In the Product Design & Development Brainstorm we talk with industry leaders to get their perspective on issues critical to the design engineering marketplace. In this issue, we ask:
Is the medical device market recession-proof?
Dr. Ronald L. Hollis, President & CEO, Quickparts.com, Inc
In my honest opinion, the medical device market is not recession proof; however, it is a very unique and resilient industry that is well insulated from the short-term impact of many economic factors.
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While I’m not an economist, one could surmise that the industry is affected like most other industries, though the magnitude or force of a recession along with the duration of a recession must be significant before it could penetrate the barriers of protection of a medical device market and have a real impact.
As for the barriers of protection, they are dependent on the market of consumers. For a developed market like the United States, the barriers that insulate the industry include the disconnect of healthcare demand and discretionary spending. As one needs medical support, there is a much higher likelihood that a spending decision on health will occur regardless of the normal behavior a consumer may have with other spending decisions. Also, with a market that has enough affluence (consumers with spending power), then there is always enough money in the system to support the development of the industry.
As for the development process, it is already a very long and inefficient process. With significant bureaucracy and regulations, the inefficiencies of the process provide such a delay to the process, that many products can just outlive a recession before they are ever birthed into the market. This delay can make them impervious to the impact of the recession on their performance. Of course, it takes courage on the part of the development companies to maintain their investments and have faith that sunshine is ahead.
At Quickparts.com, we have not seen much reduction in activity from the medical device market, so we would assume that confidence abounds and new products will continue to roll out to the market for the sick and the needy.
Since most folks want to go to heaven, but no one is ready to go now, they are going to make choices with their money to buy whatever they need to extend life for another day. It’s a unique advantage of the medical device market.
Aaron Lahann, Customer Engineering Manager, Airtronics Metal Products
No industry is completely recession-proof, but the medical device sector comes close. In the past year, the medical device market has fared better than many other industries impacted by the economic downturn.
The med-tech industry has several things going for it that make it more immune to recessionary woes.
1.People will get sick whether we’re in a recession or not. During tough economic times, most people will forgo buying a big screen TV before they will forgo healthcare. When people cut back on spending, health is the last thing they want to sacrifice.
2.The population is growing, the population is aging and people are staying active much later into life.
3.Medical device companies tend to be well funded, for a variety of reasons, but namely because all of the above factors create a constant demand for new medical devices. Even in a recession, medical device manufacturers will continue to come out with new products every day.
4.As more and more Third World countries develop, healthcare is becoming a greater priority and healthcare systems are becoming more sophisticated.
At Airtronics, we haven’t experienced any slowdowns from our medical customers; their production orders have either stayed flat or gone up. I should note, however, that our customers make devices used in the treatment of life-threatening conditions. Makers of life-saving devices are weathering the recession better than makers of equipment used in cosmetic surgery or other elective procedures.
Many people are postponing or canceling elective surgery, which in turn has put hospitals in financial straits, causing them to delay purchases of high-cost capital equipment.
The medical device market is not recession-proof, but it is recession-resistant.
Kirk Kussman, Sales & Marketing Director, Aztalan Engineering, Inc.
During 2009 we exhibited at several Medical Device trade shows. If I had a nickel for every machine shop walking through asking advice for how to break into this industry, I would have been able to retire.
Our company has been supplying precision machined parts to the medical device market for over 30 years so I can answer this question with a giant 'no'. This market is not recession proof.
The Wish Versus Reality – I wish I could have an Aston Martin Vanquish, but the reality is that I drive a Dodge Ram. Hospitals and healthcare specialists may wish they could have the best device technology, but at what cost? Medical devices can carry price tags into the millions. They are able to purchase service parts and work with what they have
Credit Markets – When the financial giants were falling in 2008 and 2009, the credit markets didn’t just dry up for home buyers. The banks were very tight on lending money for capital equipment. How fast is the payback on a $15,000 machine? How many billable hours? How much idle time? If you don’t have the right answers to these questions no lender is going to give you a dime.
Healthcare Costs In the Crosshairs – Healthcare costs and affordability have been in the news for the last two decades. Hospitals are a business and know the meaning of lean. The cost of a medical device is going to increase overhead, direct labor hours and will add depreciation and debt. Cash is king in any business and they are going to pass the costs down to the consumer.
Competition – As competition increases, the prices will go down. Where does the buck stop? As a supplier who is beaten up with price concessions every year, I know it rolls down the supply chain to us. Making fewer parts at a lower price is not the best strategic plan for any business.
Product Lifecycle – We all know where we want to be in the cycle. Watch for brain drains in the engineering departments or a mass exodus/firing after an acquisition. When the experienced engineer goes away you can almost guarantee that your volumes and prices will suffer.
The Wildcards – Public healthcare and medical device taxes are wildcards. How will this affect consumer spending, healthcare provider profits, research and development and OEM production levels? Good questions, I just know that once again it will roll down hill to the suppliers.
The bottom line is that this is an excellent industry to be in. We do experience recessions but in our case they were not as long and deep as other industries. Diversify your products and services, run lean, keep your debt/equity ratio low, invest in technology and equipment wisely, and keep your sales force knocking on doors.
Ken Rubino , Vice President, Director of Vertical Sales, Avnet Electronics Marketing Americas
There’s no doubt that the medical market has been impacted from the challenged global economy. Hospitals and health care providers, typically the largest purchasers of medical devices, are experiencing admission declines as a result of the economic weakness.
With high unemployment levels, significant drops in elective, cosmetic and orthopedic surgeries, the latter of which can rank among a hospital’s most profitable operations. But, the medical market has managed to grow more than 9 percent each year for the past 25 years, and this accelerated growth is expected to continue.
More than 125 million people today live with a chronic illness, such as asthma or diabetes, and as people age, more are likely to face some type of chronic disease management. The population of people aged 60 and over is expected to reach 2 billion by 2050. It is this demographic that is driving advancements in medical technology like never before.
Equipment once used only by professionals is now being used directly by the consumer, made possible by the advancements in diagnostic and therapeutic equipment.
Healthcare reform will also serve to drive continued growth for the medical market. Attention to cost reduction will require more proactive and preventative healthcare, and will drive an increase in remote patient monitoring, portability and miniaturization of equipment. All of this will require new technologies, new devices and more robotics to supplement nurses and doctors.
The weakened global economy has not changed the fundamentals and dynamics of the medical market, and on-going pressure for innovation will continue to allow for superior growth rates in medical device manufacturing.
Deven Patel, Medical Marketing Manager, Ticona
While medical device manufacturers are not insulated from the economic downturn, they represent a most dynamic sector that benefits from several underlying factors, most importantly growing government spending, an aging population and lengthy design to market process.
Ticona has a strong presence in the medical market, which is governed by various global requirements. Many of these long-term projects involve products in the hot segment called Intravenous and Infusion Devices, specifically insulin pens and inhalers for major healthcare and pharmaceutical companies that are leaders in their fields of medicine. But before they can reach the consumer market, these must first meet government regulations and requirement.
Just for materials used in these devices, for example, the Ticona portfolio of Medical Technology (MT) grades must meet the requirements of health authorities such as the U.S. Food and Drug Administration (FDA) and European Union food-conformity. Many polymers also must be biocompatible, according to the guidelines of the U.S. Pharmacopeia United States Pharmacopoeia (USP Class VI) and the International Organization for Standardization (ISO-10993).
This is just one reason why the design to market process is so lengthy, which allows the medical device industry to weather periodic economic dips.
The medical device industry also is starting to look for ways to increase market share and launch new eco-friendly products, which will contribute to this continued growth pattern.