On today’s Manufacturing Geek podcast, Dan Matlis of Axendia, will discuss his outlook on the issues and opportunities for Medical Device Manufacturing.
This podcast includes a discussion on:
- Emerging trends for Medical Device Manufacturers
- How the US and Global economies may impact manufacturing
- How manufacturers can adjust to the Medical Device Excise Tax
- Globalization and outsourcing
- Where medical device makers should focus
For more on this topic, check out this fantastic Life Science global trends forecast infographic from Axendia.
Looking back, what trends had the biggest impact on medical device manufacturers?
A: was a really interesting year. When we spoke with industry executives, the word that they used most frequently to describe was “uncertainty.” The challenge for medical device executives was that in the past year there was constant change in a number of functional areas:
- There was uncertainty about the FDA’s 510(k) review process, with the Institute of Medicine (IOM) calling for a revamping of the process.
- There was also increased review time and a steadily growing backlog, while the percentage of submissions being cleared was decreasing.
- There was uncertainty about the Medical Device User Fee Act (MDUFA), which expired.
- Finally, there were significant issues around the Supreme Court’s review of the constitutionality of the Affordable Care Act; tied into that was the medical device excise tax.
By now a number of these issues have been resolved, or there is greater clarity around them (the FDA’s review process, the FDA Safety and Innovation Act, which was signed last year, and the Supreme Court’s decision on the Affordable Care Act). There is certainty around medical device user fees for the next five years, but there is still a fight over the excise tax. To add to this, the industry had to deal with the global economic slowdown, the U.S. fiscal cliff, and concerns about the integrity of the Euro. So “uncertainty” was clearly the apt word with which to describe the year.
How do you see the U.S. and global economies impacting the medical device industry ?
A: Medical device executives that we surveyed were very positive on industry growth. Ninety percent of those who responded to our medical device market survey reported that they expect an increase in CAGR over the next three years. They also expect increasing projections for sales in both emerging and traditional markets. What was most interesting is that the sales growth is expected to be much stronger in emerging markets than in developed economies, although both are expected to be positive. So I think we are going to see a shift of focus to the emerging economies from the developed markets that companies have been selling their products into.
As you mentioned, the medical device excise tax has been passed. How will manufacturers adjust in the short and long term?
A: One of the key provisions here is that the excise tax will be applied to annual revenues rather than profits. What’s also very important is that it applies to devices that are sold in the United States. Here are a couple of ways manufacturers will address the tax:
- They will focus more on selling products outside the domestic market, as the excise tax will not be applicable to those sales.
- They will look to offset the excise tax through greater operational efficiencies, as well as reductions in labor and manufacturing costs. Essentially, they will need to become more effective across the organization to manage the tax on the industry.
The industry does not expect significantly increased sales as a result of increased coverage from the Affordable Care Act. According to the industry trade association AdvaMed, more than 80 percent of respondents indicate that they anticipate sales growth below 1 percent as a result of increased coverage. And the effort to repeal the tax will continue.
How can medical device leaders capture the benefits associated with globalization when demands on quality and customized products are at an all-time high?
A: Executives report high risk due to poor visibility into global and outsourced operations. This is really a big challenge. One of the top concerns that medical device executives have is being able to maintain quality standards across internal and external sites around the globe. To address this issue, medical device organizations need to gain tighter control over the partner ecosystem, from raw materials to the patient.
On the other hand, globalization has created new opportunities and markets for medical devices. Industry executive expect to see robust growth through new product introductions, especially in emerging markets. Seventy-three percent of those who responded to our survey said they expect the rate of new product introductions in emerging economies to increase in the year ahead.
Here’s the complexity: in a global healthcare market, there is both a wide diversity of needs and a variety of delivery models. It can range from very basic healthcare for a broad segment of the population to highly sophisticated care in a narrow fraction of the population. So to address these diversities, medical device companies are implementing what Axendia calls a “platform approach,” where they can support a variety of features and functions, as well as cost structures, with a platform they can support globally.
Utilizing this platform approach enables companies to provide the appropriate set of features and capabilities to meet the market or geographical need while providing a commensurate price point.
In your opinion, where should medical device manufacturers focus their efforts in ?
We think that medical device organizations and leaders in those companies are going to consider smart sourcing strategies. This means looking at the total cost of outsourcing or offshoring, as opposed to looking at initial per unit cost. With that in mind, executives need to look at implementing holistic governance with risk management and compliance strategies that apply across the ecosystem. They should also look to deploy technology systems and solutions that provide visibility and control, not only across the supply chain, but also throughout the complete value chain, from raw materials to the end user.
Medical device executives need on-demand visibility so that they can have access to the data that they need in a timely manner to make the most informed decisions. This also means engaging with suppliers and partners in a different way, and building relationships with organizations worldwide that share similar values. Finally, It is imperative to be able to benefit from efficiencies and effectiveness across the product lifecycle.
In summary, we expect that medical device executives will describe as cautiously optimistic. is behind us. The uncertainties of that difficult year have largely been settled; I think execs are bullish on what is coming in the year ahead.