) or the "lead market approach" (develop a market which will be a best predictor of other markets). Global approaches give economies of scale and the sharing of costs and risks between markets. There are a variety of ways in which organisations can enter foreign markets. These include exporting, partnering (licensing and joint ventures), and direct investment.
Success Factors 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. Attempting to match the price points of low-cost competitors by reducing prices or introducing low-cost offers/brands is typically not a commercially viable option. Long-term business success in the market will require strategic and tactical adaption, particularly in the following areas:
Prioritizing and steering R&D projects early on according to reimbursement and price potential Producing better clinical and/or health economic evidence to support favourable 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
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