Good vibrations

What's bad for society might be good for at least some medical parts manufacturers, as they look to a battered economy, global wars and a rapidly aging population for possible sales opportunities. As it stands, exports of medical parts are on the rise, employment is increasing and the mood in the sector is relatively upbeat.

"I'm very optimistic," reports Peter Malm, president of MCM Automation in Mississauga, ON. "When the economy goes bad, medical usually does really well. A lot of people are dropping off with coronaries right now. Blood pressure starts to rise when the economy goes bad, and medical (parts) go through the roof."

Malm says the medical side of his business is up over 20 per cent from previous years. He offers a simple explanation as to why: "The wars, the economy. A lot of people get stressed out. I've been through a few recessions—every time a recession hits, medical spikes. When the economy is doing really well, medical goes kind of flat."

Among other products, MCM makes resuscitation equipment, hospital stretcher components and shielding containers for use in nuclear medicine.

On the other side of the country, Steve Cotton, president of Micro Precision Parts Manufacturing Ltd., on Vancouver Island, BC, has a very different story to tell. Last year, roughly 70 to 80 per cent of his company's business was medical-related. This year, it's dropped to about 40 per cent.

"We had three big contracts with the US, and the US pulled all its research development in three different arenas we were working in," states Cotton.

He blames the tanking economy: "As soon as we heard rumours of the recession, we got letters from different companies saying their R&D departments have been put into—this is a new word they use—'hibernation,'" he explains.

For his part, Brian Wetherall, president of Brotech Industries in Barrie, ON, predicts that the medical parts industry "is going to go like gangbusters once we get through this recession."

Brotech makes chemical analyzer parts for firms such as MDS, a Mississauga, ON-based life sciences company.

If the recession is having widely inconsistent effects, the overall medical parts sector is relatively strong. The federal government slots the category under the general rubric of, "medical devices."

According to Health Canada, "the term medical device covers a wide range of products used in the treatment, mitigation, diagnosis or prevention of a disease or abnormal physical condition. Some examples include pacemakers, artificial heart valves, hip implants, synthetic skin, medical laboratory diagnostic instruments, test kits for diagnosis and contraceptive devices."

Industry Canada counted "1,101 facilities, comprising approximately 998 firms" making or developing medical devices, as of 2004-2005 (the most recent year statistics are available). Most Canadian medical parts firms were relatively small, with more than half (57 per cent) employing less than 25 people. Some 37 per cent of firms had 25 to 49 workers. Total employment in the sector rose from 22,000 in 2000 to 26,000 in 2004-2005. The majority of medical part manufacturers (more than 70 per cent) are based in Quebec and Ontario.

Exports of medical devices have climbed steadily, from $1.6 billion in 2000 to $2.4 billion in 2005. Sales to the US accounted for 76.5 per cent of exports in 2005 (down from 84.3 per cent in 2001), while sales to the European Union accounted for 12.4 per cent in 2005 (up from 8.4 per cent in 2001). Industry Canada forecasts that sales to China, Singapore, South Africa and South Korea will increase in the near future.

"Sanitary articles of paper, including sanitary towels and napkins (diapers) for babies" were the main items being exported, states Industry Canada, accounting for 23 per cent of sales. Other successful segments include electro-diagnostic apparatus (7 per cent of exports in 2005), composite diagnostic or laboratory reagents (6 per cent of exports), electro-cardiographs (4 per cent of exports) and X-ray parts and accessories (3 per cent of exports).

War has proven to be a spur to the medical parts industry. With the Canadian military engaged in Afghanistan, and the US engaged in that country plus Iraq, medical supplies are in huge demand.

MCM contracts with military bases have "skyrocketed" as of late, says Malm, who hesitates to offer specifics.

Other external influences on the sector include the massively fluctuating Canadian dollar (which hit par with the US greenback in September 2007, and is currently hovering around 80 cents—causing headaches to manufacturers whose main market is the US). The price of oil (which reached a high of nearly $150/barrel in mid-2008, only to collapse, and is now around $50/barrel) is also being closely watched by the industry.

"Steep cost challenges are faced by manufacturers whose products contain any plastics, as oil is the primary raw material in most plastics," notes a report by MEDEC, a Toronto-based association representing medical technology firms.

Industry experts are sharply divided when it comes to China. A report on the website of the Trillium Medical Technology Association (TMTA) of Markham, ON (which represents Ontario companies involved in the medical tech sector, including parts makers), states that, "Chinese medical devices could offer steep competition on global markets by 2010 … Chinese manufacturers are harmonizing their standards to come more closely in line with their international competitors."

Stephen Dibert, president and CEO of MEDEC, says that while the competitive pressure from China is mainly around commodity-type products, "China continues to grow in its capacity to develop and manufacture all technologies, including medical devices. If a Canadian company has a product that meets a medical need in China, there are opportunities to sell into the Chinese market. Most opportunities in China are realized through joint ventures or partnerships."

It will take a while, however, before Chinese medical parts manufacturers can approach the quality offered by Canadian firms, assures TMTA chairman Christian G. Dube.

"Our level of manufacturing in Canada, in terms of quality assurances, is much different than what you see coming out of China, which is our gain. This is where we can capitalize," notes Dube. "We are able to produce high quality products with a high level of quality assurance. This is our forte. This is where we have a winning game. If we lose that then we're in trouble."

And while Canada may have the upper hand when it comes to quality, Dibert says the biggest issue facing the medical device manufacturing sector in Canada is the "global pursuit of low-cost production. Canada has lost much of its medical device manufacturing as companies look to lower their costs and seek business environments that provide cost advantages. If you then add in other factors such as the fluctuating Canadian dollar, our tax system, the small size of the Canadian market, you do not have too many incentives to manufacture in Canada."

Malm, for his part, wants nothing to do with China: "I've been there a couple times trying to negotiate some contracts. I just don't have the time to deal with their antics—poor quality and poor delivery," he states.

Cotton, however, is less wary. A delegate representing West Coast firms, including Micro Precision, will be heading to China and Taiwan on a fact-finding mission, he states. Once the delegate returns, shop owners will solicit his views on how best to deal with the land of the dragon.

ALDA Pharmaceuticals in New Westminster, BC, has already been successful in drumming up Chinese business. Last year, the firm licensed the rights to manufacture its patented T36 disinfectant technology in China. ALDA president Terrance Owen has some advice, however, for firms interested in working in China.

"Be very careful of who you work with and expect to have your technology stolen," states Owen. "That may not happen, but if it does, your product must be doing well. Otherwise, it's not worth stealing."

Dube wants the federal government to pay more attention to (and help build up the infrastructure of) Canada's medical parts field. He feels Ottawa is friendlier to pharmaceutical firms because this sector has deeper pockets and more long-established links with government decision makers.

"Not enough lobbying is being done at the government level to make sure we are recognized," complains Dube.

As for the future, expect the medical parts industry to be drastically impacted by the emergence of nanotechnology, stem cell research and the aging of the baby boom generation.

A MEDEC report points out that three out of five Canadians over 65 years old have arthritis. Meanwhile, the number of Canadians aged 65 and up is expected to jump 15.9 per cent by 2016 and another 18 per cent by 2021.

Canadians are also living longer, which extends the amount of time they require medical parts and products. As MEDEC notes, creaky joints in seniors could mean a bonanza of opportunity for medical parts makers, especially those in the orthopaedic field.

In terms of materials handling, Dube says many parts firms are starting to give Nitinol (a nickel titanium alloy) a closer look.

"It's an alloy that is very malleable and very durable … Nitinol is very easy to work with," he states. Nitinol is often utilized in "guide wires used in CAT labs for diagnostic purposes … (wires that ) guide the catheter into the patient," adds Dube.

Cotton hasn't worked with Nitinol, though he does have considerable experience cutting medical grade titanium.

In fact, Micro Precision is currently involved in a project involving tiny "aneurysm clips," which boast ceramic jaws and titanium springs. The clips are inserted into patients who've suffered from an aneurysm (i.e. dilation of a blood vessel, primarily in the heart or brain). They are designed to be invisible on magnetic resonance (MR) scans so doctors can get a better view of the aneurysm and determine proper treatment.

"Most neurosurgeons who've looked at this, said if we can get this to market and complete it, it will advance neurosurgeries or aneurysm surgeries by 30 years," says Cotton.

Despite the sudden drop in US contracts, Cotton retains faith in the medical sector. The very nature of the medical world, he states, means work will never completely dry up for parts makers. The latter, however, have to be prepared to deal with sudden peaks and valleys in demand, as well as extremely exacting standards.

"There's always a need for advancement in the medical field," says Cotton. "It's a self-generating industry—it's just the standards are pretty high, which I think is good. We've had a few parts rejected by a (medical devices) company. They really keep you on your toes. They have no problem rejecting 100 parts if they're not up to tolerance. Some industrys now say 'it's near enough' and the medical industry is not like that at all—it's either right or it's not right."