Global Medical Device Electronics Manufacturing Industry

Globally, the medical electronics manufacturing revenue is estimated to amount USD 245 billion in 2019, an increase of USD 9 billion from 2018, and is likely to reach USD 258 billion thereafter by 2020.

Definition / Scope
Market Overview
Top Market Opportunities
Market Trends
Industry Challenges
Pricing Trends
Regulatory Trends
Market Size and Forecast
Market Outlook
Distribution Chain Analysis
Competitive Landscape
Key Market Players
Strategic Conclusion
References

Definition / Scope

Medical electronics comprises electronics in which the electronic devices are used for various medical purposes such as research, examination, diagnosis, treatment, and surgery. Medical electronics devices provide superior services for patients.

Medical electronics devices ranging from diagnosing to treatment based on end use. Diagnosing instruments are devices that assist in measuring and observing the various ill condition. On the other hand, medical treatment devices are the ones like computed tomography scanners and pacemaker devices.

By product type, these are classified into monitoring, endoscopic, heart rate regulator, and Spinal electrical simulator.

Market Overview

The market for patient monitoring and ultrasound devices display is estimated to reach a valuation of USD 4.61 billion by 2025 registering a 5.1% CAGR for the forecast period from 2018 to 2025. The market for such devices in North-America was USD 1.23 billion in 2018.

Similarly, the market for patient monitoring and ultrasound devices display was worth USD 1 billion in Europe in 2018. Asia-Pacific region had a market value of USD 900 million in 2018. Likewise, Latin America combined with Africa and the Middle East represented USD 1.6 billion valuations in 2018.

The global market for smart wearable medical devices is expected to nearly USD 19.5 billion in 2021 at a CAGR of 28.8% for 2018-2021. These devices detect and monitor changes in various areas of the body and capture physiological data. These devices include blood glucose monitors, pulse oximeters, breath analyzers, heart rate monitors, blood pressure monitors, medical tricoder, and others.

The global therapeutic segment was worth USD 18 billion in 2018.

Top Market Opportunities

New Market Development

For EU companies, Mexico is an attractive market in the medical devices sector. The production of medical devices in Mexico is currently valued at 15.22 billion USD and predicted to grow at a CAGR of 6% until 2020, positioning the country as the most important market in the sector throughout Latin America.

In addition, the Mexican market is a lucrative market for exporting companies, since medical devices of EU origin are exempt from customs duties under the free trade agreement between the European Union and Mexico.

Wearable Medical Devices

The global wearable medical device market is expected to reach an estimated USD 27.25 billion by 2023 and it is forecast to grow at a CAGR of 14.9%. The main function of these devices is to collect information about the patient’s health condition. Currently, the USA holds the largest market share of 33.33% in terms of global wearable medical device production and consumption.

Medical Device Outsourcing

Medical device outsourcing growth is projected to be driven by the rising pressure from customers to reduce the cost of manufacturing and accelerate time to market to capture market share in an increasingly shorter product life cycle.

In addition, a growing geriatric population is likely to increase demand for medical devices and supplies, as a large patient-base with limited health resources will push manufacturers toward subcontracting of activities such as assembling and packaging.

Medical device outsourcing market was valued at USD 40 billion in 2018 and is estimated to double by 2025.

Market Trends

Regulation and Legislation

In the North American region, the major outcome of the Patient Protection and Affordable Care Act is that almost all individuals are required to have health insurance or face a penalty tax.

The increase in the availability of healthcare will likely drive growth within the industry as more patients will visit physicians and hospitals, furthering the demand for the medical device industry’s products.

Aging Population

From 2018 to 2023, the number of adults aged 65 and older is anticipated to increase at an annualized rate of 3.2%. As the baby boomer generation ages, they will consume healthcare services at an outsized rate compared to the other demographics, leading to price increases and rising levels of demand.

The Centers for Medicare and Medicaid Services (CMS) projects national health expenditure growth to average 5.5% annually for the 10-year period ended 2026, pushing health spending’s share of gross domestic product from 17.9% in 2016 to 19.7% by 2026.

Industry Challenges

Functional and regulatory requirement

In the North American market, medical electronics manufacturers should comply with FDA guidance when introducing new devices. The FDA draft guidance proposes that cyber security features need to be integrated into the device development phase and identifies information that should be incorporated into premarket submissions for medical devices.

As per the guidance, security capabilities should cover three specific areas:

Limit access to trusted users only
Determine trusted content
Use fails safe and recovery features

Therefore, requiring manufacturers to define and document the following:

Identification of assets, threats, and vulnerabilities
Impact assessment of the threats and vulnerabilities on device functionality
Assessment of the likelihood of a threat and of a vulnerability being exploited
Determination of risk levels and suitable mitigation strategies
Residual risk assessment and risk acceptance criteria

Overall, the manufacturers need to ensure appropriate security control as part of the device design during the premarket approval submission package. Medical device manufacturers should consider during the early phases of the software life cycle the processes and actors (e.g., hackers, organized crime, terrorists, and nation states) that intentionally mean to compromise a medical device for the purpose of either a) harming the patient or b) extracting protected health information.

Manufacturers also should consider collaborating with their customers’ clinical engineers and physicians to develop a catalog of use cases from which security vulnerabilities can be derived specifically to their medical device and its intended use.

In keeping with the FDA regulatory requirement, the manufacturers face a lot of risks related to cost and product failure. To approve the submission process forward, the company first would have to spend millions of dollars in clinical trials and years getting it through the PMA process.

Medical electronics that have been approved in North America are approved to be imported in many Asian countries including India.

In India, medical electronics have no separate regulatory status, and CDSCO (Central Drugs Standard Control Organization) is principally responsible for its regulation. Innovation in medical electronics is not appropriately regulated for IPR protection.

Device manufacturers will continue to face pricing pressure which will create another challenge to them to innovate and differentiate.

Pricing Trends

For the majority of the companies operating in electronics medical device production, earnings before interest and taxes (EBIT) is roughly 4.6% of revenues. Larger players have profit margins in excess of 20%. The majority of smaller firms have low margins and new firms operate at a loss. High-skilled employees command high wages. Accordingly, 20.6% of revenue in 2018 is expected to go towards wages.

Automation has reduced some labor costs through the demand for technical expertise will continue to merit high wages. Purchased materials and intermediate goods account for 35% of industry revenue. Such goods include fabricated metal products, printed circuit boards, plastic products, wiring devices, computing equipment, and other materials.

As the costs of raw materials fluctuate, so too do purchasing costs for medical device manufacturers. Another vital component of industry costs is R&D which accounts for 12% of industry revenue.

Regulatory Trends

Pre-market review regulation

All electronic medical devices must satisfy safety and performance, quality system, and labeling requirements.

In Australia, the Therapeutic Goods Administration issues an ARTG (Australian Register of Therapeutic Goods) number to devices cleared for the market. In Canada, a Device Licence is awarded by the Therapeutic Products Directorate. In the European Union, after receiving the EC certificate from a notified body, the manufacturer places the CE mark on or with the device.

In Japan, a Shounin is issued by the Pharmaceutical and Medical Safety Bureau of the Ministry of Health, Labor and Welfare. In the United States, the manufacturer of the device receives a Marketing Clearance (510K) or an Approval Letter (PMA) from the FDA

In Canada, devices of classes III and IV are subject to in-depth regulatory scrutiny, while class II devices require only the manufacturer’s declaration of device safety and effectiveness before the sale. Class, I devices are exempted from pre-market submission, but they must still satisfy the safety, effectiveness and labeling requirements. In the European system, manufacturers of devices of classes II and III, as well as devices of class I with either measuring function or sterility requirements, must submit to the regulator (competent authority):

Declaration of Conformity to the appropriate EC Directives
Details of the conformity assessment procedure followed

In addition, for higher risk class devices that require design examination or type examination, the corresponding EC-Certificates issued by a notified body must also be submitted to the competent authority. Other medical devices of class I are exempt from pre-market submissions, although they must follow the essential principles of safety and performance in their design, construction and labeling requirements. In Australia, all “registrable” devices must undergo rigorous pre-market evaluation before market entry.

In Japan, class I devices are granted Todokede by the regional authorities. Some class II low-risk devices are granted Todokede if their safety and effectiveness have been established previously. All devices above class II must obtain a central government license for market entry.

During market phase

In this stage, the tracking of medical device vendors is carried out. In Australia, the sponsor must hold an Enterprise Identification Number before being permitted to apply to register or list products. Similarly, in Canada, any individual or company wishing to sell medical devices must apply for permission to obtain an establishment license.

The European Union requires that a responsible person of the vendor establishment with a physical address in Europe be registered. In Japan, medical device sales organizations must have a licence called “Hanbai-Gyoo” or “Hanbai Todoke”. In addition, importers are required to have a licence called “Yunyu Hanbai-Gyo”. In the United States, the establishment (manufacturers, initial importer, specifications developer, contract sterilizer, re-packager and/or re-labeller) must be registered with the FDA. With all five authorities, the licensing or registration pro

Post-market regulation

In this stage, safety and performance of the medical devices are continuously inspected. The inspection procedure varies depending on the country’s law and regulation.

Additionally, the international quality system standards for medical devices are issued by the International Organization for Standardization (ISO) (ISO13485:1996 and ISO13488: 1996). ISO13485:1996 includes all the elements of ISO9001:1994 plus a set of minimum supplementary requirements for medical devices.

The relationship between ISO9001:1994 and ISO13485:1996 is described in Annex 3. ISO13488:1996 is the same as ISO13485: 1994, but without the design control requirements. A new standard, ISO13485:200, is currently being developed and will become the international reference standard for medical devices.

In 2017, the European Union released final versions of both the Medical Device Regulation (MDR), and its twin, the In Vitro Diagnostic Regulation (IVDR). These regulations, which go into effect in 2020 and 2022, respectively, are spurring a medtech revolution.

For companies registering devices in Europe, the MDR and IVDR are set to raise the bar on product safety and function. In the case of MDR, device companies must now measure clinical performance and continue to collect clinical data following market launch. IVDR also requires diagnostic developers to collect evidence demonstrating a clinical benefit and changes classifications that affect product certification renewal. Also in the case of IVDR, around 80% of IVD products will require CE approval for the first time. Previously, only around 20% were required to obtain them.

Market Size and Forecast

The global medical electronics manufacturing market was worth USD 95 billion in 2018.

The North-American medical electronics had the largest market share of USD 30 billion in 2018.
The second largest market share was held by Europe amounting USD 20 billion in the same year.
Germany medical electronics market accounted for 27.6% revenue share of the Europe market.
The market value of Asia-Pacific medical electronics was held USD 15 billion
USD 10 billion worth of industry was recorded in Latin America.
The other regions including the Middle East and Africa recorded a combined USD 20 billion market share.

Market Outlook

Globally, the medical electronics manufacturing market is estimated to amount USD 116 billion in 2019, an increase of USD 21 billion from 2018, and is likely to reach USD 177 billion by 2022.

In 2022, North-America will record a USD 62 billion market size, capturing the largest share followed by Europe, which is estimated to record a USD 45 billion in market value.

Distribution Chain Analysis

The distribution chain for medical devices can be roughly segregated into six distinct phases of production, ranging from high-value-added activities, such as research and development (R&D), to the lower-value-added segments, such as the manufacturing and assembly of components as shown in the figure.

R&D is the highest value segment among all phases. It accounts for an estimated 60 percent of the final cost of medical device production. This segment of the value chain includes product design, obtaining regulatory approval for sale in particular markets, and the determination of product pricing. The next phase, manufacturing, and assembly represent the lowest-value-added stages of the medical device value chain.

The three final stages of the medical device chain (distribution, marketing and sales, and post-sales service) are considered high-value-added activities. Activities in this segment include coordination with the distributors or the end users to conduct sales.

Competitive Landscape

The U.S. is home to the world’s leading medical device manufacturers, which employ more than 400,000 Americans directly and 2 million indirectly. The four largest firms in the medical device manufacturing industry combined account for nearly 76% of total revenue in the industry, thus making this a highly concentrated industry.

Medtronic, Johnson & Johnson, Becton Dickinson, and Cardinal Health represent the four largest industry players. The majority of small firms employing fewer than twenty people specialize in developing technology for a niche area and are routinely acquired by larger players seeking their expertise.

Medium-sized firms are frequently bought out by larger players. Though the number of participants in the industry has steadily increased in the last five years, so has the concentration. Small firms will face increasing competition as the larger playing acquires greater market-share.

Key Market Players

Medtronic

Medtronic is headquartered in Ireland. It is among the world’s largest medical technology, services, and solutions companies – alleviating pain, restoring health, and extending life for millions of people around the world. Medtronic was founded in 1949 and today serves hospitals, physicians, clinicians, and patients in more than 150 countries worldwide.

Medtronic plc is the successor to Medtronic, Inc. Based in Minnesota Corporation. Medtronic, Inc. and Covidien plc (Covidien) were combined under and became subsidiaries of Medtronic plc on in 2015. Its products range from dental and animal health, chart paper, wound care, incontinence, electrodes, SharpSafety, thermometry, perinatal protection, blood collection, compression to enteral feeding offerings. The company held 8.5% global market share.

Johnson & Johnson

Johnson & Johnson is engaged in the research and development, manufacture and sale of a broad range of products in the health care field. The Company’s primary focus is products related to human health and well-being. Johnson & Johnson was incorporated in 1887. The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices.

The Consumer segment includes a broad range of products used in the baby care, oral care, beauty, over-the-counter pharmaceutical, women’s health and wound care markets.

The Pharmaceutical segment is focused on six therapeutic areas: Immunology (e.g., rheumatoid arthritis, inflammatory bowel disease and psoriasis), Infectious Diseases and Vaccines (e.g., HIV/AIDS), Neuroscience (e.g., mood disorders, neurodegenerative disorders and schizophrenia), Oncology (e.g., prostate cancer and hematologic malignancies), Cardiovascular and Metabolism (e.g., thrombosis and diabetes) and Pulmonary Hypertension (e.g., Pulmonary Arterial Hypertension).

Medicines segments are distributed directly to retailers, wholesalers, hospitals and health care professionals for prescription use. The Medical Devices segment includes a broad range of products used in the orthopaedic, surgery, interventional solutions (cardiovascular and neurovascular), diabetes care (divested in the fiscal fourth quarter of 2018) and eye health fields.

They include orthopaedic products; general surgery, bio surgical, endomechanical and energy products; electrophysiology products to treat cardiovascular disease; sterilisation and disinfection products to reduce surgical infection; and vision products such as disposable contact lenses and ophthalmic products related to cataract and laser refractive surgery. Its global market share in 2018 was 6.5%.

Siemens Healthineers

Siemens Healthineers is a global provider of healthcare solutions and services, with activities in numerous countries around the world. Siemens Healthineers AG was founded and entered in the commercial register in Germany in 2017.

The Group’s business operations are conducted by Siemens Healthcare GmbH and Siemens Healthineers Beteiligungen GmbH & Co. KG as well as their direct and indirect subsidiaries. In global medical device manufacturing, it captured a 3.5% market share in 2018.

Becton Dickinson

Becton Dickinson and Company is shortly referred to as “BD”. The company was incorporated in 1906, as the successor to a New York business started in 1897. BD is a global medical technology company engaged in the development, manufacture, and sale of a broad range of medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry, and the general public.

BD’s operations consist of three worldwide business segments: BD Medical, BD Life Sciences, and BD Interventional. BD Medical produces a broad array of medical technologies and devices that are used to help improve healthcare delivery in a wide range of settings. It had a 3% market share of global medical device manufacturing.

Cardinal Health

Cardinal Health Inc. is an American corporation formed in 1979 and is a global, integrated healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices.

The company provides medical products and pharmaceuticals and cost-effective solutions that enhance supply chain efficiency. The company retained a 3% global market share in 2018.

GE Healthcare

GE Healthcare is an American multinational conglomerate manufacturing and distributing diagnostic imaging and radiopharmaceuticals for imaging modalities that are used in medical imaging procedures. The healthcare vertical of General Electric (GE) generated USD 19.78 billion in revenue from the sale of medical electronics in 2018.

Philips Healthcare

Its segments comprise Diagnosis & Treatment businesses, Connected Care & Health Informatics businesses, and Personal Health businesses. Diagnostic Imaging comprised 47% sales revenue in 2018.

Image-guided therapy held a 32% share of revenue and revenue share of the Ultrasound segment was 21% in 2018. The company generated USD 8.1 billion in revenue from its diagnosis and treatment segment which is into medical electronics manufacturing in 2018.

Strategic Conclusion

The global medical device electronics market outlook seems lucrative with opportunities in public and private hospitals. The predicted 4.5% CAGR during 2018-23 will help this market to reach an estimated USD 258 billion by 2020.

The major drivers for the growth of this market are healthcare expenditure, technological development, aging population, and chronic diseases.