2021-22 Review and 2023 Outlook: Report on European MedTech CDMO Industry

Medical Device OEMs in Europe continued to rely extensively on global outsourcing partners, possibly hindering growth potential of domestic outsourcing companies.

The rising costs of raw materials were only partially transferred onto their OEM customers, affecting the bottom line for CDMOs. This lag, however, is expected to be partially balanced by an increase in price in 2022 and beyond.

2021 saw a pull-back from long-term trends of structural changes in the medical device industry, including supply chain consolidation and increased outsourcing by OEMs. This was partially offset, however, by the increased demand for CDMOs by OEMs.

Despite these challenges, the European MedTech CDMO industry grew due to a variety of factors, including a booming In-Vitro Diagnostics (IVD) market, driven by the continued demand for COVID-19 testing, which subsided in 2022. The 2021, and even more the 2022, rebound in elective procedures and the rise in OEM inventory spiked demand for surgical devices. And the surge of procedures created strong demand for injection molding services.

CDMO Market Outlook

The European MedTech CDMO industry is estimated to grow +8.5% CAGR ’21-‘23, a promising forecast. Trends likely to influence market performance include normalization of OEMs’ procurement strategies and rising inventory levels.

OEM procurement decisions should continue to normalize, returning to a focus on long-term efficiency planning after coping with multiple challenges to the continuity of their product value chain in 2021 and 2022. This will move greater volumes of outsourcing toward domestic CDMOs.

Medical device industry inventory levels are expected to continuing rising due to a lack of predictability in the volumes of procedures and the high lead times for product sourcing. Such expansion of purchasing patterns would trickle down stream to CDMOs, increment the backlog of purchase orders, and ultimately drive growth.

Ongoing Challenges for CDMOs in 2023

The global Medical Device CDMO industry does face some threats and ongoing challenges. These include long-term logistics disruption, in which rising raw material costs are expected to continue and will impact manufacturers with limited economies of scale.

Prioritization of inorganic growth strategies and offshore competition are driving consolidation and increasing competition. Large, integrated CDMOs create competitive pressure for smaller players, such as family-owned companies in Europe, without technology differentiation or innovation capabilities.

Raw material and labor cost inflation will likely continue, potentially inducing OEMs to purchase from lower-cost countries. In Europe, as in the U.S., labor and transportation costs will continue to rise, and smaller CDMOs without access to low-cost capacity may be priced out of the market.

In general, European CDMOs initiate later than their U.S. counterparts in expanding to new geographies, such as Central and South America and Asia, with the goal of reducing costs and gaining geographic proximity to the end market.

Other challenges facing the global Medical Device CDMO industry include the supply chain crisis. Unprecedented challenges are disrupting cross-industry supply chains; this trend will continue in the medium term, with expected structural impact on global Medical Device manufacturing and distribution.

M&A Activity for MedTech CDMOs

M&A activity in the global Medical Device CDMO industry reached a new high in 2021 with a record number of transactions completed during the year. The inorganic growth trend continues to drive industry consolidation in 2022, also driven by Private Equity investments. Valuations in the hot Medical Device CDMO M&A market remain solid and competition level is high among buyers. Platforms continue to vie for high-value capabilities and end-markets.

European MedTech – What’s Ahead

A return to normalcy has accelerated growth for Europe’s MedTech CDMO industry, but individual companies may be at risk given the increased competitive pressure, logistics disruption, and the rising cost of materials and labor. Thorough evaluation of the business opportunities and the main potential restrains for each market niche and player has to be carefully conducted, to be able to navigate a complex and dynamic market, as the MedTech CDMO one.

Have questions about the European MedTech CDMO industry?