While most giant corporations crashed during the worst economic climate since the Great Depression, the biomedical devices industry grew, invested, and prospered. The Great Recession (from 2007 to 2009) represents the worst downturn the western world has seen since the 1930s, a time when most companies saw revenue recede and profits disappear, and they resorted to widespread layoffs, investment freezes, and research cuts. In the midst of this storm, the worldwide biomedical devices industry went against the current. These companies grew their revenues and increased profits by investing in research and product development, increasing their marketing spend, and hiring new staff. They did this in all of their markets—North America, Europe, and Asia—and grew their profits without massive outsourcing, inventory liquidations, mass layoffs, or fire sale liquidations. This sector is not completely recession proof, as some firms did hit the bumps when consumers delayed expensive, elective medical procedures such as knee and hip replacements. But taken as a whole, the businesses that comprise this industry sector sailed through the Great Recession as if it never happened.
- High Value-Added Manufacturing. Building advanced technology products in developed markets while adding a high level of value to base costs has and will continue to do well for this sector. For highly differentiated products sold as customized solutions, the United States and Europe have been great places to establish and grow businesses.
- Increased Marketing Efforts. These companies continued to increase spend on marketing efforts during the Great Recession.
- Investment in R&D and New Products. The most successful biomedical device companies developed a robust pipeline of new products and R&D capabilities, which allowed them to navigate challenging times successfully. Even during the Great Recession they were increasing their R&D spend.
High Value-Added Manufacturing
- Internal or External Use. Devices or materials that are used directly on or in the human body. Unsurprisingly, these products are subject to the highest level of quality control and regulatory scrutiny of manufacturing processes. Because of frequent product evolution and advancement, R&D is co-located with the production process. The designs are often highly customized to individuals, or adapted to local markets of patient populations and local medical usage. As a result, manufacturing normally occurs in individual or small quantity batches at plants located in or near the target national market, with limited scope for economies of scale.
- Treatment Devices and Controls and Electronic Diagnostic Units. These devices are used to diagnose or treat the patient, sometimes in direct contact and sometimes removed from the patient in a remote laboratory setting. Most devices can be compared to computers with materials handling capabilities. They are built in small batches on short runs, and customization is common. Quality controls on device performance are rigorous, while licensing authority is not as closely monitored. Because of generally rapid advances in product design, production runs tend to be in short batches and highly integrated interaction with R&D staff is required.
- Consumables Used by Treatment Devices. This category includes fluids or materials used in a treatment process, usually in a treatment device built by the same company. Because these items are used in direct patient contact, quality controls are often as rigorous as those applied to advanced pharmaceuticals, and regulatory scrutiny and review are also at the same level. The design and content of these offerings coevolves with the matching treatment devices, although they may be built or processed at different plant sites. There is often a strong requirement for time-sensitive freshness that, coupled with varying local regulatory approvals on fluids and materials, leads to market-localized manufacturing.
The high level of value comes from the advanced quality controls and high degree of customization that are required across most of the sector. The requirement for regulator licensing of manufacturing processes can also form a protective barrier to the entry of new competitors.
Yair Holtzman is director and global life sciences leader at WTP Advisors (White Plains, NY). He leads the firm's Business Advisory Services Group and co-leads the Research & Development Tax Services Group. He has twenty years of experience as a management and tax consultant focusing on Research and Development in the Chemicals and Life Sciences Industries. Holtman is a Certified Public Accountant in NY, NJ, IL and NH and holds an MBA degree from Cornell University’s Johnson Graduate School of Management, with a concentration in Operations Management and Manufacturing. He can be reached at firstname.lastname@example.org.
At the time this paper was published, Tom Figgatt, Sr., was an associate with WTP Advisors, working in Business Advisory
Services and Tax Advisory practices. He spent more than 30 years working for IBM in leaderships roles involving
business and financial planning, strategic analysis, information systems, product planning, marketing
and sales, in business units involved information technology hardware, software, services and
consulting. He holds an MBA from the Harvard Business School, graduating with High Distinction,
as a George F. Baker Scholar, with concentrations in Finance and Marketing. He holds certificates
in accounting and taxation from Sacred Heart University, and a BA in Economics from Vassar