WASHINGTON (Jan. 13, 10:30 a.m. EST) — Lured by cheap production costs, small medical molder Pacific Plastics & Engineering plans to open a joint venture factory in India in early 2003 to make a disposable blood-drawing device.
Much larger Medex Inc. in Dublin, Ohio, has a similar idea. The injection molder of drug-delivery systems said in December that it plans to move its most labor-intensive work to Costa Rica.
It's one sign of the times in medical molding — some molders say increasing costs are pressuring them to look offshore for manufacturing, at least with simple devices.
The trend shouldn't be overstated — medical has not seen, and probably won't see, the kind of wholesale rush offshore that other plastics industry segments have witnessed, market officials say. Lower costs are tempered by the need for tight manufacturing controls.
The upshot? Amid more pressure for lower-cost manufacturing and an uncertain economy, medical remains a strong segment for plastics processors, and continued growth is expected.
The overall U.S. medical device market, for example, is projected to grow 7.7 percent to $59.8 billion in 2003, from $55.5 billion in 2002 — and on to $70.3 billion in 2005, according to consulting firm Frost & Sullivan. Those figures include pure medical devices, but do not include medical diagnostics, medical imaging and pharmaceuticals.
There will be less growth in disposable medical supplies and packaging, segments in which plastics use is particularly heavy. The medical-disposables market, for example, is projected to grow 6 percent a year through 2005 in the United States, or 3.6 percent in inflation-adjusted terms, to a $65 billion market, according to a Freedonia study.
Drug packaging should see slower growth. One study projects 4.3 percent annual growth through 2006, making it a $4.2 billion market.
So while there is growth overall in the medical-device market — which sometimes is considered a “recession resistant” economic sector — how do plastics processors expect to fare?
Generally, expectations are for 5-10 percent growth in existing markets.
“It's kind of good news/bad news,” said Gerald Duggan, vice president of medical molding sales and marketing for Precise Technology Inc. in North Versailles, Pa. Consolidation among the customer base is being felt, and that will benefit larger molders, he said.
“The driving forces are the same as they are in other industries — when you start to deal with bigger and bigger customers, you have to have the financial strength to expand with them,” said Duggan. “Those companies are under tremendous cost pressures.”
Precise became one of the larger custom medical molders in the fragmented U.S. industry in 2002 when it bought Courtesy Corp., giving it about $65 million in medical molding sales.
Industry is demanding the ability to grow globally, and a move to lower-cost manufacturing areas, he said. Pacific Plastics said it is seeing that trend. It is setting up a Bangalore, India, joint venture finding it can make single-use parts for drawing blood for 2½ cents each there, including shipping to the United States, compared with 12½ cents domestically, said Stephanie Harkness, president and chief executive officer of the Soquel, Calif., company.
“For the first time, I'm starting to see some companies look at offshore production, as long as the device is not used in the body,” said Harkness, whose firm has 14 injection presses.
Other molders cautioned against overstating the impact of cost pressures in the medical sector. John Vanbosch, chief executive officer at Infinity Plastics LLC in Ventura, Calif., said sophisticated devices still require manufacturing plants that the Food and Drug Administration can visit easily. And some molders say the close relationship required between molders and medical device makers sometimes mitigates intense price pressures.
Vanbosch, who used to be an executive at Courtesy Corp., said his small business, with 16 injection presses, is growing in part because of business taken from larger molders that don't provide enough technical and customer support.
Sales figures for some publicly traded medical plastics firms have shown strong growth. For example, Merit Medical Systems Inc. in South Jordan, Utah, saw profit through the first nine months of 2002 rise from $4.8 million in 2001 to $8.1 million in 2002, on $86.8 million in sales.
“Our profits improved dramatically in 2002, and we'll see continued improvements in 2003, although not as rapidly,” said Nancy Schultz, investor relations director. Merit has 25 presses and makes fluid-management kits.