Partners in the Testing Process
Novel Medical Products and Market Pressures Raise the Bar for Contract Service Providers
Cindy H. Dubin, Contributing Writer
Photo courtesy of AppTec.
According to a 2007 report, A Strategic Review of Outsourced Manufacturing for Medical Devices, by Covington Associates, a Boston, MA-based investment firm specializing in the device industry, as much as 40% of all manufacturing could be outsourced by 2010, which would represent 15% annual growth from current levels. After all, it is no secret that OEMs are handling cost and market pressures by looking to reduce direct expenses, streamline supply chains, offset operating expenses and focus on core competencies.
“Our business is growing because the medical device industry is growing,” said Terry Langenderfer, director of marketing for NAMSA, a global contract research organization (CRO) headquartered in Northwood, OH. NAMSA offers a full range of non-clinical testing—including chemical characterization of materials, efficacy studies and biocompatibility (safety) testing—that helps clients meet requirements for regulatory submissions. On the clinical side, NAMSA manages clinical trials through its European laboratory Biomatech. In addition, the company performs sterility assurance testing post production.
“The larger manufacturers have more internal capabilities and are more specialized about what they outsource,” Langenderfer explained. “The smaller firms have limited ability to internalize testing. It is the market conditions that change the OEM’s need for outsourcing, and the decision to go that route can change with an organization’s management team.”
For other providers of testing services, business is being driven by an OEM’s need to improve existing products. In the case of IncisionTech, a Staunton, VA-based firm that conducts performance testing for cutting, piercing and delivery systems used in surgical devices, business is booming because OEM customers are looking to improve the performance of their surgical devices, said Chip Harvill, vice president, Sales, Marketing and Business Development for the company.
“Our IncisionLab is acknowledged for testing the critical cutting and piercing functionality related to surgical devices. New OEM product development teams come to IncisionTech for expert assistance in defining the current performance characteristics of a device and then work directly with our engineers on designing new products that have measurable competitive advantage. Our testing approach is one where smarter design elements enable better device performance,” Harvill added.
Novel Combination Products Offer Testers Major Opportunity
One of the most notable business drivers for testing laboratories today is the onslaught of combination products. Almost every multi-billion dollar medical device and/or pharmaceutical company has its eyes set on developing combination products in their future, according to organizers of the upcoming PharmaMedDevice Conference and Exhibition (for more information, see “Combination and Collaboration” on page 92). Some of the reasons combination products are set for exponential growth include:
• A need to combine approved drugs with device to extend the life of pharmaceuticals, many of which are set to go off patent by 2010
• An aging population’s desire for superior or novel products
• The ability of combination products to breathe new life into failed pharmaceutical products that exhibited systemic toxicity as a pharmaceutical drug but demonstrate good efficacy when delivered locally through a combination product
• The growth and stability of the medical device market
Given the new combinations of devices, drugs and/or biologics these products will employ, there will be a greater need for sound testing to ensure these novel products truly are ready for the marketplace. And combination products are viewed by testing providers as having huge potential for growing their businesses.
Consider AppTec, a testing provider with offices in St. Paul, MN for pre-clinical and R&D testing and a laboratory in Atlanta, GA dedicated to microbiology testing. “AppTec has tested some really novel combination drug delivery approaches,” said Dean Enrooth, executive vice president, Business Development, Medical Devices. One product he described is a polymer implant with an embedded drug that is released to the body over time. Another example is an antimicrobial-coated device designed to help minimize post-surgical infections, since post-surgery infection occurrence rates can be 5%-10%.
Shown above is a surface finish analysis of a cutting edge. Photo courtesy of IncisionTech.
In an effort to strengthen its position in the combination device market, AppTec recently became a part of Wuxi PharmaTek, a pre-clinical CRO in China. The combined company will offer expertise in global testing for biologics, pharmaceuticals—small- and large-molecule drugs—and medical devices.
Ethox International, a multinational medical device manufacturing and testing company based in Buffalo, NY, has dedicated one entire division to medical device and pharmaceutical testing, performing microbiological, toxicological and chemical testing to ensure acceptable medical devices and pharmaceutical actives, according to John Riggi, vice president, Quality Assurance and Regulatory Affairs for Ethox.
As the number and diversity of combination products in development grows, there is a need for greater understanding of the regulatory approval and reimbursement processes to ensure these novel technologies will gain entry to the marketplace. The path to global commercialization is further complicated by a lack of defined regulations for these products in Europe and Asia.
“It is exciting to see this new technology, but the challenge for a testing company is to ensure that the product complies with both medical devices and pharmaceutical standards,” explained Brandon Tillman, a microbiologist for Nelson Laboratories in Salt Lake City, UT. “This means increased testing and lots of R&D to make sure we are meeting FDA guidelines.”
Testing service providers have comprehensive knowledge of standards for medical device testing, which helps ensure that their customers remain compliant as they move forward with their product development. Photo courtesy of Nelson Labs.
“The pharmaceutical standards are more stringent than those for medical devices, and at Nelson we have always maintained our standards to those of the pharmaceutical industry, so it is not hard for us to keep to the standards of these combination products,” Tillman said.
Other companies are following suit, knowing that knowledge is power in this business.
“Device companies are always trying to come up with better mousetraps, and those of us in the testing business have a need to have the expertise to keep pace,” Enrooth of AppTec concluded.
Time to Market Issues Remain a Test for Providers
In terms of keeping “pace,” technological parity among competing products implies that time to market is critical for the majority of device product lines, according to Covington Associates’ report, which states: “OEMs are stepping up new product development, seeking ways to get their products to market more quickly so as to gain share head of entry by equally effective devices.”
Consider the case of Medtronic. In 2006, roughly two-thirds of the medical device giant’s revenue came from products introduced within the previous 24 months. At that rate, according to the Covington report, Medtronic stands to replace its entire source of revenue every three years. Indeed, shortening product lifecycles are a reality today, and this knowledge can create significant pressure on testing companies.
“The key driver for the OEM device customers that come to IncisionTech is the need to tap into cutting and piercing expertise that can quickly be used in new product development,” explained IncisionTech’s Harvill. “New product development teams need prototype parts fast, and they need a high level of confidence in their development partner to execute a production ramp-up within the time and cost constraints of the market needs. Time to market is mission-critical and often is the difference between winning and losing the anticipated market share for our OEMs. Outsourcing simply enables the OEMs to get prototypes, clinical trials and ultimate FDA approval done faster than if they were to handle those developmental efforts internally.”
When an OEM approaches a testing company for help, it is typically the last step before going to market. Providers of testing services are used to this pressure-cooker situation, though, and know how to respond to pressing needs.
“We are definitely under pressure to test to compliance in a time-efficient manner to get to market,” Tillman of Nelson Laboratories said. “But it is a good pressure. When an OEM wants faster testing, it makes us a better company.”
Langenderfer, who pointed out that NAMSA offers a breadth of services that enable the company to address the issue of time and be more efficient in the product development process, has approached the time-is-money equation by looking at how to streamline certain tasks. “For example, we are sometimes able to design an efficacy study in such a way that safety data can also be obtained to address biocompatibility requirements,” he said.
Moving more quickly, however, also requires that the customer base have clear control over the management of design processes. “Robust design processes allow for effective planning of device testing through each stage of product design,” Ethox’s Riggi said.
Provider Selection: Full-Service vs. Niche Test Companies
With an increasingly strategic view toward outsourcing, OEMs now are more likely to establish long-term contracts with their service providers, according to Covington’s report. Indeed, rigid quality standards in a highly regulated environment call for a significant degree of trust, leading to the benefit of working with a limited group of suppliers.
“Because of the regulations in this industry, using multiple providers means having to qualify all of them,” said Tillman. “OEMs don’t typically want to use a lot of vendors that need to be qualified and maintained; they do want the ones they use to be in good standing with FDA. OEMs want to be familiar with one place to have confidence when that report goes to the FDA.”
A similar view is taken at AppTec, which offers diverse services, such as pre-clinical testing, safety and lot release testing. “We think one full-service partner is the ideal way to go,” Enrooth said. “It can be tough to be an expert in different areas, but we are big enough to pull it off. We believe device companies want to key in on what they do best and outsource the rest.”
The strategy at Ethox has been to package its testing programs as a one-stop-shop for customers. A significant portion of Ethox’s testing business includes product sterility testing, packaging development testing as well as accelerated aging and product expiry testing. Riggi acknowledged that since OEMs are under pressure to reduce costs, full-service offerings can give a service provider a distinct advantage in the marketplace.
But not everyone is hot on the idea of a one-stop shop, a term that Langenderfer believes is overused and not well defined. He argued that OEMs are comfortable working with more than one provider.
“No single supplier does everything, and many that claim to be one-stop shops subcontract work as well,” he explained. “I think OEMs are generally more concerned about quality and reliability than claims of single-sourcing R&D, design, engineering, tooling testing, production and packaging with a single company.”
Smaller, niche-testing companies can find—and are finding—a place for themselves in medical product testing simply by offering capabilities and technology that others do not. Take, for example, the experience of IncisionTech, whose OEM customers often use multiple partners for new projects.
“While there some new products that get fully developed and commercialized by the full-service contract manufacturers, most OEMs remain committed to leveraging the core strengths of the niche players,” said Harvill. “This trend carries over into testing services also as companies with testing expertise, such as IncisionTech, remain fully engaged throughout the development and commercialization processes.
“There are also many stamping companies that install a blade or needle grinder and represent themselves as the ‘one-stop shop’ for anything a medical device OEM may need,” he continued. “Our experience demonstrates that when OEMs leverage the competitive advantage that true niche players have in their core businesses, they end up with better business results vs. in-sourcing or sourcing with a partner that lacks the required high levels of expertise in that area.”
According to Harvill, only the most sophisticated OEMs are performing any level of the functional testing for cutting and piercing that IncisionTech provides. Most of its customers have little or no expertise or in-house means of this type of testing—so they allow IncisionTech to provide that service to them during the new product design and development process.
Companies that have strong niche positions in the outsourcing world for medical device OEMs are a key part of successful new product development activities—this much is apparent. And it is a focus on the core capabilities for the niche companies that separates one development partner from another.
Debunking Outsourcing Myths
Whether a full-service or niche service provider, the success (and mere existence) of these companies ultimately depends on the health of the medical device industry. The good news, according to Covington’s report, is that the industry is expected to continue its solid growth during the next five years.
Thus, it is imperative that providers convey a positive message to OEMs—primarily that outsourcing testing is not giving up control or risking the revelation of trade secrets.
“Intellectual property is key to development work and finished product,” Enrooth said. “Testing companies go to extremes to secure the intellectual property of their clients; OEMs want their jewels kept secret. Our techs don’t even know what company they are testing for. Outsourcing is a long-term partnership, not a purchase of a service. We want to be an extension of a company’s manufacturing program and can only do that by remaining discreet.”
For some OEMs, a decision not to outsource testing may be related to a fear that working with outside providers actually may increase costs—another myth that testing companies are fighting to dispel.
“It is not cheaper to perform testing internally versus outsourcing it,” noted Tillman. “Start-up OEMs outsource because they don’t have the capital to build a lab, hire scientists and develop tests. As they grow larger, some think they will save money by bringing testing back in-house, or they have had a bad experience with an outsource provider that missed deadlines, and make the decision to take back the control. They think it will be easy to do themselves and forget what it will actually cost them to do it themselves.”
While service and pricing are driving outsourcing decisions, Riggi advised that OEMs need to consider the expertise that testing companies have access to “in this very specialized niche of the medical business.”
To those OEMs that are hesitant to outsource for fear of losing control, or think it will be too much of a financial and time investment, testing experts encourage medical product companies to reconsider and test the waters by easing into the process with something that won’t necessarily have a direct impact on the bottom line.
Remember: You don’t have to jump in with both feet.