Medical Device Manufacturers Need to Adapt to Economic Downturn

The medical device industry continues to be one of the most important and active sectors of the US economy, and a leading force in the revolution that is transforming the US healthcare system. However, the industry is undergoing a transition to adapt to new business models that are shifting the way healthcare is delivered and paid for in the United States.

New analysis from international market research company, Frost & Sullivan (Mountain View, CA, USA), found that total market revenues in 2011 were USD 102.1 billion, with a forecast of USD 156.8 billion projected in 2018. The overall compound annual growth rate (CAGR) for the forecast period is a modest 6.3%. Whereas top-line growth is an essential reality, cost-containment initiatives in the healthcare industry are forcing pricing pressure with a medical device excise tax to go into effect in 2013 that could strain margins for most companies.

“In retrospect, the medical device market witnessed unprecedented growth between 1995 and 2005. New technologies helped spur a revolution with minimally invasive tools and implants that improved function and safety,” said Frost & Sullivan advanced medical technologies industry manager, Venkat Rajan. “These novel developments allowed for new treatments and an expansion of addressable conditions.”

That growth, combined with the potential impact of the baby boomer population, led many in the industry to presume that the marketplace was recession-resilient, if not recession-proof. However, the impact of the global economic crisis in 2008 combined with healthcare reform measures geared at cost containment has considerably changed those expectations. In order to better align with the realities of the current market, a number of companies have undergone significant restructuring, such as major divestitures, staff cuts, and turnover in senior management.

“In spite of the challenges, that is not to say that there are not significant opportunities in the market that can be taken advantage of,” said Mr. Rajan. “A historic surge in demand resulting from an aging population with escalating incidence rates for chronic disease is creating new needs and customer requirements. Furthermore, significant research breakthroughs and leaps in technology are drastically advancing the state of modern medicine.”

Innovative companies are targeting products that fit in the vision of where healthcare is heading, as opposed to where it is now. They have understood that it is not just about improvements to their products, but the business model as well. Decisions are not made solely on clinical effectiveness, but must also take into account factors like ease of use, reimbursement, long-term cost of care, wellness, prevention and other advanced healthcare outcome measures, according to Frost & Sullivan analysts.

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