While mirroring the medical device market, the medical device outsourcing market is primed for rapid change to effectively meet the growing demand for its services. By

The medical device market is experiencing explosive growth. Currently valued at $75 billion, market growth will continue to accelerate as demographics and market drivers increase their pressure for new and innovative product offerings.

To meet this ever-growing demand, two types of companies have emerged. First are the medical device companies that sell to the clinical end user. The top companies—including Johnson & Johnson, Medtronic, and Zimmer—are skilled in determining physician and patient needs, developing products, acquiring regulatory approval, marketing and branding, and training clinicians to use the new products.

The second type of company is the medical device outsourcing company. These organizations sell to the medical device companies. They are focused on product development, design, manufacturing, engineering, and complete supply chain management.

Medical device outsourcing companies share the very same concerns as the companies that have historically brought the products to market. First and foremosst, they must empower their customers, the medical device companies, to ensure clinical efficacy and patient care.

Speed to market is the second major priority for medical device outsourcing companies. To beat the competition, products must be brought to market quickly without sacrificing high quality standards. It is imperative when manufacturing and delivering medical devices that the final products are fully tested. Even a one percent failure rate is unacceptable.

While medical device companies have already gone through a cycle of mergers and acquisitions creating stronger, more robust organizations, the medical device outsourcing companies are just beginning to respond to this demanding market. A new wave of consolidation is beginning.

The medical device outsourcing market is ripe for consolidation. The market is extremely fragmented, with many small players whose annual revenues are less than $5 million. Most of these organizations specialize in only one technology and much redundancy between companies exist. Everyone of these small players has administrative overhead. Many have a sales force. Everyone has marketing costs. All of these expenses are a burden borne by the industry.

• US Market valued at $75 billion – 2005
• Growing at 8-10% annually
• Some segments growing at 15-20%
• Approximately 6,000 manufacturers
• Employs 300,000 people
• US exports over $15 billion annually yielding a surplus of $8 billion

Manufacturing strategies for medical device outsourcing companies are becoming more sophisticated as these companies grow their core areas of expertise—say cardiology or ophthalmology—rather than dilute their business by remaining generalists. They not only have in-depth knowledge of materials and components, they’ve discovered how and where their products can be manufactured at the lowest cost while assuring that the strictest quality is maintained.

Outsourcing companies continue to grow as they support medical device manufacturers who may not have the staff available or be able to employ capital assets to produce the products they need to remain competitive. With an ever sophisticated customer base, medical device companies have had to keep a robust launch pipeline. By some estimates, up to 80% of a medical device company's profit comes from products introduced in the last 5 years. Fifty to 70 percent of product portfolios consist of products launched in the last 3 years.

To maintain accelerated market introductions, medical device companies have learned to focus on reducing the surgical adoption rate for their products while turning to other avenues to meet their product development and manufacturing needs.
 

Consolidation strengthens the medical device outsourcing market in many ways. One of these is reducing the number of suppliers involved in a project. It is simply easier and more efficient to manage fewer suppliers. Time to market is accelerated as products go through fewer hands before reaching their end-users.

A strategic outsourcing partner can streamline the supply chain, manufacturing components, providing assembly and kitting, sterilizing finished devices, even packaging, warehousing and distributing final products. No time is lost dealing with multiple suppliers, mismatched quality systems, and numerous inventory systems. Instead, medical device companies can rely on a strategic partner to manage the supply chain from development through manufacturing to on-time delivery.

Consolidation also improves return on invested capital. For instance, consider the hip industry in the United States. If 600,000 hips are replaced annually and there are several companies creating the same parts, each with their own factory, then there is much overlap. Return on invested capital will improve if ways to pull invested capital off-line are found. It may be selling factories, not building new ones, or closing antiquated ones. All of these approaches could free up funds to invest in emerging technologies.

Consolidation strengthens concept design capability by providing experience across a broad spectrum of medical devices. Lessons learned by engineers on one project can spur innovation on other projects. All the experts needed can be found under one roof.

 
Source:Company estimates, Millennium Research and Frost & Sullivan

Another vital benefit of consolidation is improved quality. Mergers can provide resources necessary to build more sophisticated quality systems. By concentrating resources, medical device outsourcing companies can maintain quality systems equal to or better than their customers.

The medical device outsourcing market will consolidate to respond to market needs. Consolidation will promote accelerated time to market, greater returns on invested capital, and transformational innovation while maintaining high quality and patient efficacy. The future is bright.