Medtech outsourcing need pushes CMOs to buy and expand

 

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Medical device industry is challenged with numerous issues. Though these issues might take different nomenclature, the basic rational remains to be the price and cost pressures.

 

Some of the prominent ones include:

1.Increasing price reduction pressures from OEMs, which are the result of hospitals spend cutback, reimbursement issues and healthcare reforms.

2.Increased regulatory scrutiny that has scaled up both cost and time to market. The latter hits revenue line directly, as increased time to market means lesser leverage over innovation, resulting in immense loss of early revenue gains.

3. The 2.3% medical devices excise tax remained a major concern for medtech OEMs. A sigh of relief around the same was experienced late last week, when the tax was repealed for the year 2016, 2017.

4.Product customer change is yet another pressure that medtech OEMs face off-late. There is a switch in customer landscape for all medtech OEMs, this has been from physician to patients. The switch though was well needed one, has been cost driving factor for OEMs. This is primarily because of technology add-ons that go in making product which abide by do-it-yourself revolution.

Though these challenges continued to daunt medtech OEMs, they have been formulating various strategies to relieve their operations from this mounting pressures. One of the foremost area that companies have been tapping into include “Outsourcing”. Outsourcing their in-house operations to third party service providers.

While the terminology outsourcing was new to OEMs 10 years back, now the same has fetched them savings in the range 10-30%.

  • Has the medtech CMO landscape switched over time?
  • Are they prepared to handle the future demand?
  • How are they scaling themselves to address the one stop shop need of OEMs?

These are the questions that must be asked and answered by the medtech OEMs to frame their outsourcing strategy going forward.

As medtech OEMs embrace outsourcing practice , CMOs scale there volume and capabilities via M&A activities. Features from Capstone Partners go about highlighting the fact that CMOs mergers and acquisition spree has been on the peek over last two years, and is expected to either retain the same pace as current or even might outrun the current rate figures.

Click URL to see CMOs M&A 2014

Click URL to see CMOs M&A 2013

CMOs M&A activities are executed by either buying off the entire operations of peers or certain business divisions,in some cases its just the facility buyouts.

These acquisitions are either:

  • to add new services or product capabilities
  • or targeted towards specific client accounts or geographies
  • or venture into medical sector.

Conclusion: CMOs are now ready to take on the outsourcing market needs by being end to end service provider. This statement is acknowledged by their recent activity meter which clearly outlines there readiness for being one stop shop solution provider.

Key Takeaways:

  1. CMOs are participating in M&A activities at rate much higher than their OEM buyers.
  2. They are venturing into end to end service offerings which can provide buyers with cost savings opportunities across therapeutic areas and geographies.
  3. OEMs lack off in-house talent and high facility cost are the major drivers, pushing them to embark on outsourcing practices.

For more insights follow:

Healthcare Sourcing Trends

 

 

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