Sailing Through the Pipeline
Thinking “Outside” the Box May Be Just the Answer
When Product R&D Efforts Get Stalled Internally
Think back to the last time you had a brilliant idea for a new product initiative. Now, think of what may have held you back in following through on getting the project started—bureaucracy? Lack of resources? Limited funds? Too little expertise? Not enough time to devote to the effort?
These types of limitations have made many would-be innovators in the medical device industry feel their ideas were fated to languish among those dreams of “things to do…someday.” Many companies, though, recognizing the need to buck complacency in the face of price pressures and competition—and already having been successful in outsourcing manufacturing operations—increasingly are looking outside for assistance with research and development (R&D) functions in the quest to turn “someday” into “now.”
They are doing so with good reason. In today’s results-driven economy, R&D continually caters to the hunger for more profit as Wall Street dictates that the med-tech industry must keep striving to improve quarterly projections.
When an early stage company needed outside development through manufacturing support on a fully automated microbiology system, KMC Systems came to the rescue. Photo courtesy of KMC Systems.
“The economic health of the participants in the market largely depends on their ability to continuously innovate, thus leading to higher R&D expenditures on new product development,” said Frost & Sullivan Analyst Sheetal S. Rajani in a recent article.
By some estimates, up to 80% of a medical device firm’s revenues can come from products released to the market within the past five years. And up to 70% of product portfolios consist of devices launched in the past three years, Frost & Sullivan research indicates.
As the medical device market continues its upward momentum, product innovation is trying to keep pace, noted Doug Hiemstra, president of Hiemstra Product Development LLC in San Francisco, CA. Economics are playing a huge role in the surge of product development, particularly as venture capital pours into the industry. “One trend we’re seeing on venture startups is that more of them are staying virtual. If you have an idea that’s just a project and you’re going to sell it to [a larger] OEM for sales and distribution, you’re going to develop your company differently than if you’re going to have a product line. The company may have a CEO and engineer and outsource everything else, from regulatory to R&D to manufacturing,” Hiemstra said.
This strategy especially can pay off for an emerging company, as it needs a proven player that has been through FDA and other audits, enhancing the chance of regulatory approval. Most of today’s startup companies don’t even have regulatory or quality professionals on board, product development specialists have found.
And even if a larger company—armed with more internal resources—can’t keep up with the market’s demand for constant new product introductions, it makes sense to outsource at least some of the R&D process as well, according to Paul Mulhauser, president of Factors NY in New York, NY. “Most companies, whether startup or large, have their own competencies,” he explained. “It’s more important that they stay vested in their in-house technology. They focus on their specialty, and we can complement that with our expertise.”
It should be noted that Fortune 100 device manufacturers don't always have the internal resources needed to get a project off the ground—and with time to market growing more crucial than ever, strategy is key. “If you have three or four projects in the hopper and only have one or two people to do them, you’re going to offload,” Hiemstra explained.
Interestingly, it’s the mid-tier device manufacturers that some product developers have found are utilizing R&D outsourcing the least. For this category of OEM players, many experts theorize that a number of these OEMs still fear that outsourcing may lead to a loss of control in building their empires.
Those who are no strangers to outsourcing, though, typically find that external resources are more nimble in terms of being able to take a product from concept to clinical trial in a quicker timeframe and at a lower overall cost, said Ron Jellison, executive director of business development for KMC Systems in Merrimack, NH.
“For larger OEMs, it’s more of resource bandwidth issue. Companies are already fully engaged with their development groups. Over the last six months, some of the larger companies you’d expect would have larger unlimited resources are saying their current capacity is full and they’re looking not to augment or increase the size. They’re exploring now the potential opportunities that exist to help them integrate an outside third party into their development team and take on some of the module development or outsource the entire instrument development all together,” Jellison said.
James Kaspryzk, director of global sales and marketing for Flagstaff, AZ-based Machine Solutions, also has seen an upsurge in companies looking for outside expertise in developing their capital equipment, as tooling and machinery experts continue to dwindle in the United States and the technology being developed grows more complex. “Customers are looking for us to improve yields and throughput.” Automated equipment, therefore, often is a top request. “Through automation, they’re looking to reduce dependence on workers. They workers will still be need to run the machines, but the machines will be more efficient and effective and offer more throughput and more consistent quality than humans can.”
The Value Proposition
According an article in PRTM’s Insight publication (which covers global issues of concern to C-level executives), a company that is excellent at resource management can achieve 30% to 40% greater productivity than a competitor with average resource management performance, enabling it to develop 30% to 40% more new products for the same investment.
As more OEMs turn to outside help in sailing through the R&D phase, they are reaping the benefits of experienced outsourcing partners who can devote all of their energy to a project and formulate solutions in a quicker timeframe—leading to a faster market introduction, cost savings and profits. “Many companies are forced to produce more products now to create market dominance, and they need to allocate resources wisely to free up bubbles in the pipeline,” said Tor Alden, a principal with HS Design in Gladstone, NJ.
One of the product development firms’ strong suits is the ability to tackle more intensive end-user research. This in-depth examination can enhance a product’s usability and help ensure the device is tailor-made for the healthcare workers. Mulhauser explained, “Typically, 30 years ago, I’d go into the operating room three times a week for three months with a CEO or marketing people and observe surgery. Now people don’t have the funds or time to do that. We have the resources to complete that research for them, and clients enjoy our unique experience of having observed such a variety of surgeries to expedite their research.”
Outside expertise also can complement in-house resources in additional manners. For example, engineers may focus on technical specifications, whereas product development specialists can help refine designs for manufacturability—a step some OEMs can overlook in the rush to get through the development phase of a project.
Problem solving is another key attribute of using an outsourcing partner. Walter Gilde, KMC Systems’ marketing manager, noted that his company is well versed in helping clients create “feature function charts,” which help define all the wants and needs in a product, as well as assign cost variables.
Since budgetary concerns are always an issue, product R&D firms have become adept at handling issues as they arise. For example, Bruce Richardson, VP of development for BC Tech in Santa Cruz, CA, said one recent project his company worked on had some unanticipated labor development costs that were higher than originally estimated. While the OEM company could have gotten nervous about the entire scope of the project at this point, given it had no options for expanding its budget, BC Tech helped keep the budget in check by reducing the number of prototypes that would be made for testing and clinical trials. “The original plan had some numbers that were higher than maybe they needed to be, so we looked at where we could cut back. We just sharpened our pencil and cut down the numbers for the client,” he said.
KMC similarly looks for creative ways to boost their customers’ bottom lines and help them be able to focus on core competency. One way it achieves this is by staying with a client long after the development phase has passed by offering manufacturing and field service support. “There’s nobody in this space that does development, manufacturing and field-service instrument repair,” Gilde claimed. “When we sat down and talked with OEMs, we realized they often weren’t making money in field service. Some feel it’s a necessary evil [to even perform these services], and they ask themselves, ‘Should we grow our field service functions or outsource it?’”
Just as many device manufacturers are turning to outside help to get projects off the ground, the product development firms similarly are ramping up their breadth of capabilities by utilizing outsourcing partnerships for their customers’ benefit. HS Design, for example, has been relying on an external network to gain more insight into prototyping and manufacturing issues, especially for the more complex technology coming down the pipeline. And Machine Solutions, which has been making major headway with the development of its stent spray coating technology, has been counting on the experience of a polymer scientist to aid the company’s knowledge of the chemistry involved with drugs, solvents, polymers and other assorted delivery systems.
Tips for Successful Partnering
It goes without saying that any outsourcing relationship requires trust, open communication and honesty for both parties to feel comfortable with the situation. An optimal setup also involves good chemistry—that is, finding a team outside your company that complements your own internal group. A sense of goodwill can be achieved by consistently keeping each party informed of developments—this can be accomplished through weekly meetings and daily (or even hourly) phone calls—as well as by avoiding finger pointing when a project hits any snags.
If you’re an OEM looking to outsource any part of the R&D phase for a new product, experts recommend that you find a partner that can prove it is experienced in working with the associated technology. As part of this appraisal, visit every candidate’s worksite and solicit examples of what the provider has done for other clients. Furthermore, product developers say it’s fair to inquire about how the group has tackled certain challenges, so you can gain insight into how the firm approaches sensitive issues.
Those new to outsourcing should keep in mind that most R&D specialists will offer a free cost estimate for a project and outline a proposed game plan. Product developers advise that you should fight the temptation to go with the least expensive option (unless the firm truly is the best fit in terms of experience and knowledge, of course). The good news, according to industry professionals such as Richardson of BC Tech, is that OEMs—faced with myriad regulatory and quality requirements—have been less focused on price these days and more interested in finding a partner that can offer minimal risk and top-notch efficiency.
While it’s helpful to approach your outsourcing partner with a well-defined product specification, it’s not necessary in the preliminary stages. As Richardson noted, “That’s our job. We’re here to help them get a product to market, and if the customer doesn't have an idea of what it wants to do, that’s our business.”
That said, Hiemstra said he often advises inventors with a “napkin sketch idea” to go out and perform a “Home Depot special” In which the inventor creates a simple model of the proposed device so the product R&D specialist can conceptually understand the invention. He explained, “I tell surgeons with a product idea to go to Toys R Us or Home Depot and try to replicate what they want to do. That’s a huge step. At least they can put their idea into three dimensions. It may be a crude and ugly design, but it helps them see if they really want to follow through with the idea and if the idea has merit.”
Everyone involved in the outsourcing arrangement needs to remember that, in the end, both parties are on the same team. Alden advised, “You need to agree on where the goals are and that it’s not going to be a perfect road. How you manage those bumps is how you ensure a successful program.”
Down the Road
Although outsourcing for extra help in product development is not a new trend, outsourcing firms believe the medical device industry has only just begun to truly realize the potential of these partnerships. “I believe that the trend to outsource R&D is in its infancy and will continue to grow at a rapid pace,” said Ken Fine, president of East Walpole, MA-based Proven Process. “The success of the process and the escalating need to stay ahead of the competition will provide increased incentive for OEMs to outsource. Those companies that have had success with the process seem already fairly comfortable with the outsource model. Others will find competitive pressures will lead them to try outsourcing as an attractive alternative to building a larger vertically integrated organization.
Today’s product development firms not only are confident about their prospects in this realm, they are enthusiastic to serve their present and future partners. Richardson concluded, “Most of the people who work [at BC Tech] just love the work. In a previous job [working as an engineer on the OEM side], I remember having a project cancelled and sitting around waiting for the next one. Always having a something stimulating to work on here is very exciting. I’m not a doctor, and my expertise is engineering, but I have a chance to use my creativity and skill to contribute to the good of people, and potentially save lives.”