European medtech at a glance, 2010–11
(US$b, data for pure-play companies except where indicated)

Source: Ernst & Young and company financial statement data.
Numbers may appear to be inconsistent due to rounding.
Market capitalization data is shown for 30 June 2011 and 30 June 2012.

In general, the European medtech industry grew at a higher rate in 2011 than in 2010. European growth also outperformed the US across the majority of financial indicators. Top-line growth in Europe was up 8% to nearly US$127 billion in 2011 (compared to 7% in 2010) and was equally driven by both pure-play and conglomerate companies. While 83% of all European medtechs increased their revenues last year, the top line was principally bolstered by the regular cast of commercial leaders and conglomerates (such as Covidien — which is incorporated in Ireland — Siemens and Roche), as well as pure-play firms such as Sonova (+27%) and Amplifon (+22%), both of which specialize in hearing aids. With 77% of companies increasing their R&D spending, R&D bounced back from a 4% drop in 2010 to a 12% increase in 2011. Another positive sign for future growth was the fact that nearly 70% of companies added headcount, boosting headcount by roughly 15,000 over 2010. Net income growth crawled up from 3% to 5% year-over-year. Holdings of cash, cash equivalents and short-term investments were down 9% — this was largely driven by Qiagen’s use of cash for a series of acquisitions, most notably for Cellestis in April 2011.

European commercial leaders and other companies, 2010–11
(US$b)

Source: Ernst & Young and company financial statement data.
Commercial leaders are pure-play companies with revenues in excess of US$1 billion.
Numbers may appear to be inconsistent due to rounding.

The number of European commercial leaders increased 25% to 15 in 2011 as Amplifon, Sartorius and Sorin crossed the US$1 billion revenue threshold. As in the US, European commercial leaders were the principal engine of growth for the European industry, while the rest of the industry struggled to keep up. The chasm between the commercial leaders and other public companies has never been bigger in Europe. As the continent continues to deal with the uncertainties of the euro and government austerity measures, many smaller companies will find growth difficult, as they’ll likely bear the greatest impact of increased pricing, funding and regulatory pressures.

Selected European medtech public company financial highlights by region, 2011
(US$m, % change over 2010, except market cap over 30 June 2011)

Source: Ernst & Young and company financial statement data.
Data shown for pure-play companies only.

Change in European therapeutic device companies’ revenue and net income by disease category, 2010–11

Source: Ernst & Young and company financial statement data.

European therapeutic device companies increased their cumulative top lines by 9% to US$51.7 billion in 2011, or 84% of all pure-play company revenue. As in the US, all six of the largest disease subsegments in Europe saw their top lines grow in 2011. Covidien, a company incorporated in Ireland but with significant operations in the US, was responsible for threequarters of the US$1.5 billion expansion of the “multiple” segment, and Fresenius Medical Care’s performance exclusively drove the nearly US$700 million growth of hematology/renal.

Top-line success didn’t exactly translate to equally strong bottom-line achievement in Europe, as therapeutic device companies produced an aggregate 6% year-overyear increase. Of the top six disease categories, orthopedic and ear, nose and throat saw their net incomes drop in 2011. This was consistent with the broader group, as 9 of the 16 overall disease segments experienced negative bottom-line growth.

Selected fast-growing European medtechs by revenue growth, 2007–11
(US$m)

Source: Ernst & Young and company financial statement data.
Companies in italics have made significant acquisitions between 2007 and 2011.
CAGR = Compounded Annual Growth Rate.

While the fastest-growing companies in the US were fueled largely by organic growth, the four fastest-growing firms in Europe were aided by significant acquisitions. Germany’s Fresenius Kabi holds the distinction of having the biggest expansion in both real dollar and percentage terms on this list. The company’s growth was in large part fueled by the addition of APP Pharmaceuticals, which it acquired for US$3.7 billion in 2008. Of the six commercial leaders on this list, five had made sizeable purchases, while the smaller “other” companies grew mostly through organic means.

European public medtech cash index

Source: Ernst & Young and company financial statement data.
Chart excludes companies that are cash-flow positive.

European medtech outperformed the broader market
European market capitalization, 2011–H1 2012

Source: Ernst & Young and Capital IQ.

Mid caps lagged behind other segments
European market capitalization, 2011–H1 2012

Source: Ernst & Young and Capital IQ.

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