The global medical technology market is huge and Australia plays a key role in it, shaping the way forward.
What’s driving the growth is the increasing affluence of developed and developing countries.
At the same time, people are living longer. They are demanding a higher quality of life and, as they age, a top standard of healthcare.
Frost and Sullivan data shows that the global advanced technology market, which includes medical devices, medical imaging and patient monitoring, is worth $US342.8 billion ($A465.6 billion).
The Asia Pacific market represents 18.5 per cent of the global market and is valued at $US63.5 billion (A$86.2 billion). Australia’s share sits at 1.98 per cent and is worth $US6.81 billion ($A9.24 billion).
The growth of rapidly advancing nations throughout Asia is set to continue. By 2030 Asian nations are expected to form 15 out of the top 20 global trade partnerships.
According to PwC, this means the region has now already surpassed the US as the world’s biggest trading partner. The value of doing business in Asia is unquestionable and Australia has a geographical and time zone advantage over nations such as the UK and the US.
The medical device industry has often been described as a “sunrise industry”, ticking all the boxes of advanced manufacturing and providing high value-added products. Operating in global supply chains, these companies have workforces that are highly skilled.
The medical technology sector is constantly evolving, moving into new areas and changing the way things are done. It is constantly expanding into new fields of science and engineering. Nanotechnology and other areas of research are facilitating one innovation after the other in the biomedical sphere. There is now an increasing convergence of biological technologies and physical technologies like engineering.
Australia has more than 500 medical device companies
The Australian medical technology market has distinctive statistics and features that are quite remarkable for a population the size of Calcutta. Australia has more than 500 medical device companies and 34 of them are listed on the Australian stock exchange, representing about 39 per cent of the ASX-listed life sciences market. The total market capitalisation of these ASX-listed companies came out $A12.79 billion by October 2013.
With the exception of the few experienced players such as ourselves, ResMed and Cochlear, the bulk of Australia’s medical technology companies are young and small. They include manufacturers, specialised in niche applications in the fields of cardiovascular, diagnostic, hearing, orthopaedic, respiratory devices, as well as health IT, health infrastructure, services and clinical trials. These companies are out there competing globally with big multinationals for market share.
IBIS World estimates that Australia’s medical and surgical equipment manufacturing market has an annual turnover of $3 billion with a compound growth rate of 2.1 per cent per annum over the five years through 2015-16. That growth is driven by steadily rising demand from general hospitals and rising public health expenditure. And while most manufacturing industries are in decline due to high production costs and import competition from developing economies, Australia’s medical and surgical equipment industry operators are beating the odds and making a profit. It estimates the sector has 1798 businesses employing 11,201 people.
Major markets in developed economies
For a small market, Australia is making inroads into the global market because it has some real competitive advantages with reduced time to market compared with drug discovery, a highly skilled workforce and a unique geographic positioning in the Asia-Pacific region.
At this stage, the major markets for medical devices are in the developed economies of North America, Europe, UK and Japan. Economists predict Asian markets will rival those developed economies within 15 years with their fast-growing markets, expanding middle classes and economic growth.
The size of the markets, such as China’s is of critical interest to these companies, particularly in light of China’s 10th Five Year Plan, which has made a clear commitment develop life sciences. Biotechnology is now a priority industry in China.
Cook Medical is the largest privately owned medical device company in the world, and we recognised the importance of Asia. Indeed, our growth would not have been possible without the Asia-Pacific’s contribution to the company’s global sales. In 2014, the region generated 20 per cent of Cook’s global revenue and its market penetration in the APAC region is growing.
Based in Brisbane, Cook Medical Australia serves as our Asia Pacific headquarters. While we produce medical technology sold in more than 135 countries around the world, we have a key focus on Asia as a growth region, which is why we are currently looking at entering the medical device markets in Vietnam, Indonesia and the Philippines.
Uniquely Australian innovation
We have also invested in region-wide IT, finance and logistics systems that provide the infrastructure to take orders from a growing customer base while providing a highly-targeted level of customer service. We believe our customer focus creates demand.
Our products utilise uniquely Australian innovation. Cook Medical Australia manufacturers use patented technology so the products we create are not available from anywhere else in the world.
The way we differentiate ourselves from our competitors is through a focus on innovation that is of benefit to patient outcomes. In 2014 Cook Medical Australia manufactured more than 10,000 stent grafts for the treatment of aortic aneurysms, a form of heart disease.
These included 3000 patient specific custom made devices. This is where innovation really shows its value. Just over three quarter of a million needles were produced to assist in the treatment of reproductive health. All this was manufactured locally and 92 per cent was exported to over 130 markets around the globe.
At Cook Medical our “patient first” philosophy has helped us to foster this innovation and continue to create new healthcare technology that improves people’s quality of life every day. However despite this being very ‘advanced manufacturing’ there is still a significant human element to what we do.
Struggling to compete with low-wage economies
The difference is that our products can treat 98 per cent of patients in need of endovascular aortic repair. The “off the shelf” options can only treat around 85 per cent of patients. Our stents are custom designed and hand sewn – it’s a precise art that takes highly skilled individuals.
We will always struggle to compete with low-wage, low tax economies that are more attractive for manufacturing operations. However, it’s my view that this sort of specialised manufacturing is a major opportunity for Australia. We can offer a standard of product with other markets struggle to compete with. However, it’s not a simple solution for the future of manufacturing.
As healthcare systems across the globe advance, and populations age, demand for advanced medical technology increases. Medical treatments are advancing rapidly and one-size-fits all solutions are not adequate. Australia has always been an innovative country, but with manufacturing increasingly heading offshore we have a challenge.
This is because manufacturing and innovation are two sides of the same coin. As manufacturing goes, the innovation, which often begins on the factory floor, begins to go with it. This presents a problem for us as an economy striving to be “knowledge-based.”
Compounding this issue is that our research and development is also under threat by international markets beating us to better policy. In particular “patent box” tax breaks. These tax incentives encourage the commercialisation of intellectual property by offering a reduced tax rate. The catch for us is that most require the intellectual property to have been created in the same country, meaning that companies looking to take advantage of these regimes are also likely to move their R&D into the same jurisdiction in order to meet the criteria.
These incentives are proving effective and have now been introduced in 10 countries globally including the UK and China, and the US has recently been seriously considering introducing its own. If we don’t come to the table Australia will be left behind and the entire innovation and manufacturing cycle will suffer.
That’s why we are working with industry leaders to push government to do something by introducing an Australian specific patent box: the Australian Innovation and Manufacturing Incentive. If introduced this measure will help to protect the future of manufacturing and export into the future.
As Australian exporters we can work to the current environment. But as a nation we must also push to safeguard the future as international market forces continue to change.
* Barry Thomas is the Vice President and APAC Managing Director of Cook Medical Australia. Barry has more than two decades of international leadership and expertise in the pharmaceutical and medical device industries and he currently spearheads the world’s fastest growing region for Cook Medical.