There is still some hesitancy surrounding the economy, worries about the impact of health-care reform and uncertainty related to federal government initiatives.
But medical molders, materials suppliers and contract manufacturers are more certain than they were six months ago that there won't be an economic setback that will throw business off course.
What's more, a number of them expect to be making more investments later in the year and believe that merger and acquisition activity could pick up.
However, they also said that different market conditions exist today than when the economy was booming and a lot of medical companies are still cautious because of the tight capital markets and uncertainty over federal government policies, including health-care reform.
It is a good year, a better year than last year, said Larry Wilton, CEO of contract manufacturer UPG Inc. in Oak Brook, Ill., at the MD&M East medical show, held June 8-10 in New York. The business we added last year from new and existing customers is paying dividends.
Specialty polymers compounder and distributor PolyOne Corp. agreed. There is a lot more confidence, and that is pulling demand up, said Larry Johnson, director of marketing for health care at the Avon Lake, Ohio, company.
Demand is up substantially over 2009 and 2008 and some of that optimism will continue through 2010. You are starting to see some companies looking to invest in business opportunities, he said, despite the tightness in capital markets.
The health-care market looks to be recovering well, said Tom O'Brien, product marketing manager for health care at Sabic Innovative Plastics US LLC in Pittsfield, Mass. Sabic IP is a business unit of Saudi Basic Industries Corp. People are out there growing and looking at adding new tools and products. This show brought in a lot of people releasing new tools, so it looks like the market is coming back.
Business looks real good, said Jeff Somple, president of the northern operations of MackMedical and Mack Molding Co. in Arlington, Vt. Although not completely recovered, the economy has stabilized and people are coming to us at the show with actual projects after a year-and-one-half of just collecting information. The conversations are project-oriented.
Another positive sign: the company's prototype business, Mack Prototype Inc., has been very busy for 18 months, he said. When they get busy, we get busy a year later.
We are cautiously optimistic, Somple said. We expect 10-12 percent growth this year and another double-digit growth year in the 10-12 percent range next year.
To facilitate that growth, he said Mack will continue to vertically integrate in a way that makes sense for its customers. We will be making investments in human capital and machinery over the next few months, he said.
Larry Bell, vice president of business development and marketing at GW Plastics in Bethel, Vt., also sees strong growth for his company, with a growth rate in the low teens.
We have been very busy, Bell said. We have a good pipeline of tooling activities and projects. In general, people think things are better than a year ago. They feel more optimistic than a year ago.
We are seeing growth in health care in our facility in Asia, he said. We are seeing strong international demand. Bell anticipates that GW will ramp up production overseas in the second half of 2010 for some projects it has launched with multinationals in Asia.
Similarly, UPG said that by the end of the year it may add a second plant in China. By next year, the firm said, it may have to expand the clean room at its Tijuana, Mexico, plant.
We have the ability to expand the clean room in Mexico by another 25 percent and have the plans in place to do that, said Matt Langton, UPG vice president of sales and marketing. It is just a question of when. It might be soon if the business of one customer takes off.
In addition, MedPlast Inc. of Tempe, Ariz., is converting 6,000 square feet of white room space at its West Berlin, N.J., plant into a Class 100,000 clean room that will have room for 12-14 injection molding machines. It will initially have six presses in the range of 300-400 tons.
That conversion, expected to be completed in September, will boost the amount of clean room space in West Berlin to 60,000 square feet.
We're seeing huge opportunities within our existing customer base and we're attracting selective new customers, said Mike Farrell executive vice president of sales and marketing at MedPlast. I see new opportunities for us in two-shot and multishot overmolding. We are having a really good year. We are going to continue to have double-digit growth.
Nypro Inc. in Clinton, Mass., is planning to more than double its clean room space at its plant in Asheville, N.C., to 75,000 square feet. Construction of a new, 40,000-square-foot clean room will begin this fall and is scheduled to be completed by next spring. The expansion will include the addition of at least four injection presses from 100-400 tons of clamping force.
Sales for its most-recent fiscal year ended June 30 were up 14 percent. We are still pretty optimistic and excited about our future growth in medical, said Brian Payson, vice president of business development for Nypro Healthcare.
With the economy in better shape, Somple said you are starting to see a lot of merger and acquisition activity which he said often occurs after a downturn is over.
I think that activity will pick up and I think you are going to see fewer, but stronger survivors come out of this. The number of companies that shut down might also pick up because a lot of them don't have the cash reserves and their business is down 20-30 percent. The competition that remains will be strong.
We are investigating other merger and acquisition opportunities, said Johnson of PolyOne, which acquired New England Urethane Inc. in North Haven, Conn., late last year. That has given us some indication as to where we can go next to further our interest in medical and critical-care operations.
But molders also see their customers looking at the market differently and taking a conservative approach.
Everyone has a cash crunch and they are running inventories down, then putting in rush orders and putting the burden on us to fix the situation, UPG's Wilton said. So sales aren't necessarily reflective of demand. Sales are overall higher, but we are going through a lot of waves in the market.
We have seen a shift in the way people purchase because of the way they view cash, said Langton, also of UPG. No one is keeping inventory. There is too much uncertainty. No one is spending frivolously and they are playing it tight to vest on capital investments.
Somple agreed: Companies are still nervous about hiring and spending money. And capital is still tight if you have to borrow money.
Part of that uncertainty comes from the pressures on costs and the tightness of capital. But the unanswered question of whether health-care reform will help or hurt the industry is also forcing many to take a pragmatic approach.
The government really shook up the industry with health-care reform and we've yet to see the ramifications, Wilton said. We are going into uncharted territory. Brand-new programs this year are slow because the government has scared the hell out of people and they are cautious.
Bell agreed that there is concern about health-care reform.
The good news is that more people will be covered, Bell said. But there will be increasing cost pressures. The question is: Will those cost pressures be so great that it might reduce the investments some companies might be willing to make?
Scott Hanson, global industry leader for the medical market segment of the specialty plastics business of Eastman Chemical Corp. in Kingsport, Tenn., said there is concern that the 2.3 excise tax scheduled to go into effect in 2013 will reduce the level and number of medical devices that come into the market.
But, at the same time, right now, I don't see any evidence that it has slowed down projects in anticipation of that tax, said Hanson. The impact of that tax is consistent with the cost pressures the whole industry is facing.
Langton sees things differently. There are a fair amount of companies focused on reducing costs and moving manufacturing to low-cost area, he said. The government tax on medical will push people to be overseas.
Anthony Viscogliosi, founder, chairman and CEO of Small Bone Innovations Inc. in Morrisville, Pa., and co-founder and principal of Viscogliosi Bros. LLC, believes health-care reform will force companies to be more innovative than they are today.
The only way we can survive is by delivering technologies that are clearly better than what we use today because the government is trying to decrease the percent of the gross domestic product that is spent on health-care. And the government's control system will be to reduce procedure volume by defining what procedures are effective, Viscogliosi said.
In combination with greater scrutiny from the Food and Drug Administration, that means the medical industry is in the middle of a wave that will have a significant impact on how and what kind of medical devices we deliver as manufacturers, he said.
We need to focus on what's best for the patient and deliver superior products that provide better clinically proven results and are cheaper or risk not being reimbursed by Medicare and Medicaid, Viscogliosi said.
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