By Sreevidhya Praveenkumar, Research Associate, Healthcare
The economic downfall around the world is now a stark reality. The medical devices industry, which has many small segments operating within it, is not insulated from the rough weather outside. The major concern amongst the medical device manufacturers is, whether the global economic downturn would blunt the rapid growth of the medical devices industry.
The medical device industry is one of the most vital and dynamic sectors of the European economy. This industry is constantly driven by research and development (R&D) which needs to keep pace with the increasing demand from the medical fraternity. There are reportedly more than 6,000 medical device vendors in Europe, employing around 300,000 people. The European medical device market is highly fragmented, with numerous niche product lines representing modest market sizes. Companies involved in medical device manufacturing range from large corporations producing a broad range of devices and pursuing a global marketing strategy on a worldwide scale, to small and medium companies concentrating on single product line in a specific geographic region.
Addressing the Medical Device Market
The worldwide medical device market comprises three main regions—the United States, Europe and Japan. The United States represents the largest share with approximately 45 percent, followed by the European Union (EU) countries with 30 percent and rest of the world with 25 percent. The global market for medical devices is currently estimated at US $314.6 billion. Of this US $94.39 billion is attributed to the European market.
Chart 1.1 illustrates the global medical device market, 2008
Source: Frost & Sullivan
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Short Term Effects of the Meltdown
Over the last five decades, the health care industry has experienced rapid escalation in health care costs and medical expenditure. Today, in most of the western European countries, health care is one of the fastest growing government spending segments. One of the main underlying factors driving healthcare expenditure across countries in Europe is the ageing population. Particular sectors of healthcare needs have increased alongside the increasing ageing population. These age related diseases encapsulate mainly musculoskeletal and cardiovascular.
With the present European healthcare scenario, the prediction is that the aging population will substantially affect social, political and economic conditions. Since healthcare expenditure and age are strongly interrelated, it is inferred that the future aging population will result in a continued surge in the healthcare expenditure. However, the medical device market is steadily growing at a rate well above the growth rate of the world economy for the same period. The traditional markets in the United States, Europe and Japan are showing lower growth caused mainly by cost-containment policies. Nevertheless, Health services typically are viewed as necessities, which consumers are very reluctant to forgo during unavoidable circumstances.
The ongoing recession is placing pressure on firms that provide health insurance and also reduces consumers' discretionary spending for purely elective medical care. The outlook for medical devices is promising especially for assisted-living facilities, which will benefit from the rapid growth of the population age 85 and over. The impact of ageing on health care expenditure is more complex. A number of European Union (EU) countries such as Belgium, France, the Netherlands and the United Kingdom have found that health care expenses multiply between the age of 65 to 75 in comparison with the younger and middle age groups.
Chart 1.2 provides the market segmentation of Medical Device Industry.
Source: Frost & Sullivan
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The chart provides various segments under medical device industry. Every medical device market segment is subject to specific market dynamics that govern its growth. Segments like Cardiology, Gynecology, Woundcare, orthopedics etc. are very unlikely to confront the impact of continuing downturn in the short term. However, the industry may not encounter a phenomenal outcome in the ongoing recession.
Long Term Effects of the Meltdown
The financial downturn being a counter cyclic trend will not spare any industry in a long run and medical device being no exception. Though the medical device industry survives in the short term with its deep pocket, it cannot withstand the recession for long. The industry is highly dependent on its end users mainly the hospital sectors. In recent days, hospitals are reporting a 20-30 percent reduction in elective procedure volume such as hip and knee replacement surgeries. The combination of the hospital financial environment and the recession will reduce hospital's purchasing volume and reduce the average sales price (ASP) for the devices they purchase. This will largely affect the revenue and growth of the medical device industry.
The accelerated pace of the recession is expected to peter-out from the third quarter of 2009. The device manufacturers most likely to be impacted are those in the orthopedic, spinal, cardiac cath, endoscopy, and other non-urgent specialties.
To conclude, the medical device industry is very optimistic about 2009 despite global economic worries due to the fact that imperative healthcare needs have no cessation. Increasing market share and launching new products efficiently is a key activity for the Medical Device Manufacturers. Starting from strategies for launching new products, increasing market share, identifying and influencing decision makers, the sales and marketing activity list is long and demanding. Marketing is a major challenge for these manufacturers in the current market with the need to produce the right marketing message, to the right audience with the right educational mix. Moreover, the device manufacturers can operate their production in low cost manufacturing sites to stabilise their revenue in times of economic decline. Hospitals can merge to increase their turnover and thus can shield them from the existing economic trauma.
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