2017 medical device outlook: Fast changing, profitable, full of growth

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As we enter 2017, the medical device market must adapt to constant changes in the medical landscape to continue its consistent growth. The demand for more advanced, more personalized treatment; increased availability of healthcare; and an aging population are pushing the market and expanding technologies. These advancements require accelerated design and production to get products to market quickly, efficiently, and cost-effectively.

Along with strong growth projections, the rapid pace of advancements continues to alter the look of the industry. Analysts see further convergence of design and manufacture, driving the growth of medical device contract manufacturing/outsourcing; continuing new entrants into the market as technologies further integrate into devices; and in the United States, a wild card may come into play as policies are unveiled from a new administration.

Indicators show that the global market for medical device outsourcing should grow at a compound annual growth rate (CAGR) of 11.60%, reaching $40.8 billion by 2018. Competition among medical device manufacturers drives this growth as companies seek to increase profit margins. However, an uptick in medical device recalls has boosted the demand for testing and validation.

Within the medical device manufacturing industry, orthopedic devices lead outsourcing to contract manufacturers with cardiology coming in a close second. Furthering market growth and guiding the entry of players from different industries into the medical market is the need to integrate supportive technologies such as telecommunications, digital imaging and diagnostics, and robotics. By application, Class II devices hold the largest market share due to the moderate associated risks and limited regulatory requirements.

With contract manufacturing playing an increasingly larger role in medical device development, the market can be viewed in two segments – application and services. Application refers to Class I, II, and III medical devices, while services include product design and development, regulatory consulting, product testing, product implementation, upgrade, and maintenance. Of those, product design holds the largest market segment of outsourced services.

As the market grows, continual investment in advanced manufacturing technologies is required to connect shop floors to the top floor, driving increased quality and output (See pg. 19). Organizations need to remain nimble enough to respond quickly to new and changing FDA regulations – such as cybersecurity as more devices connect – all while producing products that continue to increase in complexity.

On the following pages, industry experts from SAP and MasterControl weigh in with their thoughts on where the industry is headed and what manufacturers should consider if they plan to remain competitive in the market.

About the author: Elizabeth Engler Modic is editor of  Today’s Medical Developments and can be reached at emodic@gie.net or 216.393.0264.

Today’s Medical Developments (TMD): What steps must manufacturers take to remain competitive in today’s marketplace?

Joe Miles (JM): Long gone are the days of traditional planning systems and demand forecasting. Demand-driven manufacturing has become the new market norm because of advancements in real-time analytics and Industrial Internet of Things (IIoT).

Every manufacturing company needs to have visibility throughout its operations, especially if it wants to establish a culture where the top floor has access to the shop floor. This transparency allows for common understanding of the operational health of the company and is the foundation that allows companies to react fast to events triggered by customers, quality, procurement, or supply chain. Supply chain managers should always look for ways to reduce lead times and balance production with the ebbs and flows of demand.

Start with an internal audit of end-to-end operations to identify weak spots and insertion points where new features can be introduced. Once non-value-added components are removed, invest in technology (e.g. Big Data analytics and IIoT) that improves demand cycle monitoring and coordinates the transfer of information at every step of the production process to better monitor demand cycles. The result is a supplier network that aligns output with demand, eliminating waste and driving market growth.

TMD: How do you see demand-driven manufacturing changing the landscape in the next 3 years?

JM: As new analytic technology becomes available, the industry will continue to shift away from forecast models that leave room for mistakes and create waste. Manufacturing companies will need to integrate real-time demand information into their operation or risk losing market share to the digital leaders that do.

Market leaders will be those companies that invest in technology allowing greater end-to-end collaboration, information sharing, and optimized production that matches on-receipt demand.

TMD: With the global market for connected sensors & smart devices predicted to grow to more than $280 billion by the end of the decade, what does SAP offer for connected, demand-driven manufacturing?

JM: Our customers expect great flexibility in the global economy, especially when it comes to IIoT and Big Data. At SAP we have tools for customers that can start small or big, work with a mix of suppliers, or adopt the SAP tool sets. These tool sets reach from our platform (HANA or HANA Cloud Platform) to collect information from sensors or machines, process information, and integrate into the backend ERP systems.

Our analytics portfolio can then provide insights into the data, offering a series of solutions that improve operational efficiency, increase process visibility and performance, and scale production to meet the needs of demand-driven manufacturing at every step of the supply chain.

TMD: What does SAP bring to companies to connect manufacturing and management?

JM: We provide the tools to visualize the operational performance, collect mass information throughout the IIoT layer, and establish a business layer so we can analyze and provide actionable insights to the users for an optimized value stream.

IIoT is the key to connecting these two floors. The power of connected devices and processes allows business to better respond to the changing nature of consumer demand or supply chain.

TMD: How does SAP help medical device manufacturers with collaborative research & development (R&D), demand-driven supply networks, sourcing/procurement, and compliant manufacturing?

JM: Collaborative R&D: While patients see the surface-level functionality of the medical devices they encounter, there is extensive planning and research that goes into the development of these tools, a good portion of which comes from business-to-business collaboration. However, this coordination can be difficult without the right systems in place to organize clinical trial and device monitoring, especially if partnering companies use different measurement tools.

Supply networks: Healthcare needs are constantly shifting because of changes in disease prevalence and environmental and socioeconomic factors. As a result of climbing healthcare costs, medical device manufacturing is rapidly shifting toward a demand-driven model. However, proactive decision-making can be difficult (or ineffective) if you are unable to fully assess these global changes.

Sourcing/procurement: Businesses must have measures in place that help monitor and control the costs from working with a network of suppliers. The healthcare industry is costly at every stage of the supplier-to-patient chain, so to remain competitive and profitable, it’s important that stringent savings targets are in place together with an effective mechanism to hit them.

Compliant manufacturing: Healthcare and regulation are two sides of the same coin. At every step of the supply chain, medical device manufacturers must adhere to strict (often difficult and complex) legal codes. To make matters even more complicated, all the players in the supply chain could be in different geographic regions, potentially each with its own protocols.

SAP has designed industry-specific solutions meant to ease compliance understanding while navigating the technical, legal, and corporate regulatory hoops involved in medical device manufacturing. SAP Manufacturing Executions and Extended Warehouse Management improve operational efficiency and provide real-time visibility at each stage of the development process to ensure that guidelines are met.

TMD: With the industry facing more stringent FDA regulations while decreasing time to market for new medical devices is always important, what is the outlook for medical device manufacturing in the next 2 to 3 years?

JM: Healthcare regulations have become more stringent and we don’t see this trend changing anytime soon. Medical device manufacturers must take a proactive approach to compliance, making sure that their production and standards meet government standards.

Aside from the shifting regulatory environment, rising costs have pushed many healthcare providers to consider consolidation. Mergers and acquisitions will place added competitive pressure on mid- to low-scale medical device manufacturers. Competing with larger providers will require manufacturers to operate smarter, scaling their operations to accurately match demand and uncover additional markets.

Lastly, intense competition and strict regulations will make innovation and R&D even more crucial to business survival. As new technologies become available (such as 3D printing and advanced analytics), manufacturers will need to develop new designs and processes that leverage these breakthroughs if they hope to remain competitive in a field that will increasingly become dominated by fewer, albeit larger, players. In addition, the largest medical device manufacturers will look to startup investments and acquisitions as a way of fostering innovation that falls outside of standard regulations.

SAP

www.sap.com

About the author: Elizabeth Engler Modic is editor of Today’s Medical Developments and can be reached at emodic@gie.net or 216.393.0264.

#1 Disruption from non-traditional healthcare companies

Following Apple and Google, some have predicted that e-tail giant Amazon would be the next Fortune 500 company to disrupt the healthcare market, but could it be FedEx instead? The company was a host sponsor of AdvaMed 2016, the leading medtech conference in North America, causing speculation that the shipping giant is expecting healthcare logistics – estimated to be a $70 billion global market – to become a major revenue stream.

DHL and UPS are also attracted to the healthcare logistics sector, and all three companies have invested in their healthcare supply chains. FedEx’s SenseAware technology monitors shipments and tracks everything from temperature and light exposure to barometric pressure. DHL has a similar shipment monitoring system, SmartSensor, and collaborates with two pharma giants. UPS’ extensive New Jersey facility is dedicated to shipping and logistics of high-end medical devices, such as a 300-piece spine surgery kit which it ships to hospitals on a loaner basis. Components not implanted in patients are shipped back to New Jersey where the kits are replenished and reshipped to other hospitals within 36 hours. Reusing portions of the kits saves the manufacturer Alphatec Spine money by not having to make as many kits. 1

#2 Benefits from 2016 election

With the surprising victory of Donald Trump and the Republicans’ sweep of the House and Senate, never has one party held such power over the health benefits of so many American citizens. Trump campaigned on repealing and replacing the Affordable Care Act (ACA, also known as Obamacare) which will impact device makers. Business Insider predicts that the medical device industry is likely to be one of the first industries to benefit from the new administration.

The ACA’s controversial medical device tax on non-retail medical devices, such as pacemakers, heart valves, and artificial hips, is expected to go. 2

The tax has been on temporary suspension since December 2015. Although it is not expected to be reinstated anytime soon, industry groups like AdvaMed are pushing for a full repeal in early 2017, rather than later in the year. If this happens, it will be a huge boon to device manufacturers.

#3 FDA reshuffling

The new administration will not just impact healthcare policy, but the policy makers themselves, and the FDA seems to be one organization that is firmly fixed on Trump’s radar. In his First 100 Days Action Plan, he indicates that one of his initial reforms will include “cutting the red tape at the FDA…to speed the approval of life-saving medications.”

Some would argue that the FDA has already started down this path with its approval of eteplirsen, a drug recently approved to treat Duchenne muscular dystrophy (DMD). The approval was highly controversial because the efficacy of the drug was in question, and the agency is responsible for protecting the public from unsafe and/or ineffective drugs and devices.

In 2015, the FDA introduced an Expedited Access Program that allows manufacturers of devices designed to treat life-threatening or irreversibly debilitating conditions, which are usually subjected to the rigorous 510k premarket approval process or the de novo clearance program, to request for fast-tracking at the agency to jumpstart the approval process. 3

As of this writing, the media is reporting that Trump may name libertarian Jim O’Neill as the new FDA commissioner. If tabbed to lead the FDA, he would replace the current commissioner, Dr. Robert Califf, who was appointed in February 2016.

O’Neill, who is neither a physician nor a scientist, supports eliminating the agency’s mandate to establish the efficacy of new medicines and devices before approving them for sale, a view that could radically overhaul the agency. Moreover, what would become of FDA’s Center for Devices and Radiological Health (CDRH) and its three strategic priorities for this year and next year: the establishment of the National Evaluation System for health Technology (NEST), to partner with patients, and to promote a culture of quality and organizational excellence?

#4 Design, manufacturing convergence

Cost control will continue to drive innovation in the industry, and the consumerization of medical devices shows no signs of slowing down. In response to cost reduction and customer needs/desires, the medical device business model is evolving from product maker to problem solver.

Device and diagnostics manufacturers must adopt a design-for-value orientation, which will require more collaboration between design engineers, manufacturing, and sales/marketing. A stronger alliance between these functions will ensure that customers get the device they need, when they need it, with minimal supply chain waste and maximum innovation.

MasterControl

www.mastercontrol.com

About the author: Medical device expert and executive vice president Matt Lowe has successfully launched more than a dozen medical devices, has five patents issued, and his regulatory experience includes writing a 510(k) that was cleared by FDA and managing a multi-site, multi-year post-market clinical study for orthopedic devices. Lowe can be reached at 801.942.4000 or mlowe@mastercontrol.com.

Sources:

1. USP, FedEx and DHL bet big on health-care logistics… https://goo.gl/AK0wfn (accessed December 10, 2016)
2. Under Trump, Congress likely to pull plug on medical ... https://goo.gl/Ku2P1z (accessed December 13, 2016)
3. FDA finalizes fast-track approval for medical devices ... https://goo.gl/CNxoe2 (accessed December 13, 2016)