For more than a decade, most medical devices have been made with the help of contract manufacturers, commissioned by third parties to design and build specific bits of kit. But over the past few years, some CDMOs are starting to branch out, developing their own bespoke medical devices, even as they stick to what they know best. Andrea Valentino talks to Dr Andrew Grande at the University of Minnesota to learn about how one company is breaking the mould of what a contract manufacturer can be, how keeping things internal can help cut through red tape – and why traditional contract manufacturing is unlikely to go to the wall.
Until fairly recently, contract manufacturing was practically unknown across the medical device industry. Eager to maintain captive control of the supply chain, and happy to farm out specialised jobs like injection moulding or metal processing, most larger companies were fine with keeping the lion’s share of work internal.
Until the financial crisis of 2008, in fact, just 12% of the companies that did outsource production were major players – with the vast majority of smaller companies lacking the resources to do much themselves.
Over the past decade, however, this balance has shifted. With contract development and manufacturing organisations (CDMOs) growing in sophistication, many are now able to marry design, manufacturing and assembly, making them ideal partners – even for giants like Stryker and Medtronic.
If nothing else, this is reflected in the numbers. According to a recent GlobeNewswire report, the medical device contract manufacturing market is expected to grow at a CAGR of over 10% between 2020 and 2026. All told, in fact, nearly 60% of original equipment manufacturers (OEMs) have used a contract manufacturer for a medical device project. This is shadowed by growth across the industry, with the contract manufacturing market for class II devices soon expected to reach $76bn.
Benefits of contact manufacturing
As Andrew Grande explains, these financial considerations can help explain the popularity of contract manufacturing more broadly. “There are costs associated with developing your own device,” says Grande, an associate professor in the department of neurosurgery at the University of Minnesota. “To do that requires R&D staff and team resources.”
Nor do the monetary benefits of contract manufacturing stop there. Able to build components at scale – with the expertise and focus to pump out parts at high speed – contract manufacturers are famed for getting finished products to market quickly. So many options are available, adds Grande, that this is very much a buyer’s market – with around 5,800 companies to choose from, OEMs can easily switch partners if they prefer.
Even so, there is some evidence that the scales are, to a certain extent, tipping back in the direction of internal development. This time, however, contract manufacturers themselves are getting in on the action. A striking example of this is the work of Minnetronix, a Minnesotan contract manufacturer that’s recently started developing its own products.
The 300-person company isn’t alone either. Staying in the Midwest, for example, Surmodics is another company that’s jumped from fulfilling orders to building original devices. More to the point, it’s clear these companies aren’t making the leap from CDMO to OEM carelessly. Minnetronix raised $20m in funding for new projects in 2016, and now boasts a 125,000ft2 engineering and manufacturing space.
For Grande – who worked with Minnetronix to develop the company’s aneurysm-busting Neurapheresis Therapy system – this shift is perfectly understandable. With deep experience as CDMOs, why would Minnetronix and its ilk put all their ‘eggs in one basket’ and continue to twiddle their collective thumbs until new clients turned up?
That’s especially true, Grande continues, given how quickly the CDMO industry is growing. “You’re relying on a marketplace where companies are coming to you, and over time there are an increased number of companies that are able to produce these products,” he says. “So, the marketplace is becoming more competitive. I think a company like Minnetronix is able to diversify a bit – and continue to produce third-party products, but then also have its own division where it trades its own devices.”
Unmet needs in the marketplace
What, then, does this brave new world look like in practice? A good place to start is through examining Minnetronix’s landmark Neurapheresis Therapy device. To put it briefly, the system is designed to combat subarachnoid haemorrhagic strokes, a type of stroke that is often caused by burst aneurysms.
These strokes are often caused by contaminated cerebrospinal fluid near the brain and account for around 40% of all stroke-related deaths. To fix the problem, Minnetronix’s system draws toxic cerebrospinal fluid from the body, then sends it through an elaborate series of filters, before finally pumping it back into the patient.
So, the Neurapheresis is an incredibly sophisticated and distinctive piece of kit – and, legally, it has to be. As Grande notes, after all, Minnetronix is sticking with its CDMO business while also venturing into original designs. Unless the company wants to receive threatening letters from lawyers, Minnetronix has to ensure that it doesn’t step on the toes of OEM partners by building the same products cheaper.
It goes without saying that this technique isn’t an easy one. Yet, as Grande emphasises, it also forces innovation. As he puts it: “They see an unmet need in the marketplace.” At any rate, the work of similar companies suggests that he’s right. Once again, Minnetronix’s Midwestern cousin Surmodics is a good example here. Working with Abbott Laboratories, a Chicago multinational, it recently developed a drug-coated balloon to fight peripheral artery disease in the leg.
All the same, it would be wrong to imply that Minnetronix’s deep experience as a CDMO can’t come to bear on inhouse projects like the Neurapheresis. Grande, for his part, is unequivocal. He “absolutely” believes that the company’s background in contract manufacturing means it is able to spot ground its OEM partners haven’t yet occupied, adding that “creating expertise” is vital to success.
Certainly, the company’s Neurapheresis hints at this symbiosis. The machine may not compete directly with other devices in the market, yet Minnetronix still leant on its background of developing medical devices that circulate bodily fluids. More than that, this approach means that Minnetronix’s staff can pool know-how and resources, which will ultimately save them time and money.
Minnetronix’s new focus on manufacturing its own products doesn’t mean it’s totally independent. Rather, the company worked closely with Grande and his colleagues at the University of Minnesota to develop the Neurapheresis – an experience the academic says he has greatly appreciated. It helps that they’re practically neighbours – Grande’s office is barely a mile from Minnetronix – which he says has dramatically boosted the creative process.
“As a physician, I’ve always felt valued by Minnetronix, which has been a lot of fun,” he says. “I’ve just enjoyed working with them.” That’s been true, Grande adds, right from the start, from early product development and testing, through clinical trials and regulatory approval.
Contract manufacturing is a balancing act
That last point – regulatory approval – is worth considering in more detail. Put it like this: you can have the most spectacular idea in medical history, but it won’t mean much if the FDA refuses to authorise it. Happily, it seems that here, too, Minnetronix has built a system that works.
Because the company both designs and manufactures its own kit, Grande suggests that it has an easier time getting machines approved. As he puts it: “Keeping it in house streamlines things and makes it more efficient.” It’s a point bolstered by the company’s recent regulatory successes.
Approved in December 2020, the MindsEye Port is a tool that helps surgeons access otherwise inaccessible corners of the brain. The Neurapheresis, for its part, has successfully jumped preliminary FDA hurdles and is currently undergoing further tests.
What does this mean over the years ahead? It’s tempting to take Minnetronix’s triumphs as evidence that the future belongs to OEMs – or at least contract manufacturers that take up their mantle. Yet, as Minnetronix’s own model implies, this is by no means a zero-sum game.
After all, the company isn’t abandoning its CDMO heritage, and to this day it continues to build third-party components, even as it sharpens the Neurapheresis and its other creations. This makes sense, Grande says, as a way of balancing risk and reward. “There’s risk and there’s reward to what Minnetronix has done,” he says.
“For any company’s individual board, [the question is] what is the risk that it’s willing to take on?” More broadly, the popularity of contract manufacturing seems to be going nowhere but up. Beyond that landmark $76bn figure, indeed, regions like Asia and the Pacific are proving particularly dynamic.
In China alone, the local CDMO medical device industry is expected to reach $22.8bn by 2027, while similar growth can be seen in India and other emerging economies. Together with ever more robust intellectual property laws and better supply chains, there’s no reason to doubt that these developing countries can’t continue to become CDMO champions.
To put it another way, contract manufacturers seem unlikely to disappear – even once sparkling new Neurapheresis devices reach the market.
This article first appeared in Medical Device Developments Vol. 2 2021. The full publication can be viewed online here.
