West Michigan’s medical device manufacturers are reaching a tipping point.
The region’s fledgling industry has begun to mature, especially around contract manufacturing, which draws on the legacy of industrial knowledge across West Michigan. As more investments target the medical device industry, contract manufacturers in West Michigan say they’re having to manage through a growth spurt amid an ever-tightening regulatory environment.
MiBiz spoke separately with three executives from the medical device sector to gauge their view on the state of the industry and what companies in West Michigan are looking at in the year ahead. They were:
- Eric Icard, senior business development manager at Grand Rapids-based The Right Place Inc., a regional economic development organization that also runs the MiDevice industry group
- Matt Lapham, president of Kentwood-based Packaging Compliance Labs LLC (PCL), a medical device packaging, design, development and validation firm with 15 employees
- Jim Medsker, president of Keystone Solutions Group, a product development and contract manufacturing firm employing 30 people at its 41,000-square-foot facility in Kalamazoo
Here are some highlights from what they had to say.
What’s your outlook for the medical device sector both locally and more broadly as you look ahead to 2019?
MEDSKER: For Keystone, we’re looking at probably 25-percent growth. We see a lot of activity in new product introductions, new product development. We do a lot of work in the single-use sterile medical device area. We see growth there and quite a lot of activity. We also deal with new products — so new product introductions — as well as on the manufacturing side, growth in products that we’re currently producing and product line updates.
LAPHAM: We have a unique perspective in that we’re working with the biggest OEMs out there down to the small startups. A big challenge that we’re seeing is companies are really under the gun to get products to market quickly. The regulatory environment is becoming more challenging to get products to market, and that’s where we decided to focus our efforts in helping those companies get over those hurdles. On the larger company side, there’s a ton of consolidation that’s happening with acquisitions. What that is also rolling into is the ticking off a number of remediation projects to basically get those products up to spec for the large OEM procedures and requirements. That’s really where there’s a lot of new med devices that are being launched, but also heavy focus on remediation of products that have been out in the market with a heavy focus on that regulatory piece.
ICARD: Locally, what I’ve seen is a lot of expansions for the companies we have in West Michigan. If they haven’t expanded, there’s plans on the books and, in many cases, I’m hearing that they are indeed adding square footage and adding employment. I think it’s still a very solid industry to jump into if you’re not in med device. Those that have really invested time and resources into the medical device contract manufacturing industry … are reaping a lot of benefits.
What are the strengths of the medical device sector in West Michigan, particularly around contract manufacturing?
MEDSKER: From my seat, we see a lot of entrepreneurial activity, and actually a fair amount of infrastructure to support that entrepreneurial activity — in terms of angel investors, VC groups, facilities and places like the (Southwest Michigan) Innovation Center here in Kalamazoo.
LAPHAM: Contract manufacturing is a big part of the West Michigan medical device industry. There are a number of companies that are located here or that are expanding in this area. It’s really exciting to be able to partner with those folks as they’re bringing on new clients or coming up with new opportunities. What’s really great about West Michigan is it’s a great business environment. We started PCL back in 2014 (here because of the) West Michigan business environment. It’s a very pro-business area.
ICARD: With anything that requires a significant amount of precision, we exceed in manufacturing components to the tightest of tolerances here in West Michigan. That’s something that is very important to the med device industry. It’s (also) not just one area. It’s machining … at Autocam Medical. It’s plastic injection molding like with Medbio. It’s electronic components like with Firstronic and Safari (Circuits). We just have inherent strengths in this area to support the med device industry.
As the medical device industry has developed, how has access to capital changed?
MEDSKER: There’s a lot of money chasing deals right now. There’s some mergers and acquisitions going on as well, which often creates opportunities. Definitely, the increase in available funding and funding groups has had a positive impact on the growth in our medical device industry.
LAPHAM: We’re still seeing a ton of money going into new technologies. What’s exciting is there are a number of hospital systems throughout the U.S. that are actually creating programs for launching new devices or new technologies, based on either clinical feedback or from nurses or doctors. We’re seeing a lot of investment being made in just new technologies to improve patient health. If anything, I think that the consolidation and the big investments that are going into the larger companies is still creating a better environment for that entrepreneurial route as well.
ICARD: A lot of our companies within MiDevice have been able to partner with Spectrum Health Innovations. It’s kind of a one-stop shop. From what they offer to the manufacturing capabilities that are needed and validation and packaging, we don’t have the holes in our capabilities anymore for that industry. The gaps are filling in.
In West Michigan, we’ve seen a couple of examples of private equity firms acquiring contract manufacturers such as Medbio and Motion Dynamics that were in the middle of a major growth spurt. Do you expect to see more private equity interest in the medical device sector? How does it change the local dynamic?
MEDSKER: I can speak from direct experience: (Medical device manufacturers) are a target. My inbox is full every week with requests from such entities. ‘Hey, would you like to have a financial partner? Would you like an investment?’ I can see that as a focus in terms of investing into contract manufacturing operations. … In general, it’s a very good thing for the small to medium companies to participate, at the right time, in a private equity or VC infusion, because it helps them hit the gas pedal. There are stages of growth that can be attained through traditional financing means — like friends and family, personal (funds), or banks. But at some point and at certain levels of growth, it’s necessary to have that type of funding vehicle available to attain the goals that you’re looking for.
LAPHAM: There’s a number of private equity companies that are coming in at various points throughout the medical device life cycle, whether that’s subcomponents or packaging suppliers, contract manufacturers or all the way up to the OEM level. I think that the industry is, as a whole, really set up for growth over the next 10 years, which makes it an exciting investment opportunity for financial firms and creating that consolidation model to be able to take advantage of growth. I think we’ll continue to see that, both at the OEM level down to contract manufacturers and suppliers.
ICARD: It does change the dynamic a bit. Fortunately, what we’ve seen is it’s provided the capital needed for these companies to really do what they never could have done on their own. I’m happy that the leadership of the companies, the local decision makers, are still very much involved. Of course, we love the newer community of family-owned, small- to medium-sized businesses here in West Michigan — especially in manufacturing. It always does concern us any time that there is an acquisition from an out-of-state organization or out-of-state company in private equity.
What are some of the key challenges specific to the medical device sector that manufacturers are tackling? Could any of those headwinds potentially lead to new opportunities?
MEDSKER: One of the things that companies need to be aware of and they need to gear up for it — and they are — is the ever-increasing regulatory hurdles. For example, ISO 13485 has evolved and its risk mitigation demands have continually increased. In general, in the industry there’s a higher and higher bar raised for addressing risk mitigation in your processes and your products. That does create challenges (but) I think it’s a great trend, especially if you’re the one laying on the operating room table. Oftentimes, regulation does spur innovation, creativity, and getting things done in a better way, a safer way. It does create opportunities in that sense, and unfortunately for those who are unable to level up to the new requirements, it weeds them out, but that gives more opportunities for the ones that can do it.
LAPHAM: There are a number of international standards that are being revised right now and they should be released in early next year. That really does create an opportunity for PCL to support those efforts, as it’s something that we do on a daily basis. I think it’s also for good reason, as well as for patient safety. The new standards are there for a reason. It’s just good for the overall market for patient safety, but it’s also something that works out very well from a business side for us.
ICARD: The new MedAccred standard — this is something that we are going to be bringing to our membership to make people aware of this standard. It’s something that Stryker is very much tied to. I’ve heard some companies that have said this is imperative. ‘We absolutely have to get this, we have to meet this.’ Others have said, ‘Well, it’s only a few that are really putting emphasis toward it. We’re going to hold off and see what happens.’ But, the FDA is going to do what they’re going to do. It’s quite challenging for manufacturers, especially on your first go-around, to develop a device and get it through to the market. Many companies see the opportunity here in the United States, especially the OEMs, but they’ve been avoiding it for the longest time because of getting through the FDA requirements.
As the manufacturing sector pushes toward Industry 4.0 with automation, artificial intelligence, machine learning and other technologies, how does that translate into the medical device sector?
MEDSKER: It definitely has had an effect on our industry in a positive way. When 3-D printing first came out, like many technologies, it was so expensive it was almost prohibitive to use even for just samples and prototypes. Now, it’s evolved to the point where almost every engineer can put a 3-D printer on their desk and afford it. (Now) the parts that come off the 3-D printer can often even be used in production, (which) saves on tooling costs. When you’re running a low-volume program and you really can’t justify spending tens of thousands of dollars on tooling, you find the right 3-D printer and the right materials (that will allow you) not always, but at times, to actually jump right into production. Automation, machine vision and artificial intelligence, that definitely helps out with production throughput for quality checks. It just helps throughout the whole process.
LAPHAM: We’re seeing a big push for contract manufacturers (as) OEMs just really (want to) lean out the business on that end. Going to the automation side, there’s a big opportunity in medical device, particularly with 3-D printing. There are a number of companies throughout the Midwest that are beginning to 3-D print low-volume, high-mix implant products. That’s a big game-changer, just the cost they’re associated with. Doing a custom tool to make a certain product can be very prohibitive to a startup company or a company that’s going to have a huge mix of products. This allows a unique opportunity for those companies that build either a custom solution to that patient, or provide a larger mix of SKUs that otherwise would not be possible. It’s really exciting, and it’s going to continue to create more opportunities for all companies that are investing in that.
ICARD: It’s something that we’re certainly seeing. … I visited a company early this year and they’re doing the 3-D printing for tool and die. I was just amazed. He was explaining the advantages to me. It seemed like a no-brainer: Why wouldn’t you be embracing this technology? I think they will, but is it going to be OK from a regulatory standpoint? How acceptable will it be … especially for objects that are designed to save your life?