By David Magnani
In 2017, the U.S. medical device market was a $156 billion industry, accounting for approximately 40% of the total global market. As staggering as those numbers are, they’re growing. By 2023, it’s expected to top $208 billion.
Despite the booming potential of the medical device market, the path forward won’t be an easy one. While there’s absolute demand for a broad array of medical devices, challenges persist in getting them into the hands of the people and practitioners who need them. As we become further removed from a global pandemic, lingering headwinds could blow strong against this sector, bringing turbulence to growth prospects.
Here’s a look at the top three challenges facing the medical device market in 2021 and how the industry can overcome them as demand persists.
1. Continued supply chain disruptions
COVID-19 was absolutely devastating for supply chains — particularly global supply chains. In 2021, there’s continued push-pull from suppliers and producers that’s leading to everything from manufacturing delays, to back orders, quality control issues, rising costs and more.
Consider the composites industry, which is deeply entwined with medical device manufacturing. Thermoform producers, injection molding companies and similar producers aren’t able to get the raw composites they need — and when they do, they often come at significant price hikes. A recent Composites World/Gartner survey of 144 composites fabricators found that 69% dealt with some form of supply chain shortage, while 66% faced issues with lead times. The report also found price inflation among epoxy, polyester and vinyl ester resins — all materials common in medical device manufacturing.
These factors all add up to problems for medical device manufacturers. More importantly, they add up to a growing gap between patient demand and medical device supply.
2. The cost of innovation is rising
Continued supply chain woes aren’t the only factor driving up costs in the medical device market. The cost of healthcare itself is also on the rise. Moreover, emerging medical devices tend to fall into a sort of “no man’s land” when it comes to insurance coverage. While most plans and policies will cover the cost of durable medical supplies, modern devices aren’t always covered. For patients who need to pay some or all of the cost out of pocket, that cost can be prohibitive.
So why don’t companies lower the cost of medical devices? In a thought: they can’t. More than 80% of medical device companies in the U.S. are small businesses or startups, employing fewer than 50 people. These companies have little to no sales revenue and aren’t profitable. And while their novel device is likely to solve a problem or improve a patient’s quality of life, it’s often unrealized because companies can’t afford to reduce the price. Those companies that do manage to bring a product to market generally do so on the back of decisive medical device leadership.
Finally, the cost behind some medical devices is prohibitive to mass production. While techniques like injection molding and additive manufacturing serve to bring down the cost of production, the complexity of many devices compounds that cost exponentially.
Microelectronics, sensitive instrumentation, biotechnology and more all come with significant costs attached. Companies either need to bear the burden of these costs or pass them on to patients and insurance companies. And, unfortunately, in many cases, none of these solutions are viable.
3. Product quality and recall rates
Medical devices are something of a Wild West. They’re unproven until proven, which can take years and no small investment. Moreover, not every product falls under the jurisdiction of the FDA and thus, isn’t always subjected to the same criteria for approval and use. This is also why medical devices are so hit-or-miss when it comes to insurance coverage.
Without uniform standardization and vetting for every type of medical device, there’s inconsistency in product quality. This isn’t to say that manufacturers are negligent. Instead, it points toward discrepancies between expectations. As a result, recalls are often part of the equation. Devices don’t perform as expected or as intended, or don’t hold up to the rigors of regular use. In some cases, safety becomes an issue due to untested parameters. In others, recalls are preemptive, to avoid an even costlier lawsuit due to some overlooked variable.
All told, a McKinsey study from 2013 estimates that “medical device recalls cost the industry between $2.5 billion and $5 billion per year on average. This includes $1.5 billion to $3 billion per year on non-routine costs, plus $1 billion to $2 billion in lost sales of new and existing products.” While this figure seems trivial in comparison to the estimated total market value, it’s absolutely devastating for any upstart medical device manufacturer banking on their innovation to become profitable.
Forecast for the future
While these three headwinds will continue to blow strong in 2021, there’s hope that they’ll die down soon after. As supply chains remedy themselves and demand forces insurers to consider new and innovative devices, product quality is likely to improve. For many medical device manufacturers, there’s a bright future ahead.
About the author: David Magnani is the managing partner for M&A Executive Search and Consulting.