Biggest Device Companies Ramping Up Outsourcing

Large medical device makers such as Covidien, Medtronic, and Stryker have recently announced plans to make greater use of contract manufacturing in an effort to improve their profitability. Covidien, for instance, has stated its plans of "expanding the use of shared services in low-cost locations, outsourcing services where appropriate, streamlining the Company's organizational structure, consolidating manufacturing locations, consolidating and optimizing distribution centers and expanding low-cost country sourcing." A report titled "The Medical Device Outsourcing Landscape" compiled by UBM and ITG earlier this year also reflects the shift. Surveying 853 medical device professionals, the report found that 41% of the participants planned on making greater use of contract manufacturing within the next five years. A total of 43% said their use of outsourcing would remain about the same in that time period, while the remainder said they would use less contract manufacturing. Tellingly, 62% of participants believed that contract services could help them save both cost and time. Many of the respondents, however, believed that outsourcing had become a necessity because of growing regulatory complexity, and that, in the future, they may make greater use of contract legal and regulatory services to further help navigate regulatory uncertainty. The uptick in outsourcing is not a new trend. In the middle of the last decade, major device companies were ratcheting up their use of outsourcing. In 2005, MD+DI explained how Boston Scientific, for instance, used an offshore strategy to save cash when bringing the Taxus stent to the market. That article also concluded that outsourcing firms were consolidating and expanding their service offerings. Both of those trends have continued to the present. A 2011 estimate calculated that the market for medical device outsourcing could reach $44.7 billion by 2017. A report from last year estimated that the market would hit $40.8 billion in 2018. Whatever the dollar amount is, outsourcing is already playing a significant role in the medical device industry and is poised to grow for the foreseeable future.