Thomas Klein
Specialist journalist

The medtech revolution: the European medical technology industry

Most people use at least one medical device every day. Ranging from high-tech MRI machines and surgical robots to contact lenses or condoms, there are currently over 500,000 products available that fall under this category, according to the European industry association Eucomed.

According to MedTech Europe, around 7.5% of the total healthcare expenditure is spent on medical technology in Europe. The largest segment within medical technology in 2013 was in vitro diagnostics with global sales of $ 47.4 billion followed by cardiology ($39.9 billion), diagnostic imaging ($35.5 billion), and orthopaedics (33.8 billion), according to the statistic portal Statista.

The medical technology sector is known to be one of the most innovative industries. Eucomed says that the industry’s products usually only have a lifecycle of 18-24 months before they are replaced by an improved device. Medical technology is regularly at the top of the list of technology fields with the most patent applications. According to the European Patent Office, more patent applications were filed for medical technology in 2014 (11,124 applications) than for any other type of technology, including digital communication (10,018), biotechnology (5,905) and pharmaceuticals (5,270).

Many of the industry’s heavyweights, such as Johnson & Johnson and Baxter, are based in the US, but some of them could be interested in relocating their headquarters in Europe to take advantage of the considerably lower corporate taxes: Medtronic have already done it, moving to Ireland.

Across Europe, there are roughly 25,000 medical technology companies employing more than 575,000 people. In the US, about 520,000 people work for 6,500 medical device companies. This shows how the industrial structure differs between the two continents. The European industry is dominated by small and medium-sized companies (SME). In 2014, only five of the top 20 global medical device companies by revenue were based in Europe (Siemens AG, Fresenius, Koninklijke Philips, Novartis, Essilor). Many of those European medtech champions are part of big industrial conglomerates, such as Siemens or Philips, or pharmaceutical companies, such as Novartis and Roche. While there are a number of global players in Europe, almost 95% of the European medtech companies can be counted as SMEs.

The medical technology sector is known to be one of the most innovative industries. More patent applications were filed for this field in 2014 than for any other type of technology

European medical device industry and markets

With roughly 40% of global expenditure on medical devices, the US are the biggest single market for medical technology. Europe comes in second with 30% of worldwide expenditure or about €100 billion per year.  But emerging countries, such as China or Brazil, are catching up fast with growing middle classes demanding better healthcare. While the Western markets are pretty mature by now, in the future most of the growth for medical device companies will probably come from emerging countries.

The biggest single market in Europe is Germany with sales of about $26.8 billion per year, according to the market research firm Business Monitor International (BMI). Despite the fact that many hospitals are running deficits, the demand for medical equipment is comparable stable in Germany.

The second largest European market is France with sales of $15.0 billion. Over the last few years, the French government has implemented a number of cost-cutting measures including more demanding requirements for reimbursement for medical devices. The so-called Responsible Hospital Procurement (PHARE) Program is intended to save French hospitals €120 million annually in procurement costs for disposable items and €36 million for medical imaging devices. Hospitals hope to reduce spending by pooling their procurement in big purchasing groups.

In 2014, the British medical device market was worth $11.3 billion. Despite the fact that the National Health Service (NHS) which accounts for about 80% of expenditure for medical technology in the country is expected to face a funding deficit of £ 30 billion by 2020, BMI forecasts annual growth of 6,8% until 2018.

Valued at $9.4 billion, the Italian medical device market is the fourth largest in Europe. Faced with a huge national deficit, the Italian government curbed public medical device expenditure in 2014. Since 70% of the Italian medtech market depends on public spending, experts expect slow growth in this sector in the following years. Additionally, companies currently struggle with delayed payments from public bodies.

A similar picture presents itself when looking at Spain, the fifth largest European market, which is worth about $5 billion. Here too, the Spanish National Health System had to cut spending significantly.

BMI assumes that most European markets will grow again in 2015 with the exception of some Southern states that have been hit hard by the ongoing economic crisis, such as Italy and Spain. The market research company expects Western European markets to increase at a compound annual growth rate (CAGR) of 3.7% in the period between 2014 and 2019. Since the global CAGR is expected to be around 6.6%, the importance of the region for medical technology industry will be in relative decline.

The US are the biggest single market for medical technology. Europe comes in second with about €100 billion per year

European medical technology clusters

While medical technology companies can be found all over Europe, a number of regional industrial clusters have emerged. Those regions have a high concentration of medical device companies, component suppliers, clinics and research facilities with focus on medical research. The companies in those clusters benefit not only from the opportunities of joint research and the proximity of experts in many medical areas, but often also from collaboration in areas, such as lobbying and purchasing of components.

At the center of such medical clusters are often global medical device companies or world-renowned universities attracting talent, capital and supply industries. For example, the area around the German cities Nürnberg and Erlangen was the cradle of Siemens’ healthcare unit. Today, the area is home to 180 medical technology companies with over 16.000 employees. Additionally, 40 hospitals treating more than 500.000 patients per year and 20 research institutes provide plenty of opportunities for research collaboration.

One of the biggest clusters in Europe is the located around the small town Tuttlingen in the Southwest of Germany. With more than 400 medtech companies employing over 13.000 people, the region claims to be “world centre of medical technology.” Centered around surgical instrument manufacturer Aesculap and the endoscopy maker Karl Storz, more than 90% of the companies in the cluster are SME.

After Ireland started in the 1970s to attract foreign companies with low corporate tax rates and research incentives, many of the big US companies settled in the area around Galway. After that, an indigenous medical technology industry quickly established itself followed by a highly innovative research landscape.

The BioRegion of Catalonia, in Spain, is also increasingly becoming one of the hotspots for innovation in medical technology with its over 730 life science companies. Out of these, over 200 work in the field of medical technology, employing more than 11,200 people. The industry benefits from cooperation with 41 research centers, 15 university hospitals, 13 science and technology parks and eleven universities offering life sciences studies in the region. The high concentration of research institutions focusing on life science and healthcare in the area facilitates the emergence of medical technology start-ups.

The 360 medtech companies in the area around Zürich in Switzerland can draw on the outstanding research capabilities of the Zürich universities, such as Swiss Federal Institute of Technology Zurich or the University of Zurich.

Other important healthcare clusters are in the area between Stockholm and Uppsala in Sweden with 611 companies (including pharmaceutical and biotechnology firms) employing 20,852 people, and the Alsace Biovalley in France with over 150 medtech companies.

In the future, the so-called “golden triangle” between London, Cambridge and Oxford with world-class academic institutions will probably become another healthcare technology hub. The City of London started several initiatives to bring together medical researchers, hospitals, medtech and biotech companies, the NHS and venture capital firms.

Catalonia is becoming one of the hotspots for innovation in medical technology in Europe. Over the last ten years, 48 medtech companies were founded in the BioRegion of Catalonia

Changes ahead

The medical technology industry is undergoing a period of fundamental change. On the one hand are changing demographics in most parts of the world and the increasing prevalence of chronic diseases driving the demand for high-quality medical devices, diagnostic and imaging equipment, and innovative eHealth solutions. On the other hand healthcare expenditure is increasingly curbed by strained public budgets and austerity measures, especially in Southern Europe.

As a consequence, hospitals are often reluctant to invest in expensive medical equipment or pool their purchases in procurement groups in order to push prices down. Healthcare insurances increasingly require medical technology companies to prove that new treatments are not only medicinally effective but also help to take costs out of the system before agreeing to pay for them.

According to a report conducted by the consultancy Analysis Group, prices for implantable medical devices have fallen between 17% and 34% in the period from 2007 to 2011 depending on category.

Medical technology companies are trying to adapt to the changing conditions by introducing cost-saving technologies, such as mobile health solutions, and new business models. For example, some companies started to offer comprehensive services on a pay-per-procedure basis instead of just selling devices. The US gi-ant Medtronic, for instance, operates entire cath laboratories for hospitals.

Medical technology companies are trying to adapt to the changing conditions by introducing cost-saving technologies, such as mobile health solutions, and new business models

Consolidation and M&A

The rapidly changing market environment is partly responsible for the wave of mergers and acquisitions across the medical device industry. In 2014, the sector was shaken by the $42 billion jumbo merger of Medtronic and Covidien, two of the heavyweights of the industry. One of the motivations for the deal was probably to save corporate taxes by being able to move the company headquarter from the US to Ireland. But size in itself increasingly matters in the medical device industry. Companies seek to increase their scale in order to counter the greater bargaining power of purchasing groups. Additionally, they hope that sizes helps to achieve synergy effects. After its $13 billion acquisition of Biomet, orthopedics company Zimmer said that it expects to gain yearly cost synergies of $270 million from the deal.

On the other hand, increasing cost pressures force companies to concentrate on their strategic core business and sell peripheral units. For instance, the German pharma giant Bayer sold its diabetes care business for €1 billion to Panasonic Healthcare in 2015 and its angiopathy device division to Boston Scientific for €300 million.

Another driver for M&A activity is the determination of companies to gain access to emerging technologies. The Swiss company Roche, for examples, has invested heavily over the last years to acquire molecular diagnostic companies which are important for both its medtech and its pharmaceutical arm. Covidien acquired the Israeli firm Given in 2013 for its minimally invasive capsule endoscopy technology.

A further reason for the current wave of M&A is the fact that IT and consumer goods companies are entering the medical device market

Friends of foes?

A further reason for the current wave of M&A is the fact that IT and consumer goods companies are entering the medical device market. The ubiquity of mobile technology in addition to the desire of patients to have more say in the management in their own health could be indicators that the medtech industry is ripe for digital disruption.

Google made the headlines with some of its moonshot projects, such as smart contact lenses for diabetics or swallowable pills that detect various illnesses at an early stage. Apple released its Healthkit app to improve patient doctor communication and facilitate clinical trials.

Tech giant IBM has started to find applications in healthcare for its big data com-puter system Watson. Watson initially became famous beating human contest-ants in the game show Jeopardy, demonstrating the ability to understand natural language. In several projects IBM tested Watson’s ability to use its computational powers to support physicians in diagnostics and treatment decisions. IBM now established a new business unit to commercialize Watson for the healthcare market and agreed to cooperate with some of the traditional medtech companies such as Medtronic and J&J in that field. In August 2015, IBM announced that it bought the provider of medical imaging systems Merge Healthcare for $1 billion in order to use Watson’s cognitive capabilities to interpret medical images.

In order to achieve its goal to become one of the world’s leading medical equipment makers by 2020, the Korean electronics group Samsung bought several medical device companies since 2010, including the Boston-based medical imaging company NeuroLogica and ultrasound device maker Medison. Furthermore, Samsung has set up a $50 million investment fund to invest in innovative startups that develop sensors and software for mobile health solutions. In June 2015, the company announced that it would cooperate with Medtronic to develop mobile diabetes apps.

While the activities of those newcomers is unsettling for many of the traditional medtech companies given their track record of disruption and their vast resources, it is unlikely that the IT giants will sweep away their established competitors overnight. It takes long years of experience to bring new products to market in a sector as regulated as medical technology. Therefore, it is more probable that the IT companies will seek to cooperate with more experienced medtech firms to market their ideas. Google, for example, announced in 2014 that it teamed up with Swiss Novartis to develop their smart contact lenses to market maturity.

Changes in the regulatory landscape

Since the wellbeing and sometimes the lives of patients depend on the proper functioning of medical devices, a new device has to undergo a stringent regulatory process before it is ready to hit the market. While in the US a single regulatory body, the Food and Drug Administration (FDA), is responsible for the approval and monitoring of medical devices, this task is performed in Europe by the so-called notified bodies. Notified bodies are independent institutions accredited by national authorities of EU member states. They evaluate technical documentation and quality systems of manufactures and test if the devices operate as expected.

In 2011, after the French manufacturer of breast implants PIP fraudulently used cheap silicone instead of medical-grade material harming thousands of patients, the system came under fire and politicians argued for stricter regulation. The EU institutions and the member states are currently working on a new legislation that will overhaul the EU medical device directives. The main objective is to improve the quality of the work of notified bodies and the security of medical devices. Among the measures in discussion are stricter monitoring of notified bodies and the concept of ‘special notified bodies (SNB)’ for certain categories of devices. Medtech manufacturers fear that more stringent regulatory rules will drive up costs to market new products and discourage innovation. One new requirement that is already felt by the industry are unannounced audits. Notified bodies are required to conduct unpredictable audits at the manufacturer’s, critical subcontractor’s or component supplier’s manufacturing sites.

Medtech manufacturers fear that more stringent regulatory rules will drive up costs to market new products and discourage innovation

Emerging and future technologies

Hardly any industry implements new technologies as fast in its manufacturing processes and products as the medical device industry. For example, medtech companies are among the pioneers in finding applications for 3D printing technology. Because of the need to tailor many medical products to individual patients, 3D printing has become the standard process already in the manufacturing of certain devices, such as hearing aids or dental implants. It is expected that 3D-printed hip and knee replacements will be in mainstream use within two to five years.

One major trend in healthcare is personalized medicine where physicians are able to suit treatments to the patient. In this context, molecular diagnostic systems are gaining importance that analyze the patient’s genome and proteome to find biomarkers hinting at certain diseases and predict the person’s reaction to treatments.

As mentioned above, the digitalization of healthcare is progressing. Patients use cell phones and wearable devices to monitor their health. Big Data applications, such as IBM’s Watson, will be used to support diagnostics and treatment decisions and predict the outbreak of pandemics by analyzing disease patterns. Already, robotic systems, such as Intuitive Surgical’s Da Vinci device, assist doctors during surgery.

In the research labs, scientists are working on even more futuristic technologies. In the future, nano sized devices will travel through blood vessels searching for biomarkers of diseases, delivering drugs and attacking cancer cells. Researchers are also working on technologies that are able to interpret electrical currents in the brain. Such brain-device interfaces might one day help quadriplegic patients to operate motorized exoskeletons.

Scientist are also trying to take 3D Printing to the next step. They are replicating human tissue with the help of 3D printers. In 2013, researchers at Chinese Hangzhou University even claimed to have produced a small kidney. Currently, the major challenge for Bioprinting is to supply the printed structures with blood so that they can survive. While it is still probably decades away that companies will be able to print fully functional replacement organs, the technology might in the nearer future be used to produce tissue for clinical trials.

Public payers and health insurances will demand that new medical devices not only improve the treatment but also help to save money

Conclusion

The medical device industry faces challenges in many areas. Regulatory changes are looming, new contenders are entering the market, and public healthcare budgets are ever decreasing. However, the prospects for the industry are still promising. Ageing populations and a globally growing middle class are indicators that the demand for medical technology will only increase in the future.

Medical device companies will have to employ new technologies in order to adapt to changing conditions, as public payers and health insurances will demand that new medical devices not only improve the treatment but also help to save money.

Success stories


  • Bcn Innova

    Oriol PratCEO
    2008 Year founded4 Employees210k€ Turnover

    Bcn Innova

    Oriol PratCEO
    2008 Year founded4 Employees210k€Turnoverwww.bcninnova.com
    • Company mission

      To develop, manufacture and market medical devices to measure ocular mobility.

    • What innovation do you bring to the market?

      We make a device that had never been seen before. Previously, ocular mobility was measured manually, in a very imprecise and subjective manner, which led to many errors and meant that surgery wasn’t always effective. Our device measures ocular mobility precisely and objectively, facilitating diagnosis and monitoring of the condition and, indirectly, improving the results of surgery.

    • What is the most important milestone you’ve reached so far?

      From a technological standpoint, preparing a device that has never been seen before and starting to market it. We began marketing the device in 2013 but 2015 has been the year of consolidating sales in countries like Spain, France and Italy, but also markets further afield like Denmark, Poland, Malaysia, Indonesia, Hong Kong, Macau, Mexico, Algeria and Estonia, directly or through distributors.

    • What would you like to read about the company in the news a few years from now?

      We aspire to become the industry standard in measuring strabismus and other conditions related to eye mobility, so all ophthalmologists have our device in their practice and all patients can benefit from it.

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  • Biokit

    Pau PlanasCEO
    1973 Year founded340 Employees124M€ Turnover

    Biokit

    Pau PlanasCEO
    1973 Year founded340 Employees124M€Turnoverwww.biokit.com
    • Company mission

      To contribute to precision medicine by offering innovative immunoassays and in vitro diagnostic solutions (IVD) that clients consider to be of high clinical value, safe and easy to use.

    • What innovation do you bring to the market?

      Biokit’s innovation is twofold: in technology, constantly striving for new knowledge and skills to develop and manufacture biomaterials (antigens and antibodies) and reactives to obtain best-in-class immunoassays; and in business, offering solutions that have the potential to transform our clients’ workflow, allowing them to create proposals of higher clinical value. For example, Biokit is a pioneer in marketing some diagnostic tests on the high-sensitivity BIO-FLASH platform, offering a completely automatized solution for these tests for the first time on the global in vitro diagnostic market.

    • What is the most important milestone you’ve reached so far?

      Having been able to grow a totally international business based on knowledge and talent is highly satisfying. Many factors have contributed to this, but I think the most decisive was combining the acquisition of advanced diagnostic technology with business opportunities where this technology has the potential to transform or innovate. Thanks to this good decision, Biokit has become a world leader in some segments of the IVD market.

    • What would you like to read about the company in the news a few years from now?

      That Biokit has continued to innovate and generate wealth based on the same professional and human values that have guided us so far.

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  • NEOS Surgery

    Lluís ChicoManaging Partner
    2003 Year founded13 Employees1.3M€ Turnover

    NEOS Surgery

    Lluís ChicoManaging Partner
    2003 Year founded13 Employees1.3M€Turnoverwww.neosurgery.com
    • Company mission

      The mission of NEOS Surgery is to develop, homologate, manufacture and market new implantable healthcare products that help improve quality of life by understanding market demands in surgery –in particular, neurosurgery- in order to boost the value of the company and foster growth in a high value-added industry.

    • What innovation do you bring to the market?

      The NEOS philosophy is essentially to develop implantables based on innovative materials and designs. Plus, we always go one step further in processing these materials. This way, we create more ambitious designs for our products so that they better fit the needs we’ve detected among neurosurgeons, who we are in constant contact with.

    • What is the most important milestone you’ve reached so far?

      Here at NEOS we’ve achieved a significant international presence for our Cranial LOOP line of products, which are currently sold in more than twenty countries around the world. We’ve achieved this goal thanks to several factors: ambitious product development and patent strategy, approval from several regulatory authorities (CE marking in Europe, FDA in the USA, CFDA in China and soon the PMDA in Japan, among others), and commercial alliances with proven local partners, like the KLS Martin group in the United States.
      Also, we’ve recently been granted an SME Instrument by the European Union under the Horizon 2020 project. As one of only six companies in Spain to benefit from this instrument so far in the sector (nanotechnology, materials and advanced manufacturing), NEOS will receive funding for two years to complete development of a product to treat herniated discs.

    • What would you like to read about the company in the news a few years from now?

      Some time from now, we would like to read that NEOS has become a consolidated company and is growing steadily on all levels, above all with regard to (exclusive) implantables with significant value added for users. We would like to see us become a benchmark international implant manufacturer. We hope to achieve this goal with a wide range of patented products developed internally, although we don’t discount the possibility of working with other external partners (third-party development), both in the field of neurosurgery as in other areas of surgery.

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  • Transmural Biotech

    Roc ViñasChief Operating Officer
    2009 Year founded11 Employees50k-100k€ Turnover

    Transmural Biotech

    Roc ViñasChief Operating Officer
    2009 Year founded11 Employees50k-100k€Turnoverwww.transmuralbiotech.com
    • Company mission

      To develop and market new medical technology based on image processing that enables effective, non-invasive, early diagnosis of complex pathologies.

    • What innovation do you bring to the market?

      The technology Transmural Biotech develops is geared towards meeting a clear need identified by world-renowned specialists internationally. New diagnostic techniques are needed that use medial imaging for efficient, non-invasive diagnosis of various pathologies.

      With this vision, in recent years we have worked to develop technology to interpret medial images (mainly ultrasound imaging) to identify parameters not visible to the human eye that are associated with the presence of certain pathologies.

      Starting from this technology, we’ve created our first final product, quantusFLM. This software analyzes an ultrasound of a fetus’s lungs to determine the risk of neonatal respiratory morbidity, replacing previous tests based on amniocentesis.

    • What is the most important milestone you’ve reached so far?

      Starting to market our first product, quantusFLM, in late 2014.

      Having developed a final product and starting to market it is undoubtedly the best proof of the company’s capabilities, and a key milestone in ensuring its consolidation.

      Currently, by applying an innovative business model for marketing this product, we have users in 40 different countries.

      These facts motivate us to keep working just as hard, because we believe that our vision of becoming a global benchmark in image diagnostics is closer than ever.

    • What would you like to read about the company in the news a few years from now?

      That we’ve been able to develop and market new diagnostic tools that use our base technology to improve clinical capabilities to tackle pathologies that affect large parts of the population, like cancer, neurodegenerative diseases and premature birth, among others.

      Also, that this has helped create jobs, consolidate the company internationally and generate profits for the partners that have believed in this project.

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  • Starlab

    Ana MaiquesCo-Founder
    2001 Year founded37 Employees4.2M€ Turnover

    Starlab

    Ana MaiquesCo-Founder
    2001 Year founded37 Employees4.2M€Turnoverwww.starlab.es
    • Company mission

      To transform science into products and services with a huge impact on society.

    • What innovation do you bring to the market?

      After fifteen years of field research in neuroscience, we’ve developed innovative wireless medical devices to monitor and stimulate the brain in order to help patients recover from a cerebrovascular accident, chronic pain or depression.

    • What is the most important milestone you’ve reached so far?

      Our innovative devices have been sold in more than 35 countries by our spin-off, Neuroelectrics. Important centers and universities like MIT, Harvard, NASA, Yale, UCSF, Mont Sinai Hospital, Inserm, Oxford and veterans hospitals use our technology to learn more about the brain and, therefore, be able to help patients who need it.

      We have CE marking and our Boston office is beginning the process to gain FDA approval.

      Neuroelectrics technology has received numerous awards, the latest being the Wired UK Best Start-up for Health in Europe Award 2015.

    • What would you like to read about the company in the news a few years from now?

      I would like to read that Starlab has been recognized for conducting high-quality research and for having made the long journey from research to market (which is very difficult). I would like to read that our technology, like what we now market through Neuroelectrics, has become a game changer, significantly changing how we diagnose and treat patients with brain conditions. I would like to see that our devices are being used for home treatment around the world.

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  • STAT-Diagnostica

    Jordi CarreraCEO
    2010 Year founded30 Employees- Turnover

    STAT-Diagnostica

    Jordi CarreraCEO
    2010 Year founded30 Employees-Turnoverwww.stat-diagnostica.com
    • Company mission

      To develop a diagnostic device that decentralizes molecular diagnosis and immunoassays for critical applications like infectious diseases, cardiology and oncology. It is a machine that takes fungible cartridges of reactives that can be used, for example, in an ICU or fast testing hospital laboratory to allow for near-patient testing.

    • What innovation do you bring to the market?

      Our main innovation is that the test is automatized, with a usability level that allows both nurses and doctors to do the test, thus bringing it to the patient. With a highly affordable manufacturing price and laboratory-level analytical capability, the results of the test don’t have to be confirmed later in a central laboratory. They can be used by doctors to make clinical decisions.

    • What is the most important milestone you’ve reached so far?

      In 2013, the company closed the largest investment in the biotechnology and medical technology sector in Spain in recent years: €17 millions. In 2016, we hope to close another for between €20 millions and €30 millions. Funding is key to moving forward, but the most important is the state of technology we’ve reached, which is now ready for transfer to manufacturing and negotiations with distributors. Between late 2016 and early 2017 we expect to launch on the European market.

    • What would you like to read about the company in the news a few years from now?s?

      Now we have the technology and aspire to develop the business. We would like to read that STAT-Diagnostica is earning money, as an independent company or as a business unit of a large corporation that has acquired it, and that we market a leading product that can stay on the European and American markets for 15 or 20 years.

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* Thomas Klein, freelance journalist based in Germany, writes about the medical technology industry and was the managing editor of European Medical Device Technology (EMDT) until 2015. Before he had worked as an editor and project manager at the F.A.Z.-Institut, a full subsidiary of the Frankfurter Allgemeine Zeitung (F.A.Z.) publishing group, writing about various economic issues with a focus on innovation management and the ICT-sector. Thomas studied Political Science, Sociology and History at the University of Trier.