Written by John Brosky
The good-old-days of the double digits growth are behind us as the major players shift their focus to younger product segments and emerging markets. Meanwhile nimble challengers are chewing into market share with innovative technologies. Can CMOs keep up with the changes? In the second part of this interview, Ali Madani from Avicenne Medical shares insights from recent completed studies.
- What is the real potential in emerging markets?
- What role will niche products play in the next five years?
- What is the impact of regulatory changes?
For CMOs, the best is yet to come
You might want to catch your breath. While it’s true that expansion of contract manufacturing organisations (CMOs) in the orthopedic industry has been breath-taking with new acquisitions, the trend is not going to stop anytime soon. And according to Ali Madani, founder and managing partner of Avicenne Medical, the biggest and the best is yet to come.
Ahead of the IMPLANTS 2017 conference on June 8 in Paris, Madani shared insights from his study of trends product manufacturing by major orthopedic companies and how he believes the CMO market can further expand and evolve.
In the first part of the interview, Madani described the need for greater structure in the CMO sector, and detailed the opportunities to be realized. In this second part of the interview he sharpens the focus with a comparison of the trends driving expansion for OEMs and the factors shaping growth among CMOs.
IMPLANTS: Why are you convinced we will see further expansion of major CMOs?
Ali Madani: Purely in terms of size we can see even the largest CMOs today are too small for the opportunities tomorrow. Today we are looking at a sector where the largest supplier generates some $500 million per year, compared to a major OEM with sales of $10 billion that spends something on the order of $2 billion to produce its products. Our studies at Avicenne show the average among the top 15 CMOs is $142 million in annual revenue. Right off we can see why the major OEMs do not have any alternative but to manufacture their products themselves. There is simply not an alternative solution available! Even the biggest CMOs are not capable of providing a full offer to the majors. These companies are too small to absorb the volume of production from the majors.
When an orthopedics company with $10 billion in sales is working with a subcontractor that generates just $10 million in sales, we can safely say there is not a sufficient structure with levels of sophistication as we see in the automotive or aeronautics industries. There is room to grow.
IMPLANTS: How would you summarize the market drivers affecting CMOs?
Madani: Clearly the heavy trend will be for more outsourcing from all OEMs. Yet the OEMs would like to externalize more than products, and we can expect to see a divestiture of implant manufacturing facilities to those CMOs capable of handling the responsibilities. Finally, the headline trend for CMOs would be opportunities in the growth of the market share for challengers to the major OEMs. These nimble competitors tend to outsource as much as 80% of their production, a high outsourcing rate comparable to what we see in other industries. As a result, the growth of challengers will also grow the business for CMOs.