Capitalizing on Trends: How Tubing Providers Stay on Top
Extrusion experts explain why tubing remains a healthy outsourcing market—even in troubled times—and describe the technology advances and services driving growth.
By Jennifer Whitney, Editor
Diane Fukuda is no stranger to the needs of medical device manufacturers. Having spent 25 years in various positions with Teleflex Medical (Jaffrey, NH location), followed by a period in which she was serving as a consultant to several businesses, her knowledge proved a strong attribute when Tim Steele, owner of Microspec Corp. in Peterborough, NH, hired her as president in 2006. In this capacity, she spends her time learning about the extrusion needs of the medical device industry and laying the foundation for Microspec’s growth.
It was during a recent conversation with Sharon Bailley, a local technical writer, that Fukuda found herself describing all the diverse functions tubing serves in the medical device industry. Extrusions essentially are delivery systems, she had said—tubing can be used to insert something into the body, such as a drug, device, instrument, lighting assembly or even a camera to widen the surgeon’s field view, or it can be used to withdraw or extract something. Upon hearing this description of all the ways tubing is used in medical applications, Bailley remarked to Fukuda, “It’s not a tube; it’s a hospital.”
Metaphorically speaking, that would be correct. With tubing such a widely used component in medical device assemblies today, and with miniaturization growing by leaps and bounds every year in the medical device industry, providers of medical extrusions have been among the top beneficiaries of this trend. In a recent Medical Product Outsourcing survey of OEMs’ business practices, more than 66% of respondents said they continue to utilize outsourcing for components such as tubing. Thus, it is none too surprising that all of the tubing providers who spoke with MPO said their businesses have continued to sustain double-digit growth in the past year, even as they battle increases in their costs for raw materials, energy resources and even items such as health insurance premiums for their employees.
Photo courtesy of Microspec Corp.
This growth comes from an ability to accommodate the needs of an industry looking to innovate in ways that once seemed like little more than science fiction. But advances in miniaturization and complex geometries also mean that extruders are being asked to push the limits of their technology on a daily basis. “We continue to see similar requests from design engineers, which is the need for tubing with smaller diameters, thinner walls and tighter tolerances,” Lathiya said.
When a Challenge Is an Opportunity
Tricky situations are commonplace for many of the extrusion providers serving OEM needs in the device sector. But that’s where many of them say they find their work most rewarding.
To be sure, there certainly is a market for high-volume tubing in the medical field, as there will never be a shortage in the need for IV sets and simple catheters. But creativity can be stifled when an extrusion provider must focus more on yields and process efficiency and less on pushing the envelope with novel materials and advanced product design. Thus, it is the lower-volume markets where tubing providers are seeing the largest upswing in business, and that suits many of them perfectly.
“Overall, there is growth in the market, but there are distinct characteristics to the growth in each segment. The high-volume markets operate to a defined commercial return based on consistent demand. Lower-volume markets, typically for emergent or new products, can exhibit a more volatile demand profile but a better return. Our challenge is to look at all these areas and find the gems within the newer and emerging market areas that will lead to high growth in the future,” explained Mike Howe, Innovation manager for Creganna, a Galway, Ireland-based contract manufacturer with manufacturing facilities in Marlborough, MA.
Some of those areas include neurology (neurovascular and neuromodulation), orthopedics (orthobiologics delivery systems, for example), gynecology (eg, transvaginal devices, minimally invasive contraception and fibroid ablation procedures) and ophthalmology (tubing components for sophisticated corrective procedures).
“There is a plethora of new therapy areas with demand for innovative tubing solutions. As a whole, this market tends to grow rapidly but not necessarily for individual applications—despite regulatory approval, some new therapies do not gain market acceptance. They are always lower volume, but if margins are good enough, that can be a good place to be. That’s why everyone is looking at those areas and seeing where the advantages are,” Howe concluded.
The problem is, while OEMs similarly are looking to the “next big thing” in terms of new innovative technology, they still find themselves constrained in terms of time and money in bringing new ideas to fruition. Thus, tubing providers are focusing more of their resources on fortifying their design services to help customers achieve their objectives.
“We often hear that a lot of customers have good product ideas but don’t have the resources to work on them to bring them to market,” Howe said. Therefore, Creganna and others are using their expertise to focus on developing new materials, technologies and processes to ensure that future innovation isn’t stifled by lack of advancement in their community. Some are doing so in the form of in-house testing laboratories and/or research and development centers, while others are developing their design services to complement their customers’ efforts.
“We are seeing increasing interest in customization of materials for the purpose of achieving more specialized performance characteristics,” Fukuda said.
New materials technologies for implant-able products are one item ranking high OEMs’ wish lists, extrusion providers are finding. In addition, Lathiya said polyurethane silicone polymers are generating interest. Bioresorbable polymers, surface-modified polymers and antimicrobial materials also are proliferating in designs, as are braid-reinforced catheters and balloon tubing.
To sustain innovation (and strengthen partnerships), tubing providers are looking ahead by soliciting input from OEMs’ design engineers not just about today’s needs, but tomorrow’s desires. Fukuda has found that exploratory conversations with customers can reveal opportunities for future technologies within her sector. “I like to think in terms of, if there were no barriers to what they could get in their designs, what would that design look like? We tend to think in the framework of what we know has been done and is possible, but—this is what I’m beginning to ask—if you could imagine anything is possible, what would it be? Because that’s what should drive development,” she said.
At a trade show, this exercise led one customer to describe an extrusion that contained several different materials along a single extruded length of tubing. What that individual was describing is advanced tubing that several providers currently are working on perfecting. Called “intermittent tubing,” this complex, advanced extrusion eliminates the need for bonding tubing segments, enabling varying durometers along a single extruded tube.
The concept of joining processes, materials and technologies isn’t lost on Molded Rubber and Plastic Corp. (MRPC). As a provider of molded medical components and silicone extrusions, the Butler, WI-based company has the advantage of being able to perform subassemblies for customers, among other value-added services. “Quite frankly, one of the areas we’re successful in is not just providing extrusion or tubing, but also providing a molded part to go along with that product, [as well as] overmolding parts right onto the tubing. That’s really the niche of our business,” said Greg Riemer, MRPC’s vice president of sales and marketing. Along with these offerings, he said MRPC is moving into applications involving multiple materials and micro-sized components.
Amid Innovation, a Raw Deal?
Material advancements certainly are playing into the success of both tubing providers and their customers, but tempering these achievements are the escalating prices for some raw materials. According to Lathiya, double-digit increases for both resins and compounding, among other materials, have been a norm this year.
“A lot of that was driven by the spike in crude oil,” he said. “Even though crude oil prices have retracted a bit, we don’t see that translating to lower resin prices, so from my perspective many of the resin price increases we have seen are essentially permanent.”
That’s tough for anyone to swallow, particularly for OEM customers who are looking for cost savings. Howe said Creganna has been fielding numerous requests from customers to devise cost-effective solutions to keep pricing pressures under control, particularly for mature, standard product lines.
“In the current economic environment, outsourcing partners to device manufacturers face myriad challenges,” he said, referring to escalating pricing for raw materials. “These challenges are from both ends of the supply chain—raw materials, be it polymer or metal tubing, are increasing in price while the customer is also seeking cost reductions to enable them to compete in a price-focused market.”
While extruders don’t necessarily have much control over the prices they pay for materials, they often try to provide savings through other means, such as improved tooling and product designs or with operational streamlining through Lean manufacturing. And luckily for them, customers are dealing with the same issues within their own manufacturing operations and, thus, tend to understand that their suppliers’ hands are tied.
Raw material supply also raises other issues that can be troublesome. Fukuda said the variations extrusion experts keep encountering in raw material supplies is a challenge for Microspec and other service providers—not to mention their OEM customers.
“It is common for us to see that lot-to-lot raw material variation is the leading cause of process variation for us, leaving us to do our best to adapt. A challenge of the medical device industry with respect to raw materials control is the relatively small pound volume consumed for our applications. In comparison with industrial applications that are less sensitive to lot-to-lot variation, and consume high pound volume, it is difficult to force the improvements that are needed for our industry,” Fukuda explained. “We operate in an environment in which customers continue to tighten tolerances for their extruded components, and their product designs are becoming increasingly complex. In order to meet their needs, we work diligently to identify and reduce sources of variation.”
To that end, Microspec manages its incoming material by holding suppliers responsible for the quality of materials they produce, but equally important, the company verifies the suppliers through material certifications and test reports, as well as backs up quality verification by using its in-house test equipment to perform verification tests.
MRPC similarly has an in-house materials laboratory that allows the company to test incoming materials, even though all of them already are certified to quality standards by the vendors who provide them. “It’s somewhat of a belt-and-suspenders system. We have the certification, but at the same time we test them,” Riemer said.
This type of dedication has led to partnerships in which OEMs and suppliers have blurred boundaries, as the links in supply chains work more closely to achieve shared objectives, Fukuda said. “Today’s business environment requires cooperation across multiple functions. Buyers/planners and customer service managers work jointly to manage smooth supply of materials and components, quality professionals plan inspection processes together and our engineers work with our customers’ engineers on next generations of products. These partnerships extend throughout our organizations,” she explained.
A Dedicated, Skilled Supplier Base
Partnership is important in a fluctuating market that has seen its share of consolidation in the form of acquisitions and mergers, both at the OEM level and among suppliers. For service providers, this can be both a blessing and a challenge in terms of their OEM customer relationships. Many suppliers partner with emerging companies with the hope that new business opportunities will materialize if the startup venture is acquired by a large firm. On the other hand, it can be more difficult to develop a strong relationship with a large OEM that has fragmented business units.
On the supplier side, mergers and acquisitions have not been as prolific among extrusion providers, though there has been some activity. Notably, ExtruMed recently announced its acquisition of Innovative Extrusions LLC, a Livermore, CA-based specialist in catheter balloon, shaft and multi-lumen tubing.
“There haven’t been as many acquisitions in the tubing space as maybe we’ve seen in the contract manufacturing space. I think we’ll see more, though,” said Lathiya. “However, I do expect that to change in the future.
“We haven’t seen as much activity in the tubing space because a lot of these companies are owner operated. There’s a little fear when you get acquired about what happens to the company, so owners are still a bit apprehensive,” he continued. “For the most part, tubing owners are older and have been in the industry a long time. At some point, these owners will have to start thinking about the succession of their business.”
ExtruMed, for example, has been growing rapidly both organically and through acquisitions. Since the first acquisition of ExtruMed in 2005 by private equity investors, ExtruMed acquired its largest competitor, Extrusioneering Inc., in 2006 and completed its acquisition of Innovative Extrusions two months ago. With its latest acquisition and continued investments in people, process and systems, ExtruMed continues to expand its market leadership position in the precision thermoplastic tubing market.
However, not every provider is looking to be acquired. Many extrusion operations prefer to remain niche providers that can tackle the customization needs other commercially focused providers will not (or cannot).
“I think many of the technology thought leaders have been entrepreneurs who have built their companies on an idea. With consolidation, there’s risk of loss of focus. The other thing is, if you’ve got independent cultures in each entity, cultural integration must be managed. Either you consolidate and eliminate redundancy in positions to reduce operating costs, or you try to allow all those individual entities to operate with autonomy, and it’s not easy,” Fukuda said.
And Microspec is proof that a company can grow business while remaining a smaller, niche provider. Founder Tim Steele had a long history in the extrusion industry before he launched his company 20 years ago with the simple idea of changing the medical device industry by delivering new technologies in medical extrusion. However, he prefers to focus on R&D innovation, which led to his hiring of Fukuda two years ago to manage business operations and ensure the company will continue to grow organically. This way, Steele can do what he knows and loves best: devise new solutions to future problems. As Fukuda said: “When Tim comes through the door of my office, he often has a tube in his hand and is thrilled with what he has created. He’s got a very intuitive sense of what can be made possible in a tubing sense…and we take on challenges others won’t.”
Similarly, MRPC enjoys its autonomy as a smaller, private entity and feels it offers certain benefits to OEM customers. “From our standpoint, we’re not one of the larger players in the market, and some companies have sought us out because we’ve been a standalone business since 1921, and we plan to remain that way. As a result, the confidential information that we have from our customers will be maintained within our facility and won’t be affected by an acquisition. We’re a strong, private company and our customers like that,” said Riemer.
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With an astute understanding of the medical device market and what customers are looking for, tubing providers believe the road ahead will continue to be filled with opportunities even as challenges mount.
“It is my opinion that our segment will continue to see healthy growth,” Fukuda concluded. “The demographics are right for it, and the shift from surgical solutions to minimally invasive procedures and the technology advances in extrusion all support our expectation that this industry will remain strong and vibrant.”