Creating Strong Sterilization Partnerships

Suppliers Explain How Their Business Model Has Changed
as the Device Industry Evolves

Jennifer Whitney
Editor

Shown above is an ethylene oxide chamber at Sterigenics’ Charlotte facility. Photo courtesy of Sterigenics.

In early April, the FDA and US marshals dramatically seized products at Union, NJ-based Shelhigh, a manufacturer of implantable cardiothoracic surgical products. Prior to the seizure, which resulted in national headlines, the company received FDA warning letters citing concern with its sterilization (among other issues). For the device industry, there’s a clear takeaway message from the Shelhigh debacle: Never forget the importance of ensuring product sterility.

The FDA seems to be on a roll, given additional warnings related to sterilization procedures that were sent in April. Clark Research and Development, Inc., a Folsom, LA-based manufacturer of Biocompatible Hyperfusion Cartridges, was another company recently cited for problems within its sterilization procedures. In April, the FDA sent a warning letter stating that the company’s validation studies for sterilization were inadequate. Specifically, the agency cited numerous problems with Clark’s documented summary of an autoclaving process used for its devices.

Indeed, the FDA is watching. And device manufacturers are taking note, according to observations from providers of sterilization services.

“Increasing regulatory scrutiny is forcing OEMs to become more familiar with sterilization in general,” said Brenda Sparks, contract sales manager for Centurion Sterilization Services in Howell, MI. “They don’t need to know about all methods but will need to provide objective evidence that the method chosen will work for the product.”

Many phases of the medical device lifecycle are complex and expensive. Sterilization, however, is one phase that can confound a manufacturer that isn’t aware of how the process works. And even many of those OEMs that have staff with technical expertise pertaining to sterilization still prefer to contract with an outside partner.

“Twenty to 30 years ago, when manufacturers were bringing devices to market, there were a limited number of sterilization providers. Today there is a more extensive network of sterilization providers throughout north America, allowing manufacturers to outsource while still achieving supply chain and logistic synergies and advantages,” said Kevin Cmiel, marketing manager for STERIS Isomedix Services in Mentor, OH. “This shift towards outsourcing has increased the reliance on contract providers and has allowed OEMs to focus on their core competencies.”

It’s this shift in business strategy that gives sterilization providers a more important role in the market than ever before—and they are capitalizing on it while striving to provide added value to customers. Because in the end, they know that relationships are everything in this business.

Who’s Outsourcing—And Why

Thousands of medical device manufacturers today outsource this crucial step within the medical device lifecycle. The reasons vary, but some can be categorized according to a company’s size and capabilities.

The influx of investment in startup ventures undeniably has created one large source of opportunity for outsourcing providers, who have found themselves inundated with clients in desperate need of guidance and some hand-holding throughout the product development and production stages. With a task as vital as sterilization, experts on the process are making full use of their knowledge.

“Startups pose a challenge since they are in such an early stage of product development,” said Tom Stephan, vice president, business development for BeamOne LLC in Denver, CO. “The technical resources required to assist startups far exceeds the testing revenue generated, so it’s an investment we choose, hoping their innovative products will make it through the regulatory process and ultimately be successful in the market. We assist by providing technical literature, seminars relating to product and process validation, and a lot of hand-holding.”

Given the large number of small businesses in the medical device industry, and the plethora of new products originating from university research centers, there’s no shortage of need for this kind of assistance.

NAMSA Advisory Services in Atlanta, GA doesn’t provide sterilization, but it acts as a resource for companies looking for help in selecting optimal sterilization processes and validating them. In addition, the company offers biological expertise to customers, given its parent company’s (NAMSA) strong experience with medical device testing and laboratory services.

“We try to look at big picture, make [customers] understand what needs to be done, sit down and plan how to get there,” said David Parente, manager of NAMSA Advisory Services. “We look at risks and how to mitigate them, and we have a solid plan they feel they can believe in. I think we offer the ability to clear the way with all the things they don’t understand.”

Larger, well-established OEMs—even when armed with ample resources internally—ask for a little help now and then, too. “The major OEMs have always possessed the knowledge and expertise relative to sterilization science,” said Cmiel. “The shift has been that while they still have the proficiency, they’re now more open to consider outsourcing of the sterilization process.”

Parente reported that his service receives many calls from larger companies that need help with a failure investigation or after being cited by the FDA for a sterility issue. In addition, many firms turn to an advisory service such as NAMSA’s because they have an extension of a product line that needs a process that can be readily integrated with that used for the rest of the product line.

Comparing the differences among the variety of customers served by sterilization providers, Trabue Bryans, executive vice president and general manager of AppTec’s Marietta, GA facility, summarized, “Smaller companies require much more upfront help such as research, education and compliance advice, but on the other hand, they do not have a lot of demands for customization or specialized services. The large companies, although they may not need a lot of consulting or assistance, tend to require specialized reporting, invoicing, turnaround times, etc. So the different size companies all have needs—the needs simply fall in different areas.”

For companies of all sizes, a popular request is for help with selection of packaging and materials, since both affect the selection of a sterilization process. “[For example,] when you use gamma with some plastics, the material could be made brittle or discolored,” explained Jack Fitzpatrick, director of business development for Sterigenics, an Oak Brook, IL-based contract sterilization provider. Alternatively, perhaps the packaging will dictate how to proceed. “If the device is in a clamshell [for example], is it a closed clamshell with a protective front? You really have to have a good understanding as to what suggestions you can make in terms of modality to meet customer and FDA requirements.”

Of course, any decision can leave room for debate, especially when providers are dealing with knowledgeable customers. “We will not necessarily walk down that path if we think the customer will consider other effective alternatives. We’ll stand up and nicely as possible point out considerations,” Fitzpatrick noted. “Often, though, outside companies will rely on us to be able to help them with direction, but most importantly, have us explain to them why you want to go down this path and not this path—because the fact is, they’re going to be audited. On both sides of this, we want to be on the same plain. We want to have the same expectations, so when the FDA audits our batch record, the customer is comfortable.”

Six Degrees of Separation

Customer comfort is awfully important, especially in an industry that can feel quite small at times. In spite of the fact that thousands of companies operate in the medical device arena, sometimes the players perceive the industry as one in which everyone knows everyone.

“It’s a tight-knit community,” said Parente. “If you met someone 20 years ago and they disappeared, there’s a 90% chance they’ll pop back into your life later. On the sterilization side, you’re talking about less than a thousand people around the world. That’s a pretty close-knit group, and you make a lot of acquaintances around the world. A lot of times, who they come to first can be based on a relationship.”

Partly due to this inescapable fact, NAMSA Advisory Services has developed relationships with many sterilization providers. Since the companies don’t really compete—after all, NAMSA doesn’t actually perform sterilization—it suits the company well to maintain strong relationships with other service providers to facilitate referrals.

“We all have good relationships because we refer business to each other,” Parente said. “Rarely do you see companies working exclusively. You want to be open to the market. It benefits you to work with other companies.”

Stephan agreed with this assertion, noting that the synergy among sterilization experts particularly has benefited inventors who are new to the medical device manufacturing market.

“The entrepreneurs…most of them don’t know where to take their product, and don’t know how to package it or have no concept of regulations,” Stephan explained. “We characteristically refer them to a consultant or contract manufacturer. We don’t pretend to be manufacturing engineers.”

Since outsourcing has seen a shift towards vertical integration, many contract manufacturers that don’t provide sterilization are building their “one-stop-shop” repertoire by offering sterilization management, working closely with providers of sterilization services. 

“These companies have the recognition that sterilization isn’t a simple process, and they have to partner with somebody,” Stephan added.

And many of the industry’s sterilization providers are adopting the one-stop-shop model as well. Centurion is one of them, according to Sparks.

“Centurion has tried to continue its vertical integration,” she said. “The more services you can efficiently and cost effectively provide, the more control you have on the entire process. The customer benefits with having a single source to audit, along with regulatory support during problem solving, etc.”

In addition to working with contract manufacturers, Cmiel reported that STERIS has relationships with other types of service providers, such as packaging providers and laboratories. “As a contract provider, when customers approach us and say they require terminal sterilization services, they may also ask, ‘can you assist us with our packaging needs?’ In these instances, we try to be in a position to recommend several providers that could potentially fulfill the customer’s need.”

Consolidation’s Effect on Partnerships

Just when a solid relationship is built with a customer, the fast-growing merger-and-acquisition climate in the medical device industry can hinder progress in transforming that relationship into a longstanding partnership. And the consolidation occurring in the industry can have other effects on outsourcing providers as well.

“The larger our customer, the better negotiator they are and the slimmer the margin we have on our service,” Fitzpatrick noted. “The consolidation is going to continue until there’s some level at which device companies say they need to take something back in house. It’s a make-or-buy decision that they’re constantly looking at.” 

While a need to keep operating costs low undeniably is a large driver of outsourcing, sterilization experts face challenges in keeping service pricing in line with OEMs’ needs while continuing to ensure their own profitability. After all, a contract service provider’s costs increase—much like any other company—annually in terms of labor, electricity and the processes used.

However, since these expenses are a “given,” companies such as BeamOne have been striving for greater efficiency as a means of keeping customers satisfied.

“We’re always looking for ways to refine our process to make it more efficient and help absorb these annual labor and utility cost increases, but we’re also looking at how the customer has designed its product to effectively utilize our process,” Stephan said. “It could be something as simple as how the box is designed. Is it efficiently using all the capacity on that conveyer line? Usually it requires the customer to go back to reengineer the box. Sometimes, reducing a box size by a half inch could mean a significant change in the overall processing efficiency. And if that’s increased, the cost is, therefore, reduced.”

Cost aside, consolidation trends also put some outsourcing providers in an interesting position in other ways. For example, sterilization providers have to draw up strategies for mixing up their clientele to maintain a thriving business. On one hand, they must target the “big fish” (ie, top-tier OEMs), since they tend not to be swallowed and represent a chance for more consistent business over time.

And since the larger companies are the very ones who snap up the “babies” (ie, small businesses) in the market, there’s a decent likelihood that the provider who has the original business will get to serve the acquired firm’s sterilization needs as well—increasing the profit potential.

The force that can’t be ignored, however, is that startup companies usually have fewer resources than larger companies and, thus, have a much bigger need for service from an outsourcing provider and the potential to become a very profitable client over the long term if the product is a smash success. While a large company is capable—even if not interested—in investing millions of dollars in equipment and other resources for keeping sterilization in-house, that option simply doesn’t exist for a small company with limited resources. These companies provide a steady flow of new businesses for providers of sterilization, and they recognize the value of building relationships with smaller companies.

“Startup companies have such a great need for our business,” Parente concluded.

Ethylene oxide is widely used in medical device sterilization today. Shown above is an EOExpress vessel. Photo courtesy of STERIS Isomedix Services.

Just as smaller medical device OEMs can find it tough to keep a competitive mindset among all the larger companies that have deeper pockets and, often, instant name recognition in the market, smaller providers of sterilization face their own unique pressures in the consolidating market. Stephan, noting that BeamOne is not in the same multi-technology international market as, say, a STERIS or Sterigenics, explained that sometimes, his company will develop a strong developmental relationship with a small company that is later acquired by a large OEM and lose the business.

“It’s at that point that the OEM that acquired them figures out how to tweak the cost efficiencies, and the marketing approach. In some cases, they pick up the product and move it off to another manufacturing location where, unfortunately, we may not be economically located to provide that service. There’s always the risk that all the effort we bring to it to bring a product to market may be lost to consolidation, or the product may be moved offshore,” he explained.

But that’s not the impact to a small business. Stephan additionally noted that many large OEMs have exclusivity contracts with some of their contract manufacturers or (larger) sterilization providers, and the other outsourcing partner may pressure the OEM to honor the agreement and take over any services the newly acquired company needs fulfilled.

On top of that, acquisitions can lead to staff reorganization, which means a sterilization provider may lose some of the hard-won relationships and history developed with the people it worked with at the smaller OEM.   

“Sterilization processes are not always changed, but what happens is the relationships we build with people…with these acquisitions, we may see 25% of the people go, so you lose some of the relationships and history,” Stephan explained. “We’ve had several of those types of acquisitions, where the little guys get bought by the big ones. In some cases, we have to start over.”

The larger providers of sterilization services also have to keep an eye on the industry’s pulse, for different reasons.

“One area that we take seriously is our approach to investment strategies that will enhance our capabilities,” Cmiel reported. “The medical device industry is growing and when you factor in industry consolidation as well, a key consideration is to make certain our facility network, technical services and overall offering are in line with our customers’ needs.”   

Broad Capabilities Broadens Opportunities

In an attempt to answer the question of how to keep customers’ needs continually serviced, many providers are enhancing their ancillary service offerings.

For example, many providers who spoke with Medical Product Outsourcing said they especially have been focusing on distribution services. Logistics can present headaches to any medical device manufacturer, and many respond to the challenges posed by changing distribution channels yearly, according to Stephan.

“We spend a lot of time looking at moving a client from one service location to another where they can reduce logistics costs,” said Stephan. “And we look at everything from something as simple as shipping-related damage and coming up with solutions of how to mitigate that, to box redesign or revised palettization patterns to improve efficiency in container loads going to international markets. Because we handle so much of their freight, we might see it as a streamlining or error-proofing process.”

As industry volumes grow, so can the actual load size that a customer requires for sterilization. To serve these kinds of larger needs, STERIS has added to its variety of sterilization chambers by introducing more “large” chambers that can accommodate an entire truckload of products, Cmiel said.

In addition, the company has been helping customers streamline their inventory. “Many of the services and tools we offer are allowing customers to plan better, forecast better and, ultimately, remove waste from their entire supply chain,” Cmiel said.

One example of STERIS’ solutions is its SteriLink Web-based supply chain tool, which provides visibility and enables customers to remain updated throughout the entire process while their product is at a STERIS facility. “The feedback we’ve received has been exceptional,” Cmiel said. 

Sterigenics has followed suit with its own real-time visibility program. Since the provider has 41 facilities worldwide, Sterigenics has spent the past two years implementing a new enterprise resource planning (ERP) system to streamline all its facilities’ activities and keep customers in the loop 24/7.

“With one of our large customers, we’ve linked our server with theirs so it’s like we’re an in-house provider,” Fitzpatrick reported. “One thing we have currently is a Web-based system for our EtO sites that gives current load status information. Now basically it looks as if my sterilization facility is part of my customer’s manufacturing facility. As they look at their production line, they can plan ahead, and we can then build schedules to be aware of it.”

Along with software solutions, Sterigenics also has been offering a limited range of distribution services. to its customers. Fitzpatrick sees it as one more way the company can offer its customers value.

“If you look at supply chain for our customers, we’re the very end of their supply chain activities. Once the product leaves our facility, it can go to the end user. We’re getting more and more discussions in last two years with clients on what value we can add,” Fitzpatrick said.

On top of all the secondary services being offered today, sterilization providers also are keeping an eye on improving the sterilization process itself. Apptec, for example, is experimenting with ways to achieve a more rapid sterility test. “For radiation sterilization, a product sterility test is required in the validation and in the dose audits. Being able to shorten the traditional 14-day test would be extremely beneficial,” Bryans noted.

Anything that can benefit a customer is good for business—and for turning a simple relationship into a strong partnership.