Medical Device Manufacturers Hit Major Hurdles—Can Contract Manufacturers Help?

Image courtesy of Natech Plastics IMG_7133 (2)_web.jpg
Contract manufacturers offer medical device companies a lifeline after a tough year of supply and demand challenges.

It’s an exciting time for medical device innovation, as medtech continues to help advance healthcare on a number of fronts. But it’s also a challenging time given the pandemic’s impact on markets and supply chains. Contract manufacturers are working to help OEMs address these challenges, and they are expanding to meet new demands such as supplier consolidation requests.

“The whole world of medical devices is changing,” Mark Gomulka, CEO of Westfall Technik, told MD+DI. “Because of ever-changing reimbursement and insurance factors, expanded access to healthcare in emerging markets, the rapidly aging global population, and the emerging of digital health solutions, everybody wants to have a connected device in some way. Patients want to be treated at home. We’re seeing more and more action when it comes to wearable drug-delivery devices–– everything from insulin pumps to insulin monitors to auto-injectors for immunotherapies.”

Medical devices are “becoming smart and wearable, and they ultimately drive costs down for insurance companies, while offering convenience and comfort for the patients,” he added.

As exciting as these changes are, the medtech industry is also encountering challenges related to product demand and to supply shortages and cost increases.

“COVID-19 continues to be on everyone’s minds because the pandemic is still impacting our industry in a lot of different ways,” shared Al Carolonza, director of market research & strategy for MICRO. “It forced many hospitals and healthcare facilities to reduce, or in some cases pause completely, all elective surgeries before a vaccine was widely available. They may have been reluctant to hold onto product inventory as demand for single-use instruments and other surgical devices decreased as a result of fewer procedures being performed.”

The good news is that "in most markets, elective surgeries are back to near pre-pandemic levels," Carolonza said, "but manufacturers are struggling to catch up with sudden increased demand for parts and products. We’re seeing a backlog on raw materials from suppliers and mills that had shut down earlier in the pandemic. There’s a real domino effect in play that impacts everyone across the supply chain, including contract manufacturers.”

Adds Don Bonitati, director, global medical market, for Minnesota Rubber & Plastics (MRP): “The global impact on logistics has touched every industry with manufacturing being one of the hardest hit. Minnesota Rubber and Plastics has seen an impact to materials and components needed for all the industries that we serve.”

Medical device OEMs also need more North American manufacturing capacity, explains Gomulka. Just like many medical device contract manufacturers, Westfall Tech has been expanding its capabilities and facilities to serve these OEMs and support the incredible innovation taking place in medtech. 

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Grappling with Medical Device Material Supply Issues

The medtech industry is feeling some supply-chain pain. Carolonza says that “shortages of raw materials and supply bottlenecks continue to challenge our industry. It will take time for supply backlogs to get back to where they need to be, and it will be a gradual build. Contractors have to ensure that our customers understand these market fluctuations and factor that into project timelines and lead times. In addition, some suppliers are raising prices on materials that are in high demand, and contractors may face resistance in passing these costs along to customers, so that is another shift and challenge facing our industry. Contractors and their customers need to be aware of these factors that can impact delivery and profit margins.”

Michael McGee, president of Beacon MedTech Solutions, agrees. “We continue to face a strained supply chain—like any other contract manufacturer—across materials and critical resources. In a relatively short period of time, the pandemic has dramatically impacted mature, dependable, and robust supply chains. It’s not clear when normalcy will be restored—and when COVID will no longer be an acceptable rationale for missed commitments and delays. Our approach is to OVER communicate. With our customers, suppliers, and each other. We continue to invest in and optimize ERP tools and systems, although going the extra distance with a phone call to verify a committed date goes a long way with customers today. For the time being, we need to double check everything.”

Andrew Gaillard, global director, Trelleborg Healthcare & Medical, says that “the situation remains strained in several stages of the supplier chain, which, combined with continued development of the pandemic, represents a certain risk. If the situation escalates, it could restrict sales growth in the short to medium term, but as it stands today, it is expected that it will be possible to manage the situation satisfactorily.”

Planning ahead is key. “We have been proactively working with clients to secure the materials they need by looking into the future and helping to project their needs into Q1 and Q2 of 2022,” explains Ashley Turrell, director of strategy for Natech Plastics. “By having open and transparent communication with our customers about the market, we align our goals and reduce risks through proactive decision making and collaboration. Our customers appreciate knowing we are looking ahead and working to eliminate disruptions to their programs.”

And new solutions may be needed. “The demand for alternative material options is more prevalent now than ever before,” says Bonitati of MRP. “In this industry, logistics and supply chain disruptions are causing delays in material shipments, obsolescence of ingredients, and sourcing challenges for key materials. Fortunately, Minnesota Rubber and Plastics’s partnerships with market leaders have allowed us not only to carefully manage our inventory to keep up with demand, but also to develop alternative compound formulations to further mitigate this supply chain risk.”

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Michael McShane, project engineer for Flambeau Inc., says his company has found success in partnering with customers and material vendors “to find small-volume material batches for the short term as well as streamlined an adoption validation of new materials. With our product adoption process, and utilizing scientific molding principles, we’ve been able to source new materials and streamline acceptance through our customers’ stringent approval and testing processes. We do this by identifying the critical knowns in the field, through regulatory, and in the tool and account for those in the material selection. Also, by choosing materials with similar shrink and strength profiles, we can use the existing tool and keep parts flowing. Similar to sterilization adoption, our production adoption process can allow us to run one small 4-hour PQ and provide alternative materials without a lengthy and costly full-scale revalidation process. This shortens lead time, mitigates risk, and keeps parts in our customers’ hands so they can support the healthcare industry.”

Bonitati says that MRP’s “global procurement team is on daily calls coordinating efforts to secure material, and our operations teams have taken on additional shifts to keep our customers’ lines up and running. With the support of our AMG (Advanced Materials Group), we have the advantage of being able to rapidly develop alternate compounds that meet customer requirements and mitigate supply chain risk.”

Carolonza believes that based on what MICRO has experienced, “it appears likely that the industry will continue to deal with fluctuating supply issues for some time as the pandemic evolves, especially as variants and lower vaccination rates in certain markets cause high hospital occupancy rates and lead to additional reductions of elective procedures.”

Pricing

Supply-chain struggles may also involve pricing, as Carolonza notes above. Adds Rudi Gall, general manager of Freudenberg Medical: “Supply-chain material constraints have led to long lead-times and substantial price spikes by raw material suppliers due to the extreme excess demand / deficit in supply.”

“In some cases, resins have doubled in price,” says Gomulka. “There are constant cost pressures. Customers in the medical space are not used to seeing their very specific, engineering-grade resins go up in price. When the cost of a product’s material content goes from 30% to 60%, then we have to talk. Those pressures are across our entire industry. Look at what crude [oil] did, and monomer prices, it’s just ridiculous right now. And we’re still recovering from the freeze in Texas. The capacity is running at, what, 99%, and demand is at 110% –– those things don’t align very well.” 

“While nobody relishes these conversations,” says Merritt Williams, chief commercial officer of Westfall Technik, “most of our customers have been very open and understanding as regards the resin supply and cost issues that everyone is facing now, be it in our professional or personal circumstances. Now, most of these large OEMs are wanting to stretch out terms in the midst of everything we discussed earlier. It’s making for a significantly challenging environment right now. It is going to continue to take consistent and open communication between all parties to take as much friction out of the system as possible.”

“A lot of the medical customers are looking to secure six months’ to a year’s worth of materials, and we are in discussions about how we can make that logistically and financially viable for both parties,” says Gomulka.

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Supplier Consolidation

Medical device companies may be interested in streamlining their operations through supplier consolidation.

Gaillard says that Trelleborg Healthcare & Medical continues to see its top, global customers consolidate their suppliers. “And although customers are utilizing fewer suppliers, they expect their remaining strategic suppliers to offer more services and solutions. It is no longer enough to have expertise with one material or capability. Instead, customers expect Trelleborg to be a complete solution provider,” he said.

Carolonza said that MICRO’s customers “increasingly want to consolidate supply chains, so full-service suppliers who can support product and process development, component manufacturing, and assembly will have a competitive edge. Our Costa Rica facility will enable our company to expand our global footprint, better serve our customers, and remain cost competitive as a full-service preferred contract partner.”

Medical device OEMs are also asking for additional value-added services, Gaillard says. “At Trelleborg, we have seen an increase in requests involving materials, prototyping, inventory management, and sustainability. In addition to investing in the Rapid Development Center (RDC), we are expanding our capabilities around component and final device assembly, which we refer to as integrated solutions. We know that the majority of the components we produce are later assembled with other components. Trelleborg has the capability to do this work at our manufacturing locations, thereby helping the customer reduce costs and the number of suppliers with whom they work.”

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Turrell of Natech also sees a shift toward contract manufacturers becoming more vertically integrated and helping customers navigate their supply chain. “When it comes to shifts in demands, our clients are looking to us as the experts in not only in injection molding, but also in critical post-processing services. These services include assembly, filling and sealing, bonding, coating, and sterile packaging—all of which we can now do in-house at Natech. In response to these demands, Natech has continued to add to its suite of services to include mechanical and automated assembly and packaging. Our team includes a robust automation engineering team that helps to streamline the process and reduce costs before manufacturing begins. We have also added filling and sealing capabilities for our diagnostic clients who are looking for a manufacturer that can design, mold, and fill and seal their product. Our team now can fill and seal, sterile pack, and assemble complex finished medical devices in our class 8 manufacturing cleanroom. By having all these services occur under one roof, clients have more control and trust in the process, as well as save costs by working with one partner, rather than several.”

New Capabilities, Equipment, or Facilities

Every contract manufacturer responding to MD+DI for this article has been expanding in some manner.

In April 2021 MICRO announced plans to expand its full-service medical contract manufacturing operations in Costa Rica. “We expect to open the new manufacturing facility later this year with operations beginning in early 2022,” said Carolonza. “Our new 32,000-sq-ft facility will have a cleanroom assembly facility within the manufacturing center, allowing us to better respond to our customers’ needs with cost-effective, full-service contract solutions for complex medical assemblies." 

Beacon MedTech Solutions’ driving force behind its investments include its 2020 acquisition by Beacon Manufacturing Group and “a strong recovery and disciplined focus in our strategic markets and ensures we’re providing our customers the immediate capacity, scale and responsiveness they need as they rebound from the pandemic,” explained McGee. “During Q4 of this year, we plan to focus on areas that include leasehold improvements, ERP enhancements, production capacity, and training and development of our people.” At MD&M West 2021 in Anaheim, the company entered into an agreement with Sumitomo Demag for a preferred partnership for new injection molding machines to be delivered to its facility in Q4 of this year.

Trelleborg recently launched its RDC. “One goal of many healthcare and medical customers is to be first to market with innovative technologies. To support this, the RDC team creates samples in as little as 24 hours,” said Gaillard. “This enables multiple design iterations to be tested simultaneously, delivering superior performance and quality while also ensuring an effective and rapid scaleup to production.”

Over the last 18 months, Minnesota Rubber and Plastics has invested in state-of-the-art molding technologies, custom high-speed automated vision inspection systems, a new ISO Class 8 cleanroom, and analytical material testing equipment, shares Bonitati. And there’s more to come. “We’re investing $7 million in constructing an Innovation Center at our Plymouth headquarters that will significantly expedite our prototyping process. The Innovation Center is expected to be completed in Spring 2022.”

Image courtesy of Freudenberg MedicalFreudenberg_DSC06990.JPG

Freudenberg Medical's cleanroom in Baldwin Park, CA. It is one of the company's larger cleanrooms, and it specializes in thermoplastic molding.

Freudenberg has significantly grown its silicone tubing and thermoplastic molded components production over the past 2 years, reports Gall. “Much of this was due to demand for vaccine processing and COVID testing devices,” he told MD+DI. “Medical device tubing requests have also grown significantly. We plan to expand our tubing product portfolio in 2022 with new product offerings and ancillary components.” And in the past year, Freudenberg Medical has opened a new medical manufacturing operation and global headquarters in Beverly, MA, focused on silicone products, implantable devices, and components made of high-performance plastics. “We also expanded operations in California, adding 6 molding machines, and in Costa Rica, we added a new ISO Class 7 cleanroom for catheter manufacturing and assembly,” he adds. “Additionally, for the catheter market, Freudenberg has added an advanced thermoplastic extrusion line with capacity for over 1 million parts per month, as well as increased capabilities for sensor integration into catheter platform solutions.”  

After acquiring or launching 18 businesses across North America since Westfall’s founding in October 2017, the company is currently focused on boosting its cleanroom capabilities and medical product manufacturing capacity, reported CEO Gomulka. “We recently bought and completely refitted a brownfield structure in suburban Chicago that is giving us an additional 40,000 square feet with three Class 8-certified clean rooms and one GMP-certified white space. We are outfitting that now with 14 all-electric injection presses. Additionally, in just the past 18 months, Westfall has tripled its clean-room space in Riverside, CA; doubled it in Union City, CA; and installed new cleanrooms in both New Richmond, WI, and in Tijuana, Mexico, with more coming on the East Coast soon.” The company is also doubling its packaging capability and capacity through the acquisition of CPP in July of this year.

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Natech has added additional automation equipment, including collaborative robots for the production floor, along with testing equipment and new machinery, Turrell reports. “Our team now can fill and seal, sterile pack, and assemble complex finished medical devices in our class 8 manufacturing cleanroom. This year, we are also adding the ability to work with hydrophilic and hydrophobic coating for our customers in the IVD market. What we want to accomplish is a full suite of services that allow clients to move from idea to final device with Natech.”

Redundancy and Reshoring

McGee of Beacon MedTech Solutions says that his company continues to see “interest in reshoring back to the United States pick up as companies look for reliable domestic sources of supply who can move quickly to meet demand for single use technologies (i.e., COVID-19 test kits).” He says this is “part of a larger conversation around supply-chain stability and simplification, which we support through our highly configurable vertically integrated capabilities that include engineering (design for manufacturability, materials, process design, etc.), tooling, liquid injection molding, precision molding, and assembly and kitting. Our OEM customers rely on us to streamline and simplify complex supply chains.”

Turrell of Natech, too, expects to see medtech companies stick with domestic partners. The company anticipates “seeing OEMs push the envelope on bridging that gap from development to high production. In the past, OEMs would work with domestic partners for new product development and low volumes, and then they would move overseas to low-cost labor markets once they reach higher quantities. The cost and lead times on automating processes have and will continue to decline, which makes remaining with domestic partners through high-volume more competitive when products start to reach high volume manufacturing. Moving forward we expect to see more OEMs choosing to keep high production domestic.”

Gall says that Freudenberg Medical has been seeing a continued discussion on nearshoring. "We are able to support our customers with this request by having local sales, engineering and manufacturing support available across the globe," he says. "We heard the message loud and clear and our commitment is to be always as close as possible to our customers.”

However, Williams of Westfall Technik doesn't "see a short-term fix," he says. "Redundancy is getting put in play –– some as volume dictates and some for risk mitigation, depending on the technological risk or revenue risk. But what I think you will see is new-product launches accelerating in North America, rather than any massive reshoring of current, validated technologies or products. This is expensive and time consuming, and quality ramifications should and will always be part of that decision-making process. For somebody like Westfall, our stacked integration model should become even more relevant for our customers, as they try to rapidly get through new product launches and scale as OEMs continue to look for suppliers that have multiple capabilities or services to provide."

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But redundancy may not always be the answer. “If you have a fully validated product line feeding a fully automated assembly line, there is not as much redundancy being put in place right now. It’s easier to build here from scratch–– especially for any new platforms that require new technologies and new automation,” Williams furthers. “I expect that’s how medical device companies will look at redundancy –– unless they’re in large markets, with large volumes, such as clinical diagnostics as one example, then they have to have redundancy in place, for risk-mitigation reasons and by risk I’m talking about supply quality or revenue in most cases.”

Added Gomulka: “That’s where having all of the capacity that we have comes into play. I’d call it our sweet spot. Being on one platform makes it that much easier for an OEM, when it comes to compliance, etc.”

What Will 2022 Bring for Medical Device Manufacturing?

“2020 was a year of uncertainty,” and “2021 is a year where we are wondering how we’re going to produce all these products, with all these force majeures and all, while the Delta variant is raging across the country right now,” said Gomulka. “For 2022, we have no shortage of business to execute; it’s going to be a year of incredible growth. But who can predict it after the last two years? What else can happen? For me, the challenge of 2022 involves addressing how we are going to execute to keep up with the demand, especially for our medical customers.

“In my career, which spans close to the last 30 years, I haven’t seen it like this. I’ve got to hope that 2022 is the year when things start stabilizing,” he adds.

Williams believes that OEMs will continue to be challenged "to have any kind of forecast accuracy. So, I think for companies like Westfall and others in the contract manufacturing world, we’re going to be spending more time in collaboration discussions, and maybe in forming strategic partnerships to add value and work in the ecosystems in which we have chosen to operate. For lack of a better term, a 'coopetition' mindset is going to become more prevalent to provide solutions—there is enough to go around. What has been historically just transactional relationships, given all these external factors, you’re going to see companies like us get closer to the customer and work in a more collaborative way, just to navigate the waters in 2022.”

In terms of category growth, McGee of Beacon MedTech Solutions anticipates seeing “continued, steady growth for demand of single-use disposable technologies across bio-pharma, life sciences, and medical industries as COVID continues to drive demand for vaccines, test kits and personal point-of-care options.”

Elective surgeries will continue to rebound, McGee adds, which should result in continued increases in demand. He predicts “re-sourcing, dual sourcing, and tech transfers as supply gets shifted around, and large OEMs begin implementing post-pandemic strategic sourcing initiatives that focus on risk mitigation,” he adds.

 

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R&D, NPI, and product line extensions that have been held up during COVID should begin to free up, McGee said.

Bonitati of MRP “anticipates continued growth, especially within the drug delivery and diagnostic markets we serve. Customers require a flexible supplier with unique materials science expertise and design capabilities that can provide them with a path to faster product commercialization. Minnesota Rubber and Plastics continues to make significant investments in technologies and capabilities to stand out as a leader in custom molded elastomers, silicones, and thermoplastics in the medical device space.”

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