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Industry Forecast 2013

Tue, 01/15/2013 - 12:00am
Sean Fenske, Editor-in-Chief, MDT

Since 2013 brings uncertainty with it due to a number of issues and concerns, MDT sought out the industry’s supplier side to see where their thoughts were focused. Speaking with a number of service providers and component suppliers, this “industry forecast” highlights five areas: contract manufacturing, design, molding, power, and test.

MDT Reader survey results - Device TaxWhat will 2013 bring for those involved with the development and manufacture of medical devices? While the impending 2.3% excise tax on all U.S. medical device sales (not profits) looms ominously over the industry, device makers are already preparing for its impact in a number of ways, from trimming staff to cutting R&D. The schedule for UDI implementation has been stepped up significantly, so many across the industry will be seeking options to fulfill identification requirements to become compliant with it (Editor’s note: see the article preceding this one, starting on page 15, for more on UDI). Suppliers and service providers alike are continuing an ongoing effort to have their supply chain in order to address a new level of cost control demands that will be issued by their medical device customers who enter the year working under even greater financial pressures. It’s no wonder there is so much uncertainty going into 2013 as there is within the industry.

With this in mind, suppliers and service providers need to make an effort to reassure their medical device customers that they are prepared and able to help them with the challenges they face in the coming year. From addressing supply chain concerns to trimming costs wherever possible, medical device OEM will be looking to their manufacturing partners to help ease the burdens they will encounter in 2013.

As such, this inaugural “Industry Forecast” from MDT is being offered to enable those partners to share their thoughts on the coming year and to address many of the challenges mentioned. Representatives from five sectors—contract manufacturing, design, molding, power, and test—have taken time to respond to questions posed on the upcoming year.

Contract Manufacturing
MDT Reader survey results - Contract ManufacturingArguably, no sector serves as more of a business partner than the companies offering contract manufacturing services to the medical device industry. Often, the OEM and contract manufacturer (CM) have intertwined teams, working toward the success of a new product. Entering early in the development process and often “taking over” responsibility to continue to supply the product to the medical marketplace once development has concluded, the CM can be with a product throughout its entire lifetime. As a result, members of this sector of the community maintain close contact with the medical device manufacturers and are well aware of their concerns in the coming year.

Since the device tax will make such a significant impact on the financial statements of the OEMs, their CM partners are very aware of their concerns. With regard to addressing those concerns, “our customers have increased their focus on tightly defining roles in the supply chain,” says Michael K. Cusack, director of business development at Xeridiem, a designer and developer of complex, single use medical devices sold worldwide. “Many companies are more specific about expanded roles, tighter quality requirements, and increased quality system controls for suppliers,” he continues. “Some customers are telling us that they have suspended new device developments until they can evaluate the impact of the medical device tax on their businesses.”

MDT Reader survey results - Domestic salesFrank Noone, VP of sales and marketing at Pro-Dex Inc., a designer and manufacturer of powered solutions for the medical and dental markets, has a similar view on the tax. “The 2.3 percent medical device tax will affect everyone in the medical device industry. If a customer has had two million dollars taken out of their coffers because there’s a 2.3 percent tax on the sale of their medical device that will subsequently affect what programs they choose to spend money on.”

Even more dire is the reaction from Tom Allen, CEO of the Aubrey Group, a contract product development and manufacturing company that develops new medical devices and biotech instruments. When asked about the impact of the pending tax, he said it will be “devastating.” “The truth is, it's not a 2.3% tax; for a company with 15% earnings, it's a 15% tax on profit. Since the device tax does not reduce income tax, the device tax pushes corporate taxes for a medical device company to 50%.

Fortunately, even with the negative aspect posed by the excise tax, CMs are hearing that customers will continue to look aggressively for quality products and services that will enable them to meet manufacturing goals.

MDT Reader survey results - International SalesBrian McPherson, COO at Neovasc, a specialty medical device company that develops and manufactures products for the rapidly growing cardiovascular marketplace, explains, “Customers continue to be confident that the products and services will be critical to their development milestones. The opportunity for partnership as a contract manufacturer has never been stronger.”

Cusack is hearing similar good news from his clients, although dependant once again on the provider being able to aid with cost control measures. “Our customers are informing us that indications point toward a slight increase in buying power for 2013 with the caveat of increased downward pricing pressure,” he explains. “Customers are also telling us the predicted increase is the result of slightly higher demand based on modest growth in existing markets rather than market shifts.”

In terms of the regulatory environment and specifically, the outlook on the FDA by CMs, the opinions range greatly. While some see positive changes in the agency, others cite the FDA functioning almost in a “business as usual” type state, with little in terms of improvement anticipated.

Allen shares his more optimistic viewpoint on the FDA. “The regulatory environment seems to be changing for the better. The MDMA (Medical Device Manufacturer's Association) has been working with the FDA to streamline procedures and put some accountability back in the system. While there is still progress to be made, the regulatory environment is improving.”

While the increased cost cutting measures that CMs need to demonstrate an ability to address, it does not seem that the device tax will do irreparable damage to the OEM/CM relationship in 2013. However, CMs will also need to be weary of having a secure handle on any changes in the regulatory landscape to avoid costing their customers time in getting to market and/or hits to the bottom line.

Design
MDT Reader survey results - Design servicesIn the design and development sector, there is significant emphasis on innovative and evolving prototyping and component fabrication methods. Specifically, attention is being paid to using advanced technologies that enable parts and even complete devices to be manufactured quickly and efficiently at lower costs than with the full production run. The advantage is that defects and areas of concern can be identified very quickly with a physical representation of the part/product. Accomplishing this prior to the start of manufacturing can offer significant savings to the device manufacturer.

“We are noticing more companies adopting the additive manufacturing technology, thus being able to produce short run parts with a super fast turn-around time. With additive manufacturing, you now have materials that either meet ASTM standards or are production grade,” explains Tim Ruffner, GPI Prototype & Manufacturing Services’ VP of new business development and marketing manager. GPI specializes in additive technologies that impact product design processes and time cycles. “This gives the OEM the opportunity to produce medical devices [with] highly geometric shapes, quickly, and save money by not having to produce tooling that is costly.”

While Bruce Bradshaw, director of marketing at Objet, a manufacturer of 3D printers and materials for prototyping and production and now a part of Stratsys as the result of a merger this year, sees interest in a slightly different type of rapid fabrication technology, the message is essentially the same from his perspective as well. “The understanding of the value of 3D printing continues to escalate and I see more organizations adopting 3D printing technology. This cuts across both SMB and larger medical device manufacturers,” he states. “We hear from customers about the accelerated time to market and customization that can be achieved with 3D printers.”

With another advanced fabrication technology, Dan Searle, western regional business development manager for Solid Concepts, a supplier of rapid prototyping, direct digital manufacturing, tooling, and injection molding services, agrees with his peers on this trend. “Our rapid manufacturing technologies allow customers to prototype their products and have parts in their hands in two to three days. Finished articles are in their hands in seven to ten days. This allows clients to test the market prior to committing to injection molding or low volume production.”

Additionally, materials are of note in the development sector. Not necessarily unique to 2013 specifically, but rather materials are a focus that are consistently in the spotlight. Speaking to this topic, Searle highlights an interesting capability his company is pushing. “Composite Cast takes composite sheet material (fiberglass, carbon fiber, Kevlar, etc.) and positions it in a precision platinum silicon mold. A proprietary fill method is used to fill the mold cavity along with the sheet material and our AFP materials. The result is a very tough and stiff cast part with B-side detail captured. This technology allows us to put fiber glass into medical carts and devices specifically in the areas that would be impacted by foreign objects. Putting glass or carbon fiber can increase the strength by four times and allows for designs of products to be more aesthetic and visually appealing.”

Molding
MDT Reader survey results - MoldingLike the design sector, there’s a strong focus on materials in the molding sector as well. Since the techniques and processes have not changed significantly (although, the trend to miniaturize has certain had an impact and the use of micro molding will likely grow), innovation in this area is much more likely to come from the materials. As a result, molders will look to ensure their supply chain is at least meeting (but striving for exceeding) the unique needs of the medical device manufacturing industry. And that effort extends not only throughout the U.S. and Europe, but in more developing areas as well, such as China and India.

“We saw an expansion of international interest in the materials that we supply in sophisticated medical device applications. We experienced an increase in inquiries and initial business interest from China, Brazil, and India, which, for us, indicates that the medical device market is becoming more global in nature and the BRIC markets are upgrading their requirements for raw materials,” explains Richard Brennan, VP of Cariflex IR Products at Kraton Performance Polymers. Kraton supplies specialty polymer solutions that enhance the performance of products in a number of industries.

Ed Hurst, a medical sales executive with Spectrum Plastics—a company that offers an array of molding capabilities to the medical device industry, from micro molding to clean room molding, packaging, and assembly—points to high heat materials as an area of growing interest. He also cites micro molding as an important capability, especially with medical devices getting smaller.

“Applications will continue to get smaller with details bordering on microscopic. Micro molding is an opportunity for growth but contract manufacturers and customers alike must make sure that capabilities and expertise can support the demands of the application. Tooling, handling, quality, etc. all demand careful discussion,” Hurst shares.

Power
MDT Reader survey results - PowerAlthough the focus for this section was on power, it’s impossible to ignore complimentary areas of medical electronics, or even the electronic medical devices themselves, when discussing it. As such, while many responses involved power (an obvious must when looking at the medical electronics sector), they incorporated more than just those elements.

In terms of electronic medical devices and the focus going forward for the industry, Pat O’Doherty, VP-healthcare strategy at Analog Devices—a leader in data conversion and signal conditioning technology—mapped out three distinct directions for the market. “First, the need to make sophisticated medical imaging systems lower in size, power, and cost, making them easier to design to enable shortened development cycles and also higher in performance and patient safety. Second, the need to enable wireless vital signs monitoring systems that can reliably monitor patients in clinical environments or in the home. And third, the merging of healthcare technology with consumer devices for health and fitness monitoring at a more sophisticated level than has been experienced before.” Certainly, enhancing power technologies will play a part in enabling all of these to come to fruition.

Robin Tichy, marketing manager at Electrochem Solutions—an industry leader of total power solutions for critical applications by providing customized battery power and management systems, charging and docking stations, and power supplies—continues this “map,” specifically focusing on the second and third points O’Doherty addresses. “Medical devices are following the same trends as consumer electronics and other industries to digital information and wireless communication. Battery power is necessary for medical devices to transition to mobile devices, so we see a rapid adoption of battery power today, and we expect this to continue in the coming years. We also expect many devices, which previously used lead acid batteries for back-up power, to convert to more advanced battery technology, such as Li-ion, Li-polymer, and Li-iron phosphate.”

As Avnet Electronics Marketing is one of the largest distributors of electronic components to a number of industries, including the medical device community, it is not surprising that when asked about power, Nick Lukianov, director of business development for the company, sought to offer a perspective on the supply chain aspect. “We see continued consolidation of the supply chain by the major device manufacturers to leverage their costs and streamline their command-and-control capabilities. In addition, we expect more companies to take advantage of low-cost manufacturing opportunities in regions such as Asia, from geographies such as the U.S.”

However, Lukianov also shared an interesting outlook on how regulatory challenges can impact that supply chain and the considerations device makers need to be aware of should their device approval process take longer than anticipated. “Regulatory challenges impact time-to-market…and, in the technology space, more time can mean obsolescence. In the medical world, it is not unusual that, by the time a device comes through the regulatory process, certain components that are included in the design may actually be approaching end of life (EOL). Component and device EOL considerations need to be a major part of the early design review process, where communication with device suppliers is key to avoiding this critical issue.”

Test
MDT Reader survey results - TestingTest is the one area that “unites” medical device OEMs as the need for efficient testing is a universal one. As Pam Streed, VP of global business lines, medical, at Intertek explains with regard to the device OEMs’ buying power for testing products and services, “As long as new products are being developed and new markets are being pursued, there will be buying power for our services—testing and certification are required in order to go to market. Customers who understand the importance of partnering with a compliance partner early in the process—and the cost/time savings as a result—should have significant buying power for advisory type services.” Intertek offers a diverse range of contract analytical research, consulting, and testing services to support global biotech industries developing and manufacturing new devices and related healthcare products.

Otherwise, significant change for the testing sector was not anticipated. The overall outlook seemed to be similar to what was seen in 2012. The one area that stood out as requiring attention was with regard to ongoing changes in FDA regulations.

ViVitro Labs’ director of laboratory services, Satya Karri, Ph.D., highlights one reason it’s critically important for device manufacturers to stay abreast of the device regulations that impact their products. “Many devices are approved in Europe years before the same product is approved in the U.S. This causes our clients who are developing novel devices a tremendous amount of frustration and stalls the development process considerably. While due diligence is critical, it's important that the regulatory bodies are sufficiently knowledgeable and experienced with the safety and efficacy issues for specific types of devices so that unfamiliarity does not impede the speed at which these devices can be evaluated.”

Streed adds, “Confusion in global requirements and ongoing standard changes are driving an increased need for training, consulting, and advisory services.”

As mentioned, none of this is truly new for 2013, but it’s always good to have a reminder on important areas to ensure that all processes and procedures are current and in compliance.

Conclusion
Without a doubt, the atmosphere entering 2013 is tense for medical device manufacturers as they discover the true impact of the new device tax on their business, secure their supply chain, and address other emerging issues, such as the UDI rule. It is reassuring to know that the suppliers and service providers to the industry are well aware of the concerns their clients have and are ready and able to help address those needs. With the help of solid manufacturing partners, medical device OEMs will emerge from the hardships of 2013 with confidence and ideally, an overwhelmingly positive outlook on their business model.

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