Medical Device Daily Executive Editor

MINNEAPOLIS – Outsourcing, long a familiar strategy in other industries, perhaps most notably in automotive and consumer goods, has become a hot topic of late in the medical technology sector.

At a Wednesday afternoon session of the 4th annual Medtech Investing Conference, panelists representing both the contract manufacturing and company sides of the equation discussed its increasing reach within the industry.

The conference, a production of International Business Forum (Massapequa, New York) in conjunction with Medical Alley/MNBIO (St. Louis Park, Minnesota), a Minnesota-centered trade association focused on healthcare products and services, has drawn a record audience. Just under 310 attendees were registered when the two-day gathering started on Wednesday, with additional walk-up registrants expected.

Don Gerhardt, president and CEO of Medical Alley/MNBIO and conference chairman, said in welcoming remarks that the 307 pre-conference registrants, up from a final total of 248 a year earlier, demonstrated the growing interest in the meeting and in Minnesota and the Upper Midwest as a locale for med-tech investment.

He noted that those attendees were coming from 22 states and six countries, with fully 50% of the participants from outside the Minnesota region.

The contract manufacturing session, new this year, reflects a surge of interest in an area of operations proponents point to as a means of increasing a company’s flexibility in budget allocations.

Outsourcing has a number of appealing aspects. For instance, “It can allow resources to be used more efficiently,” said John Feriancek, senior corporate development associate at mega-med-tech firm Medtronic (Minneapolis).

Sam Tobin, advisory services director with PricewaterhouseCoopers (Cleveland), characterized contract manufacturing, which he said once was just a “pieces and parts” business, as “now becoming much more strategic in nature.”

Firms that perform such services “more and more have a place at the table with [company] management,” Tobin said.

He said there are “great opportunities for contract manufacturers to move into that more important role, but we need [the companies that hire such capabilities] to open up their minds and begin to embrace these other services.”

Kathy Blum, CEO of TriVirix (Durham, North Carolina), one such company, offered her own definition: “Outsourcing is parts; contract manufacturing is much more of a partnership of entering the product development cycle.”

She said that a key question to be asked by companies looking to outsourcing is, “What business problem am I trying to solve?” and then to look at how contract manufacturing fits in solving that problem.

Blum said that such companies “have to be excellent at the project management end of this process.”

Building relationships is key, said both the company and contract manufacturing representatives. Blum said the relationship between the two parties “is the biggest single factor in whether this will be successful.”

To Medtronic’s Feriancek, “the real value is going to happen after you’ve gotten to know one another.”

Tobin sees contract manufacturers “going from being just a maker of pieces and parts to being part of the entire enterprise.”

He said such a relationship can bring to the contract manufacturer at least partial responsibility for managing the supply change, which he termed “a tricky process.” One of the keys to the business, he added, “is understanding the costs up and down the supply chain.”

Touching on outsourcing’s ability to impact speed to market, Feriancek said that part of the relationship is based on contract manufacturers “understanding our business, our processes.”

Noting that in some companies buying such services, “engineering becomes a project management role,” while the engineering services provided through outsourcing “gets multiple projects moving forward quickly.”

Panel moderator Ron Sparks, president and CEO of contract manufacturer Accellent (Collegeville, Pennsylvania), said that for him, “the key driver [of the relationship between contract manufacturer and company] becomes reliability.”

He drew a loud laugh when he answered an audience member’s question about where a company could find useful information about contract manufacturers by reciting his firm’s web site, which led Blum to chime in with a similarly helpful response.