Surgical and Medical Instruments and Apparatus

SIC 3841

Industry report:

This category covers establishments primarily engaged in manufacturing medical, surgical, ophthalmic, and veterinary instruments and apparatus. Establishments primarily engaged in manufacturing surgical and orthopedic appliances are classified in SIC 3842: Orthopedic, Prosthetic, and Surgical Appliances and Supplies; those manufacturing electrotherapeutic and electromedical apparatus are classified in SIC 3845: Electromedical and Electrotherapeutic Apparatus; and those manufacturing X-ray apparatus are classified in SIC 3844: X-ray Apparatus and Tubes and Related Irradiation Apparatus.

Industry Snapshot

The first medical instruments of precision were used in the seventeenth century. Not until the eighteenth century was surgery recognized as a specific science. Rapid technological advances continued throughout the twentieth century and into the 2000s, maintaining the United States' position as the most advanced surgical device industry in the world. In the low-tech segments of the industry, a mature market prohibited robust growth, but significant growth was expected in the high-tech sectors. Total revenue for surgical and medical instrument manufacturing in the United States in 2008 was approximately $33.6 billion, up from $26.8 billion in 2005, with exports accounting for more than $12.2 billion of that total, up from $10.0 billion in 2005.

Major consumers of industry output, in order of market size, include foreign consumers, the federal government, medical and health services, doctors and dentists, hospitals, individual consumers, and drug companies.

Organization and Structure

Like other knowledge-based businesses, the medical and surgical products industry is growing rapidly. However, unlike many technology businesses, barriers to entry are significant. Companies often must incur huge start-up costs to cover research and product development. Furthermore, acute technical expertise typically is needed to develop proprietary knowledge necessary to differentiate products from others in the marketplace and to obtain approvals and patents. Companies that overcome these hurdles, however, can reap large profits if their products succeed.

Products.
The industry encompasses a plethora of nonelectric diagnostic and therapeutic surgical devices. Diagnostic equipment is used to identify physical problems based on signs and symptoms. Therapeutic devices treat ailments and illnesses. Some of the largest general categories of equipment are hand instruments, monitoring equipment, intravenous apparatus, syringes, and catheters.

Examples of hand instruments include forceps, knives, saws, retractors, clamps, bone drills, and other products. Forceps are used to grasp, pull, and hold objects during delicate operations. Several monitoring devices also exist. Gastroscopes, for instance, are used to view the interior of the stomach. Cystoscopes provide a view of the interior of the bladder. Likewise, a laryngoscope is used to study the larynx and vocal cords. Ophthalmoscopes permit inspection of the retina, and stethoscopes are used to listen to internal organs, particularly the heart and lungs. Intravenous equipment basically consists of IV transfusion apparatus, which transfer blood or other fluids into the body.

Catheters, an important industry segment, are tubes that are inserted into various body cavities to drain liquids or remove material. Cardiac catheterization involves introducing a small catheter into a vein and then passing it into the heart. This procedure allows doctors to get accurate diagnostic measurements or to clear blocked arteries. A more advanced procedure, angioplasty, incorporates a tiny balloon into the procedure. As an ultra-thin catheter is slipped into an artery, the balloon is inflated, widening clogged arteries. Catheters also are used to drain urine and other bodily fluids.

Other devices produced in the industry include tonometers, speculums, skin grafting equipment, sphygmomanometers, silt lamps, hypodermic rifles, surgical probes, operating tables, needle holders, inhalators, and bone plates and screws.

Federal Regulation.
An important dynamic influencing the industry's production and profitability is Food and Drug Administration (FDA) regulation. The FDA is responsible for insuring that all products sold in the industry comply with federal safety standards. The FDA possesses the authority to recall products, temporarily suspend devices it deems high-risk, and impose monetary penalties for violations.

The 1990 Safe Medical Devices Act (SMDA), which defined procedures for bringing medical products to the market, is one of the most significant pieces of legislation governing producers. Among other stipulations, the SMDA requires certain manufacturers to track patients that should be notified in case of product failure; submit follow-up reviews for certain implants and devices; and, when applying for premarket clearance, provide a summary of safety and effectiveness data for each device.

Background and Development

In the early 1600s, an Italian professor named Sanctorious was the first doctor to employ diagnostic instruments of precision in the practice of medicine. Using a pendulum made from a cord and a weight, he was able to measure a pulse rate by adjusting the weight until it swung at an even tempo with the patient's pulse. Sanctorious later implemented a type of thermometer that could measure a patient's weight and temperature. Both inventions were influenced by his friend Galileo.

The seventeenth and eighteenth centuries produced several advancements in surgical and anatomical knowledge. Noted physicians such as Englishmen William Harvey, John Monro, Robert Sibbald, and Archibald Pitcairne contributed to the science and helped establish some of the first formal educational institutions for doctors. Microscopes, injection needles, and instruments of dissection were a few of the tools that allowed researchers of that period to gain a comprehensive understanding of the internal human structure, as well as of physiological processes.

The most important American contribution to the advancement of surgery came in the mid-1800s when doctors Crawford Long, Gardner Colton, and Horace Wells perfected the use of ether and nitrous oxide anesthetics. The nineteenth century also brought important inventions such as the ophthalmoscope, the sphygmomanometer (for measuring blood pressure), and the stethoscope. Invented in 1816, the first stethoscope consisted of a perforated wooden cylinder that transmitted sounds from the patient's chest to the doctor's ear. Perhaps more important than new instruments, though, was a gradual understanding of germs. This evolution led to the use of antiseptics, as well as surgical caps, masks, and rubber gloves in the 1890s.

Although surgical tools and techniques advanced throughout the eighteenth and nineteenth centuries, surgery remained a relatively crude science up until the early 1900s. Despite their knowledge of germs, most surgeons before 1910 continued to operate without gloves, masks, or caps. They commonly wore the same smock until it was caked with blood from several surgeries and would continue using instruments that had been dropped on the floor. Surgery was usually performed in a theater-type setting before an audience as the patient lay on a narrow wooden table. Instruments were usually forged steel and had wooden or ivory handles. Because amputation was one of the most common procedures, the saw was a favored tool.

Better anesthetics, specialized surgeons, and X-ray machines prompted a transition to more scientific surgery and the demand for more sophisticated instruments. New materials, such as stainless steel and plastics, broadened the scope of the device and apparatus industry. New equipment such as catheters, suction devices, intravenous infusion apparatus, and various mechanical and electrical diagnostic devices opened up new surgical specialties, such as neurosurgery and cardiac and urinary tract surgery.

Instruments and apparatus introduced in the postwar period were numerous. Inert metals, such as vitalium and tantalum, were used to create wire and mesh devices that could be left inside the body. Nylon thread and special plastics revolutionized heart surgery. Orlon tubes became arteries, and plastic sponges patched heart defects.

By 1980, the medical instrument and apparatus industry shipped nearly $4 billion worth of products each year. Such dynamic sales growth since the 1960s was attributable to several factors. Employer-sponsored health care systems developed after World War II offered few incentives for providers to control costs. As a result, expenditures on instruments and apparatus, as well as other health care products and services, ballooned. In fact, throughout the 1970s and 1980s, U.S. health care expenditures rose at a rate of more than 10 percent per year.

During the 1970s and 1980s, one factor attributable to growth in health care expenditures was increased demand for health care. Largely, the development of more advanced procedures and equipment spurred growth by enabling the health care industry to deliver more comprehensive and higher quality care. Indeed, U.S. expenditures on health care jumped from six percent to more than 15 percent of the gross domestic product (GDP). Some of the fastest-growing segments included instruments for angioplasty, cardiac catheterization, and orthopedic operations.

As expenditures leapt during the 1980s, development and sales of instruments and apparatus increased as well. Although manufacturers made massive investments in product research and development, yearly expenditures on industry products often jumped to more than 10 percent between 1980 and 1990. Furthermore, exports continued to grow as foreign markets looked to the United States as a source of state-of-the-art surgical instruments and apparatus. Throughout the 1980s, in fact, U.S. firms dominated more than 50 percent of the world market for surgical supplies.

By 1990, the medical instrument and apparatus industry was generating more than $10 billion worth of products each year. Stellar sales growth was attributable to several factors, the main one being employer-sponsored health care systems developed after World War II that offered few incentives for providers to control costs. As a result, expenditures on instruments and apparatus, as well as other health care products, grew at an annual rate of 10 percent throughout the latter decades of the twentieth century.

Despite strong growth and optimism, competitors faced significant obstacles to continued profitability in the mid-1990s. Growing regulatory costs and barriers, decreased access to investment capital, and increased competition in the health care industry all posed formidable challenges. Furthermore, some large segments of market sales (such as catheters) appeared to be entering a stage of maturity; the result meant slower growth and reduced profit margins.

According to the 1993 MDDI survey, which polled industry executives, inadequate funding for growth and research and development was a primary concern. Although a traditionally significant source of medical device research and development funding, declining venture capital was a major reason for the shortfall. As FDA regulations increased, venture capitalists viewed new projects as riskier.

FDA Stymies New Products.
Besides a capital shortage and the threat of nationalized health care, the most prolific problem facing manufacturers in the 1990s was a slowdown in FDA product approvals. In 1993, producers were still scrambling to learn how to comply with stringent new product standards imposed by the 1990 Safe Medical Devices Act (SMDA). In mid-1993, the FDA had a backlog of 1,400 applications that had been pending for more than three months. Product Marketing Applications (PMAs), usually submitted at a rate of 60 to 70 per year, fell to 12 in 1992. The FDA was also under Congressional order to review 130 products that went on sale before 1976. FDA approval for new medical devices in 1996 took an average of 2.2 years, which was twice the amount of time the same process took in 1992.

In an effort to speed the process, the medical device industry began supporting proposed user fees. Under the proposal, firms were required to pay a fee for each application processed by the FDA. The FDA had reason for caution. It came under fire in the 1980s and 1990s for approving a heart valve connected with 300 deaths and for permitting the sale of silicone breast implants.

In response to FDA initiatives, the Medical Device Manufacturers Association (MDMA) was formed in November 1992. It succeeded the Small Manufacturers Medical Device Association that was established in 1980. The organization's focus was to ensure that FDA regulations did not adversely affect the industry, particularly smaller manufacturers.

Congress ultimately loosened the collar on the FDA's regulations of the surgical and medical instruments industry in 1996. U.S. companies no longer needed FDA approval for products intended solely for export. The provision ensured that Europe became the industry testing ground for U.S. companies.

Industry growth in sales during the 1990s was attributable to a promising new sphere of "minimally invasive" surgical instruments. These devices allowed surgeons to conduct complex operations without the pain, time, and expense associated with conventional procedures. Laparoscopic and endoscopic devices, for instance, involved the insertion of narrow tubes, called trocars, into a patient's abdomen. A laparoscope inserted into the tube is used to take pictures of the patient's inner organs, and miniature devices sent through the tube are used to perform complex surgical procedures.

Indeed, because of the changing dynamics of the health care market, cost-containment pressures were driving the growth of money-saving procedures like angioplasty and laparoscopy. As purchasing decisions in the 1980s and 1990s shifted from physicians to hospitals and managed care facilities, producers were being forced to demonstrate the cost effectiveness of their products. Devices that could reduce hospital stays, increase labor productivity, and facilitate patient care in less expensive settings had become the dominant growth market by the mid-1990s.

With the dawn of the new millennium came a promising new generation of minimally invasive surgical instruments. Many of these new devices originated in the lucrative field of sports medicine. When San Francisco 49ers tight-end Brent Jones dislocated his shoulder, he normally would have had to have surgery followed by six months or more of rehabilitation. Instead the 49ers' team surgeon turned to a company called Oratex that made a slim probe only 2.3 millimeters wide. Inserting the probe through a puncture the size of a pencil point, doctors were able to tighten Jones's distended ligaments by bombarding the ligament's collagen with radio waves. Instead of being out for the season, Jones returned to the field in five weeks.

Often called "electronic scalpels," tiny probes were being used to treat damaged spinal disks in ways that would have been impossible with cut-and-sew surgery. Traditionally, back pain only can be eliminated by removing the damaged disk or fusing vertebrae with plates or rods. By the late 1990s, more than 700,000 people a year elected to have this surgery in the United States. Using a probe was much less invasive. Instead of slicing open the chest, a wire-like probe was inserted into a patient under local anesthetic. Inched into the gel-filled center of a damaged disk, the probe released a burst of radiation that shrank the stretched rings of collagen and cauterized inflamed blood vessels and nerves that had intruded into the damaged area.

The cost containment pressures flowing from managed health care, and the growing need for procedures like angioplasty and laparoscopy, promoted increased use of probes that were proven to reduce hospital stays, increase labor productivity, and facilitate patient care in less expensive settings.

By the close of the twentieth century, the medical and surgical equipment business had become one of America's leading export industries. It entered the new century with export sales of more than $4.5 billion. (When sales from opthomological devices are added in, export revenues jump to nearly $14.4 billion.) Ironically, Japan, America's leading competitor in this market sector, was also the biggest consumer, accounting for exports worth $731.4 million, according to the U.S. Department of Commerce.

Shipment values of surgical and medical instrument manufacturers totaled approximately $23.56 billion in 2001, up from about $21.77 billion the previous year, according to the U.S. Census Bureau's Annual Survey of Manufactures. Among the largest growth sectors in this industry in the United States were wound-care and cardiovascular products.

Into the twenty-first century, the industry as a whole was quite mature. Particularly, specific sectors--including urinary catheters, suction tubing, and conventional gauze dressings--utilized advanced technology in manufacturing and had reached the full potential of their application. Due to these factors, the emphasis continued toward reducing costs. Laser micromachining--used for manufacturing many devices in the sector, including needles, stents, and catheters--saw advances due to more advanced lasers and techniques that led to the continuing miniaturization and accuracy of medical devices.

Other market trends in the early 2000s included products that incorporated pharmaceutical products with traditional device properties, or "hybrids." Products utilizing these new hybrid technologies included coated stents and impregnated dressings. New products in the wound-care sector incorporated antimicrobial agents and growth hormones that not only protected the wound, but actively aided in the healing process. Fibrin sealants also were developed as an alternative to traditional wound-care and closure products.

With the cost of health care rising and managed care an ever-growing force, consumers increasingly turned to self-care devices to maintain their health and reduce visits to medical professionals. Self-care device sales rose, with blood pressure monitors alone generating $145 million by the end of 2002. A new breed of wrist blood pressure monitors was popular among consumers due to their user-friendliness and low cost. Other new consumer products included air-activated heat-therapy wraps that delivered heat for up to eight hours to ease muscle and joint pain in the body.

Insulin pen needles also saw advances during the early 2000s. In 2002 BD Consumer Healthcare introduced what it claimed was the shortest insulin pen needle on the U.S. market. The BD Ultra-Fine III 5-mm Mini Pen Needle was 38 percent shorter than the 8-millimeter needle and 60 percent shorter than the original 12.7-millimeter needle. BD claimed the reduced size made the needle more comfortable to use. Another improvement in needles came in 2002, with Amgen's SimpleJect Auto-Injector System. The needle was disguised in a needle guard and a syringe-loading device that automatically removes the needle cap. The goal of the SimpleJect was to eradicate the negative psychological effect needles can cause. By late 2002, only patients with rheumatoid arthritis were using SimpleJect.

In a move to eliminate needles altogether, Innotech USA gained FDA approval to market its FriendlyLight LightLance Laser Skin-Perforator. The device captures blood samples via laser instead of a needle. Aimed at people with diabetes, the new device launched in 2003.

One practice under FDA review in the early 2000s was the reuse of disposable medical instruments approved for one-time use only. Without much federal oversight and against device makers' advice, hospitals often took intrusive medical devices, applied toxic chemicals, and sterilized at high temperatures. Prompted by the cost-cutting pressures demanded by managed care, this little-known practice spawned a "reprocessing" industry with revenues in excess of $40 million.

In the early 2000s, nearly two million patients annually became sick and 90,000 died from infections contracted while in the hospital. Although no hard data linked infection with the reuse of disposable medical equipment, the savings resulting from recycling were easy to calculate. For example, an argon beam plasma coagulation probe used to stop bleeding in the gastrointestinal tract cost $190. If used ten times it would cost $24 per procedure, even when the cost of cleaning and sterilizing was added. Hospital administrators and the reprocessing companies on whom they increasingly depended stated that equipment manufacturers were raising false claims to protect sales. But the Association of Disposable Device Manufacturers held that patient safety, not corporate profits, was the real issue.

In 2002, the federal government passed the Medical Device User Fee and Modernization Act (MDUFMA), which set new regulatory requirements for reprocessed single-use devices. Hospitals and others using single-use devices were required to meet additional requirements regarding the devices being reprocessed, including inspection by third parties.

The total value of shipments in this industry increased from $22.9 billion in 2003 to $26.8 billion in 2005. Orthopedic and surgical instruments, including suture needles and ear, eye, nose, and throat instruments, accounted for almost one-quarter of total shipment values.

In addition to refining existing products, some companies attempted to offer more reusable items in the mid-2000s. For example, in 2007, Spectrum Surgical Instruments Corp. introduced a line of reusable instruments made from high-grade, sterilizable plastic that were designed to be used for approximately 100 sterilization cycles. The instruments, including sponge forceps, towel clamps, stitch scissors, mosquito forceps, and kocher forceps, are fully autoclavable and extremely resistant to chemicals and ultrasonic waves.

Another ongoing concern as the first decade of the twenty-first century progressed regarded patents. While legislators were still haggling over the Patent Reform Act of 2007, the medical devices industry was lobbying for revisions to the legislation. Medical technology experts took issue with a portion that included limitations on damages that could be awarded for infringement and a new channel by which patents could be challenged long after they were granted. "If you don't have strong IP (intellectual property), you're not going to get any venture capitalists out there to give even a dollar, let alone the millions needed to bring a product to market," Mark Leahey, executive director of the Medical Device Manufacturers Association, told The Gray Sheet in June 2007.

Current Conditions

Unlike many manufacturing sectors in the United States in the late 2000s and early 2010s, surgical and medical instrument makers saw steady growth and increasing sales. According to Dun & Bradstreet's 2010 Industry Reports, 3,900 establishments were engaged in the manufacture of surgical and medical instruments. About 80 percent of these firms were small, employing fewer than 50 people. However, companies with 100 or more employees accounted for about 78 percent of industry revenues, with the largest companies (1,000 or more employees) accounting for almost 28 percent of total sales.

California had the most establishments and the most employees in the industry, with 714 and 20,401, respectively. Minnesota, home of industry leader Medtronic, had 164 establishments and 16,168 employees and accounted for the highest figure in sales, registering $24.2 billion in 2009. Massachusetts, with 202 establishments and 9,238 employees, was second highest in sales ($17.2 billion), followed by New Jersey ($11.0 billion).

Industry Leaders

One of the largest manufacturers of surgical and medical instruments and apparatus in 2010 was Baxter International Inc. With 49,700 employees, the Deerfield, Illinois, industry giant had more than $12.5 billion in sales in 2009. Baxter was the country's leading manufacturer of IV supplies and systems.

Other companies with significant international sales included Medtronic of Minneapolis, Minnesota ($15.8 billion in fiscal 2009 sales); Becton, Dickinson & Co. of Franklin Lakes, New Jersey ($7.1 billion in 2009 sales); and Boston Scientific Corp. of Natick, Massachusetts ($8.1 billion in 2009 sales). Covidien Ltd., formerly part of Tyco International Ltd. before being spun off in 2007, reported fiscal 2007 revenues of $9.6 billion.

Workforce

Difficulties gaining FDA approval have caused some U.S. companies in this industry to focus their attention overseas when introducing products. One study conducted by the Wilkerson Group for the Health Industry Manufacturers Association showed that roughly 10,000 industry jobs with average salaries of $50,000 were being exported yearly in the 2000s. But the flow of jobs--and, to a lesser extent, investment--is expected to decline as America's population continues to age.

According to the U.S. Census Bureau, 109,321 people were employed by the surgical and medical instrument manufacturing industry in 2008, up from 96,407 in 2005. Of the total number of employees, about 57 percent were production workers earning an average wage of $17.54 an hour.

America and the World

In the 2000s, the largest medical device companies had a global customer base. For example, roughly one-half ($4.8 billion) of Baxter International's 2004 sales came from outside the United States. The United States remained the world leader in medical device technology into the early 2010s and maintained an especially dominant role in medical and dental instruments and supplies. However, U.S. dominance did not go unchallenged. Although the value of exports increased by approximately 30 percent between 1997 and 2002, the value of imports more than doubled during the same period. By 2009, the United States was exporting $12.2 billion worth of products in this industry; imports were valued at $9.0 billion.

Japan and Germany made significant strides in some market segments, such as high-tech electromedical equipment and some diagnostic machines. Furthermore, Japan planned to increase its investment in medical device research and development to catch up with capital expenditures made by its U.S. and German counterparts.

Although Japan had the second-largest market for medical devices in the world, it was hard to enter because of protectionist barriers. China was the third largest market in 2010. Other leading export markets included the European Union, Canada, Mexico, and Southeast Asia. The largest buyer of U.S. goods was Canada, followed closely by Japan and Germany. Those three countries, combined with France and Mexico, consumed around 50 percent of all industry exports.

Research and Technology

The medical and surgical device and apparatus industry is heavily driven by technological advances. For manufacturers that devised new and better devices to help remedy ailments and illnesses, care providers were afforded an enthusiastic market. Life-saving procedures that were unheard of before 1970, such as angioplasty and coronary bypass, were commonplace when the new millennium began. Industry profits boomed, partially as a result of the increased demand for these procedures.

New procedures accompanied new products. Shape-memory polymers, for instance, are polyurethane-based polymers that can undergo and retain dramatic changes in hardness, flexibility, elasticity, and vapor permeability when exposed to heat. Among other uses, the resins could be used to form catheters that remain stiff until inserted into the body. Similarly, new plastic springs offered an alternative to metal components in operations requiring resistance to corrosion and static charges.

Silicone balloon cuffs that could be made through extrusion, rather than molding, offered producers of laparoscopic and other devices the advantage of reduced production costs. Likewise, new injection-molded components provided more efficient prototyping of new instruments and devices. Other new or improved products included miniature cables, high-tensile wire, heat-shrinking tubing, and a variety of minimally invasive instruments.

Products under development in the early 2010s included a nylon heart sock to treat patients with heart enlargement problems, such as those with congestive heart failure. The device, developed by Acorn Cardiovascular of St. Paul, Minnesota, and officially called the CorCap Cardiac Support Device, is placed around the heart and in trial studies has shown to prevent the heart from increasing in size. As of 2010, the device was the only one of its kind that had been evaluated in prospective randomized clinical trials, according to Acorn Cardiovascular. The Acorn Clinical Trial involved 300 patients at 29 centers and represented one of the most extensive premarket evaluations of a surgical treatment for heart failure. Eunoe Inc., of Pleasanton, California, which was purchased by Integra LifeSciences Holdings Corp. in the mid-2000s, was testing a brain shunt for Alzheimer's patients. The COGNIShunt allows fluids to drain away from the brain.

In 2010, Onset Medical Corp. of Irvine, California, received FDA clearance for the SoloPath(TM) TransFemoral Endovascular Access Catheter. According to Marketing Weekly News, the catheter was "designed to provide access to diseased arteries at a relatively small catheter size and then be expanded to provide a conduit for the delivery of larger diameter device."

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