Medical Device Link.

MARKET PLACE

Recent trends

Mirandola, close to Modena in northern Italy, is an important centre for the manufacture of medical equipment and disposable medical devices. It is characterised by a diverse range of companies that cover the majority of the production chain. Next door to companies that manufacture medical devices, medical equipment and components for medical devices can be found subcontractors involved in the assembly of medical devices and medical equipment, moulding and sterilisation services.

This industrial district is growing even though some of its features are undergoing change. Data gathered by R&I¹ confirms the growth of the industry there, which is generated by large multinationals such as B Braun, Fresenius, Gambro, Sorin Group, Teleflex Medical and Tyco Healthcare and the dynamism of specialised small and medium-sized companies. Analysis of the data shows the following trends:

• The companies, including the small ones, show increasing penetration of foreign markets and their increased revenues are mainly due to exports, which have also increased employment. There are approximately 78 companies in total and they export an estimated 60% of their goods.

• The European Union (EU) is the main market for the companies. As a result of the introduction of the euro and the progressive enlargement of the EU, this is considered to be its next “domestic market” and important for the future.

• The number of manufacturers of finished products has increased, and these companies, in comparison with the subcontractors, have absorbed the majority of new employees in the district. Some of the new manufacturers of finished products are companies that were previously subcontractors who decided to add value to the goods and services they provide. n Large-volume, low technology and easy-to-reproduce disposable products are subject to intense competition from countries where the labour costs are lower. For several years now the trend has been towards the offshoring some types of work. An example of this trend is the closure in 2004 of Baxter’s local production plant and the shifting of production to their plants in Malta and Tunisia.

Table I. (click to enlarge) Breakdown by application area of the products manufactured in the Mirandola district. (Source: R&I 2003 data)

• The product range is diverse, but products for extracorporeal blood applications remain significant (Table I).

Outlook at the national level

Health-care costs as a percentage of gross domestic product have increased from 5.7% in 2000 to 6.7% in 2005. This figure means that Italy has one of the lowest health-care expenditures in Europe. Combine this with the fact that the Italian population is already on average the oldest in Europe, means that there is large potential for growth in the medical products market in Italy.

However, this potential growth must be accompanied by adequate financing policies by the National Health Service (Servizio Sanitario Nazionale). The costs for health-care personnel account for two-thirds of Italy’s health-care expenditure. The remaining one-third is comprised of incidental expenses, pharmaceutical and medical products.

It has been estimated that the average annual increase in health-care costs will be 3.2% during the period 2007 to 2011.2 Measures will be taken to promote the rational use of financial resources and to contain health-care costs in general. This will also be the case for medical products; indeed, during the past few years the prices have become ever less remunerative for the companies supplying health care.

In January 2004, The National Commission on Medical Devices (Commissione Unica sui Dispositivi Medici) a technical advisory body of the Ministry of Health, was formed. Its purpose is to define, update and classify all the medical products used in Italy, with the goal of improving their supervision. This data bank must be updated by manufacturers and distributors and will be made available to the hospitals. Companies are confused in reference to two of provisions of the 2006 Financial Law³ that requires the following:

• A contribution of 5% of the expenses incurred for promotional activities directed at doctors and health-care professionals, net of expenses for company staff employed in promotional activities.

• The payment of a fee of e100 for each product that is included in the data bank.

These provisions are still subject to clarification, however, the fact remains that this measure is interpreted by health-care product suppliers as a useless increase in costs, which does not attach any value to the training given to health-care professionals by the product experts in those companies.

The lengthening of payment times to medical device manufacturers (one year on average, and almost two years in parts of southern Italy) tends to favour the large multinationals, which are better able to withstand the financial burden of long-term payments. However, medium-sized Italian companies, and especially small Italian companies, tend to set up a business structure with a sales network of wholesalers and local resellers, which allows the financial burden to be spread over the network. They also tend to target a few select foreign markets prevalently in the EU.

Outlook at a local level

The local and domestic small and medium-sized companies must face other types of challenges:

• The manufacturers of finished products must have a range of products that is sufficiently complete and compares favourably with the offerings of the major players so that they can spread their promotional and sales costs over a wider base; they must exploit niche markets that are still unexplored; and they must place a greater emphasis on product and service innovation rather than on process innovation.

• As a result of competition from countries with a lower labour costs, the subcontractors to manufacturers of finished products need to become manufacturers of finished products in their own right and to find new goods and services to supply to their usual customers.

In this context, Consobiomed,⁴ a consortium of small companies in the medical industry, continues its involvement with several local institutions in a structured cultural and scientific programme to encourage the development of the Mirandola biomedical district.

In addition, the RIMAT Biomed programme⁵ will hold its annual meeting on 5–6 October 2006 focussing on research and medical devices.

Paolo Galavotti is General Manager at Nexion srl, Via 2 Giugno, 111, I-41037 Mirandola, Modena, Italy, tel. +39 0535 27880, e-mail: paolo.galavotti@nexion.ws.