Under more pressure from the market to develop products that offer real value rather than incremental benefit, medical device OEMs are refocusing on innovation and demanding more from their contract partners.
Outsourcing is certainly not a new trend in the medical device industry, but it does seem to be picking up speed. Pegged at $8.6 billion last year, the global market for medical device outsourcing is expected to grow by nearly 40%, to $12 billion, by 2018, according to a recent report from Millennium Research Group.
Changing dynamics in the healthcare markets due to the Affordable Care Act in the United States and austerity measures in Europe are likely playing into that growth, and medical device companies are under more pressure than ever to develop products that offer real value and not just incremental benefit. As a result, OEMs are concentrating more and more on their core capabilities.
“They’re focusing on designing new and improved medical devices, not on the manufacture of those devices,” says Gregory Riemer, president of MRPC (Butler, WI), a custom manufacturer of silicone, medical rubber, and thermoplastic components and assemblies for the medical device industry.
As OEMs are doubling down on innovation, they’re asking more of their contract partners. Increasingly, device makers are farming out everything from front-end design to back-end services including warehousing, distribution, and regulatory assistance.
“They overall trend we’re seeing is more OEMs looking for us to provide more value,” Riemer says. He says MRPC’s medical device customers are seeking help with everything from engineering and design assistance to subassemblies and finished device manufacturing, as well as asking the company to work directly with other contractors that provide services such as sterilization.
In the face of these stepped-up service requests, many medtech suppliers appear to be rising to the task. According to the Millennium Research Group report, “overall trends in the medical device outsourcing space indicate that [contract manufacturers] are broadening their range of services, growing organically or through acquisition to become one-stop-shop manufacturers.”
That trend was also evident at the MD&M West exposition in Anaheim, CA, February 11–13, 2014, where a number of exhibitors were on hand to discuss value-add services they offer to medical device OEMs.
Polymer extrusions and material science company Zeus (Orangeburg, SC) recently launched its Traveling Z-Teams, crews made up of scientists, engineers, and technicians who travel around to assist OEM customers. Comprised of specialists in disciplines including polymer science, biomedical engineering, and quality assurance, the teams provide services ranging from on-site projects and consultations to seminars.
The Traveling Z-Teams are part of a rebranding initiative intended to show customers that Zeus’s capabilities extend beyond simply supplying tubing, says medical division manager Tara McCutcheon.
Mack Medical has offered warehousing and distribution for its medical device OEM customers for at least a decade, but Joan Magrath, vice president of sales and engineering, says the Arlington, VT-based contract manufacturer has seen increased demand for those services in recent years.
“OEMs want fewer suppliers that they have to visit and audit, so we’re taking on more as a contract manufacturer,” says Julie Horst, Mack Medical’s director of communications.
The company expanded its design capabilities this past summer by acquiring Milford, CT-based design engineering firm Synectic, and Magrath says customers responded immediately.
“The floodgates have just opened,” she says. “We had one to two joint products in the first month.”
Another contract manufacturer that has turned to acquisitions to better cater to medical device OEMs is Hudson, WI-based Phillips-Medisize. The company announced in July an agreement to purchase medical technology manufacturing operations in Suzhou, China, and Queretaro, Mexico, from Adval Tech Group, which specializes in metal stamping and forming as well as plastic injection molding.
Phillips-Medisize president and CEO Matt Jennings says the acquisition was driven by existing customers’ desire to make products closer to the emerging markets where they’ll be sold. OEMs’ strategy is no longer to manufacture devices in China or Mexico for distribution in the United States and Europe, he says. Instead, they are making products in these countries for regional and local distribution, and, again, they’re looking for help from contract partners.
“To line up with our global customers, who are manufacturing in Asia for Asia, Europe for Europe, and the Americas for the Americas, we need to have capabilities in each of those geographies,” Jennings says.
Philips went so far as to register its operations in Suzhou as a Chinese company because such firms get preferential treatment from the Chinese Food and Drug Administration, which can result in quicker speed to market for the company’s customers.
“If someone allows us to do their registration, that might shorten their approval process from two years to nine months,” Jennings says.
This year, Phillips plans to further expand the services it offers to customers in the Chinese market by opening a design and development center in Suzhou. Two years ago, the company opened similar design centers in Hillegom, the Netherlands, and Mountain View, CA.
“As the U.S. market has continued to slow in topline growth, OEMs have cut back on R&D, so we’ve stepped in and filled that void for them,” Jennings says.
With OEMs focusing more on innovation, they’re likely to cut back in other areas as well. Luckily, contract manufacturers are continuing to step up their game.
—Jamie Hartford is MD+DI's managing editor.
[image courtesy of DAVID CASTILLO DOMINICI/FREEDIGITALPHOTOS.NET]