January 27, 2009
The medical device industry segment holds promise for growth, and profit for stamping companies willing to work within its regulations and challenges.
Editor's Note: This report is an abridged version of the report "Medical Devices Outlook"by Richard Paddock and Matthew Hein of the U.S. DOC/ITA/MAS/OHCG. The full report is available online at http://www.ita.doc.gov/td/health/medical.html.
The U.S. medical device sector comprises surgical and medical instruments; orthopedic, prosthetic, and surgical appliances and supplies; dental equipment and supplies; X-ray apparatus, tubes, and related irradiation apparatus; electromedical and electrotherapy apparatus; ophthalmic equipment; and in-vitro (i.e., not taken internally) diagnostic (IVD) substances.
The main demographic change influencing this industry is the rapidly growing number of elderly in the U.S. The Census Bureau's latest published data (based on the 2000 Census and published in early 2004) shows that the percentage of people 65 and older will increase from 12.4 percent in 2000 to an estimated 20.7 percent by 2050. According to Census estimates, there were about 35 million Americans over 65 in 2000; due to the an anticipated increase in overall life expectancy, by 2050 there will be more than 86 million people 65 and older.
The aging population is influencing the future direction of the medical device industry because of their changing health needs and an accompanying shift in thinking about how and where seniors will be treated. Pressures to contain costs will increase; expensive hospital stays will be discouraged; and health care will be increasingly delivered in alternative settings, such as nursing homes, hospices, and the patient's own home.
At 28 percent, surgical appliances and supplies is the largest component of the industry segment; at 25 percent, surgical and medical instruments is the second-largest.
As a result of the trend toward health care delivery in the patient's home, home health care products are expected to become one of the fastest-growing segments of the medical device industry.
Demand for pacemakers and defibrillators will continue to increase.
One area that will see tremendous growth is drug delivery devices. Many treatments and therapies will not necessarily be available in pill form. Medical devices, therefore, will act as delivery systems for new products resulting from genetic engineering and biotech research.
In 2006 annual U.S. industry production in this sector exceeded $90 billion, and in recent years has experienced approximately 6 percent annual growth. U.S. medical device technology companies lead the world in medical device production.
R&D. The U.S. medical device industry funnels a tremendous amount of money into R&D to fund innovation, which will have a significant impact on some medical equipment and supply markets. U.S. medical device companies are renowned for their innovations and high-technology products. According to a recently published study, total U.S. spending on medical research has doubled in the past decade to nearly $95 billion a year and has remained more than twice the average for U.S. manufacturers overall.
The medical device industry is highly regulated. Domestically, medical device firms devote considerable resources toward product approval processes, clinical trials, user fees, and plant audits.
Venture capital is extremely important in medical technologies, especially for small and medium-sized companies with limited earnings in the early stages of development, a typical situation.
Small firms that find it too expensive to devote significant resources to providing "proof data" for their new innovations are merging with larger firms that have the financial resources necessary to bring new products to market.
Reimbursement. Issues related to reimbursement rates for medical devices are a primary concern for U.S. medical device companies, as an adequate reimbursement rate usually determines whether a product will be viable in a given market. The U.S. market represents such a large percentage of the global market that a low reimbursement rate in the U.S market may make a product uneconomical to produce globally.
The U.S. is the largest single country consumer of medical and dental equipment and supplies with a market valued at nearly $80 billion in 2005—about half the world market—including diagnostic products.
While the U.S., European Union, (EU), Japan, and Canada are extremely large and lucrative markets for medical devices, they are mature markets with stable but low (3 to 5 percent) annual growth rates.
After the U.S., the largest markets for medical equipment are the EU, Japan, Canada, China, Brazil, Taiwan, and Australia.
The U.S. imported $23.5 billion worth of medical equipment products in 2004, an increase of 15.1 percent (or more than $3 billion) compared to 2003. Just over half of these imports were surgical and medical instruments and supplies, which include price-sensitive, lower-technology devices, making substitution for imported products easier than in higher-technology medical device sectors.
In 2004 five countries accounted for 57 percent of U.S. imports of medical devices: Ireland (18 percent), Germany (14 percent), Mexico (12 percent), Japan (8 percent), and China (6 percent).
Top 10 U.S. Medical Device Companies
Johnson & Johnson, GE Medical Systems, Baxter International, Tyco Healthcare, Medtronic Inc., Abbott Laboratories, Becton Dickinson, 3M Healthcare, Guidant, and Stryker Corp.
Aggregate exports for 2004 were valued at $20.7 billion. Surgical and medical instruments and supplies is the largest category within the medical devices sector.
Export shipments of U.S. medical equipment and supplies to the 15 leading national markets totaled $16.8 billion in 2004. This represents an 8.6 percent increase from the previous year.
The EU has historically been the largest regional export market for U.S. medical devices and is expected to continue to be fertile ground for exports of American-made, high-tech products because of Europe's high per-capita income, a favorable regulatory environment, and aging population.
Japan's medical device market, estimated to exceed $17 billion in 2005, is the largest country market for U.S. medical equipment and supplies. U.S. exports to Japan increased to $2.7 billion in 2004. Medical device-related trade issues with Japan are being addressed in the Market-Oriented, Sector-Selective (MOSS) Agreement.
The U.S. is expected to remain competitive globally because of its lead in innovative technology and through international harmonization of standards and regulatory requirements.
Barriers. However, some regulatory barriers in foreign markets have been difficult to surmount. An increasingly common practice among developing economies is the establishment of national regulatory requirements in addition to the usual submissions required by developed countries, causing device firms to devote tremendous amounts of time and money to determine requirements, conduct additional overseas clinical trials, and pay user fees. These national requirements, which can adversely impact U.S. exports, are sometimes established to protect the domestic industry, to earn hard currency for the government, or both.
The U.S. industry is facing competition mainly from Germany (Siemens), Japan (Hitachi Medical Corp. and Toshiba), the Netherlands (Philips Electronics), and Italy (Marconi Medical Systems). Most of these foreign companies manufacture a significant amount of their products in the U.S.
Since the medical device industry is fueled by innovation and the ongoing quest for better ways of treating or diagnosing medical problems, the future of this sector looks very bright.
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