In recent years, the medical device industry has been increasingly realizing the same secret to product differentiation that biotech and pharmaceutical have been leveraging for decades: full-service partnerships with contract development and manufacturing organizations (CDMOs).
Back in the day, outsourcing the production of certain components or even whole products to third-party contract manufacturers (CMs) used to be a practice driven primarily by cost savings.
But the major market shuffle since 2020 has spiked competitiveness in the medtech playing field. More and more CMs are realizing that expansion and diversification of their offerings can evolve their relationships with original equipment manufacturers (OEMs)—from low-cost providers to trusted partners.
According to The 2022 MedTech Contract Manufacturing Report by Alira Health, as healthcare bounced back to relative normalcy after the pandemic, the medtech industry expanded by +16.8% and that may be in large part due to strengthening partnerships with CDMOs, who saw a similarly strong year (+15.8%) “as inventory levels keep rising and demand for outsourced capacity solidifies.”
These numbers make it clear that CDMOs have appeal far beyond cost savings, and that’s often because they have begun to offer higher value-add development through manufacturing services. As a result, these CMs are rapidly entering the CDMO marketplace by helping OEM businesses scale up faster, accelerate revenue and time to market, and deliver greater product value.
In fact, the major players among medtech CDMOs who have hopped on this train early all offer diversified capabilities. These same companies represent a growing market share, each with a revenue greater than $100m.
The Alira Health report specifies that the competitive advantage for medtech companies largely stems from CDMOs pursuing services that enable “vertical integration of the product value chain.”
In other words, they’re diversifying their services to expand beyond manufacturing-specific operations and to establish themselves as a critical partner end-to-end throughout the product lifecycle.
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How medtech companies are benefiting from evolving CMs
A major reason why most non-medtech product companies, such as those in consumer goods or high-tech industries, are more inclined to use a CM is because that extra “D” in CDMO (development) is easier and cheaper for them to perform in-house. Another way to think of this is that a CM is usually a tactical decision, whereas a CDMO is more strategic.
Medtech and meddev companies can choose to use CDMO services for only certain parts of their development and manufacturing services, but a full-service CDMO partner can truly offer a competitive advantage.
Full-service CDMOs take responsibility for all steps throughout the development and manufacturing process, including product optimization. They guide their customers from design, and development to regulatory, prototyping, and testing through validation, manufacturing, and delivery. And they have amassed years of experience, skills, and expert resources for doing so.
That first stage, design—is a key element that elevates CDMOs from a CM, establishing their role as a real collaborative partner in product development. Their design for manufacturing (DfM) offering is rising in value and availability among CDMOs.
Take TOMZ corporation, an industry-leading manufacturer of life-saving medical devices and implants, as well as a strategic partner to global top-tier OEMs. Vincent Wong, Chief Quality Officer, has been integral in leading these expanded efforts by helping to include increased design and development services along with decades of optimized manufacturing expertise.
“I imagine most CMOs would say they would prefer to be at some level of the design phase because there are incredibly intelligent designers out there really trying to innovate technology,” Wong explained in episode two of the Product Success podcast. “Where we have to find that balance is between design and manufacturability, and that's where CMOs are going to bring their expertise.”
Given that TOMZ’s primary purpose is centered on design for manufacturing (DfM), manufacturing process optimization, and strong and robust quality assurance, they’re experts in helping OEMs to create the best products and customer experiences for patients.
That last one—quality assurance—is another key competitive offering, with their years spent navigating highly regulated frameworks to ensure the product will meet daunting compliance requirements, such as ISO 13485 or ISO 9001 standards, FDA regulations, and Good Manufacturing Practices (GMP).
Regulations in global markets, particularly Europe with EU MDR and IVDR, are rapidly changing with the recent fluctuations in healthcare, sustainability, and other macro impacts. These changes could be destabilizing to small medtech companies who suddenly need to adjust their production and marketization. In these situations, CDMOs can jump in to advise and adjust, ensuring ongoing product success.
The 2022 Global MedTech CDMO Outlook by the Marwood Group explains that these new regulations could support CDMO growth because “part of the CDMO value-add is the provision of focused expertise not necessarily developed in the existing OEM.”
Further, the report explains how these compliance needs can not only lead to new CDMO partnerships but also deepen existing ones given that their assurance of regulatory compliance is increasingly offered across the end-to-end development process, beyond just the manufacturing stage.
Pushes and pulls such as these are very familiar to Wong.
“Let's face it, no production process is perfect from the start. You're always going to have to deal with non-conformance reports (NCRs) and complaints. But what's key about that OEM and CMO [CDMO] partnership is how the CMO handles those complaints and NCRs.”
The point here is when it comes to managing product quality and meeting the rigid regulatory standards in the healthcare industry, more hands make lighter work. Especially if one of those hands has years of experience, competencies, and specialization in that work.
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Finally, once the medical devices or medtech products are finished with the development and compliance stages, CDMOs offer validated production processes and advanced verification.
Any steps of manufacturing that require critical process validation are able to be examined and analyzed side-by-side with the CDMO, instead of that burden falling solely to the OEM, sinking time and cost into finding a resolution within their own engineering.
With all these factors handled partially or completely by the CDMO, the OEM, meanwhile, is given more time to focus on core business while reducing time and cost.
CDMOs clearly have the skill and experience necessary to accelerate time to market and optimize design for an evolving market, but they can only do this with a strong relationship with the OEM.
As Wong puts it: “It always ties back to the fact that CMs are intended to be an extension of the larger business.”
Freed up to move forward
The theme of digital transformation is top of mind for all manufacturing industries right now, thus it is incumbent on CDMOs to stay in step with the evolution of the market if their aim is to help their OEM partners remain competitive. Not to mention breaking into the increasingly competitive medical device manufacturing space.
According to Alira Health, “the emergence of large and integrated CDMOs creates competitive pressure for players without technology differentiation or innovation capabilities.”
And the Marwood Group specified a trend of “horizontal capabilities expansion” for outsourcing in medtech, wherein many CDMOs are looking to “acquire new technical competencies to strengthen the specific application expertise or manufacturing techniques (i.e., plastics or metal processing).”
Because CDMOs are so adept at what they do, with the addition of cutting-edge tech, they position the OEMs they partner with to helm new innovations in medical manufacturing.
Beyond offering high-speed, automated equipment and specialized knowledge, CDMOs are also equipped to provide analytical services when it comes time to optimize the next product.
By providing insights collected from patient data and feedback for product improvements, they help product companies scale their medical device production without investing in other analytical consultants or commercial manufacturers. Meanwhile, the data is fed back to the device developer (OEM) to help them learn and innovate.
In leveraging their partnership, medtech product companies can use both the learnings and time gained from using a CDMO to focus on core competencies, product differentiation, and other value-added activities. Not to mention, more time gets dedicated to innovating the commercialization of these products for an increasingly digital medical field.
“As a CMO, you want to position yourself as the expert in the specialty, the engineering services, and the manufacturing services you provide. Being innovative, getting the right technology, getting the right systems and software in place can help facilitate that,” according to Wong. “And of course, positioning yourself so you can be that partner, that extension to the OEM.”
As CDMOs and product companies team up to innovate patient care, we can only imagine how the potential for tangible, improved patient outcomes and life-saving impact will accelerate in coming years as these partnerships grow stronger.
