Medical Device Link.

Originally Published EMDM May 2003

OUTSOURCING OUTLOOK

By providing a range of services, subcontractors are in a position to be involved in a project from the beginning, according to Runfold Medical Ltd. The firm has evolved from a contract moulder to a one-stop shop for medical device OEMs.

The use of outside resources to perform activities traditionally carried out in-house by medical device companies is expanding beyond contract manufacturing. Outsourcing today encompasses everything from product design and engineering to product assembly and packaging. Subcontractors are increasingly offering a range of services to meet the anticipated demand for the so-called one-stop shop, a single supplier that manages the whole process from product design to commercialization.

The medical device industry has been slow to embrace the concept of outsourcing, but shorter product life cycles and the drive to achieve cost-efficiencies have been forcing a change in corporate strategies. “Medical device companies are looking more positively at outsourcing,” says Rory O’Connor, managing director of ANSAMed (Roscommon, Ireland). The biggest barrier to outsourcing is nervousness: companies need to be sure that they will succeed and satisfy their shareholders. “Many start off nervously and tentatively. As confidence is built, customers are invited further into the business,” says O’Connor. 

Whereas British companies have traditionally been much more willing than German firms to outsource, O’Connor notes that this is changing among medium-sized and larger German companies. Germany now represents ANSAMed’s largest customer base for outsourcing and components, followed by the UK and Ireland.

Given the fragmented nature of the medical device industry, the pace of change varies across the industry. Nevertheless, the overall trend in Europe appears to be a gradual approach to outsourcing, with medical device companies initially selecting those activities outside their core competencies. Peripheral smaller products outside a company’s mainstream business are most likely to be selected for outsourcing. In common with companies that have made vertical integration a priority, Guidant (Brussels) does “pretty much everything in-house,” according to a company spokesperson. Noncore activities, such as packaging and accessories that are not essential to do business, may be outsourced. 

Click to enlarge.

Robert Welsh, manufacturing director of Corin (Cirencester, Glocs, UK), regards his orthopaedics company as perhaps unusual compared with its larger counterparts, in so far as it prefers to do as much in-house as possible. “The activities we outsource at the moment are sterilization, coatings—both metallic and biocompatible—and some manufacturing,” says Welsh. The latter is especially the case “when we have peaks in requirement, and our capacity can’t cover it in the time frame we need to make it.” Other activities that are not catered for by in-house capabilities, such as welding, are also subcontracted. 

At the other end of the scale is the so-called virtual company, which subcontracts almost everything. German orthopaedics firm Alphanorm was just a sales and marketing company when Corin acquired it in September 2002. Lacking in-house expertise, the German company outsourced all activities other than sales and marketing. However, dealing with a chain of subcontractors was not an efficient strategy. “Their typical lead time to produce an orthopaedic component would be in the region of eight to 12 weeks,” says Welsh. “We would be looking to do that in two weeks.”

What OEMs want

The concept of the one-stop shop as an alternative to dealing with multiple suppliers is gaining momentum, with US-based companies deemed to be ahead of their European counterparts in adopting the concept. However, according to J. Randall Keene, president of Avail (Fort Worth, TX, USA), “It is really only in the last couple of years that we’ve seen more and more companies embrace the concept. There are still large medical companies that think it’s an absurd idea.

“When we created Avail about eight years ago, our idea was to provide this one-stop outsource service to the medical industry, much as had been done in the automotive area and was just beginning to happen in the electronics industry. Most US companies at the time thought we were crazy,” says Keene. 

One of the advantages of providing a complete service, says Clive Gunther, managing director of Runfold Medical Ltd. (Liphook, Hants, UK), is that any potential problems that might occur in processing and manufacturing can be identified and addressed during the initial product design phase. Being involved in just the manufacturing phase excludes the potential for amending the project to resolve problems and can lead to product delays.

Jeff DuBois, vice president of business development at Nova Biomedical (Waltham, MA, USA), reckons that Becton Dickinson saved about 12 months by adopting an outsourcing strategy for its blood glucose monitoring products. The recently launched BD Logic and BD Latitude were developed in just 18 months, from concept to market, through a US Technology Partnership between Nova Biomedical (which provided the proprietary diagnostic technology, device development, and manufacturing services), Herbst Lazar Bell (market research, industrial design, and initial prototype development), and Foster-Miller (engineering). 

Medical Engineering Technologies (MET; Folkestone, Kent, UK), which provides a “one-stop resource” for medical device firms through a network of partners based in the US, France, and the UK, sees sterilization as the most subcontracted service. “Packaging machines and lamination equipment are looking quite strong at the moment,” adds sales director Mark Turner. MET is also receiving more inquiries from large companies seeking project management for the development of new products. “They come with the concept and most of the design,” says Turner, but need help putting together the master file. 

Whereas few companies were providing outsourcing services to the medical technology industry 10 years ago, OEMs are now spoilt by their range of choices. Competition for their business is hotting up, as suppliers to the electronics and aerospace industries are increasingly focusing on the medical device industry to augment their return on investment in cleanroom capacity and moulding capabilities. These resources are suffering from underutilization caused by the declining business environment in those industry sectors. 

“We’re also seeing our raw materials suppliers getting into the subcontracting business,” says Corin’s Welsh. “All of our forging and casting suppliers now have machining and polishing facilities. They are all looking at the value added.”

Suppliers face heightened scrutiny

In a tougher competitive environment, the selection process places a premium on experience, quality, and technical capabilities, says Brian McGarvey, business development manager of Medisize Development and Manufacturing Technologies (Donegal, Ireland). “Customers are refining the outsourcing process,” he says. “RFQs [requests for quotes] have become more complex and require more time to fill in.” Potential customers are scrutinizing suppliers’ technological capabilities, quality systems, and commercial standing. Service providers that do not measure up will rapidly lose out. “A quality system has to be very robust to survive the scrutiny and stringent demands of major device companies,” says Keene.

Service providers must be prepared for an unofficial audit during the selection process; a full quality audit generally will be conducted before a final decision is made. Accreditation to ISO and EN standards alone is insufficient, says Paul Flavell, business development manager of Tech Group Europe (Dublin, Ireland). “There must be constant review and enhancement of the quality and manufacturing systems, because customers have higher and higher expectations.” For example, moulders are installing on-line monitoring systems to instantly access processing information, together with real-time bar code systems that give full batch traceability.

Click to enlarge.

Gunther believes that the increasing demands from OEMs for information from suppliers reflects the continual review of standards by regulatory bodies. “Suppliers must make sure that their standards and controls are up to customers’ expectation and requirements,” he says. Even after a contract has been agreed upon, OEMs are starting to review and revise specifications in order to meet new standards.

The onus is on suppliers to keep up with regulatory changes and to achieve the highest standards. As an example of how requirements have tightened, Gunther cites sterilization standards. “For a long time, a [25-kGy sterilization dose meant] a product was considered sterile; now you have to prove contamination prior to sterilization.” If working for US customers, suppliers must be aware of new FDA standards, which are continually being reviewed. “For instance, there is a new in vitro diagnostic standard due out at the end of the year,” notes Gunther.

Medical device companies also need to have confidence in the service provider’s ability to fulfill the contract. When assessing potential suppliers, device companies will commonly visit the subcontractor’s current customers, says MET’s Turner.

Building relationships

Establishing a good relationship with customers is key to providing an efficient service. “When dealing with development projects, engineers have to feel they can establish a working relationship with suppliers,” says McGarvey. “Business today is all about relationships,” concurs Welsh. Small companies such as Corin rely on building a good relationship with service suppliers, particularly if their business is relatively small compared with that of other customers, benefiting both parties. For example, Corin has engendered a good relationship with its sterilization subcontractor by helping out with training.

Small companies are concerned that subcontractors tend to give priority to larger customers. For this reason, Corin usually selects companies that are comparable to its own size, rather than a large multinational. “Our volumes are small,” says Welsh. “Because we are the second or third largest customer of one of our castings suppliers, we get good service from them.” While this might be a valid concern, Flavell cautions that suppliers should endeavour to provide equitable treatment: “You never know when a small customer might become a big customer.”

Building relationships can be facilitated by selecting a local supplier, although opinions differ on just how important geographical location is in the selection process. ANSAMed’s O’Connor believes that proximity is an important factor. "People are more willing to outsource significant and complex business to suppliers close to them. If the wheels come off, people like to be close at hand.”

Electronic communications and reduced airfares are, however, improving the customer-supplier interface. McGarvey believes that location is not a major issue, noting that some 30% of Medisize’s business is in the US, with the major share of around 60% in mainland Europe. DuBois believes that the skills offered by service providers take precedence over location, and that cost-efficiencies may override the need to maintain local control. As an example, he cites one of Nova Biomedical’s UK customers that wanted to maintain control over manufacture in the UK, although the company’s largest market is in the US. “But it is looking to set up manufacturing in the US and will outsource this.”

Timely communication of problems is a concern for customers, particularly where it is crucial to meet timelines. “If subcontractors let you down, you’re letting your customer down,” says Welsh. “Subcontractors are typically very poor at giving you bad news.” While service providers may not want to relay bad news, establishing good communication lines will go some way toward addressing such concerns. Regular communication is essential, says Turner, who notes that MET provides a weekly verbal and written report to customers. 

Tech Group Europe’s communication philosophy includes “no e-mail debate, pick up the phone,” and scheduling conference calls at set times. Customers usually prefer a single contact—a project manager or account manager—with the supplier, says Flavell. “Making sure that there is one conduit of information will provide consistency.” It is equally important for customers to establish good internal communication lines with a main contact dealing with suppliers. 
“We’re seeing some of our customers set up systems where they have a whole organization within their company that is set up specifically to deal with us, outsource manufacturers, and service providers,” says Keene. “That’s all they do. That system seems to work pretty well,” he adds. Keene advocates dialogue between like-minded people—engineers, operations staff—but there should also be in place some form of leadership and accountability. 

Small companies are cautious about disclosing intellectual property. Development companies, in particular, whose intrinsic value is their intellectual property, are keen to retain control over the design concept, according to McGarvey. But they will look to external assistance to develop the product into a commercial entity, and thus will outsource all the industrial aspects. 

The one-stop shop

Demand for the one-stop supplier, which can provide the full package from concept to product design to commercial manufacture, appears to be greatest among the major medical device players. “In general, large companies tend to want to be sales companies,” says Welsh. “If you look at the larger companies in orthopaedics, most of them would prefer to subcontract out all the manufacturing and just do the sales and marketing themselves.”

“There is no doubt that the trend is moving toward one [contract firm] doing virtually everything,” believes Keene. “It’s just that everybody’s in a different position in that cycle.” 

To cater for the perceived growing demand for the one-stop shop, suppliers are entering into alliances and partnerships with organizations offering complementary services. One example is the Technology Partnership formed by Nova Biomedical a year ago that, says DuBois, “provides a single source for contract and project management.” The partners are all located within the same city. One current project involving a surgical device illustrates how the partnership works. Engineering firm Foster-Miller currently has taken the lead; by 2004, the firm will pass it to Nova for pilot production and to prepare for routine manufacture.

Flavell considers the injection moulder to be in a good position to provide the development link between product design and end manufacture. To this end, the Tech Group works as a team with other specialists such as designers and toolmakers to provide a comprehensive package of support. Design for manufacture, project management of tool construction, commissioning and validation, together with manufacture of clean parts from pilot tooling for clinical trials are all part of the package.

Other companies are gearing up their activities to provide a wider range of services through acquisitions. Medisize, which acquired Donegal HealthCare and has facilities in the Netherlands and the Czech Republic as well as Ireland, is planning further expansion to achieve its corporate goal of becoming a fully integrated solutions provider to the medical device and pharmaceutical industries. 

Some suppliers of product design, development, and manufacturing services are going a stage further and exploring opportunities in sales and marketing and logistics. Nova Biomedical provided field services through its German office to Transfusion Technologies, prior to the latter’s acquisition by Haemonetics Corp. However, service providers are more commonly looking at distribution services. While shipping products to the end-user can provide a useful additional revenue source, logistics services are not without their pitfalls. “The problem is if a major company—say a Johnson & Johnson—has a customer that is going to buy a hundred different line item codes from them on a weekly basis, and we make for them just five of those codes. It’s going to be difficult for us to handle the distribution,” says Keene. 

There is no sign of a letup in the trend toward outsourcing more activities by medical device companies. Future demand for outsourced services is projected to be driven by larger companies, which are already reviewing their core competencies with a view to offloading peripheral activities, and by companies focused on R&D and sales and marketing that do not have the resources to invest in a manufacturing plant. As larger companies gain confidence with outsourcing, they will move to mainstream products, including product development. “The challenge for suppliers is to provide the full range of services and take on more of the OEM’s peripheral activities,” says O’Connor. 

Contract Services Company Profiles

Extrusion Services

Ansamed Ltd. (Boyle, Co. Roscommon, Ireland) specializes in the development of precision specialty extrusions. The firm can process all thermoplastic elastomers; products include single- and multilumen tubing, coextrusions, and layered and crosshead extrusions. Precise tolerances are routinely accommodated. The firm is equipped with complete on-line computer monitoring and has in-house tooling design capabilities. Printing, engraving, cold stamping, hole-drilling and -punching, welding, and insert and injection moulding services are also provided. Ansamed complies with US FDA guidelines and is certified to ISO 9001 and EN 46001.

Micromachining

Based in Biel-Bienne, Switzerland, Cendres & Métaux S.A. (CM) is a manufacturer of semifinished and finished products. An expert in micromachining, the company also offers contract manufacturing, full-service project management, and single sourcing capabilities to companies involved in medical technology. CM uses high-quality materials such as precious metals and titanium characterized by high purity and close tolerances. The precious metals are processed entirely in-house, from recycling to casting and forming to production of the finished components. The company is FDA-registered and certified to ISO 9001 and EN 46001. 

Metal Fabrication

Unimed S.A. (Lausanne, Switzerland) offers a wide range of products including metal parts, finished devices, and OEM subassemblies. In addition to small-diameter stainless-steel tubing and wire, the company manufactures titanium, nickel, and silver products. The components are often configured with elbows, ports, branches, and other features; they are typically used in sampling and processing, liquid-handling, analysis, and chromatography applications. The company also offers assembly, cutting, grinding, and precision drilling services. Surface treatments such as passivation, polishing, marking, and the addition of a Teflon coating are routinely performed. 

CNC Processing

A wide range of contract services are offered by Stadler Sensorik & CNC Technik GmbH (Deutschfeistritz, Austria). The company specializes in CNC processing of plastics, high-alloy steels, and special materials such as tantalum, molybdenum, tungsten, and titanium. Services include fine-tube processing, CNC turning and milling, and assembly. 

Flexible Metal Tubes

Carniaflex S.r.l. (Paluzza, UD, Italy) is a manufacturer of medical devices and flexible metal tubes for adjustable gooseneck arms. A new advanced production unit is used for the machining of high-precision turned parts made of titanium and stainless steel. The company’s CNC machining tools and advanced testing equipment enable it to meet the most exacting customers specifications.

Catheter and Stent Fabrication

Arthesys (Gennevilliers, France) is an independent company that produces angioplasty catheters for the OEM market. The company has 15 years of experience in the development and manufacture of PTCA catheters. The Alcyon catheters feature a step-free design that results in a streamlined profile and ease of transition. A thermowelding assembly process, which is reportedly unique to the company, enhances the catheter balloon’s resistance and crossability. The company’s newest product, the Casiopea stent-delivery device, combines a density balloon and automated folding system for safe crimping. Working in partnership with OEMs, Arthesys provides services ranging from initial technical studies through market launch of the finished product. In-house resources enable the manufacture of ready-to-market systems including single catheters and sterile kits in customer-specified packaging. The company also provides extensive support for product certification and CE marking. 

Rubber Components

Seal Line S.p.A. (Montegaldella, VI, Italy) is part of the IVG Colbachini Group, one of the largest European manufacturers of rubber hoses. It produces standard and custom-made moulded rubber components for the medical device and pharmaceutical industries. Products include latex and latex-free connectors, injection points, needle shields, injection-moulded liquid silicone rubber components, bulb droppers, rubber plungers, and rubber closures. The company meets standard certification requirements.

Full-Service Subcontracting

Specializing in the development of medical devices, Runfold Medical Ltd. (Liphook, Hants, UK) provides medical OEMs with full-service design, manufacturing, and development services. Focused primarily on supplying finished products ready for distribution, the company also offers a variety of subassembly manufacturing services. Its cleanroom injection moulding capabilities have recently been expanded to include two-shot injection moulding. This process is now being successfully employed to produce a new medical connector that incorporates an overmoulded seal. Rapid prototyping, 3-D modelling, mould-flow analysis, dip moulding, ultrasonic welding, assembly, packing, sterilization, and distribution are also available. 

Ceramic Parts

Maret S.A. (Bôle, Switzerland) supplies medical device OEMs with small precision parts made of advanced high-purity ceramics, such as alumina and zirconia. The ceramic parts are pressed as close as possible to the final shape, avoiding some secondary machining operations with costly diamond tools. Parts are developed in close collaboration with the customer. The company is equipped with high-performance production equipment, and is certified to ISO 9001 and ISO 14001. 

Contract Coating Services

A Swiss company specializes in parylene surface treatment. Comelec S.A. (Le Chaux-de-Fonds, Switzerland) applies parylene and galxyl coatings in its workshops on a contract basis. The coating process is carried out under a vacuum at room temperature. The coatings are completely uniform, pinhole free, and adaptable to any configuration of substrates or materials. Parylene solidifies directly after the gaseous phase at ambient temperature. Gas-phase deposition allows parylene to infiltrate even the most difficult-to-reach places. The company can also design and install custom coating machines according to customer specifications. 

Tubing

A manufacturer of small-diameter single- and multilumen tubing, Precision Extrusion Inc. (South Glens Falls, NY, USA) meets ISO 9002 certification requirements. The company can handle many complex tubing needs including coextruded and braided reinforced tubing. Pebax, LCP, nylon, polycarbonate, PVC, PUR, and other engineering resins are routinely processed. These materials can be compounded with barium, bismuth, or tungsten for radiopacity. The company offers design, prototype, and fabrication of extruded components and tubes using thermoplastic materials. Secondary operations such as tip-forming, bonding, joining, and assembly are also performed. 

Filtration and Analysis

Whatman (Maidstone, Kent, UK), a designer and manufacturer of specialist membranes and filtration and chromatography media, recently released a blood transfusion filter, MAT-40S. It features a compact design with a large surface area that provides high flow rates, a long filter life, and very low residual holdup. The company also has a generic technology for the isolation, transport, storage, and purification of DNA. Whatman products have wide-ranging applications in the analytical, healthcare, and bioscience markets. In healthcare, the company’s products are used as critical components in medical devices and diagnostic kits, such as those used for cholesterol testing. 

Precision Tubing

Serving the medical device community since 1990, ExtruMed Inc. (Placentia, CA, USA) offers tapered, single- or multilumen, coextruded, vacuum-sized, heat-shrink, and high-strength balloon tubing. The tubing can be manufactured from any kind of thermoplastic—natural, coloured, or filled. From prototype to production, ExtruMed prides itself on closely collaborating with the customer. 

Copyright ©2003 European Medical Device Manufacturer