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SMT Analysis of the Medical Industry
December 31, 1969 |Estimated reading time: 5 minutes
The medical devices industry is one of the largest and most stable in healthcare, but is undergoing important changes that SMT equipment manufacturers will need to understand to succeed.
By Keith Robinson
In 2002, the U.S. medical devices market generated approximately $57.6 billion in revenues. The industry is forecast to be growing at a compound annual growth rate of approximately 8 percent. The worldwide medical devices market is estimated at more than $140 billion, with the United States being the largest market, followed closely by Western Europe and Japan. The United States produces half of the world's medical devices and consumes approximately 40 percent of the world's output (Table).
The medical device market has become a safe haven for some SMT equipment manufacturers, and should continue to provide a safe market with the aging baby boomer generation.
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It must be noted that the vast majority of medical device companies are specialized and have few employees. Large medical device companies that generate more than half a billion dollars or more annually generate approximately 65 percent of revenues. These 17 top manufacturers control some of the most lucrative and advanced segments of the industry, but medium and small companies still can be highly profitable.
There also are major opportunities in the medical device market for EMS providers. Much emphasis is being placed on the selection process of EMS providers by medical OEMs. Numerous OEMs are implementing cross-functional teams, which are responsible for selecting and maintaining the relationship with EMS providers. The medical industry is regulated strictly by the FDA. Experience in dealing with challenges such as meeting the quality and control standards demanded by the FDA, is the main concern when medical OEMs select EMS firms. EMS organizations that have long-term medical manufacturing know-how are expected to benefit from this experience.
Because medical equipment is used to treat patients with a wide array of health problems, it is important that the equipment functions properly for both the patient and the medical OEM. The medical OEM can be held liable for the malfunction of its product. Costly legal battles have turned successful medical products into unprofitable endeavors. EMS companies are not only expected to meet FDA regulations, but to exceed them. Medical OEMs are expressing interest in ridding themselves of business functions such as engineering, test and design-related functions. Many EMS providers espouse their engineering abilities, and medical OEMs are beginning to demand an increased number of these services. As EMS providers continue to expand their pre- and post-manufacturing services expertise, medical OEMs are expected to outsource additional business.
Cardiovascular disease continues to be the top killer of those in industrialized countries. The market is expected to grow significantly in coming years, especially in the areas of interventional cardiology and less-invasive surgery. The market for cardiovascular products is the single largest sector of the medical devices industry, generating approximately $14.7 billion worldwide last year. Sales of pacemakers accounted for $3.2 billion, coronary stents for $3 billion, implantable cardiac defibrillators for another $2.5 billion, and angioplasty and angiography products for $1.6 billion. Other cardiovascular products generated another $4.4 billion.
Orthopedics also will continue to remain one of the largest and fastest-growing device sectors. Reconstructive implants are the largest growth segment of the market; however, growth rates in the spinal and biologics segments will be much higher. Devices that enable minimally invasive procedures will see strong growth, as these procedures become the standard of care for many treatments. Pain management and drug delivery will both experience growth due to an aging population and novel ways of treating pain and administering pharmaceuticals. The number of cosmetic and elective surgical procedures performed in the United States has grown astronomically in the last decade.
Manufacturers who can tap into this space, which is generally free of cost-containment issues present in the rest of the market, are likely to find a rich source of revenues. Devices used in the treatment of obesity and the effects of aging are expected to be especially successful. Drugs remain the treatment of choice for neurological conditions and likely will remain that way; yet devices such as neurostimulators and neuroprostheses are becoming important adjunctive therapies for patients with conditions such as epilepsy, Parkinson's disease and chronic pain. Finally, as the number of Americans with chronic disease continues to escalate, any devices used in the treatment of these conditions should be in demand.
The medical device market's stringent requirements have helped several SMT equipment vendors sell products experiencing weakened demand from other markets. With new products, the FDA approval process can take between eight and 12 months. Some SMT equipment markets that have experienced increased sales include cleaning and inspection. If a failure occurs in this market, it could result in death. This is why cleaning and inspection have become so important.
There has been increased research and development (R&D) in biochips for the medical industry. SMT equipment manufacturers will either need to develop new equipment to handle these needs or modify existing products to place these components. One area gaining attention is the chemical/biological detection market, as well as proteomics/genomics. Since 9/11, the Department of Defense (DoD) has allocated resources for the development of products that can detect chemical or biological agents in real time and make products more portable.
One such technology is Bio Alloy, which is being developed by IatroQuest. Its technology is based on silicon material that is nanostructured and chemically modified to bind various molecules as recognition elements. The detection process is based on a photoluminescence response. The response relies on the changes in the surface energy state when the material is excited with low power blue light emitting diodes (LEDs). Upon binding to the target agents, the recognition element linked to the chip surface changes the photoluminescence response to green once it is detected. This technology allows for real-time detection and portable devices. It also captures the molecule so it can be fingerprinted by other technologies. With biochips moving to the forefront, SMT equipment vendors will need to address this market in the same way as when 0201-size components were first introduced.
Frost & Sullivan analysts have compiled their vision of what the medical devices market will look like in 10 years. Certainly, as America ages, cost-containment and the ability to maintain adequate staffing and facility capabilities will remain a priority. Device manufacturers who appreciate the importance of this trend should meet with success. As medical research and technology shifts more of its attention away from infectious diseases and acute conditions to the expensive and debilitating effects of chronic disease, manufacturers will respond with better technology to reduce costs and improve the lives of these patients. Advances in restorative or implantable devices that allow patients with chronic conditions to regain more of their health should come into play. Manufacturers are expected to continue to use advances in biotechnology, biomaterials, tissue processing and transplant medicine to develop devices that encourage the body to heal itself or more organically match its biomechanical and physiologic functions. Technology synergy between information technology, medical imaging, pharmaceuticals and medical devices also will result in new therapies.
For more information, contact Julia Paulson, Frost & Sullivan, (210) 247-3870; E-mail: jpaulson@frost.com.