Orthopedic, Prosthetic, and Surgical Appliances and Supplies

SIC 3842

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in manufacturing orthopedic, prosthetic, and surgical appliances and supplies; arch supports and other foot appliances; fracture appliances, elastic hosiery, abdominal supporters, braces, and trusses; bandages; surgical gauze and dressings; sutures; adhesive tapes and medicated plasters; and personal safety appliances and equipment. Establishments primarily engaged in manufacturing surgical and medical instruments are classified in SIC 3841: Surgical and Medical Instruments and Apparatus. Establishments primarily engaged in manufacturing orthopedic or prosthetic appliances and in the personal fitting to the individual prescription by a physician are classified in SIC 5999: Miscellaneous Retail Stores, Not Elsewhere Classified.

Industry Snapshot

The value of shipments in this industry in 2009 exceeded $35.6 billion, continuing a growth trend begun in the late 1990s. The aging U.S. population led to increased levels of joint replacement surgery, while advances in surgical techniques provided incentives for more, and younger, Americans to undergo knee and hip replacement. There were 2,102 establishments in this industry in 2010. Surgical appliances and supplies manufacturing was the largest division of the medical device industry, accounting for more than 40 percent of sales.

Organization and Structure

Companies with more than 100 employees, which accounted for 20 percent of all establishments, generated a majority of the industry's revenues in 2010, according to the U.S. Census Bureau. After experiencing overall growth, large capital investment, and high profit margins in the early 1990s, the industry leveled off in the mid-years of the first decade of the 2000s. While high-tech devices accounted for most revenue and profit, other segments offered limited opportunities. Personal safety equipment and some appliances, such as wheelchairs and crutches, were among sectors of modest growth. Larger companies increasingly looked to mergers and acquisitions as a means to generate revenues.

Products
Surgical, orthopedic, prosthetic, and therapeutic appliances and supplies accounted for more than 73 percent of industry output in 2009, with orthopedic and prosthetic appliances comprising the largest share. Orthopedic equipment refers to devices used in the preservation, restoration, and development of the form and function of the extremities and spine. The term "prosthetic appliances" in this industry refers to devices related to artificial limbs and joints. Popular hip and knee replacement devices, for instance, reduce pain and allow patients to regain mobility.

Prosthetic and orthopedic appliances represented approximately 28 percent of industry sales in the late 2000s. Artificial joints, the largest single segment, accounted for about 17 percent of total sales, while artificial limbs made up less than 1 percent of shipments. This industry segment also includes the following orthopedic and prosthetic products: mechanical and elastic braces; elastic stockings; splints and trusses; crutches, canes, and other walking aids; arch supports and other foot appliances; intraocular lenses; and surgical corsets.

Other medical and surgical appliances and supplies, including hydrotherapy tanks, therapeutic equipment and supplies, surgical kits, and stents, accounted for almost 30 percent of total industry shipments in the late 2000s. Stents were the largest single subcategory and held the most potential for growth. Another 10 percent of industry revenue was generated by sterile surgical sutures, rubber and surgical gloves, breathing devices (incubators, inhalators, respirators, and resuscitators), wheelchairs, stretchers, and wheeled tables. Surgical dressings such as gauze, bandages, packing, plaster, and compresses, along with disposable surgical drapes, made up 9 percent of the industry.

In addition to the percentage of the market represented by the products described above, this industry also encompasses a variety of personal and industrial safety equipment, which includes protective clothing, welders' hoods, motorcycle and racing helmets, firefighting suits and breathing apparatus, safety gloves, bulletproof vests, ear and nose plugs, safety goggles, and space suits.

Background and Development

Prosthetics date back to 600 B.C. during the Roman Empire, when artificial legs were used to help amputees regain mobility. It was not until the sixteenth century that prosthetics became a science through the efforts of French surgeon Ambroise Pare. During the sixteenth and seventeenth centuries, his work led to the development of replacements for upper extremities. Metal hands, some of which contained moving parts and springs, became popular prosthetics in Europe during the 1600s. They were replaced in the 1700s by two innovations: a single hook, or a leather-covered, nonfunctioning hand attached to the forearm by a leather or wooden shell.

Public acceptance of prostheses, as well as improvements in design, paralleled major wars during the eighteenth, nineteenth, and twentieth centuries. In particular, World War I and World War II boosted the use of prosthetics, which benefited from the integration of new lightweight metals and better mechanical joints. Advances in materials and mechanical design proliferated during the post-World War II era, when the development of indwelling materials, such as coated steel, inactive metals, and durable synthetics, gave specialists new ways to replace or mend body joints and parts. New materials and mechanisms also made possible the creation of artificial limbs that more closely mimicked the natural body.

The term "orthopedics" was given to that specialty in 1741 by Nicholas Andre, a Frenchman. Orthopedic surgery originally applied only to the prevention and care of deformities in children. However, the branch soon grew to encompass treatment of extremities, the spine, and associated structures of all humans. The first institute dedicated to the treatment of skeletal deformities was established in Switzerland in the eighteenth century. One of the first notable devices introduced by the industry was the Thomas Splint, which was used for leg fractures. An important U.S. leader in the development of therapeutic orthopedic devices was F. H. Albee (1876-1945), who developed the motor bone saw in 1909.

Rapid advances in medical technology caused a shift in orthopedic treatment during the twentieth century from the use of braces, splints, and other mechanical devices, to surgical procedures. Such procedures incorporated implants and devices that helped surgeons perform such advanced operations as spinal reconstruction, skin grafts, tendon transplants, limb lengthening, restoration of shattered bones and joints, and bone grafts.

Surgical advances in the twentieth century, which paralleled both orthopedic and prosthetic breakthroughs, greatly increased the demand for procedures and treatments that required apparatus developed and manufactured by the surgical appliance industry. In addition, generous employer-sponsored health care plans made large sums of insurance money available for such equipment. Indeed, as a result of overall increased U.S. expenditures on health care during the 1950s, 1960s, and 1970s, sales of orthopedic and prosthetic appliances skyrocketed. Sellers of surgical dressings and other supplies realized similar gains.

The 1980s
By 1980, the surgical appliance and supply business had grown into a $5 billion industry with more than 40,000 employees. This growth epitomized the immense proliferation of U.S. health care expenditures, which rose at an annual rate of more than 15 percent throughout most of the 1960s and 1970s. By the early 1980s, in fact, Americans were spending more than 10 percent of the gross domestic product on health care. The demand for surgical appliances and supplies continued to expand during the 1980s, as money spent on health care soared. Between 1982 and 1990, industry revenues grew an average of 8.6 percent annually. Moreover, despite manufacturing productivity gains, industry employment increased more than 25 percent during the same period, to exceed 85,000.

Driving revenue and profit growth during the decade was the development of high-tech, high-cost prosthetic and orthopedic devices. Better and stronger artificial joints, limbs, and associated devices allowed specialists to deliver treatments unheard of just a few years earlier. As surgical procedures in general increased, the demand for surgical dressings, drapes, and other supplies grew as well. Exports, too, provided significant profit opportunities.

Silicone Implant Settlement
In 1994, eight companies that manufactured silicone breast implants agreed to contribute nearly $4.7 billion to a fund for 2 million women worldwide who have had breast implants. The agreement marked the single largest product liability settlement in U.S. history. The fund was expected to cover routine testing, medical care, and surgery (including implant removal), for the next 30 years. Companies making the largest contributions to the settlement were Bristol-Myers Squibb Co., Baxter Healthcare Corp., and Dow Corning Corp., once the country's foremost producer of implants.

Healthcare Recoveries, Baxter Healthcare, Bristol-Myers Squibb, McGhan Medical, 3M, and Union Carbide all participated in the $50 million silicone breast implant settlement that originated in 1992. This was one of the first times that health care payers received medical expenses on a large scale involving a personal injury class action suit. Dow Corning declined their original contribution and filed for bankruptcy protection in Michigan.

Into the Twenty-First Century
Despite strong markets in the late 1990s, medical device manufacturers faced several hurdles to continued success. Concerns emerged about a lack of outside investment capital necessary to fund research and development of new products, as analysts pointed to the uncertainties associated with various health care reform initiatives. Industry participants also suffered from cost containment pressures, which particularly affected low-tech items such as surgical dressings, drapes, and sutures. Hospitals became more cost conscious and worked to ensure that prices of conventional supplies remained near the overall inflation rate. Despite these issues, the value of industry shipments increased substantially each year between 1997 and 2000, growing from $15.23 billion to $18.86 billion. During this time period, the cost of materials grew from $5.28 billion to $6.23 billion.

Many manufacturers of such high-tech products were even more concerned with a slowdown in FDA new product approvals. New stringent approval requirements kept some new products out of the market and diminished outside investment in new product development. FDA restrictions were expected to loosen, however, as a result of Congressional pressures to quicken the FDA's new medical product review process.

The orthopedic, prosthetic, and surgical appliances and supplies industry experienced significant growth from the late 1990s through the mid- to late 2000s, growing from $15.2 billion in 1997 to over $33.4 billion in 2008. As the U.S. population aged, the number of joint replacements increased. At the beginning of the century, approximately 326,000 knee replacements were performed in the United States, and the American Academy of Orthopaedic Surgeons predicted that number could rise to more than 500,000 by 2025. Some 89,000 hip replacements also were performed. As a result, the value of shipments for artificial joints more than doubled from $1.92 billion in the mid-1990s to more than $3.99 billion in the mid-2000s. Advances in artificial joint design, as well as minimally invasive procedures, were prompting more--and younger--Americans to consider joint replacement.

Drug-eluting coronary stents, which are coated with a drug known to interrupt restenosis (the reclosing or narrowing of the artery opened by the cardiac procedure), rapidly increased in popularity during the mid-2000s. At the end of 2004, drug-eluting stents, which had not been approved for use until April 2003, were used in an estimated 87 percent of all interventional coronary procedures done in the United States, an astonishingly. By 2005, a second generation of these stents, which provided enhanced performance, was on the market.

Although drug-eluting stents cost approximately $1,800 more than a bare metal stent, their effectiveness in preventing restenosis made them cost effective. Johnson & Johnson subsidiary Cordis Corporation introduced the first drug-eluting stent in April 2003. Boston Scientific introduced its version in March 2004. The price subsequently dropped from an original high of $3,200 to an average of $2,500 per stent. In 2005 several medical equipment companies, including Medtronic and Abbott Laboratories, were in the process of receiving FDA approval for new brands of drug-eluting stents. The drug-eluting stent market was expected to grow by 25 percent annually, according to research firm vFinance Investments.

Silicone breast implants were reintroduced to the U.S. market in 2005. By November 2006, two companies, Mentor and Allegan (formerly Inamed), had received FDA approval for their silicone breast implant products for use in women over the age of 22. In 2004, more than 264,000 women in the United States underwent breast implant surgery, with the vast majority receiving saline implants. However, because silicone implants are considered more natural feeling and looking, it was expected that the number of women who received breast implants would increase considerably with the availability of the silicone option. Despite the renewed FDA approval, controversy about silicone's safety remained. Furthermore, silicone implants cost approximately $800 per breast, compared to $400 per breast for saline.

Current Conditions

The orthopedic, prosthetic, and surgical appliances and supplies industry continued to grow into the early 2010s. Although employment was down somewhat--from 114,539 in 2008 to 108,762 in 2010--the value of shipments rose slightly during the same time period. Only about 56 percent of employees were production workers, who earned an average of $17.37 an hour. The outlook for employment in the overall medical supplies manufacturing industry was good; the U.S. Bureau of Labor Statistics predicted an annual growth rate in employment of about 1.5 percent through 2018 as well as a 6 percent annual increase in output.

Industry Leaders

United States Surgical Corp, which had $468 million in annual revenues in the late 2000s, was a unit of Covidien, formerly Tyco Healthcare after separating from Tyco International. Covidien was a $11.5 billion global healthcare products leader that included 7,000 different brands and 41,300 employees. Baxter International Inc. of Deerfield, Illinois, had 2010 sales of $12.8 billion and 48,000 employees. Cordis Corp., based in Bridgewater, New Jersey, was a top manufacturer of angioplasty and angiographic equipment and recorded sales of $2.5 billion in 2010. With about 5,000 employees, Cordis was a Johnson & Johnson company, as was Raynham, Massachusetts-based DePuy Inc., which specialized in orthopedic joint replacement. DePuy had sales of $463 million in 2010 with 5,140 employees.

Biomet Inc., of Warsaw, Indiana, was one of the world's largest manufacturers of orthopedic products in the early 2010s. Biomet merged in 2007 with LVB Acquisition Merger Sub, Inc., a wholly owned subsidiary of LVB Acquisition, Inc. Biomet's sales for 2010 exceeded $2.6 billion, and the firm employed 7,469 people. Product segments included reconstructive devices, fixation sales, and spinal product sales.

America and the World

Domestic prices and market growth declined in the early 1990s in this industry, and manufacturers increasingly looked overseas to boost profits. In 1989, surgical appliance and supplies producers exported less than 10 percent of their output, but then the rapid growth of foreign markets and the demand for high-tech implanted devices led a surge of export growth. According to industry market research firm Supplier Relations US, imports totaled $10.6 billion in 2010, up from $9.1 billion in 2008, and exports were worth $9.4 billion, an increase from $8.8 billion in 2008.

Research and Technology

In the late 1990s and the first decade of the 2000s, industry research emphasized development of better metals and plastics, new nonmetallic plastic and ceramic products, and new synthetics that could be used to create implants. Although outside investment capital for product development waned in the early 1990s, various government partnering programs promised to boost research and development funding. For instance, the Clinton administration backed programs such as the Defense Technology Conversion Council to transfer military and other public technology to the private sector.

In the mid-2000s, several companies were in the process of developing a polymer coronary stent that would remain in place for a time, then gradually dissolve into the bloodstream. The objective was to prevent the body from responding to the stent as a foreign object, which it can attempt to cover, allowing the artery to reclog. In 2011, Micell Technologies conducted the first test of such a technology on humans, for which they reported positive preliminary results in November 2011. According to Diagnostic and Interventional Cardiology, the stent "is designed to optimize healing in patients with coronary artery disease. The rapid-absorbing drug/polymer coating is intended to precisely and consistently control drug elution and polymer exposure duration."

Another new technology that was emerging involved using nanodiamonds as a coating for cobalt chromium, the metal most commonly used in joint replacement devices. According to Yogesh Vohra of the UAB Center for Nanoscale Materials and Biointegration, the technology could help eliminate the need for repeat hip and knee replacement surgeries. He said, "Over time the implants get loose and you start hearing those squeaking sounds. After five to 10 years you have to replace that joint again. ... Our goal of this research is really to make surfaces that will literally last forever and overcome this problem."

In 2004 DePuy received FDA approval for an artificial lumbar disc under the brand name Charite. The artificial disc was used to provide back pain relief and spinal stability while providing a wider range of motion than traditional spinal surgery. In 2010, the company ceased production of the device, which had been implanted in approximately 5,000 patients to that point, in order to focus on production of a newer and better product, the In Motion artificial disc. According to a press release, the In Motion disc "retains the Charite's essential features while incorporating minor modifications to facilitate insertion of the implant."

Although a very small segment of industry revenues, significant advances in prosthetic limbs were also underway in the early 2010s. Scientists had found a way to use brain waves to control prosthetic arms and hands. Additional motors within the limb allowed for better range of motion, and long-term objectives included providing finger and thumb control, as well as the sensory perception of "feeling" in the limb.

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