Medical Device & Supplies - Feb03 - Shs
Medical Device & Supplies - Feb03 - Shs
(Special
Report)
Plastics News
True to form as a market known for stability and strict performance requirements, the medical-
device market in 2006 has a prognosis much like that of previous years: solid growth and
continued opportunities for outsourcing.
Projections say the device market generally is growing 8-12 percent a year, although some
observers said high raw material costs inflate that figure somewhat. On the high end, consulting
firm Frost & Sullivan of Mountain View, Calif., projects the device market will grow from $71.6
billion in 2005 to $79.9 billion in 2006, or about 11.5 percent.
Of course, the market continues to have high entry barriers, and processors involved in medical
manufacturing said cost pressures from the health-care industry continue.
But industry officials said opportunities for plastics processing continue to grow, along with
outsourcing. One of the larger contract medical manufacturers, Accellent in Newton, Mass., said
studies show that outsourcing will grow 14 percent a year through 2009, faster than the overall
medical-device market.
"We're seeing steady, consistent growth,'' said Jay Policastro, president of Classic Industries Inc.
in Latrobe, Pa. "We continue to see the big companies outsource subassemblies and components.
There is still quite a bit of pressure on costs.''
Classic, which focuses almost entirely on medical molding, is seeing annual growth of 10-12
percent, Policastro said. The firm, with $50 million in sales, has been beefing up engineering and
design for manufacturing services, he said.
"I see more outsourcing in general, because the small to midsize [medical-device] companies
don't have the ability to hire more full-time staff, so they hire manufacturers,'' said Len Czuba,
president of product development firm Czuba Enterprises Inc. in Lombard, Ill. Czuba, whose firm
specializes in the medical industry, was twice chairman of the Society of Plastics Engineers'
medical division and is currently SPE president.
Those smaller medical-device makers are often more creative in product development than larger
firms, creating opportunities for smaller plastics processors to partner, Czuba said.
"There is still a lot of business being done by the small to midsize molders,'' he said.
The picture can be contrary. Medical is also a market where big firms are getting bigger: Some of
the larger medical plastics processors, including Tech Group Inc. and Precise Technology Inc.,
were acquired in 2005, and analysts expect more of that as medical-device makers trim their
supply bases.
Nypro Inc.'s medical-related business has grown more than 30 percent in its fiscal year that began
July 1, though that is a spike, said Bill Partridge, health-care business unit manager. Nypro's long-
term sustainable medical growth is closer to 15 percent a year, he said.
"It's the fastest-growing market segment for Nypro,'' Partridge said. "Everybody is going global,
and I'm also seeing [medical-device makers] refocusing on their core competencies. Everybody is
rationalizing what they are manufacturing, and the result is more outsourcing.''
US demand for disposable medical supplies will increase by 5.6% a year to US$71. 1 billion in
2009, according to a study from The Freedonia Group. Demand for nonwoven medical
disposables is forecast to rise by 3. 7% annually to US$7. 0 billion, from US$4. 7 billion in 1999.
The growth in the US market will result from a number of trends, including an expanding number
of treated patients, heightened concerns about nosocomial [originating in hospitals] and related
infections, and the upgrading of infection prevention safeguards in hospitals and other healthcare
facilities.
The company of Cleveland, Ohio, USA, says home healthcare will be the fastest growing market
for disposable medical supplies as consumers broaden self-treatment and preventive medicine
activities, while medical providers increase the range of services available to home patients.
However, hospitals will remain the largest and most diverse market based on the complexity and
product-intensive nature of inpatient procedures and strong need for infection prevention
safeguards.
Based on performance and infection prevention benefits, the fastest growing disposable wound
management supplies will include:
* prefilled staplers;
Freedonia adds that Class IV surgical drapes and gowns will generate the best sales gains among
nonwoven medical disposables as surgical infection prevention safeguards are upgraded by
hospitals and ambulatory surgery centres.
Disposable Medical Supplies (published August 2005, 414 pages) is priced at US$4, 300.
Market for Surgical and Trauma Wound Care to Surpass $6 Billion by 2009.
M2 Presswire; 9/12/2005
RDATE:12092005
New York - The worldwide market for products to treat surgical and trauma wounds will surpass
the $6 billion mark by 2009, according to a study released today from Kalorama Information.
Wound closure products, such as sutures and staples, dominate the sector which is currently
displaying approximately 7% annual growth.
The new study, Wound Care Markets, Volume III: Surgical and Trauma Wounds, predicts that
despite a general slowdown in growth in the next few years, several segments will outperform the
sector as a whole. Biological dressings will continue to display double-digit annual growth
despite limited use in these types of wounds. Meanwhile, sealants, adhesives, and glues have
been catapulting forward at over 30% annually.
The introduction of scores of these new, innovative products has put pressure on marketers and
clinicians to standardize product categorizations and indications, adding a new level of
complexity to the successful commercialization of wound products.
"There is a decided shift in clinical decision making about dressings, moving toward the drug
model-the specific interactions, indications, side effects, etc.-rather than categorizing products by
components," notes Mary Anne Crandall, RN, the author of the final report. "This new way of
thinking about and labeling products is something marketers need to begin positioning
themselves for sooner rather than later."
The study examines 6 broad categories of products and more than 15 subcategories, detailing
market size and growth through 2009, presenting competitive market share, and providing a
thorough understanding of the environment in which these wound care manufacturers operate.
Wound Care Markets, Volume III: Surgical and Trauma Wounds, the third volume in a series that
includes skin ulcers and burns, can be purchased directly from Kalorama Information by clicking
http://www.kaloramainformation.com/pub/1099233.html. It is also available at
MarketResearch.com.
The combination of UTI Corp. and MedSource Technologies late last year created an
organization of unprecedented scale. The new company, Accellent Inc., announced it had become
the world's largest medical device contract manufacturing firm. In fact, the company can boast of
a double-digit market share in the $3.9 billion outsourced medical device market, making it about
three times the size of its nearest direct competitors. At the helm of this dynamic organization is
Ron Sparks, president and CEO.
Sparks, who became president and CEO of UTI Corp. in 2003, has spent almost a quarter century
working in the medical industry. Prior to joining UTI, he was with Smith & Nephew plc for 20
years, where he served as president of the endoscopy division from 1998 to 2003 and as president
of the wound management division from 1995 to 1998. In his position at Accellent, Sparks
oversees a company that serves all the top medical device companies and has a workforce of
more than 3,900 employees. The majority of the company's facilities are in the U.S., including a
headquarters in Newton, MA. It also has facilities in the UK, Germany, Ireland, and Mexico.
Medical Design Technology asked Sparks recently about the changes he has seen in the contract
design and manufacturing field. He shared his thoughts on this subject as well as on many topics
affecting medical device makers today. Here is what he had to say.
Q: How has the role of the contract design and manufacturing provider changed?
A: Five years ago, contract design and manufacturing providers were viewed more as a vendor or
supplier. Our customer relationships now are more like partnerships. We're part of their team
because we're generating such significant value for them. We improve products for our customers
by improving process.
A: What has changed over the last five years is that increasingly our customers need to provide
more innovation to their customers and patients quicker than ever before. They are involving us
early in the design process as strategic partners in order to shorten the overall cycle time from
concept to delivery to the patient. Our customers want to shift resources to areas such as clinical
selling, research and development, marketing, and clinical research. We can handle everything
else from start to finish.
Q: Hew has the formation of Accellent changed the contract design and manufacturing
marketplace?
A: The power of two industry leaders, MedSource and UTI, has been combined to leverage all the
strengths. The acquisition has positioned us as the clear leader in a highly fragmented,
competitive industry that has lacked one. We now command the largest market share. The
acquisition also provided us with core competencies that we didn't have before. We are focused
on three key areas to better align with our customers' needs: endoscopy, cardiology, and
orthopedics.
Q: What's the best way for an OEM in the medical device market to approach a contract services
company to ensure successful product development?
A: At the very early stages of the development process, when the idea is just a concept, if contract
services companies can be engaged at that point, it's much easier to take it to a design mode
before everything gets set in stone. The earlier we're involved in the concept, design, and
development stage, the greater chance we will have to add significant value to the process.
Q: Once an OEM in the medical device market has finalized a device concept, what's the most
efficient way to obtain reliable quotes for design, development, and manufacture from a potential
outsourcing partner?
A: OEMs should be sure to relay the design intent of their device and its function in the clinical
application in addition to the standard drawings, prints, etc. OEMs should also provide their
voice-of-customer data and critical-to-quality attributes. In addition, we tend to ask for our
customers' quantifiable acceptance criteria for the product or service to ensure that we have a
specific goal to work toward. This may include taking the prototype product into the lab for proof
of principle.
Q: How can the OEM go about monitoring the outsourced product development process to make
sure his budget and time restrictions are being met?
A: When we're working with our customers, we like active participation from them rather than
working in isolation. Whenever possible, we like a member of their staff to be a part of the
"team." We work very closely alongside a product/program champion from our customer, who is
accountable at the customer's location to be responsible for the outsourcing activity. We establish
agreed-upon project metrics with our project champions. We have weekly calls and
weekly/monthly reviews.
A: The ideal structure of a product development team varies by project complexity. Typically, our
team will include a program manager, a quality engineering resource, a design engineering
resource, materials experts or scientists as needed, and a manufacturing engineering resource. On
the customer side, ideally there is a product champion, quality or regulatory representative to
work with periodically, and if possible, access to their marketing resource. These teams are scaled
up or down as appropriate, based on needs.
Q: Typically how much money can an OEM save by working with a contract design and
manufacturing provider?
A: It varies, but we've been told by our customers that our involvement in their projects have
provided them with a savings of 20 to 40 percent, as compared to if they had done it themselves.
As an example, we completed a Design for Manufacturability & Assembly-DFMA-which led to a
total timeline from concept to production of 12 months. The project included three devices,
assembled from 50 different components, and included a 30 percent reduction in cost from
original expectations.
Q: What advice would you give an OEM design engineer of medical devices who is looking for a
contract manufacturer?
A: Look for a breadth of services, including design and development, which can be leveraged and
incorporated into the actual engineering and manufacturing of the product. Many of the products
we design for our customers are manufactured with us, which puts a whole different perspective
on developing the products. We have a high level of responsibility and ownership of the designs
we do because it often goes beyond design. Something we design will likely be manufactured in
one of our facilities, so it's important for us to design for innovation as well as manufacturability.
Q: What's one example of a success that changed how your company approaches the product
development process?
A: In a product start-up for a biopsy device we reduced manufacturing time from greater than 30
minutes per assembly to less than seven minutes, the number of components by 50 percent, and
the cost reduced by greater than 75 percent. The tools used to produce the successful biopsy
device were incorporated into the "Accellent Design and Development" offering as our standard
practice. We use very clear templates and tools for design inputs and outputs, design intent,
quality plans, validation plans, etc.
Q: What's one example of a mistake that changed how your company approaches the product
development process?
A: A customer brought us a product to manufacture, which had been designed by someone else
without any manufacturability input, which Accellent could have easily supplied had we been
brought in earlier. The cost-to-manufacture result was prohibitive, resulting in the product not
being marketed and sold. As a result of this lesson, we incorporated several project metrics,
which are monitored and reviewed with our engineering management hi-weekly and
communicated to our customers during team meetings. The project metrics we incorporated
include "budget vs. estimated budget," "timeline vs. estimated timeline," "COGS vs. target price,"
and "project risks." By monitoring and managing these metrics proactively throughout the entire
design cycle, we can make decisions that affect the progress of the program using all three key
customer deliverables: speed, device cost, and budget.
Cardiology supplies, including drug-eluting stents, will generally maintain their 2004 pricing
levels this year, except that catheter prices will jump 5%. But other medical-surgical products,
from gloves to bandages, will become much more costly, with 15% hikes not out of the question.
Computers, not surprisingly, will be cheaper than ever, but food will cost more, and prices of
laboratory supplies and equipment will soar uniformly.
These are among the findings of contract specialists at Consorta, Schaumburg, Ill., released in the
group purchasing organization's annual market survey of inflation indicators. Representative
products and estimated price changes are shown below with Consorta's permission.
These predictions are based on opinions of contracting staff, suppliers and published industry and
government projections, and apply to the U.S. health care market as a whole.
Consorta also released a separate set of projections for members, based on contract prices it has
negotiated.
Based on the national market survey, the average annual price change for operating room supplies
will be + 4%. For general medical-surgical supplies, the average price change will be +5%. The
average for laboratory supplies will be + 16%, thanks primarily to a potential increase of up to +
125% for blood bank reagents.
Cardiology
Catheters 0%
Electrophysiology 0%
Grafts 3%
Guide Wires 0%
Intra-Aortic Balloons and Pumps 0%
Implantable Pacemakers 0-3%
Implantable Defibrillators 0-3%
Perfusion 0%
PTCA Balloons 0%
Thermodilution Catheters 0%
Drug Eluting Stents 0%
Catheters 5%
Guide wires 5%
PTA Balloons 5%
Diagnostic Imaging
Barium 2%
Brachytherapy Seeds 0%
Imaging Equipment (modality specific) 0-3%
Contrast Media
Ionics 5-7%
Non-Ionics 0%
Radiopharmaceuticals 27-44%
Injector Consumables 0%
X-Ray Film 0%
Analog Film 0%
Laser Film 0%
Laboratory Products
Adhesive Tapes and Closures 3-5% [US Surgical – Tyco owned - makes wound
closure supplies]
Anti-Embolism Hose 2-3%
Briefs and Underpads 5-7%
Casting Materials -2-0%
Chart Paper 5-6%
Durable Medical Equipment 0-5%
Electrodes 3-5%
Gloves, Exam, Latex 10-15%
Gloves, Exam Non-Latex 7%
Hyper and Hypothermic Products 0%
Electrosurgical Grounding Pads -2-0%
IV Catheters -2-0%
Safety Catheters 3-5%
IV Pumps 2-3%
IV Solutions and Sets 2-3%
Needles and Syringes 2-5%
Ostomy Products 2-4%
Patient Plastic Products 5-7%
Personal Protective Equipment 0-2%
Rehabilitation Equipment 2-3%
Respiratory Therapy Supplies 3-5%
Sharps Disposal 3-5%
Sterilization Wrap 2-3%
Suction Products 0-3%
Utensils, Disposable 10-15%
Urological Supplies 2-3%
Specialty Urological Supplies 2-3%
Vascular Compression 0-3%
Wound Care, Advanced 1-3%
Wound Care, General 8-15%
Operating Room
Accessories, OR 0%
Endo-Mechanical Products 4%
Gloves, Surgical 8%
Gloves, Surgical, Powder-Free 8%
Instrument Repair 2-3%
Kits, Sterile, clean 3%
Kits, non surgical 0%
Orthopedic Bone Cement 3-5%
Orthopedic Implants, Hips 9%
Orthopedic Implants, Knees 9%
Orthopedic Instruments 3%
Orthopedic Products for Spine 5-8%
Orthopedic Softgoods 3-5%
Prep Products 4-5%
Packs and Gowns 0-3%
Surgical Blades 2%
Surgical Masks 2%
Surgical Instruments 3%
Suture 4%
Trauma 3-5%
Global medical device and equipment market continues to be led by
USA.
M2 Presswire; 9/15/2004
RDATE:09152004
Research and Markets announces the addition of The World Medical Market Report 2004 -
Current Trends & Future Prospects to their offering.
The global medical device and equipment market is expected to grow steadily by around 4.6%
over the next 5 years. The market continues to be led by the USA where demand will be strong.
However this will be tempered by poor economic performance and cost containment in Europe
and Latin America. Many Asian markets have fully recovered from the economic crisis and are
now performing strongly, as are leading central and east European countries as they enter the EU.
So what, practically, does that all mean? For planners, marketers, sales and general management,
being able to plan effectively requires a detailed knowledge of which markets and market sectors
are growing, and the national/regional context of that growth.
This report will be of interest to everyone operating or analysing international medical device and
equipment markets. It provides difficult-to-source data from hundreds of national and pan-
regional governments and organisations.
Easily answer questions such as: What is the estimated size of the global device industry in 2009?
Which Asian countries offer the best opportunities in terms of market growth and in what sectors?
What are the prospects for syringes, needles and catheters in India, China and Thailand? What
growth can be expected in the central European economies? How did the Mexican orthopaedic
market perform in 2001, and what is its estimated value in 2006 & 2009?
The report provides: - Market size and growth for the whole medical device and equipment
market as well as detailed figures for 16 product sectors, 2004-2009: - Medical supplies - Medical
X-ray film - Surgical gloves - Medical & surgical sterilisers - Wheelchairs - Contact lenses -
Medical equipment ---Electromedical ---Syringes, needles & catheters ---Dental instruments &
appliances ---Ophthalmic instruments and appliances ---Other instruments and appliances -
Therapy apparatus - Orthopaedic/prosthetic goods - X-ray apparatus - Medical furniture
Plus: - Global & regional overviews of the market - Analysis of the performance of 100 leading
medical device companies - Key demographic data
The medical device industry is engaged in a feeding frenzy, gobbling up competitors in an effort
to shore up market share, reinvigorate sales forces and resupply product pipelines.
Though it's likely a cyclical, evolutionary moment, similar to what happened in the
pharmaceutical industry several years ago, consolidation creates an opportunity for large,
diversified healthcare companies to offer hospitals a Chinese-menu style of choices in supplies-all
bundled into one supposedly discounted price.
But will they be such great deals? Mergers and acquisitions in the medical device industry may
not be bad for hospitals, some industry insiders say, but that doesn't mean they will be good
either.
Among high-profile public companies such as Johnson & Johnson and Guidant Corp.,
consolidation predictably sparks fevered speculation on Wall Street and scrutiny from federal
regulators. When successful, such deals also frequently beget more deals among rivals. Yet while
mergers and acquisitions in the healthcare industry are often seen as an opportunity for
shareholders, it can be unsettling for hospital customers, who are suddenly negotiating with a
bulked-up sales force and product line.
Newly consolidated companies offer a wider range of products and greater opportunities for
vendors to market their disparate lines in one big package. The practice, known as bundling, has a
spotty reputation. Big vendors love to bundle because it gives them one convenient platform on
which to market their varied product lines. Small vendors loathe it for shutting their products out
of the marketplace. Providers frequently sign on to it without really understanding all the
consequences.
"Bundling is a strategy that multidivisional suppliers (use to) entice hospitals. But when you
examine it closely, it actually results in hospitals paying much higher costs, although it leads the
unsophisticated buyer to think they have a good deal,'' said David Ricker, chief operating officer
of Broadlane, a group purchasing organization. "Suppliers do not employ programs that result in
margin erosion; they only employ programs that result in more sales and higher margins. That's
what they are directed to do.''
By far the most prominent deal unveiled in recent months was J&J's $25.4 billion proposal late
last year to acquire Guidant Corp., a marriage that will bring Guidant's highly lucrative and fast-
growing electrophysiology business under J&J's massive umbrella. Guidant shareholders
approved the proposal on April 27. Regardless of the Federal Trade Commission antitrust
investigation it spurred in February, and the decision by the European Commission last month to
open a second phase review, officials at both companies said they are confident the deal will close
as expected in the third quarter. Guidant and J&J officials declined to comment for this story.
J&J's buying spree
Still, that huge deal did not seem to diminish J&J's usual appetite for acquiring smaller
companies. Last month, the healthcare conglomerate acquired TransForm Pharmaceuticals,
Lexington, Mass., a privately held drug discovery and development company, for approximately
$230 million. J&J first announced plans to buy it in March, just one week after announcing a deal
to acquire Closure Medical Corp., Raleigh, N.C., for about $370 million. Closure Medical, which
makes biomaterial-based adhesives, has worked closely with J&J's Ethicon unit since 1996 on the
development of topical adhesives. Closure Medical's board approved the sale on April 25, and the
FTC terminated its review earlier this month. The deal is expected to be completed soon after
Closure Medical's stockholders meet on June 2.
More recently, German conglomerate Siemens purchased CTI Molecular Imaging, Knoxville,
Tenn., in a deal valued at approximately $1 billion. Siemens officials said the acquisition was the
natural progression in the companies' long association, which in 1987 spawned CTI PET
Systems-a joint venture combining CTI's expertise in PET with Siemens' global distribution
network. Siemens' May 5 acquisition of CTI's portion of the joint venture as well as all of its
other businesses will accelerate and strengthen its position in the fast-growing area of molecular
imaging, said Michael Reitermann, president of the nuclear medicine group at Siemens Medical
Solutions.
The rash of activity in the medical device industry is not really "any more rampant now than at
other times in the recent past,'' said Kem Hawkins, president of Cook Group, the world's largest
privately held medical device manufacturer, in an e-mailed response to questions. "Most of it
seems to follow the pattern of small, emerging technology companies being acquired by bigger
public corporations that need fresh technology to fill their product pipelines and have the capital
and equities to pay for it and the marketing or sales power to drive those technologies to the
marketplace.''
Meanwhile, GPOs, many of which are transforming their business practices under pressure from
the Senate Judiciary Committee's antitrust subcommittee, are watching the activity with caution.
"I think the latest spate of merger activity is certainly an opportunity for great bundling, but it's
too early to tell what the impact will be,'' said John Strong, president and CEO of Consorta, a
GPO that primarily services Roman Catholic hospitals. "I know that providers are concerned
about the ability of manufacturers to bundle bigger and bigger product'' categories.
Large deals like the J&J and Guidant proposal, frequently unleash speculation that similar deals
will follow, said Jason Wittes, senior medical device analyst for Leerink Swann & Co., a
healthcare equity research and investment banking firm. Wall Street is now rife with predictions
that Boston Scientific Corp., J&J's only competitor in the surging drug-eluting stent market, will
now have to make a move. One candidate for acquisition by Boston Scientific or another
company would be St. Jude Medical in St. Paul, Minn., a prominent player in the
electrophysiology space, Wittes said.
In reality, the medical device industry has been on a consolidation roll for at least the past five
years, part of the natural cycle of smaller fish getting swallowed by larger competitors.
"Any small company, when it reaches a certain level of sales, usually gets acquired,'' he said. "I
would say it is just a constant drumbeat.''
The J&J agreement with Guidant stands out among the normal ebb and flow of deals in that
Guidant already commands considerable size and market share in its own right. But with its
single-minded focus on cardiology, Guidant's business has matured after 10 years of "tremendous
growth,'' Wittes said. "Once a market reaches maturity, management has to figure out a way to
reinvent themselves or sell themselves.''
That's good for shareholders but not necessarily for hospitals, Wittes said. Consolidation "means
more power to suppliers, and they try to leverage their strength,'' Wittes said. "At the same time
this does open the door to more bundling. So J&J can now bundle stents with orthopedics and
everything else. ... I think bundling is a fact of life. It's not always effective, but it's always
attempted.''
Three seems to be the magic number for consolidating healthcare sectors, said Mike Hildebrandt,
director of materials management for 338-bed High Point (N.C.) Regional Health System.
Several years ago, Hildebrandt said he had as many as nine different players to choose from when
buying orthopedic implants for the hospital. That has been whittled down to three. If J&J acquires
Guidant, he will be left with only three major players in the cardiovascular arena, including
Boston Scientific and Medtronic, he said. Even medical device distribution has consolidated to
just three: McKesson Corp., Cardinal Health, and Owens & Minor, he said. Likewise, GE
Healthcare, Philips Medical Systems and Siemens dominate diagnostic imaging.
"It certainly has limited the choices we have in purchasing,'' Hildebrandt said. "But as long as
there are three out there, I don't think it is going to be a particularly bad thing or punitive thing.
We're not seeing a huge effect on pricing as long as there are three.''
James Thrall, chairman of the radiology department at Massachusetts General Hospital, Boston,
sees a sunny side to consolidation in the big-ticket diagnostic imaging sector of the healthcare
supply industry. All three of the major imaging companies have jump-started many product lines
through acquisition, Thrall said.
The Siemens acquisition of CTI fills in "an important component of its product line,'' he said.
"Frankly, it's always been somewhat confusing to have two organizations bidding against each
other who are selling the same devices, so I particularly welcome this consolidation and think it is
a very wise move on the part of Siemens because of the growing importance of the PET scan.''
With at least two other strong competitors in the marketplace, "that will keep pricing honest,''
Thrall said.
Consolidation in the industry is "a natural phenomenon and in the long run, healthy for us as long
as there are three or four major global competitors,'' he said. Without the consolidated global
players, companies with interesting technologies but no capital would "languish in a sort of
perpetual undercapitalized state,'' Thrall said. "So there's a natural phenomenon of a new
company getting started, demonstrating it has a viable and novel technology and growing to a
certain point and then getting purchased by a larger company that's in a position to leverage
global marketing and economies of scale.''
Bundling does not pose a problem for large academic medical centers such as Massachusetts
General because no one vendor offers the best product in every product line, he said.
Like Hildebrandt, Thrall noted that various sectors of the diagnostic imaging business have
consolidated in recent years: film companies, equipment manufacturers and pharmaceuticals. But
one category is still ripe for consolidation, he said-information technology.
"That's the newest category, and interestingly, it's the one with the most companies active and
successful right now, so it speaks to the concept of a natural process of consolidation,'' Thrall
said. "I think it's quite possible that all the major imaging companies will try to have enterprise
information solutions.''
Erich Reinhardt, president and chief executive officer of Siemens Medical Solutions, said
Siemens was the first of its competitors to move into IT with its acquisition of Shared Medical
Systems. "We assume we will see more global players in IT,'' he said. Siemens' overall strategy is
to integrate its vast array of services and equipment "to improve the efficiency of healthcare in a
patient-centered system'' that will ultimately improve quality and reduce costs, he said.
As a global company, Siemens is able to summon the resources needed for research and
development. The large conglomerate can take bundling even beyond the reaches of its medical
company, offering hospitals other Siemens products such as telephones, electrical power and
security, he said. "One of the advantages of a large company is there are more company solutions
that you can offer to a customer,'' Reinhardt said.
But J&J's acquisition of Guidant poses a more troubling scenario for hospitals. FTC investigators
have solicited comment from Consorta, said Nancy Walsh, the GPO's senior director of medical
supplies. "Irrespective of who the players are, our concerns come into play when there are fewer
players in the market,'' Walsh said. "We think the most competitive opportunities exist when you
can go to multiple sources for products and negotiate. When you eliminate a player from the
market, you are obviously removing competition.''
Walsh said she doesn't believe there is ever a situation in which there are too many companies in
a marketplace. The more competitors there are, the more prices are driven down, she said. But
"anytime you have these monopolies continuing to grow, it becomes more difficult for smaller
manufacturers to do business with GPOs or hospitals because of all the bundling that occurs.''
The Senate Judiciary Committee's antitrust subcommittee, which has been scrutinizing GPOs for
three years, has been sharply critical of bundling, and nearly every GPO has forsaken the practice
in individual codes of conduct. But manufacturers still bundle, going around the GPOs to
negotiate directly with hospitals, she said. "That's the only way you can get more aggressive
pricing. If you want a price concession, you really have to commit much more to the
manufacturer than a single product category,'' Walsh said. Since Consorta doesn't bundle, "that
eliminates our ability to negotiate,'' she said, leaving hospitals on their own to haggle with
vendors. Making it worse, some companies will bundle completely disparate products, cutting
across physician practices, she said.
Bundling possibilities
As a result of the Guidant acquisition, J&J potentially could begin bundling drug-eluting stents
and implantable cardioverter defibrillators-products that cut across different physician practices,
making hospital purchasing decisions even more complex. "I don't see why they wouldn't'' bundle
the two vastly different product lines, Broadlane's Ricker said. "I would expect them to. Both
Cordis (the J&J company that makes drug-eluting stents) and Guidant do so. It's a course of
practice that has served J&J very well.''
Since most GPOs no longer engage in the practice, vendors are offering bundled discount
packages to hospitals individually. Though the bundled price tag might seem attractive to an
unsuspecting hospital, it can be deceiving, Ricker said. For example, it might seem like a sizable
discount if hospitals used to paying $2,500 for drug-eluting stents and $5,000 for pacemakers are
offered $250 discounts on the stents in a bundled deal. But hospitals would be locked into both
prices, and thus lose the discount if pacemaker prices were to sharply decline, which is very
possible in today's market, he said. Bundling "locks (hospitals) up on so many product categories,
it keeps (hospitals from benefiting) from normal price degradation,'' Ricker said.
Jeff Rooney, vice president and chief financial officer at 177-bed Rush North Shore Medical
Center in Skokie, Ill., said consolidations always raise concerns about cost, but the situation in the
device industry does not seem to have gotten "to the point where we feel vendors have
extraordinary pricing power. I still think there is sufficient competition that prices are remaining
reasonable.'' The hospital's supply costs of approximately $28 million increased about 8% from
2003 to 2004 and went up about 7% this past year, but that was driven by increases in certain
drugs, which vary by patient mix, he said. "Consolidation seems to be much more about
companies' internal needs than about any way it affects their customers,'' Rooney said.
On the positive side for hospitals, vendors bulked up by acquisitions are able to bring new
technologies to the market more quickly, said Hawkins of the Cook Group. "Dealing with larger
companies also usually offers providers better access to product information and training, and
one-stop shopping across product lines, which can help contain costs.''
But Patrick Flaherty, service line coordinator in corporate purchasing for the University of
Pittsburgh Medical Center, said he has concerns with any consolidation that removes a competitor
from the field, even Siemens' seemingly logical acquisition of CTI. "It is disproportionately
stratifying for people like me to successfully negotiate on PET/CT when I only have four
(vendors) to begin with and then it is diminishing to three,'' Flaherty said. J&J's acquisition of
Guidant is of even more concern as J&J's "business model and approach tend to be that of a drug
company, and drug companies are notorious for having high margins,'' he said.
"It's a bellwether change for us. We do a lot of business with Guidant,'' Flaherty said. "J&J is
saying it is a great opportunity for taking the best and moving forward to a more beneficial future.
I sincerely hope that's true. I'll reserve judgment on that. I have no reason to doubt their sincerity,
but I work on one side of the equation.''
Write us with your comments. Via e-mail, it's [email protected]; by fax, 312-280-3183.
CAPTION(S):
Thrall sees industry consolidation as "a natural phenomenon." * A Siemens' scan, above, shows
an unknown patient's PET scan. Siemens officials think their recent acquisition will make them
stronger in the area of molecular imaging. * Reitermann: CTI buy will strengthen Siemens'
position. * Ricker: J&J and Guidant probably will bundle product lines. * Walsh: Fewer market
players is cause for concern.
Alpesh Gandhi
This article looks at some of the key trends that are influencing the
direction of this growing sector, as well as the challenges and
opportunities the sector presents to medical device manufacturers.
The aging of the U.S. population has had a greater impact on the
development of the home-care market than on any other sector in the
healthcare marketplace. By 2011, approximately 78 million Americans
(one-third of the U.S. population), will have reached age 65. This rising
tide of retirees belonging to the baby boom generation is a trend of
increasing importance for the home-care market.
The baby boom generation is unlike any other that this market has
experienced. Baby boomers are much more health-conscious and
better informed than previous generations, highly aware of the
products and services available to them, and willing to take an active
role with their healthcare providers. Their desire for technologically
advanced medical products—along with the growing availability of
such devices to meet their demand—is one factor that has led to the
emergence of a viable and thriving home-healthcare market.
Restrained Adoption
Although the adoption of new home-use technologies has distinct
advantages for both providers and their patients, many home-care
providers are small entities that cannot afford the costs required to
implement high-tech solutions in the home-care environment. This
limitation is hampering efforts to expand the services available to
patients in the home, and has also retarded the growth of the market.
Between 2004 and 2007, MMA cuts will lead to a much more
consolidated DME market than the one that is currently in place. Many
small local and regional providers will be looking to exit the market
because they will not be able to survive.
Conclusion
The medical device industry is one of the largest and most stable in
healthcare, but it is undergoing important changes that providers and
manufacturers will need to understand in order to succeed.
In the home-healthcare market, manufacturers will do best by building
strong relationships with providers that emerge as market leaders.
They may also seek to take advantage of the shakeout caused by MMA
by acquiring ownership of distribution channels.
Wound care costs the U.S. healthcare system more than $20 billion
each year, including more than $4 billion spent on wound
management products. Chronic and severe wounds, the most Thoughts
Sidebar:
for
difficult wounds to heal, have been the focus of significant Smaller
Companies
product innovation in recent years. Yet despite this
innovation, unmet clinical and commercial needs persist.
An Evolving Market
The market for wound care products has evolved in three overlapping
phases (see Figure 3), with caregiver techniques generally keeping
pace. Today, treatment options include traditional, advanced, and
active products.
On the whole, the traditional wound care segment is mature, and total
sales are expected to decline by 2% per year through 2009. Part of this
decline will be attributable to a lack of new product innovation. The
features and benefits of tomorrow's sponges, nonadherent and
conforming bandages, abdominal pads, and other traditional products
will be virtually indistinguishable from today's dressings.
From a competitive standpoint, large suppliers such as Johnson &
Johnson's Ethicon Inc. (Somerville, NJ), Bristol-Myers Squibb's ConvaTec
(Skillman, NJ), Smith & Nephew (London), Tyco International's Kendall
Co. (Mansfield, MA), 3M (St. Paul, MN), and others are largely focused
on improving product quality and increasing product line breadth. In
addition, products are becoming increasingly commoditized and price
points are generally expected to fall. For medium and smaller
suppliers, these dynamics suggest a bumpy road ahead (see sidebar).
While consolidation is likely, there is little fear of a dramatic market
shakeout. Most competitors can survive, but margins will be under
pressure and excess profits will be difficult to achieve. While traditional
products will remain important, evolving medical practice is shifting
the market toward newer alternatives.
Many of the large players in traditional wound care are also active in
the advanced segment. Alongside them are more than 200 smaller
companies, approximately 40% of which have annual revenues of less
than $15 million. Large and small competitors alike stand to reap
substantial benefit from double-digit market growth over the next
several years. Some of this growth will come from market expansion,
which will be driven by the treatment of patients who historically could
not be treated with traditional products.
One lesson to be taken from this is that market growth can total more
than the sum of separately evolving segments. This is largely because
physicians tend to employ overlapping drug and device therapies for a
given patient. Research conducted by L.E.K. Consulting shows that
anticoagulants and angioplasty are used in 70% and 66% of coronary
artery thrombosis cases, respectively—that's 136% usage, or almost
1.4 treatments per patient, not counting the myriad other therapeutic
alternatives employed. Another lesson is that drug-device convergence
can create value for all market participants. Drug-eluting stents, for
example, once a holy grail of the industry, are now a reality. Benefits to
suppliers, physicians, patients, and payers are increasingly clear.
Conclusion
Figure 1
Although needlestick safety regulations have been in place since 2001, physicians have
been slow to adopt them for at least two reasons. First, there are higher costs associated
with safety products. Second, there has been little monitoring to enforce regulations.
But what has been a stagnant market may be changing.
Current sales trends suggest that physicians are more willing to adopt safety products in
the face of new needlestick safety regulations. Many manufacturers are discontinuing the
standard versions of these products, which is evident because their use almost has been
phased out of the hospital setting. In addition, the growth of physician-owned infusion
centers may fuel physicians' increased use of safety products.
Among other products in the top 10, sales of point of care reagents and supplies
moderated, growing 17.2%, from a 24.4% growth rate the previous year. The glove
category accelerated growth slightly, up to 14.3% from 10.3%, but still lagged behind
overall market growth [Figure 2].
Figure 2
Some categories far outpaced the industry, even if they don't yet hold major market share.
Respiratory products (36.6%), immunology reagents and supplies (32.2%), kits, packs
and trays-custom (43.8%) and incontinence products (44.6%) are among the categories
that experienced strond growth through September 2005. Other categories lagged behind
the market, including metal/plastic/paper products (7.2%), orthopedic supplies (2.2%),
hazardous waste control (8.1%) and patient restraints and supports (5.5%).
*Other medical/surgical durable products include beds, cabinets, carts, chairs, containers, floor mats, face/eye wash fountains, hamper stands,
hampers, identification tags, intravenous poles, kick buckets, examination and surgical lights, medical charts, scales, privacy screens, stools,
stretchers, tables, timers, and training aids.