Contract manufacturing On the rebound
While fears about certain devices, like ventilators, may have been miscalculated (at least in the West), there were more complex areas than PPE that were affected by the pandemic – but the impact wasn’t to supply, but demand. These were “Product areas like orthopaedics and dental, so more discretionary elective types of medical devices,” says Davies.
“Here we are in 2022, China and other places in Asia continue to produce [at scale] and imports haven’t changed dramatically.”
The reversal, he adds, has been significant. “They’ve done very well throughout 2021 and that’s continuing in 2022. It’s from a drop [in demand], but they’ve been having a good rebound since.” It’s the same story for surgical robotics, which Davies and his team of Fitch analysts believe is a medical device category that will see considerable growth over the next few years, as hospitals clear their elective procedure backlog. This ability to rebound was granted only by the pandemic situation improving somewhat so that elective procedures could continue, and that exemplifies just how powerless the medical device,
and by extension the contract manufacturing market is to external forces. Another indicative example is the price of raw materials, which have fluctuated during the pandemic, with metals and plastics still at a high cost. “There’s only so much any company can do,” says Davies. “It’s not like one raw material can be substituted for another.” The result has been an increase in costs across the board, with contract manufacturers having to increase their price to medical device companies, who are then having to increase their price to consumers.
One issue for component suppliers in the contract manufacturing market has been that, with the increased demand for their products spurred by elective surgeries resuming, there’s been a scramble for the materials they use. The result has been a longer wait for resources, which has meant quoting their medical device partners longer lead times. Some suppliers, like Wisconsin-based Custom Wire Technologies (CWT), tried to pre- empt this by stockpiling resources to keep lead times manageable. In a recent whitepaper on the topic, company president Bob Boldig described how he was “rolling the dice” and buying material in advance without necessarily having orders on the books to support it, just so that CWT had the ability to respond. The gamble paid off when the orders came rushing back alongside the demand for elective surgeries, but not all contract manufacturers took that risk, and long lead times still aren’t unusual. This is especially true for those reliant on the semiconductor market for their manufactured products, as the world is undergoing a historic shortage in the electronic component.
A less globalised world?
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If anything is to result in medical device companies reducing the amount of business they do with countries in Asia, it’s not going to be shortages – at least not while manufacturing costs remain low. Looking at the wider picture though, Davies says there were isolationist policies and a move away from globalisation seen within the medical device industry already – especially in the US due to its trade war with China. What remains to be seen, he adds, is what the global marketplace will look like now that Russia has effectively removed itself from it by waging war on Ukraine. “That is shifting a multi-decade trend for more globalisation,” he says. From here he believes several different scenarios could play out. “The world could return back to a more integrated global economy, or it could start splintering more, and that has implications for where countries source their medical devices and who they export to.” ●
Medical Device Developments /
www.nsmedicaldevices.com
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