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Making medical work at Merit

Since the company’s founding in 1987, Merit Medical Systems Inc. has grown from a small startup into a global developer and distributor of proprietary disposable medical devices used in interventional and diagnostic procedures, particularly in the cardiology, radiology, and endoscopy sectors. Fred Lampropoulos, chairman and CEO of the publicly traded company, shared his thoughts on the industry and its challenges.

Clare Goldsberry

February 3, 2011

7 Min Read
Making medical work at Merit

PlasticsToday: It’s been nearly 30 years since Merit Medical Systems was founded. How has the medical device industry changed over that period of time?
Fred Lampropoulos: I think the changes that have impacted the medical device industry are primarily those of the regulatory environment. It is very difficult for the smaller companies today to try to do what we did in 1987. The regulatory environment is so difficult and it requires so much capital. When we started the business, I wrote our 510(K) [the premarket notification required by the U.S. Federal Food, Drug & Cosmetic Act]. Today that’s impossible. You have to have a full battery of tests, aging, time, packaging qualifications, and other requirements that have become difficult even for us.

Regulators are starting to permeate the industry. We’ve had one 510(K) out [to the FDA] for 11 months for a simple catheter—a tube with a hub on the end of it—that has our own features on it, but not anything that would cause this kind of scrutiny. We’re currently selling it in Europe. The regulatory climate has become burdensome, obstructive to innovation and to the creation of small companies. It’s really a worldwide issue. All governments want to have their hand in the pie. It’s something I have to deal with every day.

Secondly, we’ve seen consolidation on the capital side of things. Since smaller companies have difficulty getting capital, there are more opportunities for mid-cap companies like Merit to make acquisitions. We’ve had the opportunity to pick up a couple of companies recently that fit nicely into our business.

This consolidation in the down market that we’ve seen in the last few years is also impacting our resin vendors. There’s been a lot of consolidation, which means requalification of the components we mold. Qualification and sourcing of resins have become more difficult.

PT: To what do you attribute Merit’s growth?
FL: We’re growing, mostly because of our R&D work and our products. Analysts predict sales in the range of $350 million-$360 million for 2011.

PT: Given the high costs and length of time it takes to get a new device approved by the FDA, what is the future of new device development in the U.S.?
FL: The future of the medical device industry is innovation. We have to dig in for the long haul and be prepared to make expenditures to get our products into the market. The regulatory climate ebbs and flows over time. Someone wakes up one day and suddenly you have change in the system. Merit concentrates on emerging markets like China, which is our fastest-growing market. It’s our largest export market, along with Russia and Brazil—the BRIC countries. We have our own office in Beijing with 15 employees. In five years we expect to be doing $100 million a year in sales to China.

Of course, all these countries have their bureaucracies, too. We have to continue to innovate and expand our reach. Currently, we’re building a new 75,000-ft2 facility in Galway, Ireland. We have another 275,000-ft2 facility under construction in South Jordan [UT, Merit’s HQ]. Those are our largest facilities. We hired 309 people [in 2010] and 300 [in 2009]. We have a total of 2300 employees working for Merit, 1500-1600 people working in our three facilities in Utah. We’ve hired over 600 people, and now we’ll be punished for that through taxes on our profits. 

PT: Do you do most of your own injection molding of your products in-house? How large is your molding operation?
FL: We do almost all of our injection molding and insert molding in-house, with the exception of [using an outside company] when we have capacity restraints. We run approximately 45 injection molding machines and another 15 insert molding machines. Our molds are built outside by a few companies we have used for years so that we can focus our attention on product development and automation.

PT: You mentioned the consolidation of resin suppliers and some of the difficulties getting resin, qualifying new resins, and such. Can you explain what impact that has on your business?
FL: We saw that consolidation during this economic downturn, which impacted the availability of certain plastics that in some cases became thin—so thin that when a strike hits France it hurts our supply line. We buy some materials out of Saudi Arabia, France, and other countries. America used to be quite homogeneous in the material supply chain, but we have to buy materials from all over the world now and with chaos in these places it’s difficult. We have to have backup materials and large inventories. 
Then there are all the various types of materials that have come under scrutiny such as the plastic for baby bottles. A new material takes a long time to qualify and often we don’t get enough notice, which makes it very challenging for the device industry.

PT: Utah has been a home to the medical device industry since the early 1960s through people like Jim Sorenson and Dale Ballard, two of the early pioneers in the industry here. Is Utah still favorable to medical device innovation?
FL: Utah has the most favorable business climate in the country. We have an R&D tax credit that Merit helped craft with Utah’s legislators that is the best in the country. Utah is the number one state in terms of patents per capita. The medical device industry here is still quite large, but some of the names have changed as companies changed hands—some moved out while others have moved in.

Merit is the largest home-grown medical device manufacturer in Utah. We’re not seeing a large number of startup medical device companies like there were years ago. There are some small medical device companies here, but the regulatory issues will be tough for them.

PT: What will Merit Medical do to continue its successful path?
FL: We’ll keep our heads down and stick to business. Part of our success is to continue to do what we’ve done in the past that has contributed to our success, and it’s interesting that all four original founders of Merit Medical Systems are still here. But companies go out of business doing what they’ve always done, so a big part of our future will be innovation. We’ll keep our eye on market—emerging market—trends, and be innovative, aggressive, and alert. Most importantly we’ll be flexible. And we’ll be proactive in solving the problems.

We’ve been tagged with a 2.3% excise tax on first-dollar sales that hits us in 2013; we expect to have sales of more than $400 million then so first-dollar excise taxes will be about $10 million. Some companies will actually pay more in taxes than they’ll make in profit. That’s compliments of our friends at the Obama administration.

We’re doing well, but we recognize that we have these headwinds coming our way. There’s always something that will be a burr in your saddle.

Fred Lampropoulos, chairman and CEO of Merit Medical Systems Inc., has been in the medical device industry for almost 30 years. From 1983 to June 1987, he was chairman of the board and president of Utah Medical Products Inc., a medical device manufacturer. He founded Merit Medical in 1987. He is credited with nearly 200 patents on devices used in the diagnostic and therapeutic treatment of cardiovascular disease. He has been recognized throughout the Salt Lake City community for his service and business acumen, and was the recipient of the Governor’s Medal for Science & Technology. He was also inducted into the Utah Business Hall of Fame and is active in the state’s politics, including a 2004 run for governor.

About the Author(s)

Clare Goldsberry

Until she retired in September 2021, Clare Goldsberry reported on the plastics industry for more than 30 years. In addition to the 10,000+ articles she has written, by her own estimation, she is the author of several books, including The Business of Injection Molding: How to succeed as a custom molder and Purchasing Injection Molds: A buyers guide. Goldsberry is a member of the Plastics Pioneers Association. She reflected on her long career in "Time to Say Good-Bye."

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