Rapid Response: Contract Testing and Inspection

With an aging US public and a healthy economy fueling the need for investment in and development of medical devices, contract testing and inspection service providers are riding high. Between start-up device firms that require testing and expertise and larger players that are outsourcing testing and inspection to get to market faster, business is booming.

Although labs are enjoying this steady stream of business, the current climate does offer challenges. OEMs are demanding faster turnaround times and more advice, and contract testing and inspection providers must deliver. In addition, labs are finding it necessary to develop a savvy strategy to manage their own growth.

A Healthy Market

When it comes to medical device manufacturers, good fortune is in many ways dependent on the poor health of the general population. Aging baby boomers and an elderly population that is living longer will continue to create a need for more medical devices. According to Frost & Sullivan, sales of medical devices in the United States are expected to rise from $63.7 billion in 2004 to $139.7 billion in 2011 as companies invest heavily in new product development to bring novel devices to market.

“There appears to be an up-tick in the product development cycle and that usually translates to increased demand for testing,” said Patrick J. Nolan, COO of DDL, Inc., an Eden Prairie, MN-based firm specializing in package, product and materials testing for medical device makers. “All indications are that the medical device marketplace is healthy, as the baby boomer will continue to consume more and more healthcare services. New technologies will drive product development and generate new opportunities for outsourced testing services, consulting and expertise.”

According to Chris Dwyer, director of international sales and business development with Raven Biological Laboratories in Omaha, NE, a healthy economy isn’t the only reason for the growth. “Even in a bad economy, new products are introduced that must be sterilized,” he said, noting that more and more clients are approaching his firm because guidelines continue to change and newer sterilization methods are available that they want to explore. “We help our clients determine what role their product and packaging plays in the sterilization process.”

Also behind the increased need for testing and inspection services is the changing scope of products. New development in areas such as drug-coated stents and other products that blur the line between pharmaceutical and device are fueling demand for testing and inspection services.

“It seemed for a while they were two separate entities; now they are mixing quite a bit,” explained Brandon Tillman, a sales representative with Salt Lake City, UT based Nelson Laboratories. “It’s exciting for the industry and exciting for the healthcare industry in general.”

New work is coming not only from the blossoming drug-device market, but also from more subtle changes being made to existing devices. Nelson Laboratories is one company seeing new work from companies that are developing new technologies for their devices.

Start-Ups Seek Advice, Services

Chemistry workers perform testing procedures at their lab. Photo courtesy of Geneva Labs.

A healthy economy and the allure of hefty profits (some estimate profit margins from drug-coated stents are as high as 90%) have created a perfect environment for start-ups—and that bodes well for contract testing and inspection labs. Smaller OEMs often outsource these endeavors as much of their revenue stream is earmarked for research and development (R&D).

“They can’t place a lot of money into facilities with their own testing labs,” David Parente, a senior consultant and manager with Northwood, OH-based NAMSA Advisory Services, said about smaller firms in the medical device market.

Another reason smaller players are smart to seek outside help is the expertise contract labs and inspection providers offer.

Gary Swanson, president of Geneva Labs in Elkhorn, WI, said his firm has worked with many new and start-up firms and has found that these types of businesses often find regulatory challenges daunting and need help navigating them. Smaller firms especially can be unfamiliar with critical documentation, agency and guidelines issues.

A benefit of using a company such as his is that, “In our 30 years, we’ve worked with a lot of smaller companies, providing official and unofficial consulting services in addition to routine testing.”

As firms seek more of a one-stop shop when it comes to outsourcing testing and inspection, NAMSA’s Director of Global Marketing, Terry Langerderfer, sees his firm’s consulting service—NAMSA Advisory Services—as critical to the process, because it is the “thread that runs through” all of the testing offerings the company delivers.

Additionally, as medical devices become more complex, inspection becomes more critical. Although real-time x-ray inspection has been used for quality assurance in many industries, it is just now gaining a foothold in the medical device field with larger device makers such as Boston Scientific, Cordis and others using it in their processes. For example, Glenbrook Technologies in Randolph, NJ offers x-ray camera technology and high-resolution x-ray imaging capabilities, which enable OEMs to determine if there are air pockets or voids in the molded hubs of catheters, to see if titanium staples are in place after packaging or to test stent designs under simulated conditions—all without destructive means, according to Gil Zweig, president of MedaScope.

A Strategic or Cyclic Decision?

In many manufacturing markets, the decision to outsource certain aspects of an operation is often based on the economy or even who is in charge at corporate headquarters. According to some contract labs though, larger medical device OEMs are taking a more strategic approach when it comes to outsourcing testing and inspection.  

“Some companies go through phases in which [outsourcing] depends on who’s in charge,” said Parente of NAMSA Advisory Services.

However, he also noted that outsourcing appears to be on the rise, and it’s being done more from a strategic standpoint, compared with a rationale such as lack of space or capability. “Many OEMs have communicated that outsourcing is part of their strategy,” Parente added.

Nolan of DDL contends that outsourcing is more predicated on the business cycle. “Most MDMs can do the work in-house but are simply overwhelmed with the testing requirements and don’t want to divert their precious engineering resources away from research and development.”

But as device firms grow and become more attractive acquisition targets for corporate giants, there is a greater chance testing and inspection processes can be handled in house. Industry observers noted that larger device companies with multiple locations—both domestically and internationally—are trying to make better use of their resources and are looking internally first, to avoid duplicating their efforts. In many cases, this can hurt contract labs, as testing can be handled by a corporate cousin, according to Bob Mosenkis, president of Citech, Plymouth Meeting, PA.

Speed and Globalization

The adage “we need it yesterday” is surely something contract testing labs can relate to these days. Device OEMs—under tremendous pressure to be first to market with innovative products—are seeking faster turnaround times when it comes to testing, regardless of the size of their operation.

Device makers know that getting products to market as quickly as possible is vital to gaining market share. “The smart companies are developing the product at the same time the package is being designed and validation tested to reduce the time to market,” said Nolan.

According to Nolan, product introduction cannot be held up by long lead times for product and packaging testing—especially packaging testing, which is often thought of at the last minute in the development cycle. “Therefore, packaging testing lab can be the critical and final barrier to entry,” he explained.

Faster results are also a factor in auditing and certification processes. “One of the major problems and the biggest challenge is turnaround time for certification,” said Tamas Borsai, medical division manager, TÜV Rheinland of North America, the Newtown, CT-based wholly-owned subsidiary of TÜV Rheinland Group, a global provider of compliance testing and certification, management system auditing and certification. One of TÜV’s goals is to improve turnaround time and make the certification process more predictable. “These are critical parts for our clients,” Borsai said, noting that the company also plans to expand its services in the medical safety testing area.

While increased speed is essential, another issue for OEMs and their outsource partners is globalization. As US device companies seek new avenues for growth and non-US OEMs seek to benefit from the opportunities the large US marketplace offers, contract testing and inspection providers are finding it imperative to operate with a global perspective.

Today, US labs are being asked to perform according to international standards and are seeing more work from international customers.

“The lines are being blurred between US regulations and international regulations and requirements,” Nolan said, noting that the US FDA recognizes ISO 11607 as its basis for evaluating packaging systems and process.

A lab technician performs a package strength test with a machine that measures the amount of force needed to pull two packaging materials apart. Photo courtesy of DDL.

Managing Necessary Growth

With business booming and a healthy outlook—not to mention more exacting demands from an increasingly global customer base—contract labs are expanding their areas of expertise. Over the past few years many labs have undertaken expansion projects, and all have found it’s vital to carve out a strategy to undertake necessary growth measures while maintaining the speed and quality their customers expect.

“On a practical level, one of the immediate challenges NAMSA faces internally is managing its own growth without extending turnaround times,” said Langerderfer of NAMSA, which last year acquired CeeTox, a contract lab specializing in early stage toxicology screening using in vitro models. This year, the company is expanding its new toxicology facility in Northwood OH, which was built in 2003.

Nelson Labs also constantly assesses customers’ needs, ensuring that turnaround times are met and that the company has systems in place to meet customer demands. To accommodate such pressures, Tillman noted his company has added testing services and staff and expanded its client service department to better serve the marketplace. “We understand that this is a very relationship-heavy industry,” he explained. “Companies want to count on you, since testing is so integral to their products.”

Raven Biological invested $1 million last year in an 8,400-sq.-ft. addition to its facility and added new equipment to grow its business. “Over the next 10 years, we expect our contract services business to grow until it accounts for nearly half our revenue,” said Dwyer. “While we do not currently offer numerous services to the industry, those we do offer are in high demand. We intend to add services and continually invest in this market to meet the needs of our client base in the pharmaceutical and device manufacturing industries.”

At DDL, recent expansion at its environmental testing lab and new product testing equipment will be followed by personnel additions. Nolan reported that DDL expects to add about 20% more technical staff this year to accommodate the anticipated growth. “Our biggest issue is always staying ahead of the curve in providing enough capacity to meet our customers’ expectations—which is turnaround time,” he said. “Having the capacity to stay flexible and responsive is by far the biggest challenge.”

Geneva Labs has been expanding, too. A new facility doubled its space and provided Geneva with more controlled-temperature humidity rooms, new ISO Class 5 clean rooms and new labs. Rather than build in another area of the country, Geneva broke ground across the street from its existing site. “With our new building nearby, we’re able to concentrate our resources to provide quicker, more accurate test results, at a savings to our customers. We have invested in specialized testing equipment that would be inefficient or cost prohibitive for the small manufacturer,” Swanson said.

Investigate Your Options

With many factors influencing success in the medical device market, OEMs can’t take a chance when it comes to testing and inspection. While larger firms may rely on in-house expertise, situations will arise in which they might need to outsource some or all of their testing and inspection. Smaller companies that want to focus on R&D will continue to turn to contract labs for services and sound advice that can help them succeed in a highly competitive, lucrative and complicated market.

According to Tillman, the top issue when it comes to selecting a contract lab is quality, followed by turnaround time and service. “In this industry, testing is very vital to the overall product and it can continue to offer a competitive advantage. Quality is the overall issue,” he said.

Whether the decision to outsource any testing or inspection is cyclic or strategic, the bottom line is to thoroughly investigate the lab with which you are considering doing business. “Interview the lab.  Visit the lab,” said Swanson. “Know who you are working with, and let [that lab’s] experience work for you.”