The Invincible Industry

21 December 2008 (Last Updated December 21st, 2008 18:30)

As the world economy crashed in 2008 the medical device industry bucked the trend. Nicola Boyes reviews the past year and where the industry is heading for 2009.

The Invincible Industry

While the world economy moves warily into 2009 with ailing profit margins, shrinking staffing levels and company directors sick at the sight of their balance sheets, one industry claims to be in rude health. America may have sneezed in 2008 but the global medical device industry didn't catch the epidemic that followed.

For medical device manufacturers in 2009, the outlook appears equally bright. A recent study by medical device consulting firm Emergo Group reported positive domestic and international sales growth and continued optimism about prospects for the industry in 2009.

The survey of more than 1,000 medical device manufacturers found 61% of companies surveyed expected sales for their companies to increase in 2009, with 84% expecting to employ the same number of staff in one year from now. Interesting figures when you consider other industries have made thousands redundant, slashed R&D budgets and reduced marketing and sales spend.

More than half of medical device manufacturers by comparison said they were "somewhat positive" or "very positive" about their prospects for 2009. Only 17% said they were "somewhat negative" or "very negative" about the coming year. Alongside this, since October 2007, the industry has recorded the highest investment rate, taking up 16.7% of all investment cases and 20.1% of all investment capital in November 2007.

The survey also revealed more than 61% of medical device manufacturers found domestic sales and orders to be about the same or higher in the last three months while 66% said international sales had stayed stagnant or risen. So what is keeping the industry afloat?

Baby boomers and incubating innovation

Analysts say the demand is being driven by an ageing population and the figures show this. While most industries were down 20% to 25%, the medtech industry was down by only 3% over the past 12 months.

"While most industries were down 20% to 25%, the medtech industry was down by only 3% over the past 12 months."

The Emergo survey was conducted in October and emailed to more than 11,000 people in the medical device, in-vitro diagnostic industry. Emergo Group said there was a 10% response with 60 % of respondents working for small medical device companies and 40% medium-sized or large companies.

The majority of respondents – 67% – came from America while 18% were from Europe (both regions with ageing populations) and 10% from Asia.

But while the ageing baby boomer population continues to drive sales, the medical device industry has also moved ahead with innovations to capture the rest of the market.

The US is still the global leader in manufacture but in 2008 Germany and Ireland took their positions as innovators to keep an eye on. With 435,000 people across Europe working in the medical technology sector, it is a significant part of the EU economy. Expenditure on medical technology equipment in Europe exceeded the US in 2005 and a growing elderly population means sales trends will continue to rise for the foreseeable future.

Germany put itself forward as a leader in the field, already home to giants like Siemens and Fresenius AG. Large industries, however, only represent a tiny portion of medtech companies operating in the country. Small and medium-sized enterprises make up 86% of the German medical technology sector and government incentive programmes have been geared to favour these companies, many of which have fewer than 100 employees.

"Expenditure on medical technology equipment in Europe exceeded the US in 2005."

Ireland has also been promoting itself as a 'medical device hub', investing not only in research and development and education but changing legislation to make it a more attractive option. The nation is hoping it will attract new industry by speeding up the CE process through expertise in CE certification and in doing so the country aims to drastically increase its current 12-month rate of 100 medical device approvals.

The smallest part of 2008

In 2008 users asked for smaller and safer medical devices, and it seems the industry has delivered, if not without controversy.

Pundits claimed the nanotechnology revolution had arrived, but in the same breath the technology hailed as having the potential to transform the industry was also revealed as having the potential to ruin it.

Studies called into question its safety as it was found the long thin nanotubes showed the same effects as the long thin asbestos fibres which had cost billions in compensation and health care costs around the world.

"Manufacturers face increasingly stringent controls in getting the newest technology to market."

Researchers led by Professor Keith Donaldson of Edinburgh University examined whether specific types of nanotubes could potentially cause a cancer of lung lining, mesothelioma, also linked with asbestos.

The study showed they had the same effect as asbestos and research was backed by further work done at Japan's National Institute of Health Sciences.

With the National Science Foundation in the US estimating the global nanotechnology market will exceed $1t by 2010, the studies are important in making sure the industry overcomes any potential problems in what is being hailed as the future for medical devices.

Getting tighter on control

Changes to legislative measures are only going to see these new technologies subject to even greater testing in the future.

Over the past year, new legislations introduced on both sides of the Atlantic, from changes at the US FDA to the EU making amendments to the Medical Device Directives, mean manufacturers face increasingly stringent controls in getting the newest technology to market.

Amendments covering aspects of regulation such as clinical evidence, essential requirements, alternative labelling and hazardous materials are going to shape the future of the industry for years to come. These regulations are also extending into offshore manufacturing facilities.

"Emergo Group's survey showed nearly two thirds of medical device manufacturers were planning on expanding in international markets in 2009."

Measures like the Food and Drug Globalization Act of 2008, which would increase the number of inspections conducted by the US FDA on foreign manufacturing sites, show that as the medical device industry extends into new geographical areas the checks and balances are not be far behind.

Emergo Group's survey showed nearly two thirds of medical device manufacturers were planning on expanding in new international markets in 2009, making these new legislative developments an important focus for the near future.

2009 – the year of the tiger?

So where is the industry heading in 2009 and beyond? Latin America and Asia appear to be the new frontiers.

Latin America offers lower shipping costs and faster delivery time, particularly to the US, offsetting the lower remuneration of Asian countries. In Latin America, contract services organisations are gaining importance and the sector is perceived to have great potential. However, doubts concerning the risks and opportunities that come with outsourcing are still the main drawback for the expansion.

Asia is still the tiger economy, proving to have the technology and knowhow. There are now about 128 universities and colleges of medicine and more than 600 institutes dedicated to science and technology, while in 2007 there were more than 1.6 million science and engineering graduates.

"Within five to seven years China is expected to surpass Japan to become the second-largest medical device market in the world."

Countries like Malaysia have also indicated their desire to increase their manufacturing capability, while in 2008 the market was estimated to be worth $614m. Figures from Espicom suggest consumption in markets such as the Philippines and Singapore will continue to grow steadily through to 2013.

The Korean market is estimated to grow at an average rate of 7% to be worth $4bn by 2013, while Thailand is also expected to grow at around 7.7% over the next five years.

China is already the third-largest medical device market in the world after the US and within five to seven years is expected to surpass Japan to become the second-largest medical device market in the world.

It is no surprise then, that while outsourcing is not new, it is evolving to become more than a short-term solution into an important strategy for many medical device manufacturers now looking to the practice for its long-term benefits.

It is a hot area and demand can only increase as the population ages, digital and biomedical technologies continue to advance and an even larger number of people have the resources to become customers. While the rest of the world observes the current state of the worldwide economy in shock, the medical device industry appears in good heart with its sights firmly set on a brighter future.