A Positive Prognosis

As the use of in vitro diagnostics continues to increase around the world, especially in the field of personalized medicine, German companies are leading innovations in Europe.

February, 2017

In vitro diagnostics (IVD) uses medical devices and reagents to examine body specimens in order to detect disease, infections and chronic conditions and identify the most suitable treatments. IVD testing can be carried out in both external and hospital laboratories, but recent years have seen a major shift towards testing at the point of care (such as doctors’ surgeries) or even at home using consumer IVD devices.

The application of IVD technologies in clinical diagnosis has become indispensable in the diagnosis and treatment of disease. Technological advances in the field of companion diagnostics and personalized medicine (procedures that tailor treatments to the individual, pinpointing which specific drugs or products should be used), rising incidences of chronic disease and lifestyle-related conditions, aging populations, a growing demand for point-of-care testing and increased affluence in emerging economies are all combining to drive the growth of the IVD sector worldwide.

Technological advances in the field of companion diagnostics and personalized medicine as well as the rising age of the population are driving growth in the sector.

© Paul Hahn/laif

Global IVD market revenue is expected to reach $74.7bn (€68.4bn) by 2020, representing a compound annual growth rate (CAGR) of 5 per cent over the previous six years. Currently, North America dominates the global IVD market with Europe in second place. Major players such as Abbott Laboratories, Becton, Johnson and Johnson, Roche Diagnostics and Siemens Healthcare have built their dominant market position in recent years by focusing on innovation and expanding into emerging markets like India.

The European scene

The European market is highly fragmented, with intense competition among vendors. This, combined with a lack of proper reimbursement policies and stringent regulatory frameworks, has led to general stagnation in the European market as a whole.

Germany is the exception here: an innovative IVD sector supported by the country’s strong R&D landscape and the needs of an aging population (see box) is still driving growth and will open up significant opportunities for investors over the next decade. Germany has the lion’s share of the European market for IVD. This is forecast to reach $5.7bn (€5.2bn) by the end of 2020, which represents a significantly higher CAGR of 5.5 per cent than the global average over the same six-year period.

11 per cent

Share of German GDP which is spent on healthcare.

Source: World Bank

Germany’s IVD market on upward trend

Germany’s diagnostics sector is represented by the Association of the German Diagnostics Industry (VDGH), with 100 members that either produce or distribute diagnostics and life science research products. Almost two-thirds of them have their own R&D operations, and 68 per cent their own production facilities in Germany.

The VDHG estimates the total value of Germany’s IVD market at €2.2bn in 2015 – an increase of over 1 per cent on the previous year. “This is a gratifying, albeit modest growth,” says VDGH Chairman Matthias Borst. “Market development in Europe is stagnating. The German market stands out positively for the first time in four years.”

The outlook for 2016 is similarly positive. A recent VDGH survey highlights its members’ optimistic revenue forecasts, with more than 80 per cent of companies expecting growth.

The German market stands out positively for the first time in four years

The diagnostics sector generally operates in highly regulated markets where laboratory diagnostics are often seen as a cost factor, regardless of their wider economic benefits. “Increasing price pressure in the market pushes down the margins,” Borst notes. “This is due to comprehensive quotations and reduced reimbursements for laboratory services.” The VDGH is calling for an overall economic, technology and health policy strategy that would allow its members to take full advantage of the health care system’s growth and employment potential.

R&D is Germany’s strength

Employment in the IVD sector is expected to have increased slightly in 2016. Forty per cent of the companies surveyed are intending to hire more staff. Customer service, sales and marketing specialists are particularly sought after. Because the IVD sector is one of the most innovative in Germany, it also employs more than 12 per cent of its workforce in R&D. More than 10 per cent of revenues are spent on R&D, making the sector second only to pharmaceuticals and putting it ahead of the automotive and electrical engineering industries.

Plans by the German government to streamline licensing and testing procedures are expected to have a further positive effect on IVD R&D investment. Overall, Germany’s highly innovative IVD companies are in a strong position to increase their share of this highly lucrative market in the years to come.