In this issue:
Where have all the contract manufacturers gone?
Will there someday be only one medical device contract manufacturer? Seems like a silly question, but it’s the logical endpoint for the slew of mergers and acquisitions we’ve seen in the space in recent years.
M&A deals in one space beget M&A deals in another. Start with the way the Affordable Care Act and healthcare reforms elsewhere in the world are incentivizing providers to be more efficient and effective in the way they treat patient populations. That shift in the way healthcare is paid for has providers merging into ever larger entities in order to better manage patients, as well as to have more leverage with suppliers – including medical device makers.
To better compete in the new healthcare environment, medtech companies have been merging: Medtronic combined with Covidien, Zimmer and Biomet became Zimmer Biomet, Abbott bought St. Jude Medical, BD is acquiring C.R. Bard, and so on.
With medical device OEMs merging, the suppliers who serve them increasingly need to expand their capabilities and vertically integrate to continue competing. And so the medical device contract manufacturing space has seen a wave of mergers, too.
Case in point could be the subject of this issue’s cover story: Frisco, Texas-based Integer Holdings Co. One of the largest medical device contract manufacturers in the world, Integer came to be in the 2015 merger of Greatbatch and Lake Region Medical.
The new company enjoys an array of capabilities – enough to develop and manufacture a full structural heart delivery system or a full neuromodulation system according to customer specifications.
The merger also allows Integer to enjoy the cost savings that come from vertical integration – to be “a supplier to ourselves and control the supply chain,” as one company official told us. Those cost savings enable more competitive pricing for customers.
Do small manufacturers stand a chance competing against a giant company like Integer? The answer seems to be a qualified yes: They can survive, but only if they excel so much in a niche that medical device OEMs simply need them.
For example, MTD Micromolding (Charlton, Mass.) has thrived because it ventured into the then-little-known niche of micro molds in the late 1990s and hasn’t looked back since. The company has even enjoyed success in the fast-growing drug delivery device space. “Many of the drug-delivery micro molding projects we take on are rescue projects – those that failed with other molders or methods and may have been thought to be ‘impossible,’” president Dennis Tully told MDO.
Medical device contract manufacturers, then, aren’t going away at any scale – but the urgency to compete and dominate a niche is stronger than ever.