Medical device OEMs working to prune vendor base

ANAHEIM, Calif.—It's no secret, health care costs are rising.

And a byproduct is more pressure to reduce costs throughout the supply chain.

Hospitals, clinics and doctors' offices are looking for ways to mitigate rising costs everywhere, including through its network of original equipment device manufacturers. In turn, suppliers to those companies feel it too.

It's a primary reason why the landscape has changed so drastically among suppliers during the last few years.

"There's only so much you can do in terms of manufacturing processes, so OEMs are looking to consolidate their supply chain," said Drew Rogers, global director for medical at Trelleborg Sealing Solutions. "One OEM we deal with had been working with more than 350 different suppliers, they were given a mandate to cut that down to 50."

Rogers knows better than most, as immediately prior to his current role with Trelleborg he was part of a company called Specialty Silicone Fabricators, a producer of high-precision silicone components for the medical industry.

SSF gave Trelleborg plants in Paso Robles, Calif., and Elk Rapids, Mich., that brought very innovative processes for complex drug-device combination processes. Trelleborg brought a global manufacturing footprint, scope and diverse polymer technologies that SSF lacked.

The combination has proven fruitful so far. Trelleborg/SSF does assembly, packaging and sterilization for medical devices. On the upstream side, Rogers said Trelleborg brings a mastery of supply chain management.

"The survivors still have to provide more of what they do," Rogers said. "It's fortunate for SSF that it was acquired by Trelleborg when it was. Even though SSF has really high grades for quality and innovation, as a one-off supplier of silicone they may have been a supplier that got left in the dark. But now that we're leveraging all of that within Trelleborg, we have a lot more to offer and OEM customers are recognizing that."

One-stop shop

The phrase 'one-stop shop' has been used to describe the current trend of suppliers joining forces to add capabilities.

Some of the recent deals include FMI L.L.C.'s recent acquisition of Medron Inc. in December 2016 to enhance the silicone manufacturer's presence on the thermoplastics side. It also added outsourcing services such as high-volume manufacturing, customer private label capability, design engineering, product development and prototyping. It works with a variety of materials, primarily urethanes, silicones and thermoplastics.

Qure Medical's acquisition of Degana Silicone Ltd. in 2016 strengthened its presence in Europe with four sites and significantly strengthened its presence in the catheters market. The combined company now offers development and manufacturing services, material technologies, analytical tools and product lifecycle management with assembly, packaging and 510K management for customers looking to outsource.

Not all of the deals have been acquisitions. Raumedic A.G. is approaching the second-year anniversary of localizing production through its first U.S. manufacturing plant in Mills River, N.C. The $27 million investment has allowed it to decrease shipping costs and provide customers with localized service. Raumedic CEO Martin Bayer said the business is growing.

"Most companies now are trying to reduce that supply chain," said Tom Moore, technical sales manager for Raumedic A.G. "They're looking for companies that offer not just extrusion, not just molding, not just assembly, but those companies that offer the complete value-added product. Raumedic is uniquely positioned in that way where we're on the approved supplier list. They're looking to give us additional business because we offer multiple capabilities under one roof."

New combinations

Other firms are going after companies that enhance their ability to develop drug-eluting devices.

Freudenberg Medical—itself formed from the acquisitions of Helix Medical and MedVenture Technology—added Hemoteq A.G. to its portfolio in 2015. The deal brought it surface coating technologies and related services for medical devices, areas that Freudenberg Medical CEO Max Kley said are very strong markets for the firm.

One of Hemoteq's strongest capabilities is coatings for combination products, like drug-eluting stents.

"We still see that the outsourcing trend overall is very intact," Kley said. "Our customers are focusing on their core capabilities—research and development, marketing and sales—and are looking for partners who can cover the manufacturing side and have the critical mass to do that. More and more we see the need to have a global partner, someone who has operations in the main clusters worldwide for medical devices."

Lubrizol Corp.'s LifeScience Unit has not been shy about its intention to invest heavily on the medical side. Backed by Berkshire Hathaway, the firm committed $60 million to grow the business in 2017 alone, including an expansion at its Vesta Inc. subsidiary in Wisconsin.

Lubrizol acquired Vesta in 2014 and extended the firm's range into the silicone medical implantable components and assemblies space. Vesta also produces precision thermoplastic extruded tubing.

"OEMs are consolidating suppliers," said Tom Doering, global market segment manager for silicone components/implants. "They're trying to leverage larger economies of scale with fewer suppliers in exchange for lower costs. You need to have the bandwidth and breadth of support capabilities. They're looking for a company that's financially stable and viable. Being owned by Berkshire Hathaway is a definite advantage we have over a lot of other companies in our industry."

In 2015, the firm acquired Particle Sciences Inc., a contract drug development and manufacturer with a variety of services for the formulation, analysis and production of complex drug delivery products. The acquisition gives Lubrizol the ability to bring two knowledge bases together in an effort to develop polymer-based drug delivery systems.

"The fact that we have this chemical synthesis understanding gives us a leg up on many other manufacturers looking to do drug-eluting devices," said Joey Glassco, global market segment manager with Lubrizol Advanced Materials Inc.

"We have the polymer expertise, we can do the pre-formulation. This is an area where medical device manufacturers aren't usually very adept because they're not used to doing the drug side. We talk both languages and can help them make sense of what they're going to have to do to get a product through the (Food and Drug Administration) as a combination product."