Michael Barbella, Managing Editor11.17.21
Mike Bowen should have known better.
A lot better, actually.
COVID-19 is not the first global pandemic to upend his business and others like it. During the deadly H1N1 outbreak in 2009-10, Bowen’s company increased production of hard-to-find medical masks, churning out product on a 24/7 basis. “America’s hospitals needed us,” Bowen told Congress last year, “and we rose to the occasion.”
More like soared: The firm built new machines, bought an abandoned factory, and tripled its staff to keep U.S. hospitals awash in N95 respirators and disposable surgical masks. Knowing the federal government was concerned about its reliance on foreign-made masks (roughly 90 percent of the U.S. supply was imported then), Bowen assumed America’s leaders would reshore some N95 production once the pandemic ended.
He assumed incorrectly.
“It’s like people want to have their cake and eat it too. They want to have the cheapest prices—they want China prices—but then they want American manufacturers to bail them out when they can’t get their Chinese products. That doesn’t work,” Bowen told National Public Radio in June. “We believed everyone when they said they would stay with us...we’re buying a factory, we’re building more machines, we’re hiring people, but you got to stay with us. Everybody said they would [stay], but they didn’t.”
They didn’t because old habits die hard. Once the H1N1 pandemic ended—and with it, the urgency for N95 respirators—American mask suppliers resumed their covenants with foreign manufacturers, lured by cheaper stock. The exodus pushed U.S. fabricators to the brink of financial collapse; Bowen’s firm survived by securing new investors and implementing extreme cost-cutting measures (pay cuts and layoffs).
Bowen vowed never again to put his company (or employees) in such a vulnerable position.
But...old habits die hard.
Thus, Bowen only briefly hesitated when history repeated itself last winter during COVID-19’s initial assault. He mimicked his H1N1 footsteps, adding machines and staff to boost mask production for a nation that failed to learn its lesson on emergency preparedness and foreign import dependency.
Bowen’s post-swine flu struggles came back to haunt him as well, though his company’s machines went idle long before worldwide mask demand subsided. Bowen and dozens of other manufacturers sat on huge stockpiles of masks this past spring as cheaper product from abroad re-entered the market and China lifted its export embargoes.
U.S. hospital staff, meanwhile, rationed and reused masks due to reported product shortages.
That disconnect between mask supply and demand epitomized the kind of challenges posed this year by a barely-functioning supply chain. Fresh waves of Delta variant infections created new bottlenecks in the planet’s already fragile logistics network, driving up production costs, curtailing product availability (resins, semiconductors, and microchips in particular), and threatening medtech profits.
“...the pandemic has exposed great weaknesses in the medical device supply chain and its dependence on foreign medical devices,” Acting U.S. Food and Drug Administration (FDA) Commissioner Janet Woodcock, M.D., wrote in a July 21 blog. “COVID-19 has shown us that it is too late to build an infrastructure and establish an understanding of the supply chain while a PHE or other type of emergency is happening. We saw firsthand that by the time there is an emergency it is often too late to prevent or mitigate shortages.”
Too late indeed.
N95 respirators and ventilators were already in short supply by the time COVID-19 reached U.S. shores last winter, while reserves of surgical/examination gowns, gloves (latex, vinyl, and polymer), and testing supplies ran dry by mid-August (2020).
Rising infections in Asia this past spring exacerbated shipping delays at southern China ports, where an outbreak among dockworkers in Yantian (within Shenzhen) brought cargo container traffic to a virtual standstill. Some ships waited up to two weeks to accept cargo; by early June, roughly 160,000 containers were on the docks ready to be loaded, The Wall Street Journal reported.
Meanwhile, surging cases within the chip and semiconductor labor pool in Taiwan and Malaysia compounded an already crippling shortfall in both industries. Malaysia tackled the outbreak with a national lockdown in June that cut semiconductor production 15 percent to 40 percent (quite a significant reduction, as the country accounts for 13 percent of global chip assembly testing/packaging capacity and 7 percent of the worldwide semiconductor trade).
“It will disrupt the supply chain somewhere, somehow,” Wong Siew Hai, president of the Malaysia Semiconductor Industry Association, told the Journal.
It disrupted the chain everywhere, actually, snarling the flow of goods to consumer electronics firms, small auto care shops on the other side of the world, and multinational medtech manufacturers alike. GE Healthcare, for example, struggled to meet product demand over the summer, prompting executives to warn of muted third-quarter earnings and delivery delays later this year. The company expects the global supply chain crisis to last through the first half of next year.
“Worldwide material and labor availability remain pressured on several fronts, particularly across semiconductors, resins, and logistics,” Steve Winoker, vice president of GE’s investor relations, wrote in a Sept. 8 investor update. “We are experiencing sustained pressure in our Healthcare business in 3Q, which we expect to continue through the second half of the year, negatively impacting revenue and margin growth. Although we expect a challenging environment through the first half of 2022, we are working with our partners, suppliers, and logistics channels to alleviate the impact and help mitigate output and cost challenges.”
Such long-lasting supply chain challenges has forced many device firms to revise their expectations for the coming year. Intuitive Surgical is bracing for higher production costs in the months ahead as delays and price increases trickle down the chain.
“It’s a difficult environment right now. There are issues on a regular basis,” Intuitive CFO Marshall Mohr told analysts in a Q3 earnings conference call on Oct. 19. “Some lead times have extended beyond six months. That’s not all products...but in some cases, it’s pretty long. COVID has impacted global supplies of semiconductors and other materials used in our products. To date, we have experienced immaterial component cost increases and freight expedition fees. However, global shortages could result in future supply disruption, as well as delayed development and regulatory activities. We also expect supply issues to result in higher production costs.”
Those higher costs and development delays have already claimed their first victim—Johnson & Johnson’s Ottava surgical robot. The company planned to begin verification and validation processes for Ottava this year and conduct clinical trial enrollment in 2022, but “technical development challenges and COVID-19-related supply chain constraints” has stalled the project for another two years, executives said during the company’s third quarter earnings call in mid-October.
J&J designed Ottava (the Italian word for “octave”) with six arms to improve control, flexibility, and patient access during surgery. Its main focus is abdominal and chest procedures, but J&J is considering expanding the device into additional areas, potentially encompassing endoscopy, orthopedics, and catheter-based surgeries for vascular interventions.
The Ottava system combines elements of Verb Surgical and Auris Health’s robotic platforms, with the latter used for lung cancer treatment.
“People love certainty, people want certainty, and we just can’t give that [to them] right now. A couple of months ago, COVID numbers were on the decline, people were starting to welcome workers back into the office,” Michael Arena, vice president of operations at FUJIFILM Sonosite Inc., noted during a MedTech Conference panel in late September. “Then the Delta variant happened and the numbers started going in a really bad direction very quickly. You want to be able to give people certainty—we all want to have certainty, but there just isn’t that to offer right now, and that’s a tough pill for us all to swallow at this point.”
And a bitter pill at that.
Read more: bit.ly/odt21yir02
Be sure to review the other portions of the 2021 Year in Review feature:
MDR Finally Arrives, but Challenges Follow
CMS Creates Reimbursement Quagmire for ASCs
Pandemic Creates Conditions for Buying Bonanza
A lot better, actually.
COVID-19 is not the first global pandemic to upend his business and others like it. During the deadly H1N1 outbreak in 2009-10, Bowen’s company increased production of hard-to-find medical masks, churning out product on a 24/7 basis. “America’s hospitals needed us,” Bowen told Congress last year, “and we rose to the occasion.”
More like soared: The firm built new machines, bought an abandoned factory, and tripled its staff to keep U.S. hospitals awash in N95 respirators and disposable surgical masks. Knowing the federal government was concerned about its reliance on foreign-made masks (roughly 90 percent of the U.S. supply was imported then), Bowen assumed America’s leaders would reshore some N95 production once the pandemic ended.
He assumed incorrectly.
“It’s like people want to have their cake and eat it too. They want to have the cheapest prices—they want China prices—but then they want American manufacturers to bail them out when they can’t get their Chinese products. That doesn’t work,” Bowen told National Public Radio in June. “We believed everyone when they said they would stay with us...we’re buying a factory, we’re building more machines, we’re hiring people, but you got to stay with us. Everybody said they would [stay], but they didn’t.”
They didn’t because old habits die hard. Once the H1N1 pandemic ended—and with it, the urgency for N95 respirators—American mask suppliers resumed their covenants with foreign manufacturers, lured by cheaper stock. The exodus pushed U.S. fabricators to the brink of financial collapse; Bowen’s firm survived by securing new investors and implementing extreme cost-cutting measures (pay cuts and layoffs).
Bowen vowed never again to put his company (or employees) in such a vulnerable position.
But...old habits die hard.
Thus, Bowen only briefly hesitated when history repeated itself last winter during COVID-19’s initial assault. He mimicked his H1N1 footsteps, adding machines and staff to boost mask production for a nation that failed to learn its lesson on emergency preparedness and foreign import dependency.
Bowen’s post-swine flu struggles came back to haunt him as well, though his company’s machines went idle long before worldwide mask demand subsided. Bowen and dozens of other manufacturers sat on huge stockpiles of masks this past spring as cheaper product from abroad re-entered the market and China lifted its export embargoes.
U.S. hospital staff, meanwhile, rationed and reused masks due to reported product shortages.
That disconnect between mask supply and demand epitomized the kind of challenges posed this year by a barely-functioning supply chain. Fresh waves of Delta variant infections created new bottlenecks in the planet’s already fragile logistics network, driving up production costs, curtailing product availability (resins, semiconductors, and microchips in particular), and threatening medtech profits.
“...the pandemic has exposed great weaknesses in the medical device supply chain and its dependence on foreign medical devices,” Acting U.S. Food and Drug Administration (FDA) Commissioner Janet Woodcock, M.D., wrote in a July 21 blog. “COVID-19 has shown us that it is too late to build an infrastructure and establish an understanding of the supply chain while a PHE or other type of emergency is happening. We saw firsthand that by the time there is an emergency it is often too late to prevent or mitigate shortages.”
Too late indeed.
N95 respirators and ventilators were already in short supply by the time COVID-19 reached U.S. shores last winter, while reserves of surgical/examination gowns, gloves (latex, vinyl, and polymer), and testing supplies ran dry by mid-August (2020).
Rising infections in Asia this past spring exacerbated shipping delays at southern China ports, where an outbreak among dockworkers in Yantian (within Shenzhen) brought cargo container traffic to a virtual standstill. Some ships waited up to two weeks to accept cargo; by early June, roughly 160,000 containers were on the docks ready to be loaded, The Wall Street Journal reported.
Meanwhile, surging cases within the chip and semiconductor labor pool in Taiwan and Malaysia compounded an already crippling shortfall in both industries. Malaysia tackled the outbreak with a national lockdown in June that cut semiconductor production 15 percent to 40 percent (quite a significant reduction, as the country accounts for 13 percent of global chip assembly testing/packaging capacity and 7 percent of the worldwide semiconductor trade).
“It will disrupt the supply chain somewhere, somehow,” Wong Siew Hai, president of the Malaysia Semiconductor Industry Association, told the Journal.
It disrupted the chain everywhere, actually, snarling the flow of goods to consumer electronics firms, small auto care shops on the other side of the world, and multinational medtech manufacturers alike. GE Healthcare, for example, struggled to meet product demand over the summer, prompting executives to warn of muted third-quarter earnings and delivery delays later this year. The company expects the global supply chain crisis to last through the first half of next year.
“Worldwide material and labor availability remain pressured on several fronts, particularly across semiconductors, resins, and logistics,” Steve Winoker, vice president of GE’s investor relations, wrote in a Sept. 8 investor update. “We are experiencing sustained pressure in our Healthcare business in 3Q, which we expect to continue through the second half of the year, negatively impacting revenue and margin growth. Although we expect a challenging environment through the first half of 2022, we are working with our partners, suppliers, and logistics channels to alleviate the impact and help mitigate output and cost challenges.”
Such long-lasting supply chain challenges has forced many device firms to revise their expectations for the coming year. Intuitive Surgical is bracing for higher production costs in the months ahead as delays and price increases trickle down the chain.
“It’s a difficult environment right now. There are issues on a regular basis,” Intuitive CFO Marshall Mohr told analysts in a Q3 earnings conference call on Oct. 19. “Some lead times have extended beyond six months. That’s not all products...but in some cases, it’s pretty long. COVID has impacted global supplies of semiconductors and other materials used in our products. To date, we have experienced immaterial component cost increases and freight expedition fees. However, global shortages could result in future supply disruption, as well as delayed development and regulatory activities. We also expect supply issues to result in higher production costs.”
Those higher costs and development delays have already claimed their first victim—Johnson & Johnson’s Ottava surgical robot. The company planned to begin verification and validation processes for Ottava this year and conduct clinical trial enrollment in 2022, but “technical development challenges and COVID-19-related supply chain constraints” has stalled the project for another two years, executives said during the company’s third quarter earnings call in mid-October.
J&J designed Ottava (the Italian word for “octave”) with six arms to improve control, flexibility, and patient access during surgery. Its main focus is abdominal and chest procedures, but J&J is considering expanding the device into additional areas, potentially encompassing endoscopy, orthopedics, and catheter-based surgeries for vascular interventions.
The Ottava system combines elements of Verb Surgical and Auris Health’s robotic platforms, with the latter used for lung cancer treatment.
“People love certainty, people want certainty, and we just can’t give that [to them] right now. A couple of months ago, COVID numbers were on the decline, people were starting to welcome workers back into the office,” Michael Arena, vice president of operations at FUJIFILM Sonosite Inc., noted during a MedTech Conference panel in late September. “Then the Delta variant happened and the numbers started going in a really bad direction very quickly. You want to be able to give people certainty—we all want to have certainty, but there just isn’t that to offer right now, and that’s a tough pill for us all to swallow at this point.”
And a bitter pill at that.
Read more: bit.ly/odt21yir02
Be sure to review the other portions of the 2021 Year in Review feature:
MDR Finally Arrives, but Challenges Follow
CMS Creates Reimbursement Quagmire for ASCs
Pandemic Creates Conditions for Buying Bonanza
