Emerging markets will make waves in medical innovation

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The Independent Online

The march of the emerging markets, particularly China, India and Brazil, is clearly evident in the heady rates of GDP growth, something which this column has touched upon before. But their growing strength in hi-tech fields such as medicine is less obvious. Stereotypes – China as the world's factory, for instance, and India as its call centre – cloud the picture.

Against this backdrop, a survey from PricewaterhouseCoopers offers some timely figures, and reveals that emerging markets are "gaining ground in their capacity to produce the latest in medical technology innovation" – so much so that they may surpass the more mature economies of the West over the next decade.

Using more than 80 different metrics, PwC looked at how well nine countries – Brazil, China, France, Germany, India, Israel, Japan, the UK and the incumbent global leader, the US – were promoting innovation.

Using data from the past five years, they projected the likely course of developments over the next decade. The results show that the US currently has the greatest capacity for innovation in medical technology. Given its years of investment and dominance in the field, it is also well placed to keep the top spot in the years ahead. On a scale of one to nine, then, the US scores a healthy 7.1 in terms of its overall capacity.

Other mature economies, such as the UK, Germany and France, fall within a tight range of between 4.8 and 5.4 points. The emerging giants lag behind, with scores of less than 4. China notches up a result of 3.4, while both India and Brazil score a fairly modest 2.7.

Looking ahead to 2020, PwC said that although it expected the US to hold its lead for years to come, its long-term dominance "is no longer assured". The report also projects "relative declines for Japan, Israel, France, the UK and Germany", while China, India and Brazil will make new strides.

"China, which has shown the largest improvement in medical technology innovation capacity during the past five years, is expected to continue to outpace other countries and reach near parity with the developed nations of Europe by 2020," the report explained.

"If developed countries do not step up levels of investment in innovation, over the next decade new markets will surpass developed countries in innovative healthcare delivery," said Simon Friend, the global pharmaceuticals, medical devices and life sciences industry leader at PwC. "Stimuli for new technologies is being built through the education system and we will see businesses focusing on new markets for new ideas and expanding sales bases."

Though auguring good things, the report did add a word of caution, with PwC saying that despite the size and the opportunity represented by the likes of China, India and Brazil, "their global leadership in medical technology innovation is not necessarily pre-ordained".

Issues such as low levels of intellectual property protection and weak local supplier networks could yet throw a spanner in the works.

Quoted companies set for awards

The FTSE 350's finest will suit up for the annual Grant Thornton Quoted Company Awards in London this week. Chairmen and chief executives will gather at the Natural History Museum in South Kensington on Wednesday night. In addition to the usual gongs – chairman of the year, chief executive of the year, deal of the year and so on – the organisers are offering a new award, snappily entitled "AIM to Main".

As the name suggests, the prize is for companies that have moved from the Alternative Investment Market (AIM) to the official list of the London Stock Exchange. Given that this is the first year for this award, the organisers looked at the whole range of companies that have moved up since AIM's inception. The idea is to reward those that have registered "considerable gains in terms of sales, profits, earnings and share price growth".

The shortlist boasts some pretty successful names, including Domino's Pizza, the fast-food group that seems to have a peculiar knack for posting upbeat updates. Also in the running are Centamin Egypt, KSK Power Ventur, Great Eastern Energy, Mears, Genus, Synergy Healthcare and First Quantum Minerals. All the best to everyone.

Counting the cost of deal activity

Deals can be stressful affairs – and not just for the companies involved. The consequences of takeovers often reverberate beyond the predators and targets to customers, vendors and the like. A case in point is the telecoms technology firm Filtronic. Last week, Nera, a key Filtronic customer, was acquired by the Israeli communications equipment manufacturer Ceragon Networks.

Soon afterwards, Filtronic published an update, warning investors that, while it was too early to gauge the consequences, the Israeli group made the sorts of products that Nera buys from Filtronic. "As such [it] may choose over time to substitute its own products for some of those currently produced by Nera or supplied by Filtronic to Nera," it said, spooking the market. The shares, which closed at 57p on 14 January, fell sharply, closing at 38p on Friday – a fall of more than 30 per cent over the week.

So, how bad could it be? The loss – if it comes about – may well be significant, according to Panmure Gordon, whose analysts said that up to 20 per cent of Filtronic's estimated revenues for 2012 were potentially at risk. Not that they were entirely negative, adding: "Assume the worst, but ... some level of sales remains possible on a long-term basis. Ceragon's expertise lies in the short-haul market, so the long-haul part of the overall production could still be an opportunity for Filtronic."

This leaves the question of how quickly Filtronic might end up losing this business. "Companies cannot immediately change the make-up of a product due to design, interdependence, inventory and supply change issues, so replacing Filtronic's modules with Ceragon's in-house technology will take some time," Panmure explained. "This may be 12 to 18 months for customers with long-term framework agreements, but much quicker for new customers."

The broker was careful to point out that, given the uncertainties, "it becomes fairly academic as to how forecasts will be affected". Bearing that caveat in mind, Panmure put its detailed numbers under review ahead of Filtronic's half-yearly results at the end of this month.

"Our initial assumption sees 50 per cent of Nera revenues falling away in 2012 and 75 per cent in 2013," the broker said. "However, our 2012 revenue forecast of £38.9m was already looking high, so we provisionally move this down to £30m. We also took a precautionary 10 per cent cut to our 2011 revenue forecast, which moves down to £20m."