Why MedTech Outsourcing Thrives
Within the next ten years the competitive landscape for medical devices will look very different than today because of new and non-traditional entrants, disruptive emerging technologies, and changing regulatory landscape.
In addition, medical device OEM’s are increasingly faced with time to market and cost pressures while the overall global demand for healthcare continues to rise.
As a result, we see two critical trends that are poised for considerable growth over the coming years:
- Shift towards acquiring technology via M&A
- Increased outsourcing of services and manufacturing
Acquiring new technology:
A key strategy that is worth considerable attention relates to major medtech’s shift to acquiring technology through mergers & acquisitions, as well as funding start-ups.
The medical device industry was overshadowed by megamergers such as Covidien and Medtronic in 2015, as well as separate activities by Johnson & Johnson and Abbott in 2017. However, 2018 reveals a different picture.
Major medtech players were acquiring more meaningful early-stage companies. These types of acquisitions don’t reflect the high dollar value like recent megamergers. Instead, the larger medtech companies are pursuing innovative solutions that they can add to their product portfolio’s more cost-effectively and in less time. To illustrate this point, Figure 1 captures the overall long-term trend in M&A activity in terms of number of acquisitions and value. Note the decline in value relative to number from 2016-2018.
Figure 1 : Source IMAA analysis, imaa-institute.org
Outsourcing services and manufacturing:
The trend towards outsourcing of services and manufacturing within the medical device industry is poised for considerable growth. According to Grand View Research, the medical device outsourcing market is projected to reach $195 billion by 2025, a compound annual growth rate of 10.9%. For reference, the 2017 global medical device outsourcing market was valued at $84.9 billion. See Figure 2.
Figure 2. Source: Grand View Research, 2018
Contract manufacturing continues to dominate, which comprised 55% of the total outsourcing market in 2017. The contract manufacturing segment remains strong, will continue to drive growth over the next 5-10 years, and is projected to reach $104.5 billion by 2025.
However, medical device outsourcing includes several services in addition to contract manufacturing. Key outsourcing segments include product design and development, process design and development, regulatory consulting and approval, product testing, product implementation, product upgrade, sustaining engineering and product maintenance as well as distribution. Figure 3 illustrates the total value chain within the medical device industry.
Figure 3 Source: Gary Gereffi, 2013
According to Grand View’s projections nearly all outsourcing segments will see growth for their services. There are a few segments and their enabling trends that are worth highlighting in the table below.
|Industry Trend||Outsourcing Segment|
|Growing Complexities in product engineering||Product design and development services|
|Changing regulatory landscape||Quality assurance, regulatory approval, product testing|
|Increasing number of start-ups & incubators||ALL|
These trends will create challenges and opportunities for many key stakeholders within the medical device value chain and will help shape the future of the industry. Let’s quickly take a closer look at these trends through the lens of the medical device value chain:
Growing complexities in product engineering: There is no shortage of innovation within the Medical Device R&D pipeline. R&D spending is expected to reach $36.4 billion by 2021 at 5.6% CAGR.2 Key drivers are investments in rapidly emerging technologies, including but not limited to:
- Connected Devices
- Hospital Patient Monitoring
- Digitizing Cancer Intervention
- Artificial Intelligence in Imaging
- Portable & Handheld Ultrasound
- Cloud Solutions
- Cognitive Computing
Many OEMs are open to and actively seeking outsourced partnership for product implementation while they focus on their core science. This strategy, when executed properly results in cost-effective development and improved time to market.
Changing regulatory landscape: The regulatory landscape is uncertain and subject to change on both sides of the Atlantic:
- In the USA, the FDA is taking transformative steps to modernize 510K clearance which they say will focus more on safety and performance as a basis for clearance. The current process has been in effect since 1976.
- Europe is in the process of implementing medical device regulation (MDR) and in vitro diagnostics (IVDR).
- A comprehensive review of ISO 13485 is scheduled in 2019. One output of this review could include an amendment relating to the adoption of the medical device single audit program (MDSAP).
These regulatory reforms will propel the need for quality management systems services. It is estimated that outsourcing of quality management systems can see up to a 13.5% GAGR over the next several years.
Increasing number of start-ups:
New medical device market entrants, whether they be start-ups or academia incubators are expected to rely on outsourcing partners for end to end solutions within the value chain. Key outsourcing solutions include industrial design, product & process development, voice of customer (VOC), assembly, packaging, product testing and regulatory approvals, contract manufacturing, warehousing and distribution. Relying on strategic outsourcing parts will allow resource constrained start-ups and incubators to focus on their core science development, keep up with key technology advancements and respond to their market demands.
- Mercer Capital’s 5 Trends to Watch in the Medical Device Industry in 2018, Sujan Rajbhandary, Atticus Frank
- Why the Medical Devices Industry Is Reinventing Itself; March 7, 2018; Ananda Ladi – Partner, Zinnov; Chandan Satapathy – Engagement Manager, Zinnov; Aditya Sonkar – Consultant
MPE Inc (www.mpe-inc.com) designs and manufactures custom, high-value devices, sub-assemblies and systems for medical and electronics OEMs. MPE’s customers tap into the company’s extensive experience, high-level skills and broad capabilities to accelerate products to market at lower cost.
MPE has a unique vertically integrated business model (ODM – Original Design to Manufacture) to service its growing customer base including: Industrial Design, Project Management, Product Development, Quality Management & Compliance, Supply Chain Management and Logistics. At its core, MPE design and manufactures custom mechanical enclosures and mechanical mobile systems, sub-assemblies and complete system integration platforms, which leverage an in-house engineering team and core expertise in metal fabrication, quality management systems and complex assembly. MPE is a highly technical organization comprised of experts passionate about developing and building products that have the ability to improve people’s lives servicing most of the global Medical device OEMs and many electronics OEMs.
MPE was founded in 1978 and today has over 150 employees. Corporate headquarters and manufacturing operations are based in Milwaukee, Wisconsin. The company is ISO 9001-2008 and ISO 13485 certified with 165,000 square feet of manufacturing foot print.