Medical device companies generally enjoy gross margins anywhere in the range of 40% to 75%. Which means their spend (COGS) lies in the range of 25% to 60%. Though this range seems a little too much we were able to research figures for Orthopedic sector.
Analysis by Avicenne highlights that Orthopedic behemoths operate at best gross margins of 70-75%. Further their spend which is 25% of revenue is divided equally between in-house and outsourced activities.
While the entire medtech OEM fraternity plays at a outsourcing range of 25% as per recent analysis from PMCF, orthopedic has surpassed the outsourcing percentage to 49%. Old data from 2012 indicates for a combined revenue of 34.5 billion USD from orthopedic focused OEMs outsourcing to third party contract manufacturers was close to USD 3.7 billion.
Thanks to below mentioned contract manufacturers who scaled their capabilities to a level, which provided OEMs with confidence to board on outsourcing wagon which is out speeding all its other counter parts.
Further another graph below indicates why outsourcing for overall medical device industry still has good potential in coming days. There are still OEMs who are thinking about utilizing medtech CMOs capabilities for their manufacturing need, and if the CMOs are able to convince the decision makers the change in current 25% number is highly likely.