|Photos courtesy of Battelle Healthcare.|
“Clearly, corporate R&D budgets have been strapped. OEMs have had to drop staff and cut budgets to try to meet Wall Street expectations in the recent down market, and in so doing, they have given up project ideas and expertise,” said Gary Smith, vice president of healthcare products for Battelle in Columbus, OH. “As a result, there are undeveloped product pipelines and significant pent-up demand. I would expect outsourcing growth in the high teens looking forward—a compound annual growth rate of 15-17%.”
Other sources interviewed by Medical Product Outsourcing also forecast annual outsourcing growth of 10–20%. Some sectors look especially promising: cardiovascular, endochrinology, oncology, pain control, female and reproductive health, biotechnology, laboratory instrumentation, pharmaceuticals, orthopedics and diagnostic assays and biomarkers.
Extra Hand Needed
Rather than trying to ramp up quickly to meet the needs of a new or one-time project, OEMs can—and should—consider outside companies to provide that assistance. The move can pay dividends in the long run.
“For OEMs, outsourcing product development and implementation minimizes disruption in manufacturing facilities associated with the scale up of new products. For a development stage company, the need to conserve capital is critical,” said William Goolsbee, executive vice president of development for Avail in Fort Worth, TX. Not only can OEMs put off investing time and energy to hire workers and purchase equipment and facilities, they also free themselves to focus on core competencies—their raison d’être.
In addition, an outsourcing company’s expertise in specific technologies can help an OEM shorten time to market and make reaching milestones more manageable. Realistic product development cycles today range from 12 to 18 months when moving products from concept to shelf; 18 to 20 months is more likely for untested technologies. Contract developers and manufacturers can work on numerous parts of a project simultaneously, ensuring the final target is achieved. For example, MedSource Technologies said it recently worked with one company to rush to market a three-piece, 60-component surgical kit.
“We had design teams at four locations working on the project simultaneously,” Schauer recalled. “The products had to be designed with speed to market in mind. In 10 months, we underwent 30 process steps, created 20-plus injection-molded parts and manufactured the product.”
Extra Hand NeededWhat’s behind the strong projected growth in outsourcing? Certainly, pent-up demand and smaller in-house OEM staffs are factors. In addition, many OEMs are finding it more cost effective and efficient to rely on another company’s infrastructure and staff to help meet project goals. “We provide all the resources, infrastructure and quality controls in developing new products, and the OEM watches the delivery and timetables. It’s almost like we’re their temporary employees for the duration of the project,” explained Dean Schauer, vice president of engineering services for MedSource Technologies, Inc. in Boston.
The Right Partner
“OEMs prefer working with a single-source supplier,” said Wendi Achey, former manager of OEM marketing for B. Braun Medical, Inc. in Bethlehem, PA. “Rather than have numerous partners—one performs product development, another handles testing, another handles packaging—they prefer to have just one or two partners. When you have numerous partners, there’s a lot more time management and resources to manage. In the end, having one partner is more time- and cost-effective.”
Partnership is also a key component in today’s relationships. OEMs used to view outsourcing companies simply as suppliers. In the past, Schauer said, device manufacturers used to call on contract houses only to supplement their R&D with some product expertise and other small contributions. “Now you may get the entire project. You design and develop it from start to finish, and you get just one or two internal OEM resources to guide you. We’re more of a partner now,” he added.
The Right PartnerIn the past, OEMs sought outsourcing partners with experience and expertise in their specific markets. Today, a few other criteria have become critical as well.
Scope ExpandsContract manufacturers say the scope of their work has grown significantly. For instance, it’s not uncommon for the outsource partner to develop concepts into working models and prototypes into finished products. In fact, they are providing customers a wide range of services from design to manufacturing. Gil Reich, vice president of The MedTech Group, Inc. in South Plainfield, NJ, said this cooperation has produced “not just speed to market but speed to productivity.”
“OEMs and their suppliers are getting into much more creative arrangements. They’re shifting from fee-for-service contracts to ones where risk and value are shared,” Battelle’s Smith explained. “It is rare that an outsourcing relationship would start at this level; however, as the trust in the relationship grows, the contract mechanism may evolve.”
He added that rewards for contract manufacturers are sometimes structured like those from a partnership: an OEM may pay milestone-based or sales quantity-based incentives, which range from 0.5-15%—not unlike what OEMs pay physicians when they propose ideas.
The State of the Art
Miniaturization: Minimally invasive technologies continue to be popular because they often translate into reduced healing and recovery time for patients. Smaller devices also free up space in cramped operating and hospital rooms.
Portability: Smaller devices, coupled with higher-powered, longer-life batteries and sensors from the cell phone and electronics industries also allow patients and clinicians more freedom of movement. One challenge OEMs and outsourcing firms face is untethering patients from monitors and other equipment. Battelle has worked to downsize a device that had been the size of a desktop computer. Today, the instrument is a handheld device with a video interface for the patient. Increasingly, wireless technology is used to move the user interface from the medical product to a small, handheld monitor.
The State of the ArtWith product development budgets ranging from $250,000 to $2 million—and trending lower—it’s critical that OEMs ensure a product design can be easily manufactured and appealing to and usable by consumers. Among the continuing trends that outsourcing companies see in product designs are:
Form Follows Function
It’s also essential to create easy-to-use medical products because more products are used in homes. In some instances, manufacturers design two or more different models of the same device to meet in-home and clinical needs. In other cases, they modify existing designs to meet the needs of both healthcare professionals and patients.
Smith said Battelle recently developed a sophisticated patient ventilator that included a one-touch interface for the caregiver, but the device was also designed to accommodate all levels of users.
Convenience also helps overextended healthcare professionals. Ease of use is increasingly drawing the attention of group purchasing organizations (GPOs), which are working with vendors to maximize the time of nurses, pharmacists, doctors and other healthcare workers in short supply.
Safety: In addition to meeting the requirements of the needlestick prevention legislation that passed in November 2000, OEMs are finding other ways to ensure their devices operate safely and effectively. Take, for instance, B. Braun Medical, Inc.’s Duplex drug delivery system. In the past, when a patient received an intravenous antibiotic, the drug and diluent were mixed in the hospital’s pharmacy and then sent to the patient’s room; the delay resulted in a reduction in drug efficacy. The Duplex is a ready-to-use, multi-chamber bag that stores the drugs and diluent in separate, prepackaged compartments to be administered at bedside. Nurses simply squeeze the bag to pop the seal. The proper amount of diluent then mixes with the drugs.
Manufacturability: Products that meet the criteria of the other categories also must be easy to manufacture or their value will be compromised. “We frequently see products that have been taken to the proof of principle stage or prototype stage, and the company wants to commercialize the product, but the design is not really mature enough for the manufacturing environment,” said Walter Gilde, marketing manager for KMC Systems in Merrimack, NH. “Often these products require some engineering to make them manufacturable.”
“A focus on design for manufacturability early in the development process has long-term implications for success, as most outsourcing relationships involve long-term manufacturing after the product is launched,” Goolsbee added. “Early engagement in the design process creates ownership on the part of the outsourcer for design elements they will be responsible for in manufacturing.”
Form Follows FunctionEase of use: From a device’s color and shape to how it is used, companies are catering to users’ preferences and needs to ensure a product will be a top seller when it hits the market. “In some cases, the discussion centers around whether users will be male or female or in what part of the world they live,” explained Schauer. “Will the user have big or small hands? A tall or short body? We create a product that will best meet that user’s physical needs. In other cases, we’re being asked to redesign an existing product because a nurse or surgeon can’t use it easily.”
Tech Behind the Trends
“Nowadays, high-temperature resins very often act as replacements for metal parts, allowing for a less expensive product with radiolucency,” MedTech’s Reich noted. “It’s very important that an outsourcing partner be involved from the early stage of product development so we can understand from a clinical standpoint how a product will be used and then look at new materials, particularly plastic-based materials, to ensure that the product can be manufactured as cost effectively and timely as possible.”
CAD and rapid prototyping technologies, which enable companies to see how a product assembles and works onscreen, can produce a prototype in just days, leading to cost reductions. These technologies have matured significantly in recent years. Among the advancements: prototypes can be made from numerous resins as well as from powdered metals, allowing for highly controlled and defined features and greater heat resistance.
Some observers speculate that rapid prototyping technologies may eventually phase out injection molding because thermoforming and pressure forming processes consolidate parts at a lower cost. These processes also allow for smaller diameters and thinner walls.
Tech Behind the TrendsTechnological and materials advancements are helping OEMs achieve great things even during cash-strapped times. One money saver: substituting metal with plastic.
|With project design outsourcing rapidly growing, training additional workers has become a necessity for design firms such as Battelle Healthcare.|
Other manufacturers are finding that today’s more sensitive laser beams let them produce ever-smaller, more intricate parts. “The speed at which we move through successive iterations of a design prototype significantly impacts a project’s timeline,” said Avail’s Goolsbee. “The use of sophisticated in-house stereolithography systems means we can produce a prototype in hours, instead of days.”
With the economy showing new signs of life and contract firms continuing to add to their capabilities and technology offerings, product design and development seem poised for solid growth in the near future.
“OEMs do seem to be outsourcing more,” reflected The MedTech Group’s Reich. “They are recognizing that to compress the production schedule and get new products on shelves sooner, they often need to get involved with a supplier in the very early stages of product development. We expect to see the outsourcing trend continue to grow in 2004.”
Stacey L. Bell is a freelance writer based in Tampa, FL, who specializes in marketing and business issues.