Despite Market Pressures, Extruders Turn to New Technology and Methods to Meet Evolving OEM Demands
Jennifer Whitney, Editor
(Reporting by Ed Kensik, Associate Editor)
There’s no denying that the medical device industry has made its share of recent headlines. Coverage of breakthrough technologies, questions about the safety of blockbuster devices (eg, drug-coated stents and implantable cardioverter defibrillators) and a series of high-profile corporate mergers have made it out of the trade press and into mainstream media.
The industry’s big-name players may be getting all the publicity—for better or worse—but extrusion service providers aren’t immune to the device sector’s corporate machinations. They have found that consolidation activities are spilling into their niche as well.
One of the biggest changes that many of extrusion specialists will see in the next several years will be a consolidation of companies in the custom extrusion markets, as the market currently has many smaller, regional extruders that are prime for takeover by larger outfits. The outlook isn’t necessarily one of doom and gloom, though—this type of competitive landscape just means any service provider in this industry needs to step up its offerings to remain competitive.
An extrusion technician makes final adjustments to an extrusion line. Extruding companies have a bright future ahead for them, but will need to offer more than just extrusion to fight off competition. Photo courtesy of Oscor and James Johannessen.
According to Apur Lathiya, chief operating officer of Placentia, CA-based ExtruMed, many custom extruders are small owner-operated companies that have great technology but little business infrastructure and limited access to capital for facility and process investment. As a result, he predicted, the future will bring more mergers in the field.
Companies that spend their dollars on research and development are the ones that likely will remain competitive in the extrusion segment, said Bob Donohue, sales manager/technical consultant for Clayton, NC-based Natvar. “We really strive to meet the demands of tomorrow,” he noted, adding that Natvar recently has extensively increased its spending on research and development.
“I expect that we will continue to be challenged to develop complex extrusion solutions for the medical device industry—solutions that allow for miniaturization, simplification of assembly and increased functionality within a single device,” said Diane Fukuda, president of Peterborough, NH-based Microspec.
Indeed, customers want smaller and smaller products with thinner walls, excellent performance and they want them to cost less, according to contract manufacturers providing extrusion services.
In addition, OEMs increasingly are seeking the services of extruders that can offer more than just technical expertise—they want demonstrated value.
“Due to problems that have been traced back to the extrusion process, many customers are becoming much more concerned about who their extruded tubing suppliers are and how they run their business,” explained Mark Saab, president of Advanced Polymers, Inc. “We also believe that customers will be looking beyond tubing dimensions and focusing on other characteristics that will affect tubing performance.”
All of those elements offer rewards and challenges facing extruders, who have been experiencing double-digit revenue increases as OEMs continue to outsource their extruding projects.
It’s a Small World After All
Regardless of any consolidation, extrusion providers have been busier than ever, as their revenues show. One reason for the boom in business is that their OEM customers no longer can be bothered with investing in the equipment and expertise needed to make the newer generations of minimally invasive surgical (MIS) products and other complex equipment.
“Minimally invasive surgery has created demands for smaller tubing, thinner walls, tighter tolerances, increased material performance and the need for unique solutions to specific challenges,” explained Geary Havran, president of St. Petersburg, FL-based NDH Medical.
One portion of the extrusion process is the use of the cleanroom. Shown is a Class 100,000 cleanroom. Photo courtesy of Filtrona Extrusion.
“The trend towards smaller and smaller devices, with more and more functionality, continues to drive innovation in minimally invasive devices requiring precision tubing solutions,” said Lathiya. For example, he said, neuro-interventional and neuro-stimulation catheters and leads—along with peripheral vascular catheters and advances in catheter delivery systems for existing products—will drive growth in the market.
Jim Ward, president of Birmingham, AL-based FBK Medical Tubing, said that the designs coming from the MIS market are creating a need for extruders who have the expertise needed to handle these intricate projects. Ideally, outsourcing partners also will have top-notch, sophisticated equipment and a reliable source for raw material to produce consistent quality.
A Slick Patch on the Path to Prosperity?
If MIS devices aren’t creating enough migraines among extrusion providers, cost-containment, time crunches and other issues will keep these professionals reaching for the nearest bottle of aspirin.
Any time money changes hands, a host of issues can present themselves. For example, extruders are used to dealing with their customers’ requests for price reductions as OEMs face pressures for cost containment as the healthcare industry takes increasing heat for surging medical costs. Economic pressures dominate the medical device landscape as competition thrives and as government and insurance regulations limit reimbursement for procedures and products.
“Today, we are under pressure from many customers to reduce costs,” said Brad Rabitor, vice president of business development for the Dayville, CT-based Putnam Plastics. “Price reductions are a consistent theme, which can be a challenging undertaking on mature products, while we are experiencing rising costs for raw materials, labor and overhead. Pricing increases are not well received.”
Bob St. John, manager, corporate medical products for Lisbon, NH-based New England Catheter, agreed that cost reduction is “rapidly” becoming the number one issue among catheter customers. “[You’re] looking at moving toward longer term contracts with built-in cost reductions regardless of fluctuations in raw material costs,” he said.
Even though oil prices have stabilized (and even decreased at times) over the past year, most extruders MPO spoke with said they have not realized any cost savings in the form of reduced prices on raw materials. In fact, Lathiya countered, “We have seen increases in raw material costs over the past couple of years, which has impacted our margins. We have not seen any of our vendors reverse price increases as a result of the stabilization of oil prices, nor do we expect to see this in the future.”
Some extrusion specialists, however, acknowledged that prices have at least leveled off somewhat—although they were quick to point out that prices are leveling from the original increases, so there’s no real savings.
“We have seen a leveling off of price increases from our material manufacturers, but we have sustained multiple price increases over the last two years and there is no indication that we will see any reductions in the near future,” said Thomas of Filtrona Extrusion.
Certain news-making events also have extrusion companies worried about the stability of the oil market in the future, as any—and every—price increase affects both a service provider and its customer. Donohue of Navtar pointed out that while the price of oil has stabilized, “If there is another [Hurricane] Katrina or another pipeline blowing up, we will have another problem.”
Doomsday predictions aside, extrusion firms have more pressing problems to deal with—now. As with most doing business in the medical device industry, there has been more pressure than ever (or so it feels) on OEMs to get their product into the market as soon as possible.
“As soon as someone has an idea, they want to take it to market before someone else comes up with the same idea,” explained Mike Badera, president of Precision Extrusion, Inc. in Glens Falls, NY.
Unfortunately for extruders, Lathiya said, this sense of urgency has resulted in a sharp reduction of lead times for the extrusion portion of the device development process—projects that used to be allotted a month to be completed now often must be done in half that time.
Adding to the time crunch is the nature of the latest technology being used to create devices. Krissi Heard, who works in technical sales at Tampa, FL-based MicroLumen, said “value-added lines” such as her company’s braid-reinforced tubing can present issues “due to the time necessary to braid small-diameter tubes with delicate, small-diameter wires.”
Putting Their Money Where Their Mouth Is
While firms offering extrusion services freely discuss the pressures and problems they face in their everyday business, they also are quick to point out that they can adeptly deal with these issues through a variety of means.
For example, one solution for keeping costs down is co-extrusion, a process in which two or more materials are being processed in separate extruders and then are brought together to form separate layers in the finished tube or stripes.
“We see demand for co-extrusion increasing as OEMs continue to push for higher performance at reasonable costs, where the integration of two materials enhances one, or both, of those attributes,” said Lathiya, who added that ExtruMed currently is capable of performing two-layer, tri-layer and striping.
Havran of NDH Medical agreed that co-extrusion is an important part of the tubing production. “It enables a product to be designed to meet the specific requirements that could not be met with a single material product,” he said. “This may involve mechanical issues such as burst pressure, kink resistance, etc. or may be for ease of manufacturing of the finished product.”
As outsourcing grows in the device industry and OEMs look to streamline their supplier relationships, many extrusion providers are looking at other ways to remain competitive. One of the top-cited goals is to become a company that provides “dock-to-stock” services (that is, more of a one-stop shop).
“We tend to add services every year, based on the current needs of our customers,” said Ward of FBK.
Rabitor of Putnam Plastics explained that customers’ drive to decrease the number on OEM suppliers has put pressure on Putnam to offer a greater range of value added secondary operations. He explained, “Our goal is to assist our customers to get as close to the finished product as possible.”
The approach an outsourcing specialist chooses to meet its customers’ needs can vary. Precision Extrusion, for example, has added more post-extrusion services such as tipping (the process of reshaping the end of a tube) and sub-assembly. ExtruMed similarly has been offering post-extrusion services such as annealing, irradiation, tipping and flaring. In addition, the company has been helping to coordinate supply chains for its OEM customers.
Along with ramping up service offerings, many extruders have been evaluating their machinery and other equipment to ensure the technology can keep up with advances in medical technology.
Oscor is one company that has invested in new equipment to better serve customers. Multiple braiders, coil winders and re-flow equipment recently was acquired to vertically integrate the company’s catheter shaft manufacturing, according to Tom Osypka, president and CEO of the Palm Harbor, FL-based company. Oscor also bought a completely integrated line of equipment to provide extrusion for medical-grade silicone tubing.
Saab of Advanced Polymers said his company also has updated its capital equipment in the last two years and recently added a brand new, complete extrusion line. “We see a continuing need to update equipment as equipment technology improves and control systems improve, as well as to meet market demands and capacity requirements,” he explained.
Filtrona Extrusion also plans to enact a similar strategic approach, Thompson said. Future acquisitions include additional extruding machines as well as upgraded clean rooms.
Since outsourcing most likely will only increase over time, extrusion specialists believe that any player in their field will need to offer a mixture of sophisticated processes, quality engineering and compliance systems. Trumping all of those attributes, though, is reliability.
“The number one reason always has to be that we have their trust in providing quality parts on time,” said Ward of FBK. “If an outsourcing company is not dependable, the OEM customer will be lost.”