Hotbed of healthcare innovation
So what is it about Europe that makes it so well-suited for the development and distribution of new healthcare technologies?
A different way of thinking
As noted by Forbes, German business culture demands continuous improvement, eschewing static design and safety in favor of disruptive ideas. German entrepreneurs also tend to make efficiency, excellence and respect for employees their foremost priority.
These characteristics together have helped many German brands stay ahead of the curve, so to speak. Mercedes-Benz (OTC Pink:MBGAF,ETR:MBG) is a perfect example. As one of the strongest and most recognizable automotive brands in the world, the company pivoted effortlessly into electric and autonomous vehicles, becoming the first automaker to bring Level 3 Automated Driving to the US at the beginning of 2023.
Germany is far from the only EU country of note where innovation is concerned.
Quality, craftsmanship and collaboration
Switzerland, too, has long been at the forefront of innovation across multiple industries. When it comes to Switzerland's healthcare industry, the country ranked first in the 2022 World Index of Healthcare Innovation for the third year in a row. Switzerland invests twice as much into medical research and development than any other country, and its scientists ranked first globally for publishing highly cited academic research.
In addition to healthcare, the Swiss government invests heavily in research and development across multiple sectors. As a result, even though its population totals just over 8.7 million, Switzerland holds the world's third-highest number of patents per capita, just behind the United States and Japan.
Lastly, Switzerland has a reputation for welcoming both refugees and immigrants with open arms, resulting in significant innovation diversity. Factor in a national culture of collaboration and commitment to protecting intellectual property, and it's no wonder Switzerland produces so many new technologies. It helps, too, that Switzerland has the same commitment to excellence as Germany — exemplified by the country's global dominance of the watchmaking market, with brands such as Patek Philippe, Rolex and Blancpain.
Education, social support and innovation
We would be remiss to not mention the Nordic countries as well — Iceland, Sweden, Norway, Finland and Denmark. Collectively, they're known as world leaders in innovation, eclipsing even other European nations. As with Switzerland, this is due at least in part to governmental support.
Sweden, for instance, has placed considerable importance on both education and research since the mid-19th century. Thanks to measures such as free post-secondary education for Swedish citizens, the country ranks just behind Switzerland and Japan as having the world's most educated population. It also invests more than 3 percent of its annual GDP in research and development.
Swedish agencies such as Vinnova and the Knowledge Foundation play an important part in Swedish innovation and development as well. The former promotes, funds and supports research in fields ranging from healthcare to heavy industry while the latter funds both research and competence development at colleges and universities.
It also helps that the Nordic countries consistently rank among the happiest places in the world. Happiness, after all, has been linked to creativity by multiple studies. In other words, a happier and more educated population means more innovation — and more innovation means more ground-breaking technology.
Even a cursory glance at some of the technologies produced by the five nations is confirmation enough.
Denmark was the birthplace of world-famous toymaker Lego and sustainable brewery the Carlsberg Group (CPH:CARL-B). Finland gave the world Nokia (NYSE:NOK), which spent a decade as the top worldwide vendor of mobile phones, and KONE (HEL:KNEBV), an elevator engineering company that helped create New Zealand's renowned Sky Tower. Sweden, meanwhile, is home to famous technology, automotive and appliance brands such as Spotify (NYSE:SPOT), Volvo (STO:VOLVB) and ElectroLux (STO:ELUXB).
According to MedTech Europe, the continent's medical technology trade association, Europe’s contributions to healthcare technologies include "significant advances in areas including cardiac pacemakers, deep brain stimulation and intravascular ultrasound."
Guided by compliance
While you might expect the high bar set by European regulators to act as a barrier, they arguably serve more as a barometer for excellence. If a product is deemed acceptable under the strict regulatory standards of the EU, investors can rest assured it's of the highest quality. More importantly, a company that can weather scrutiny in Europe should have little trouble going to market elsewhere.
This is particularly relevant in the case of healthcare products, which are subject to some of the most stringent and complex regulatory frameworks in the world. This is by design, however — it is far better for healthcare technology to have to jump through multiple hoops prior to distribution than for it to put a patient's life at risk.
4 major innovations currently redefining European healthcare
Due to the factors described above, some of the best healthcare technologies in the world originate in Europe. But what does that mean for the current market, exactly? The best way to answer that question is by reviewing some of the innovations and startups currently gaining traction in the EU.
BiomeDX
Based in Austria, Biome Diagnostics' BiomeOne utilizes microbiome analysis to help determine how a cancer patient will likely respond to immunotherapy. It is the first diagnostic test of its kind, with multiple potential applications in personalized healthcare. The startup was recently granted the prestigious Alex Casta Audience Award via the EIT Health Catapult 2023 competition.
Vision Surgery AI
Vision Surgery AI combines advanced computer vision, machine learning and cloud technology into a powerful, state-of-the-art surgical monitoring platform. Leveraging powerful artificial intelligence, the technology automatically detects and flags deviations and potential errors in surgical procedures. Principal Technologies (TSXV:PTEC) has made a minor equity investment into Vision, with the option to expand ownership as operations increase, a testament to this technology’s significant potential in the healthcare space.
Time is Brain
AI-based startup Time is Brain's revolutionary ECG BraiN20 provides real-time monitoring of brain activity. This in turn enables faster, more accurate treatment of stroke patients, exponentially improving patient outcomes in the process. Headquartered in Barcelona, Spain, the startup's multidisciplinary leadership includes medical experts, key opinion leaders and veteran healthcare entrepreneurs.
LUMA Vision
German-Irish medtech company LUMA Vision — formerly OneProjects — is developing a new technology platform that it believes will revolutionize the treatment of cardiac arrhythmias and atrial fibrillation. Known as VERAFEYE, the technology will leverage data analytics and advanced imaging to provide physicians with a four dimensional view of the heart. The startup raised $17 million to support the development of its technology in 2021.
A tale of two markets
One of the most significant differences between the European and North American healthcare tech markets involves valuation. Medical startups in North America tend to receive significantly higher valuations than they would in other markets. While this is immensely beneficial for the startups themselves, it can present a considerable barrier to entry for investors.
There's another issue. Although standards in the EU are generally more stringent, that doesn't necessarily mean adherence to North American regulations such as the US Food and Drug Administration is easy. Regulatory compliance is often incredibly complex and in many cases a medical startup might not have the resources to manage it in multiple regions.
Lastly, although some investment firms have begun directing their attention to Europe, many startups in the region still lack the capital to take their technology to North America. While they would undeniably benefit from access to a new crop of potential investors, it's generally more cost-effective to continue developing their technology.
A savvy investor can take full advantage of this situation, and that's precisely what Principal Technologies is doing. It plans to acquire proven healthcare investments in the lower-cost EU market, then bring them to North America.
This not only generates investment capital for the healthcare technology company but also drives value for shareholders and investors. With that said, not all healthcare investments are created equal. As with any market, you need to know what to look for if you're to make smart decisions.
Finding the right healthcare investment
So what exactly do experienced investors look for when evaluating a potential new addition to their EU healthtech portfolio?
First, a proven competitive advantage. The company must have some unique selling point or value proposition that clearly differentiates it from others in its field. With that in mind, a portfolio of disruptive technologies with very clear applications for patients and physicians is also a must.
The company must also have a history of stable cash flow dating back at least several years while only marketing and distributing its technology on a strictly regional basis. Strong leadership is crucial to ensure the company continues moving in the right direction. Finally, it must be based in the European Union to avoid a potential arbitrage situation.
Beyond Principal Technologies, there are several companies offering this particular brand of investment opportunity. Among them are some of the biggest players in the industry — Medtronic (NYSE:MDT), Boston Scientific (NYSE:BSX) and Johnson & Johnson (NYSE:JNJ). They all acquire healthcare technology companies, then help them grow by supporting their distribution network.
And each of them, upon acquiring a European company, exposes it to North American valuations. However, these big players tend to acquire larger healthcare tech firms, which means smaller companies typically pass below their radar, despite the fact they may have growth potential that far eclipses their larger peers. Because they're smaller, they also tend to cost a great deal less.
Investor takeaway
The European healthcare technology market is among the most innovative in the world. It also represents a significant opportunity thanks in no small part to considerably lower valuations compared to North America. Investors seeking to take advantage of this opportunity could do so through a holding company targeting the EU — one with plans to expose its investments to North America.
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