Written by Lisa Ann Cairns, Ph.D.
The increased commoditization of medical electronics is pushing this once niche sector into strong growth trajectories. Supported by important reductions of barriers, from lower ASPs and MEMS advances to new power technologies, we see shorter time to market and more rapid development cycles. While challenges remain, the intensifying demand for medical electronics solutions is widespread, from users to providers.
Forecasts for the medical electronics sector continue to brighten and appear less affected by macroeconomic situations than consumer electronics and PCs. This is because, regardless of economic conditions, the fundamental importance of health and fitness fuels demand for improved diagnostics, treatment, and monitoring. As populations age in the developed world, demand for medical electronics devices and solutions increases; as outreach intensifies to rural and remote areas, need for improved field medical resources similarly surges. With this growing demand, the increased commoditization of medical electronics is pushing this once niche sector into different and powerful growth trajectories, leading to shorter time to market and more rapid development cycles.
Overcoming hurdles for medical electronics
More than economics, the most critical challenges for medical electronics are the many regulatory and regional hurdles. These challenges are not slight; they range from designing, approving, and marketing mobile health (mHealth) medical electronic solutions for record sharing to creating devices for surgical implantation that perform critical life-sustaining functions. These regulatory requirements add significantly to the costs of research and design (R&D) and slowing the time to market, which in itself adds to costs. Further complicating the situation are the wild differing of regulatory requirements and cost level acceptability by country and provider, the controlled release of medical electronics devices, and the variability in the length of time to market based on myriad distribution regulations and challenges. Together, these challenges have impeded growth for the medical electronics market sector, despite the obvious benefits that could be garnered for patients and providers alike.
At the same time, the semiconductor and electronics industry's maturation process has led to an important reduction of barriers to entry for medical electronics. What this means is that the electronics components needed have become more affordable due to ASP reductions, while important, customized supply chain support is also available to this still-niche market sector. These lower production costs combine with overall increased healthcare costs to create a new, step-wise opportunity for the medical electronics sector. This opportunity is noteworthy because of both the revenue and volume scale that is opening and the long-term nature of medical electronics as a growth sector.
We are already seeing the first stages of medical supply chain penetration by semiconductor and electronics companies. These first steps are weighted in favor of the less regulatory-intensive, non-invasive medical electronics, especially mHealth devices and related enterprise products (e.g., servers, networking equipment, etc.). Supporting these products leverages component suppliers’ existing core capabilities while allowing them to gain market knowledge and experience in the sector. Meanwhile, the more seasoned medical supply chain partners are further investing in, and partnering with, medical electronic device manufacturers of the more invasive, surgical, and implantable apparatus. The distinctions between different types of medical electronic products and their supply chain requirements highlight the importance of being proficient in the broad nature of medical electronics.
Drill-down into medical electronics
Medical electronics can be grossly subdivided into four major categories, ordered on increased invasiveness, which translates to increased regulatory requirements, liability, specialized components, and, with those, increased cost and time to market:
- Telemedicine, or mHealth
- Wearable devices, from diagnostic to long-term apparatus
- Surgical and inserted devices
- Implanted or internal devices
- Non-critical care
- Critical care
Each of these medical electronic submarkets offers significant revenue and volume growth opportunities, but they also have their own unique experience and knowledge curves.
This set of devices is most typically understood to provide mobile health (mHealth) services. mHealth, also called telemedicine or M2M (machine-to-machine) healthcare, involves the use of mobile devices such as pagers, tablets, smartphones, targeted smart wireless devices (SWDs), and similar data collection and transmission devices. With the appearance of standard consumer electronics, these devices require additional network security and higher levels of encryption to safeguard individuals' medical information when transmitted as M2M communication (from software to hardware). While the core of the mHealth sector is rooted in hardware devices, there is a significant software side relating to medical-specific applications, tools service, and consultancy. Leveraging the amount of health data that is collected requires larger enterprise data storage and business intelligence (BI) capabilities, which also supports existing enterprise network and storage demands.
Importantly, the mHealth class of medical electronics is a set of relatively low-mix, high-volume devices. These devices enable paperless medical record transmissions and prescription submissions, as well as consistent reception and recording of data from patient-worn devices for short- and long-term wear (regardless of location at hospital, extended care facility, or home). The fact that these devices allow for an immediate and accurate assessment of patients' conditions means that there is a projected, significant decrease in both emergency room visits and hospitalizations, which is seen as valuable to patient quality service as well as critical cost reductions for healthcare insurers. Reducing costs while upholding quality are two essential demand drivers to rapidly increase the use of mHealth solutions. There are numerous studies and reports forecasting the mHealth market's growth. Recent data show that, in 2011, the mHealth dedicated-device and software market was roughly US $740 million and is expected to grow by 300% to roughly US $2.5 billion by 2018. The ability to quickly provide health solutions via a smartphone or tablet represents exciting and immediate opportunities that leverage existing technologies by adding medical applications and additional wearable devices.
Additionally, with the US in a second stage of requiring healthcare providers to adopt electronic health records (EHRs), both patients and healthcare technicians are required to use these medical electronic devices. Even at this second stage, only 10% adoption is required for the various EHR data, which means there is significant adoption yet to happen. Importantly, the health data being collected is already qualitatively improving patient diagnosis and care by leveraging the growing medical archives that have reached the scale of Big Data (see last quarter's Smith MarketWatch Quarterly for a discussion of opportunities surrounding Big Data for our industry). With M2M collected data becoming even more of a key to lifesaving decisions, healthcare analytics is a growing subsector that necessarily relies on the increased adoption of mHealth medical electronic hardware devices.
Along with the tremendous and relatively quick adoption of mHealth medical electronics, wearable devices present an equally ripe and prosperous growth forecast. The fitness industry, related to the healthcare industry, has long offered wearable devices for use during sports and physical activity to monitor exercise levels, pulse, calorie burn, and similar data. As SEMI reported earlier this spring:
Wearable electronics is already an established and growing market, with approximately 170 million units forecast in 2017, according ABI Research. This will be evenly split between 90 million wearable fitness devices and about 80 million healthcare-focused. A major component of wearable health and fitness devices is biosensors, and the worldwide market is expected to grow from US$ 8.5 billion in 2012 to $16.8 billion by 2018, according to MarketResearch.com.
Wearable medical devices are worn by patients for either short or long periods to measure, monitor, and record the patient's vital statistics and status, ranging from the most commonly-recognized blood pressure and oxygen monitors to externally-worn, targeted monitors and sensors for anything from cardiac rhythms to sleep apnea to fall alerts. These can be either disposable or reusable, and have either a rechargeable battery or an external power source. This is a class of moderate-mix, high-volume devices. The most important aspect of this class is that there is no implanted or transdermal aspect to them; while they may be affixed to the skin via an adhesive, much as a Band-Aid, there is no internal aspect. These devices are proliferating and becoming very important for both remote field medical care and in-home patient monitoring via wireless transmission to medical professionals.
One of the recent limitations to these devices has been the issue of secure spectrum-to-transmit data. In the US, the FCC has been reviewing and voting on dedicated spectrum for medical devices to use existing WiFi spectrum to transmit from a patient's mobile body area network (MBAN) to nearby receivers. These receivers then securely transmit the medical data to allow for constant, wireless monitoring for diagnosis and preventative care – an opportunity for significant cost reductions to healthcare companies and pre-event treatment that improves the recovery and longevity chances for patients.
Importantly, as with the mHealth sector, the growth opportunities for wearable medical electronics, either for health or fitness reasons, present a very exciting and rapidly-expanding market opportunity for the semiconductor and electronics industry. These devices already exist and have been accepted and adopted by users and providers alike. Demand drivers are favorable and growth forecasts are strong because these devices leverage existing technology along with the lower ASP for sensors, specialized ICs, and analog components coupled with the advantages of MBAN spectrum and improved Bluetooth technology.
When we bridge over to surgical medical electronics, we enter a different realm of medical electronic devices. The vital distinction for the device engineering team and medical OEM, as well as the market analysis and forecasting of these devices, is that we have crossed over into the class of devices that enters the human body. Obviously, this is a critical step, and the levels of requirements, regulations, and medical trial periods increase significantly, along with the time to market and costs for these devices.
Surgical devices are often initiated by an idea from a medical professional (e.g., surgeon or practitioner) and are then incubated by a smaller, medical OEM, until the need for additional engineering and production (equating also to funding and leveraging of existing patents and technology) often leads to the project or company being acquired by a larger medical electronics OEM. At that point, the larger medical OEM has the resources and certifications to pursue the lengthy and complex series of regulatory trials and approval processes necessary for commercial production, marketing, and regulated sales. Surgical medical electronics tend to be high-mix and of moderate- to lower-volume, though their ASP also tend to be rather significant in order to offset the financial risks of these high-cost, high-mix, and low(er)-volume devices.
Just as this medical electronics device sector poses greater challenges during design and testing for the medical OEMs, semiconductor and electronics companies should similarly recognize that this market sector is necessarily a long-term growth prospect. Not only are there the innovation challenges for new devices, but, as an inserted medical electronic device, there are numerous engineering challenges related to materials, heat dissipation, miniaturization, optics (3D imagery is booming for video-assisted surgical tools), and so forth. What is required of the semiconductor and electronics companies are the specific medical equipment/device certifications for the components. These certifications are very involved, lengthy processes, but the market for inserted (and implanted) medical electronic devices will continue to grow indefinitely. While surgical electronic devices do require long-term commitments and post-production support, the need and demand for increasingly advanced, less-invasive surgical tools, particularly robotics, is booming, meaning the risks can be well offset by the rewards.
This last category is a larger one and refers, as the name highlights, to those medical devices that are implanted or inserted into the body on temporary to permanent bases. Unlike surgical devices, which are inserted and then removed, these implanted devices are intended to remain in the body for some period of time, either in-patient, at home, or permanently. These devices involve considerable biotechnological expertise requiring highly-specialized materials and designs, expert medical electronics engineers, and OEMs able to pursue the longest design, testing, and approval processes. This, of course, adds to the costs associated with this important medical electronics device class. These devices are still moderately high-mix with moderate volume, but this is due to the approval process, not demand. As regulatory approvals come to their end points for many devices in the pipeline, this class of devices is likely to increase to be a high(er)-volume category.
There are important opportunities in implantable devices, but, again, the barriers to entry remain significantly higher than for mHealth or wearable medical electronics. MEMS and wireless power have been extremely important in the miniaturization and power challenges faced by medical implants (see this recent power source advancement from Stanford University). Just as MEMS has seen phenomenal growth from smartphone and SWD incorporation, the lower costs of MEMS due to the maturation of this component category have similarly lead to increased adoption of medical implants that leverage sensor capabilities for size and event actuation. Although the implantable medical electronics sector will remain a longer-term opportunity for those electronics companies new to the space, the proliferation of implantable devices based on MEMS architecture is just as significant as the proliferation of smart devices based on MEMS.
From implantable devices for internal organ and muscle functioning, to vision, hearing, and even the most delicate of cerebral fluid draining, implantable medical electronics is an exciting and growth-filled market sector.
Projected opportunities for growth are substantial
From M2M to diagnostic and device adoptions, the impetus for adopting medical electronics solutions is definitively here. At the head of drivers for demand is the staggering cost of healthcare over the next decade and beyond. These costs mean that providers must address means not only for providing patients the same level of care, but for supporting an increased number of patients, as well, as populations both age and grow in number. Costs for healthcare in the US alone are expected to reach unbelievable levels for the 2010-2020 period, as projected by the US Center for Medicare & Medicaid Services (CMS):
Over the projection period (2010-2020), average annual health spending growth (5.8 percent) is anticipated to outpace average annual growth in the overall economy by 1.1 percentage points (4.7 percent). By 2020, national health spending is expected to reach $4.6 trillion and comprise 19.8 percent of GDP.
This represents a global situation for healthcare costs that is no less daunting, with developing countries' costs reaching upwards of US $71 trillion by 2020, according to PriceWaterHouseCooper's (PwC) Healthcare Industry reports. In light of the global healthcare demand and forecasted growth, even the most conservative compound annual growth rates (CAGR) for medical devices taken as a single set is 6% for the 2011-2015 period (see the recent market review from Global Purchasing).
Some positive contributors to devices' growth are the falling prices of many components, from MEMS to memory, and from off-the-shelf ICs to miniaturized MCUs and new power source technologies. The financial side is important to consider, as well. Healthcare providers are increasingly pressured by healthcare insurers to reduce the cost of patient care and number of visits, hospitalizations, and re-admits to in-patient care. The margin concerns by insurers means an increased pressure and more rapid adoption of at-home and remote patient monitoring through wearable medical electronic devices, coupled with independent medical data transmission for remote medical review and even possible remote medical intervention. The commoditization of medical devices and medical electronics is only set to increase, which means that the growth of this once-niche sector is one to watch as we move forward.