Vertical integration of Medical device CMO


By: Uday kanth Kankekar -- Senior Research Analyst

30 September, 2014

Vertical integration of Medical device CMO

Prices for medical devices have fallen 17 to 34%, depending on the device category, between 2007 and 2011- according to Analysis Group. Total number of medical device recalls by FDA is increasing at the double digit growth rate close to 15% for the three year. On 29 August 2014, FDA has recalled 233 Class I products, all for devices manufactured by Customed in one day, which is a record number till date. Another matter of concern being the increased cost Labour in developing countries. In developing countries the labour cost are growing at a double digit growth rate. In china in order to control the pollution and capital intensive manufacturing they are trying to put some pressure on the manufacturing sector by increasing the wages between 13%-15% year on year. Medical device companies rely on CMO?s for various facets of value chain ranging from sterilization, manufacturing, assembly, packaging, regulatory and others. There are wide varieties of suppliers under each facet, which Medical Device companies can leverage but dealing them separately for the individual process will be a critical and also involves more time, efforts and capital. But if these can be bought under the same roof then the efforts and capital will drastically come done. So, a vertically integrated CMO is a better option based on the project criteria. Currently medical device companies are struggling hard to sustain the pressure in the market because of the price pressure, 2.3% excise tax, stringent regulatory environment, frequent product recalls. These have made the medical devices companies to have serious look at their current processes and the practices that they follow. They must bring the changes in their current approach towards product manufacturing or development in order to fight these issues and survive in the market.


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