The Future of Medical Device Design Companies

Device design and regulatory services companies are of growing significance in the medical device supply chain. As recently as 10 years ago, device design was the near-exclusive realm of medtech OEMs. Once considered core to product success, design was something that seldom—if ever—was conducted outside the walls of the company whose logo appeared on the finished device. However, OEMs have since discovered that design and regulatory services—much like manufacturing—can be outsourced successfully. With the exception of flagship offerings from the largest OEMs, contract design services are now offered by various-sized organizations—from small, specialized design bureaus to contract manufacturing design departments. The overall outlook for design services is strong. New economic factors and technological developments are driving OEMs to re-design entire product families that in past years would have remained virtually the same. In this busy period, device designers will be immune to the consolidation currently affecting the industry. Design will flourish in various organizations that are highly responsive to specific industry niches.

Changing medical industry economics will certainly spur increased design/regulatory activity. For decades, a combination of explosive medical research and innovations in surgical treatments drove device design. For example, the growth of minimally invasive surgical techniques led to new classes and families of laparoscopic instruments. Research and innovation will continue, but economics rather than science will drive future changes in the medtech industry. As developed countries top out spending on aging populations, insurers and government health agencies are likely to base reimbursements on superior patient outcomes rather than access to care. Insurers, in particular, will cap payments for given procedures, forcing providers to maximize each dollar received. In turn, providers will increasingly pressure OEMs for devices that provide demonstrably better results and help reduce healthcare costs.

Superior outcomes and lower costs are prompting OEMs to rethink their existing and planned product lines, leading to broad scale redesigns in an attempt to develop more effective devices. This has resulted in a design renaissance. The demand for new devices that improve patient outcomes and reduce hospital expenses is requiring a change in mindset among designers that historically have been accustomed to crafting products solely around technical excellence and physician preference.

Indeed, superior patient outcomes are becoming a new driving force for the medtech industry. Technological advancements have traditionally had a major influence on device design, though medical devices were considerably late in joining the computer age. Although numerous products combine sophisticated design with space-age materials and manufacturing techniques, most healthcare inventions still rely on the practitioner/user to provide guidance, operation, and device data collection.

Such old-school approaches are rapidly changing, however. Technological developments have freed computing from its dedicated mainframe confines to virtually any item capable of housing a small circuit board and battery. From a standalone basis, medical devices are becoming nodes in digital healthcare ecosystems: The data they gather is shared between patients, providers, and OEMs (the latter of which conducts performance analytics). Medical issues are caught in real-time now, rather hours or even days later; in addition, the information gleaned from these products can be crafted into databases that enable practitioners to potentially avoid complications and learn best practices. 

The coming ubiquity of digital technology is a given. Many medical device portfolios will require redesigns to accommodate electronics, a dimension never considered in earlier versions of the products. Demand for design services will soar, especially for designers with mobile electronics and software experience.

Where Will Device Design Be Performed?
The range of organizations offering design and regulatory support services will buck the consolidation trend currently affecting medtech OEMs and contract manufacturers. Industry consolidation over the last two decades has caused the number of OEMs and contract manufacturers to shrink, leaving the survivors much larger (in scale) than they were before. Such a transformation is unlikely in the design sector, as these firms will probably flourish across the supply chain. Although they will vary in size and scope, design groups of the future will be classified within four groups, each of which will bring different capabilities and benefits to their design customers:

• Independent design engineers: Independent designers flying solo will continue to thrive on smaller projects—i.e., mostly re-designs or refreshes of existing devices. OEMs have found they can reliably and affordably source design outside their walls; trusted, experienced sole practitioners have—and will continue to have—an opportunity to bring highly specialized expertise to bear for a given class of devices, a disease state, or required manufacturing method.
• Design bureaus: In the same entrepreneurial spirit as independent engineers are design bureaus and device and regulatory services companies that employ anywhere from two to roughly 35 designers. These bureaus are popular because their larger scale and broader range of services (clinical testing and regulatory submission in particular) give OEMs the confidence to use them for larger projects, to design entire product families, or handle key new product launches. Increasingly, bureaus are crossing into prototype and short-run manufacturing featuring onsite capabilities and strategic relationships with trusted contract manufacturers (CMs).
• Design departments of medical device CMs: More CMs have recognized the commercial benefits of including device design in their offerings. While offering design for manufacturing (DFM) for years, CMs have recently come to recognize that providing the seminal design of a device gives them a high likelihood winning its manufacture. Design becomes an attribute that can distinguish a CM from its competition.
• Design departments of non-medical device CMs: With the digitization of healthcare and its integration into consumer devices (smartphones), OEMs have had to look beyond their usual supply chain partners for design help. A notable example is Verb Surgical—Ethicon’s robotic surgery partnership effort with Verily Life Sciences LLC (formerly Google Life Sciences). Together, Verily and Ethicon have contributed funding, technology, and surgical, computer science, and advanced imaging expertise toward their common goal of developing robotic-assisted surgical products. The device industry’s strong profitability and steady revenue growth will continue to draw companies with design expertise in other fields.

Limits on Design Organizations
Surely, the future is bright for design services overall, but the leaders of these organizations must successfully navigate one critical factor to achieve success. Since no design group is expert in creating all types of medical devices, organizations must develop expertise in a particular skill set to distinguish itself from competing outside designers as well as OEMs’ internal design teams.

Demonstrable expertise is key to winning projects. Generally, this expertise must be promoted around one of three areas. The first, devices of common design, focuses on developing devices with a core set of functions, manufacturing technologies, and materials. A good example is the design of minimally invasive endoscopic instruments. Found in various applications, these instruments often require similar ranges of functions and manufacturing disciplines for their fabrication. The second area of demonstrable expertise is specific medical practice areas (e.g., orthopedics). This approach combines expertise in numerous device types centered around medical practitioners’ needs in hospitals. This kind of expertise can be expanded beyond individual device design to product families that span the care of continuum for a given procedure. The third area of concentration is a variant of the second—expertise in a certain condition such as cardiovascular disease. While more specific than a general area of medical practice, bringing broad knowledge of device design to specific issues for treating a select set of conditions offers a competitive challenge to design teams lacking this mastery.

Regardless of the approach selected for demonstrating expertise, the greatest limit on a design organization will be its success in staking out a specialization.

Are Regulatory Services a Required Offering?
Some designers prefer to concentrate on device design while leaving regulatory filings to consultants. Others see bundling regulatory work with design as both a way to better ensure timely success for a client as well as garner additional fees for the design organization. While regulatory work is not a requirement for success, the ability to offer the service is becoming a greater expectation in an era of outsourced device development services. History shows that some buyers of outside design services also wish to buy regulatory support from the same source. Some OEMs prefer to purchase design from one company and regulatory work from another organization. While a clear trend has yet to develop, there is an opportunity for design houses to boost revenues by offering regulatory services.

Summary
The signs are strong for the continued growth of the device design industry. Once a carefully guarded in-house function for OEMs, design is increasingly outsourced to a diverse set of providers. 

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Tony Freeman is the president of A. S. Freeman Advisors, a mergers, acquisitions, and strategy company for specialty materials and precision manufacturing industries based in New York City.