The 2016 MPO Summit, presented by MPO Magazine, took place last week in the lively city of Austin, TX. Amazing panels and various networking opportunities allow for a plethora of interesting industry information to be shared. The MPO Summit continues to be a great event for OEMs and suppliers alike to hash out different relevant topics and discuss industry current events.

MTD highlighted the key panel discussions and presentations of the event:

The State of the Industry

Medical Device Excise Tax – What will happen in 2017?

Members of the panel were optimistic about the future of the Medical Device Excise Tax, stating:

“It’s easier to get a tax suspended then to get it turned off.”

Exorbitant price increases from the pharma industry. Could this happen in medical device?

“I can’t see this happening in the medical device world. It has not been the pattern for us. You could see this more in one-and-only medical devices; devices that serve the only solution to a problem.”

“We are the mechanical solution to a biological problem. We are selling into really sophisticated provider networks.”

Drug eluting stent example: device started at $3,500; now they cost $1,200. An increase in new innovations and features will be seen, but it is all about value.

What can be expected of the supply chain consolidation trend?

The OEM consolidation has continued, starting with the major Medtronic and Covidien acquisition. Deal sizes have been slightly smaller in recent times, but volume in financial terms is still there. Contract manufacturers M&A are proving to be dynamic, with private equity is seen getting into the fray. A recent acquisition example is Philips Medisize and Molex.

The current trend is two-fold: The supply chain is rolling up underneath the consolidating OEMs and smaller suppliers are consolidating to serve “big” product needs of the OEMs.

Keys/concerns with supply chain consolidation

  • Are there enough contract manufacturers out there to support all OEMs? Large and small? Contract manufacturers have set parameters for work they can/want to take on.
  • OEMs like contract manufacturers that look like themselves. “Big fish like big fish”.
  • Drug delivery is unique and contract manufacturers look at it as a “small fraternity”. It is a very difficult market to crack when you are working with the top pharmaceutical companies. Philips and Nypro are the major suppliers, serving pharma best – without much of a cross into medical device.

Managing Products Liability Risk in the Supply Chain

Medmarc Insurance believes programs like MedAccred’s critical process supply chain accreditation system are helping the medical device industry to establish, according to Medmarc, “better supplier controls” which “could, over the long term, result in fewer recalls, fewer adverse events, and overall greater quality of products for the industry as a whole.”

With product liability, 52% of plaintiffs that go against a medical device company in court are successful. Large losses for the medical device industry include: drug eluting stents, orthopedic implants, bone mesh grafts, etc. It was interested to hear that it takes about 2 years, on average, for a case to materialize after product harms someone, and an estimated 540 days after that include daily involvement in legal-related tasks by the product supplier.

According to Medmarc, 75% of jurors strongly agree manufacturers should take all precautions, regardless of cost, to ensure project safety. When all precautions are not taken, supply chain risk exist. How can they be mitigated? Manufacturers need to prioritize auditing their suppliers. Common reasons why manufacturers fail to audit their suppliers successfully include:

  • cost
  • people/resources
  • expertise
  • only focus on most high-risk projects
  • language barrier

When there is an issue with a medical product, the entire supply chain bears responsibility for product liability. With single source suppliers and smaller companies that work specifically for larger OEMs, the OEM will tend to offer more protection in a liability case, according to Medmarc.

Supplier/OEM Relationship

According to medical device giant, Boston Scientific Corp., a high level of control and risk mitigation is expected from their suppliers, stating, “I don’t expect everything from a supplier, but I do expect control of everything”. Customer service is key, complete with human interaction and solid relationships. BSCI had over 1,000 suppliers in their database and management has been tasked to reduce and refine that list. So, how do suppliers get the BSCI “ticket to the dance”? Suppliers are ranked/rated by:

  • High quality
  • Cost competitiveness
  • Alignment with BSCI innovation roadmap

In addition, suppliers stay on the list by being big enough to take care of their OEM and having core competency that is important to the OEM. According the the BSCI representative, there is a perception in the industry that “BSCI is always after cost”. It was explained that what is actually most important to BSCI is: high quality, on time delivery, and competitive value. And the key to their supplier transitioning from an outsourcing service to a strategic partner is simple – trust and transparency.

It was explained that OEMs generally aim to put anywhere from 5-30% of a product into a single supplier’s care. Any less or more is risky – they try to avoid too small and too large investments. Too small of an investment may be a “drop in the bucket” to the supplier, which can equate to their project being receiving priority. And too large of an investment can equate to too high of a risk for a variety of reasons.

Apollo Endosurgery added that the most important thing to them is flexibility, encouraging partners to “flex with them”. They stated the importance of being able to pick up the phone and get through something together with their supplier.

So what is their advice to small suppliers?

“Know your value proposition, have technical expertise. Be able to prove your solution is better than what the OEM can do themselves. That is where confidence is built. This will help the OEM decide the best time and projects to utilize that special outside talent.”

One thing is for sure – the medical device market is changing, and growing. Market trends discussed at the Summit:

  • 3D printing – revolutionary in early stage innovation. Accelerates design iterations. Allows more products to reach pilot production.
  • Getting better at making smaller, better, medical instruments
  • We’ve seen exponential growth in the market – with miniaturization of all devices being a trend.
  • CONCERN: non-medical companies acquiring medical companies

Did you know?

  • Medical error is the 3rd leading cause of death in the US. (behind heart disease, and cancer)
  • Where do OEMs put the device tax dollars that has been suspended?
    • Acquisitions
    • Increase spending in innovation and R&D
    • Invest in more people
    • Marketing

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