By Mark R. Smith, Contributing Writer
When Bob Hess discusses medical device manufacturing, he does so in the broad terms as one would when talking about an already vast sector that’s an offshoot of an even more expansive industry.
“Medical device manufacturing is a segment of life sciences, and analyzing that industry reminds me of looking at the Jeopardy board,” said Hess, executive managing director, consulting with the Chicago office of Newmark Grubb Knight Frank Global Corporate Services. “If you think about taking ‘Medical Devices for $300,’ that’s one easy way to look at it.”
Today, Hess said, the global medical device manufacturing industry, which Fortune Business Insights projects will grow from $455.34 billion in 2021 to $657.98 billion in 2028, “is going through an explosion and an evolution. It’s gone from knee and hip replacements to digital technology to artificial intelligence, and using analytics to perfect devices and correct the health deficiencies.”
It’s basically “doing your research and development (R&D), then coming up with answers much sooner than we did the past,” he said. “Just look at how fast the COVID-19 vaccines were created and perfected. It’s the same deal with medical devices.”
Industry Blip
That progress is due to the seemingly never-ending advances in technology.
“How medical devices are made is becoming more automated, with more technology and less labor in the process, so we won’t be looking at low-cost countries for manufacturing sites as much. Look at a company like Medtronic (a global firm that manufactures spinal implants), for instance,” said Hess. “It has all of its offices, R&D and manufacturing in Minnesota, a state with a highly-trained work force.”
“On that note, look at the Abbott Labs facility that opened in Indiana,” he said. “It’s not about going to a low-cost place in Eastern Europe or Mexico anymore.”
Today, however, is a somewhat challenging time in medical device manufacturing, as supply chain issues have upended the usual flow of product and parts needed for potentially life-saving equipment. On that note, Fortune Business Insights also reported that the global market declined 3.7 percent as compared to the average year-on-year growth from 2017-2019.
“That means manufacturers having a sound, redundant supply chain is more critical than ever,” said Larry Gigerich, executive managing director of Indianapolis-based Ginovus. “The components and raw materials can’t just come out of China or Asia because manufacturers can’t be caught without the ability to acquire parts for their products.”
That said, that situation should improve moving forward and the industry looks to be thriving. For instance, in 2020 the global market for the sale of minimally invasive devices was approximately $35 billion and is expected to rise to approximately $51 billion by 2025, according to ReportLinker.com, a market research firm based in Lyon, France.
Also in the mix is the continued growth of consumer wearables like Fitbits, Apple Watches, etc., “which allow users to monitor heart rates, for instance,” said Gigerich, and are part of what is being called the Internet of Medical Things.
“The other big trend is that we’re seeing some major medical companies, for the first time, outsourcing more often,” he said. “They’ve developed a trust with smaller companies to design and produce prototypes of initial components.”
This is also an offshoot of “the life sciences pharmaceutical industry, where large companies would work with smaller firms to design new products and would even buy the underlying technology, since it was cheaper than starting a new division,” Gigerich said. “Now, 10 years later, we’re seeing it happen in medical device manufacturing.”
“With what’s happening today, due to supply chain issues, growth of wearables and outsourcing, companies are contemplating how to meet their growth projections,” he said. “The first point is they need dependable sources for components and raw materials in case they can’t get them from China, for instance.”
Talent Pool
That point begs the question: are there locations in, or near, the U.S. for medical device manufacturers to open a second facility and maybe even a third?
“COVID-19 exposed many issues in the supply chain, but today that problem is inspiring much commercial real estate activity and in terms of new construction and repurposing of old buildings,” said Gigerich, “because companies want a better handle on their supply chains.”
That means the spirits of observers who want to see more manufacturing and/or product storage come stateside are liking what they’re seeing. “We’re seeing more activity domestically,” he said. “Another key component is access to and the training of ample supply of talent, which is in shorter supply in the U.S.; companies want a labor pool with a 10:1 ratio of potential candidates to jobs to ensure they can find new hires.”
“It’s also critical,” said Gigerich, “for medical device companies to form partnerships with the local academic community from post-secondary education to college level.”
With massive amounts of money is at stake, solid industry infrastructure and tax structure is critical. “You can see that the industry is very capital intensive, so companies need to know that if there is a 100,000-square-foot building, there may be $25 million in equipment inside,” he said, “so property tax rates can make a difference.”
Managing Risk
Brian Stemme, senior vice president of external engagement for BioCrossroads in Indianapolis, has observed the industry trend of including company expansion based on “the heightened demand for diagnostic testing and burgeoning need for glass vials used to package COVID-19 vaccines.”
But that trend has another side. “We’ve also seen a temporary drop in demand for certain products used in elective procedures after the COVID-19 spike in mid-2021,” said Stemme. “When hospitals deferred elective procedures to care for COVID-19 patients, demand for several product categories declined until the hospitals were able to transition back to normal surgery levels.”
However, these temporary disruptions have not stopped many companies from moving ahead with plans for growth. “In 2021, we had 14 life science companies that have expanded or landed in Indiana,” he said, “and a third of them manufacture medical devices for orthopedics, orthodontics and other health needs.”
Gigerich no doubt will note Stemme’s observation of new, innovative companies partnering with larger companies in the orthopedic sector.
Stemme’s team just visited Warsaw, Indiana “‘The Orthopedic Capital of The World’, where we’ve seen small companies take an idea from a larger orthopedic company, validate it with surgeons, then design and manufacture the device,” he said.
“After the device is ready for patients, the two companies work together to deliver the finished product to health care professionals,” said Stemme. “It’s an example of a larger company relying upon a smaller, more nimble partner to create, design and manufacture the entire orthopedic device.”
It’s about managing risk, too. “Product development partnerships are common in the medical device industry, but this new model enables the original equipment manufacturers (OEMs) to work with a partner that takes on the entire product development process,” Stemme said.
While the large companies generate the new idea, companies such as Nextremity Solutions and Ignite Orthopedics take the idea and deliver a solution to their OEM partners. Stemme said, “This is an example of outsourced product ideation, design, development, manufacturing and regulatory review, and is relatively new to the medical device sector.”
“As the orthopedic sector continues to evolve, this new model will likely be adopted by other companies,” stated Stemme. “In fact, Nextremity Solutions recently moved into a new facility to help [accommodate] new business.”
Stemme, noting that other hotspots in the medical device manufacturing field also include Minnesota, Massachusetts and California, also commented that consolidation remains ongoing. “For instance, Medtronic (see above) is closing its factory in Warsaw. “The bigger companies are always looking for ways to reduce costs, and consolidating manufacturing operations is a common strategy.”
“However, as we’ve seen, the entrepreneurial spirit is alive and well in Warsaw’s orthopedic sector,” he said, “and the hope is that new companies will continue to drive growth in Warsaw and Indiana.”
Stock Location
Andrew Ratchford, senior consultant with Global Location Strategies, in Greenville, South Carolina, addressed this broad topic by pointing to two big subcategories: Medical Devices and Equipment Manufacturing and Navigational, Measuring, Electromedical and Control Instrument Manufacturing.
“We’ve seen the huge influx of personal protective equipment (PPE), which isn’t a hot as it was a year ago,” said Ratchford, “and we’re seeing projects come to fruition such as masks, gloves, swabs, materials in activators for COVID-19 tests that read them. There is also still a push to make more respirators.
But as some elective procedures went away for a time when the demand increased for PPE, “other markets have not changed, including those for surgical appliances, orthodontic goods and ophthalmic goods,” he said. “What we may see in those cases is companies repositioning their stock. Every company is addressing how to assess risk.”
Now the big question is, “Do companies want to bring their manufacturing to a certain location or just make part of their products in one place and the rest in another?” said Ratchford. “Until you get to big products like CAT scans, we’re talking about smaller products that are easy to transport.”
Parts Per Product
Maura Kahn expanded on those thoughts about the supply chain. “The major trend that I see, not surprisingly, is how COVID-19 is impacting how devices are manufactured,” said Kahn, senior vice president, business development and marketing for Hanover, Maryland-based Noxilizer.
“Companies that are manufacturing or sourcing parts from all over the world are assessing what risks they are taking by continuing to go the old route,” said Kahn, “with the idea remaining to be to manufacture globally and sell globally. That approach may no longer work in the post-COVID-19 world.
Given the vastness in variety of medical devices ranging from pacemakers to orthopedic implants to syringes, it needs to be remembered that some companies might require a few hundred parts to assemble its product, but others just a few.
“Parts may come from multiple countries when assembling just one product,” she said. “What if a company has easy access to nine of the 12 parts needed for the product, but the final three are coming from Asia and the continent is in the midst of a two-week shutdown due to COVID-19? That means more supply chain issues.”
For example, they want to know if Asia still makes sense, “because from whatever continent they source parts, the COVID-19 guidelines in other countries can vary,” said Kahn. “For instance in Europe, the rules in Northern Italy may be different from those in Southern Italy.”
Other Issues
Another issue is labor that would be needed to make the pricier product like … well, CAT scan equipment.
“Labor is in short supply in the U.S.,” he said. “Masks are easier to make than defibrillators and some products require that more highly-skilled workforce,” said Ratchford. “A talent pool ratio of 25 to 1 is preferred in major markets.”
The other subject of no small importance and getting larger by the day is sustainability. “There has been some controversy about different sterilization methods across the medical device industry, especially concerning the use of ethylene oxide,” said Kahn. “Companies want to know the impact the gas has on the environment.
Noting that some sterilization facilities have been shut down, she stated, “the key is to find out if the sterilization gas is being captured in a safe way or is there gas being emitted into the environment? Or are they being captured in safe way?”
Bio: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure
Sources:
Newmark Grubb Knight Frank Global
Corporate Services, Arlington Heights, Ill.
Bob Hess, executive managing director,
consulting, 773-957-1439 cell and rhess@ngkf.com
Ginovus, Indy
Larry Gigerich, executive managing director
317-496-8426 cell and larry@ginovus.com
BioCrossroads, Indianapolis
Brian Stemme, senior vice presidents of
external engagement
317-413-7180 cell and bstemme@biocrossroads.com
and brian.stemme@gmail.com
Global Location Strategies, Greenville,S.C.
Andrew Ratchford, senior consultant
864-907-0900 cell andrewratchford@glsconsult.com
Noxilizer, Hanover, Md.
Maura Kahn, senior vice president,
business development and marketing
443-842-4403/202-744-6337 cell and
