But the opportunities do not come without enormous challenges for both existing manufacturers and newcomers to the industry. While the greatest percentage of medical product manufacturing in Australia (approximately 80 per cent) is based in New South Wales and Victoria, the potential for growth is national.

Historically, Australian companies have been outstanding performers in a highly skilled and competitive marketplace with some of the more recognisable innovations being the Cochlear Implant, the Margron hip replacement system and Compumedics’ diagnostic technology for sleep disorders and cardiology.

But one of the problems for the industry has been the lack of networks and a fragmented approach to expansion and promotion. In an effort to address some of the key issues, the Victorian Government has published its Strategic Plan for the Victorian Medical and Scientific Industry. At the same time, the industry itself has established the Medical Device Network to facilitate a united front.

Adopting a strategic plan

According to a number of key players within the industry a more concerted effort is required to retain established manufacturers in Australia and to support newcomers.

The strategic audit of the Victorian industry says Victoria has lost a number of established manufacturers over the past ten years, their operations transferred interstate or overseas, or closed down completely, this includes Terumo and Smith & Nephew.

ABS industry output data shows that Victorian medical equipment manufacturing as a proportion of national output declined from seventeen per cent to fourteen per cent between 1993 and 2000.

The report claims this is largely attributable to two factors:

• Increased globalisation has seen several multinational firms transfer their Victorian production facilities to lower cost environments, such as India and Thailand. The loss of these larger operations has had a significant impact on production and exports.

• Most of Victoria’s indigenous medical equipment manufacturers are small businesses, whose scarce financial and management resources have limited their access to international markets and caused a greater reliance on domestic markets.

The Victorian Government’s Strategic Plan identifies the dilemma, recognising that while exports decline healthcare expenditure globally has been shown to increase in line with the standard of living.

“The biggest healthcare markets are in Europe, the USA and Japan; however, accessing these markets is difficult, as competitors are already deeply entrenched and buyers have existing loyalties.

"Healthcare markets in the growing economies of Asia represent a significant opportunity for Victorian medical equipment manufacturers,” the report says.

“Ageing populations also present an opportunity for the medical and scientific equipment industry. As healthcare improves, so too does the life expectancy of the population. And as people live longer, the demand for healthcare services and related products increases.”

The government report identifies opportunities in new microtechnologies and nanotechnologies that promise to alter medical diagnostic equipment in fundamental ways.

“Microtechnology, nanotechnology and biotechnology are important to the medical and scientific equipment industry,” the report says.

“In addition to stimulating new discoveries, they also promise to revolutionise the manufacturing process, providing the basis for new, clean production techniques and changing negative images of manufacturing.”

“Manufacturers will need to target markets where opportunities are greatest and their competitive advantage is strongest, since their travel and freight costs are much higher than those faced by their competitors in the northern hemisphere.

"Identifying and engaging the best available agents and distributors will be a critical success factor.”

According to the report, personnel within the medical and scientific equipment industry are highly skilled:  “The people of the medical and scientific equipment industry are its greatest asset, having levels of post secondary education (vocational and academic) three times higher than the Australian manufacturing industry average.

"The industry creates employment for technically skilled people, and is in turn dependent on the availability of a skilled workforce.”

The government plan recognises the industry’s struggle with increasing regulation. It says the Commonwealth‘s regulation of medical devices, and the administration of these regulations, imposes enormous cost burdens on industry that creates a barrier to the entry of new products to new markets.

The inference of this is that manufacturers must get the design right first time or pay an enormous cost penalty in repeat approval processes. 

Overcoming fragmentation

The Victorian Government’s report identifies fragmentation of the industry as a barrier to its continued growth. Chris Thomson, a principal partner of HWL Consulting, and the author of the Victorian Government’s strategic plan for the MSEI (Medical and Scientific Equipment Industries) sector, argues that a move towards ‘clustering’ for the industry may be the way of the future.

Thomson works on strategic business planning and international market development for scientific equipment and medical devices.

Thomson has spent most of his career working in sales and marketing in the scientific equipment industry.

In recent times his work has crossed over into the medical equipment and biotechnology industries, and he plays an ongoing role in establishing the Medical Device Network in Victoria.

Thomson says that more than eighty per cent of the scientific instrument and medical device industry in Australia is spread between Victoria and NSW.

“There are five scientific instrument manufacturers in Victoria alone that have achieved sales turnovers in excess of $22 million a year. Only Compumedics in the medical equipment sector has got to that level,” says Thomson.

“But there are approximately one hundred companies that have achieved between one and four million dollars in turnover. This fragmentation is restricting the manufacturers’ ability to compete in a global market.

“There is a really strong philosophy that is coming all the way through the system at the moment, from federal government level through to the research institutes. It goes something like ‘we’ve got a bright idea that’s got commercial potential, let’s patent
it and spin off a new company and start selling it’.”

Thomson says this approach does not support the industry as a whole: “They don’t think to put things out to existing manufacturers where there is already existing infrastructure, where they can build up a critical mass.

"At the same time, the very opposite has happened in the scientific instrument side of things, so that nobody would really think of starting up a new scientific company to spin something off when you can walk down the road and approach Varian, SGE, GBC Scientific or Shimadzu. 

“That’s the sort of fragmentation that the report has identified and refers to.

“One of the initiatives that is coming through the Victorian government at the moment is this issue of ‘clustering’, and I think it is the way of the future. 

“We have looked in the past at supply chain integration and feel that it’s a bit flawed because the big supplier in the system always ends up dictating the terms to everybody else.

“But the clustering concept actually combines that supply chain integration with physical proximity. The synergies are natural and once you get this into place, everybody benefits, which tends to sustain it for longer. 

“I think in Victoria this is the way things are heading, I haven’t studied NSW closely enough to comment. Queensland is certainly going in this direction.

“The Queensland Government has been quite aggressive about attracting high technology manufacturing to Queensland, mostly in the biotech, biopharma areas.

“The New Zealanders are pursuing clustering ferociously and in fact they are probably five to ten years ahead of us. The New Zealand government retained Michael Porter, the global author of the clustering concept, as a consultant to work with industry, training people to replicate the program.”

Infrastructure 

Thomson believes that the industry needs to look more closely to improving infrastructure.

“The Victorian Government audit found very clearly that the scientific and medical industries were drawing from a general manufacturing infrastructure that was in place to support the automotive industry,” he said.

“It is a very symbiotic relationship. The graphic designers, the contract engineering firms, the design engineers were supported primarily by the automotive industry and various spin offs from this, as were the injection moulders, and rapid prototypers.

"If you took the automotive industry out of Victoria then a lot of these organisations couldn’t exist and the scientific and medical manufacturers wouldn’t have the resources to draw from, they would have to look interstate or overseas.

“As a result and in an effort to address this shortfall of infrastructure a lot of these design functions are rapidly becoming global, which has created opportunities for some companies.

“The biggest problem that smaller manufacturers have is actually getting enough attention from suppliers, so if you are after the supply of a machined, injection moulded or extruded component, the set up time for a small job, can be a nuisance to a supplier. 

“Many companies are producing parts in-house to avoid these problems... this makes the fragmentation issue even worse, when you’ve got these little companies with low turnover trying to sustain a huge amount of in-house infrastructure. That’s when they really struggle to earn any sustainable profit.”

Regulations and approvals

Increasing complexity in the FDA and TGA approval process has made it extremely bureaucratic, according to Thomson.

“This has been a significant issue and there has been some progress. For example, now with TGA – there is increasing harmonisation with the CE standard. If your product is certified through the TGA process, all you have to do is submit the final outcome to the CE process and it will get ticked off, you don’t need to do it again.

"But it is not aligned with FDA and this still requires a duplicate certification process, as the Europeans are not going to align with the US and vice versa.

“For many manufacturers the regulations and approvals are a big cost impost. From the time you have got a saleable product, it might take you anything up to two years before you can actually sell it in to the US. The TGA process can vary with the different classes and take anything from four to twelve months. It depends on how well you prepare your case.

“This makes it critical that manufacturers get their product design right before presenting to the TGA. (The recent introduction of the ‘DEAL’ process by the TGA has reportedly accelerated the initial listing in Australia).”

Competing globally 

Thomson says, “Australian device manufacturers must tap into potential international markets. There is clear evidence over a long period of time that health care expenditure is directly proportional to the overall standard of living in any country.

"We are finding that in the developed Asian countries, like Japan, health care and aged care are two of their most important strategic issues within the next decade and beyond.

“And that is also starting to happen in Malaysia and Singapore. Thailand is a little behind but heading in the same direction; as their standard of living increases their level of expenditure on healthcare is rising.”

Thomson says a number of clever manufacturers are quickly accessing overseas revenue streams to build their businesses.

“The mechanism of getting to market is usually working through distribution companies in other countries. There will be few Australian device-manufacturing companies in their early exporting careers that will get to a size where they can look at establishing offshore subsidiaries.

"That’s just not cost effective and they don’t get in to see the right people frequently enough to make an impact in the market place. So the best approach is to go through third party distributors.

“The key to success is finding the best distributor or ensuring a product has a priority with the distributor, which depends on how competitive it is in the market. It comes down to the design, innovation and technology behind the product. 

“Australian companies vary in their success in this area. There are certainly examples of local companies that are right up there with the best in the world. In the area of scientific equipment the standouts are SGE, GBC, Varian and Vision. On the medical device side companies like ResMed, Compumedics and Cochlear are also doing very well.”

Thomson warned that a decision by a manufacturer to stay solely in the Australian domestic market wouldn’t insulate them from international competition. “The competitors are still going to come here and market their products anyway.”

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In-house teams

The Vision group of companies owes much of its success to its integration of industrial design and product development with a manufacturing base.

Vision Bio Systems and Invetech are the two divisions working in development and manufacture of biomedical instruments. Invetech is also active in the development of other types of medical equipment.

The successful combination of the manufacturing component, Vision Bio Systems, with the in-house design and development team of Invetech has ensured profitable results for a number of their popular products, including the SL50 automated microscope slide loader (winner, Australian Design Award of the Year, 2002).

Vision Bio Systems or VBS, manufactures instruments under contract as well as instruments under their own VBS brand. Equipment is used in diagnostics in sample preparation and analysis and is primarily for cancer detection. Among the most recent releases from VBS are the Bond tissue stainer and the Peloris tissue processor.

VBS is a major exporter with around forty percent of its product purchased in the US and another fifty percent sold in Europe and the rest of the world. 

The Vision group is ideally structured to support the work of various divisions. Company product development resources include eight industrial designers and model makers, sixty software engineers, thirty electronics engineers and fifty mechanical engineers. A separate division of forty engineers is also active in manufacturing automation and process improvement.

Invetech’s industrial design manager, Alan Morris, and the director of instrument design and development, Fred Davis, suggest in-house research scientists along with specialists in applications and marketing play critical roles in their instrument developments.

“We have a specialist instrument development group of eleven people that draws resources from our industrial design and engineering groups for each of our projects, as well as other support areas for different projects,” they explained.

“Overseas in San Francisco we have two full time business development managers. They have been working there since July last year and their primary tasks are to identify and sell new projects in North America.

“Most of our project operations are carried out here in Australia. We visit our clients periodically and we come back here to complete the development for manufacturing in Australia.”

“Specialising in a specific area of diagnostic scientific instrumentation keeps our focus niche and means we can more easily go offshore. In San Francisco there are lots of generalists a short drive away. Our clients will only go offshore for specialist knowledge.”

Morris says integrating design into an already successful process provides an added bonus for companies and their clients.

“In terms of design there are two streams that we might pursue. There is the model where we are working closely with the client’s industrial design team. This happened recently on a large project in the US. And then there is the model where we do everything.

“When we are working with the client’s design team, there is always a substantial effort to interface with the local designer and engineer.”

According to Morris, the classical model has industrial design teams involved right from the start, assisting engineers developing the initial concept, looking at function, useability and throughput, which is always a major issue.

“We are all working together, particularly on the concept for the client. Once we have the first stage of a project underway, we develop lots of functional concepts. More than anything else there is some degree of your classic styling included, considering every aspect and combining it all.”

Davis agrees: “To me, we wouldn’t sell a single job without the involvement of Allan’s group. Their skill in using a picture to tell a story is invaluable. It’s old but it’s true, a picture does tell a thousand words.

"When someone at the other end of the world sees a Power Point presentation with illustrations from Alan’s team showing a design detail, and we say ‘this is how we will do it’ the picture sells our ideas and effectively communicates the message.”

Integrating design

Integrated design and engineering with human factors is what Invetech focuses on when it comes to the functionality, throughput and technical capability of the instrument.

Morris says it’s critical that the client can see how the operator interacts with a particular instrument in order for it to sell.

Davis also has an explanation: “If you think of an instrument as a series of building blocks that can be put together in many different ways, you involve an industrial designer in the integration of those building blocks; they are working out the best way to put those pieces together so that it is ergonomic, and attractively constructed.

"If you have an industrial designer involved in the integration of those building blocks you get a really good outcome. If you don’t, you end up with something that is functional only at a mechanical level.”

Invetech recognises that there is now greater awareness of corporate design philosophies and brand value amongst their clients. Along with access to Invetech’s substantial reference library, designers are sent to international trade shows to experience first hand instrument design trends, ensuring a global awareness in their design work.

Morris says that along with brand building, human factors is one of the key challenges in instrument design and development.

“We have various lab personnel who work on the instrument as it is being developed. We have in-house instrument laboratories where instruments are trialled by representative users so we can get first hand assessments.”

Davis says the initial work in design and development is to identify the high-risk functions of an instrument and then focusing effort on these areas.

“There are always some very risky functions on an instrument. What we normally do is design and build ‘test beds’ at the beginning that help us to explore these. Sometimes you’ve got risky ideas that need to be tested, they look good intitially but when you start experimenting they just don’t work. There is a lot of questioning ‘Can it work? Will it work?’

“You might find that all the risky bits may work on their own, as separate building blocks, but we then need to put them together so they work in harmony with the whole system.

“Then what we’ll do is have a prototype iteration that does all the risky bits together and then if you think of the modular approach again, you are bolting on extra bits and there are some low risk things like the covers and the chassis which you can work out later.

"You can’t do everything at once on a complex system, so you pick the risky stuff, do that then pull it together and start adding the lower risk pieces. Each time you are adding stuff you are doing another prototype iteration.

“As you proceed, the prototypes become more and more mature, and then you move from a cycle of getting it to work, to getting it to work reliably. So then we test the prototypes like crazy, find out what breaks, fix it and rebuild, that way we get closer and closer to a world quality production design.”

A constant challenge for local manufacturers is the ability of local suppliers to cope with the fast turnaround demands of the industry.

“There is often a problem with waiting in the queue,” says Davis. “For some things we wait in the queue for other things we just have to go off shore.

User interface design

Morris says one of the challenges for Invetech is to create a more interesting user interface.

“We have developed quite a skill set in graphical user interface, one step beyond the classic windows look. We use a combined industrial design and software engineering team, each contributing their skills to develop a computer user interface that satisfies logical and functional requirements, with great look and feel.

“There is a trend in lab instruments to make user interfaces a lot more user friendly, to design them for personnel who are ‘deskilled’ or don’t have a higher degree in terms of qualification.

“In the US this is particularly the case; they are moving tasks from the specialists to the routine and as more tasks move this way, you get people who are performing routine activities – lab technicians rather than lab scientists.

“As a result we try to make very complex instruments more user friendly, simpler to learn. Obviously there is training required, but if it’s a colourful interactive touch screen it will be more interesting and simpler to use. Every day people are reprogramming machines and constantly interacting with an interface.”

Membership of the Medical Device Network can be achieved by joining Ausbiotech and nominating the MDN as a special interest area.
visit  www.ausbiotech.org/membapply.php
to download the membership form.

For more information about HWL Consulting you can contact Chris Thomson on 03 8633 7536 or visit www.hwl.com.au/consulting.html 

interview

Network to promote industry

Luke Whelan, Chairman of the recently formed Victorian chapter of the Medical Device Network, says increasing the profile of the industry will be a major focus for its members. A dedicated advocate for further expansion within the industry, Whelan shared his views with Curve Editor, Belinda Stening.

The Medical Device Network is aligned with Ausbiotech and although the Victorian chapter was only launched in July last year membership is growing and activities increasing. A national steering committee, based in New South Wales, also supports the industry.

Whelan says medical devices have been absorbed within the total “biotech” arena for too long and therefore many successes have been overlooked.

“If you look closely at the statistics of this important sector the figures reveal a particularly successful performance history. If you try to name three Australian global pharmaceutical companies, capitalised at over a billion dollars, you can’t, as there are none.

"However, if the same question was asked of medical devices we could answer ResMed, Cochlear, Compumedics, Axon, Polar Technics, with the first two valued by the share market at over $3 billion.”

Members hope the network will create a forum for designers, engineers and manufacturers working in medical product development to meet and discuss relevant issues as well as offer support to one another. 

According to Whelan, the network’s vision is “to facilitate the commercial development of an Australian medical devices industry”. The MDN’s objectives include fostering advances in research and development as well as improving success rates for start-up companies.

As director of Mondo Medical Limited, Whelan identifies Mondo’s corporate focus as the emergence of new technologies and their applications, paying particular attention to ‘smart’ medical devices.

The ‘smart’ devices are those controlled directly by the patient through a variety of physiological signals. These signals, or vital signs, are interpreted by a self-learning system within the device that allows the stable maintenance of a patient’s condition within pre-set medical limits.

Mondo is uniquely placed to commercialise appropriate PhD projects from Australian hospitals and universities and sell the resulting products through global distributors.

In what directions do you think the industry in Australia is heading?  

In short it is expanding. It is outperforming other industries in multiples, as outlined in the Victorian government’s report. As for specific technical direction, the medical device industry is wide ranging and generally it is ‘need’ focused. Current financial conditions are placing hospitals and staff under increasing pressure with respect to working conditions and good patient care.

Many devices these days are aimed at addressing situations that help to alleviate this problem, which is shared throughout most of the developed western world. It is not so critical in countries where labour is still cheap. Australian device companies now recognise that they have to operate on the world stage.

How are businesses supported by industry, government and financial institutions, universities and research bodies?

There are no assistance schemes exclusive to medical devices, but we can avail ourselves of AusIndustry grants and incentives such as the Start Grant, Comet and similar. The government has just released a tax incentive for companies that comply with specific eligibility criteria.

Are specific product categories showing a propensity for growth? What does the future hold for Australian companies? 

Remote monitoring and telemedicine are growth areas. The future looks very promising, providing companies have an effective global distribution network and short supply chain.

What about wireless technology? Is this a specific growth area?

Yes, this is an area of particular interest to medical device developers, including Mondo Medical, for reasons from telemedicine and remote diagnosis, by simply reducing the amount of leads around the hospital bed. It is a specific growth area.

Are there new markets, perhaps in SE Asia, for Australian products and IP? Can you give any examples?

Markets such as SE Asia have a different health environment to ours. Labour is much cheaper and can compete with capital cost in acquiring labour saving devices. Quality standards can be inferior.

The more developed countries in this region have a desire to keep pace with medical developments and as new equipment is accepted in the west, there is a flow on.

On the other hand, countries like Vietnam for example, currently have economic constraints preventing them from being an attractive marketing target and currently receive substantial volunteer help. In time, depending on the improvement of their situation, you would expect a new market in this area. 

Can you comment on the overheads relating to compliance and approval requirements, for example, FDA and TGA? 

One of the things that make devices attractive is the lower development cost and shorter lead times, when compared to say, pharmaceuticals.

These comparative advantages are consistent with the regulatory approval process for medical devices. Nevertheless, devices are developed in an ISO environment, which certainly adds to overheads but ensures a quality standard. This of course is effectively a barrier to entry against cheap imports and those who aren’t serious about their product.

What are the key factors that have contributed to the success of your products? 

In broad terms, our product selection is based on need and is aimed at reducing labour intensity in the critical care environment, in terms of addressing clinical needs - persistence, insistence and consistence.  

comment

Professor Ron Sekel of Portland Orthopaedics shares some of his views on the current performance and future of the industry

I believe the medical device industry is slowly developing in Australia, but for it to enjoy future success all members of this intelligent community need to be wary of international takeovers.

In Australia there are several established and proven medical device manufacturers conducting ongoing research and developing improved facilities in house.

The quality of this research and development will provide a sound base from which to expand the industry. Many of these manufacturers enjoy well established associations with various university departments and some research institutions, including the CSIRO.

However the base is still fragile and I believe it needs greater support to prevent buy-outs or simple collapse.

Start-up medical businesses are being partially supported by financial institutions and often have received federal and state government support.

I remain extremely cynical about some of the funding support, in particular that from the finance industry. I am concerned about the lack of long-term ambitions by the community.

Generally there is a three or five year exit plan, leaving the founding researchers with almost no option but to sell off shore at the end of this relatively short period, losing the technology and intellectual property to overseas interests.

This is an important area that needs to be addressed and probably needs a change in the tax structure if Australia wants to keep its research and development results and manufacturers on shore.

State and federal governments do offer export support, but unfortunately this is in Australian dollars, and inter-national target markets are working in American dollars or Euros.

With the Australian dollar experiencing low levels, government assistance unfortunately has been seriously diluted. This means that $A200/day aid is diluted and reduced to less than fifty percent of what is realistically in the USA, Europe or Japan.

Another prohibiting factor for many developers and manufacturers is the fact that government research bodies struggle for funds and are of little assistance in the extremely cash draining world of biomedical device research and development.

When you consider that a successful device costs no less than five million Australian dollars to produce and that another ten million dollars is required to commercialise it, it is easy to understand the difficulty in keeping the intellectual property and manufacturing in Australia.

It is easier to sell off the developed product offshore to an international corporation at the end of the initial five million dollars. But this completely defeats the purpose of designing, developing and manufacturing in Australia and exporting internationally.

Our wonderful Australian education system is wasted as our graduates also are exported and lost to the international market place in parallel with our patents and products.

When considering what the future holds for Australian companies committed to developing and manufac-turing in the medical device market, it is essential that government support, such as the Start Grant system continues to grow in order to nurture the industry.

The future also depends on investors being prepared to look to a long-term industry stabilisation rather than as short-term profit taking with consequent sell out across the Pacific. This can only happen with tax enc-ouragement from the federal and state governments.

Some Australian generated intellectual property is still here on Australian shores, but it would not take much to buy it out and move it offshore, as has repeatedly happened in the past.

With genuine, advanced medical devices there is an international marketplace waiting, however look-alike products will have difficulty competing with the high volume mass production of established companies in Europe and America. 

There still is an absence of expertise and equipment in several important areas of medical technology, which requires further investment. These include:

• the ability to handle titanium alloys in a vacuum (vacuum investment casting)

• high molecular weight polyethylene moulding in a vacuum

• porous coating of prosthetics

These areas are core technologies, basic to the bio-medical device industry, but they are completely missing onshore, representing some six million dollars of investment.

It is my belief that, the specific product category showing a propensity for growth is the high tech ortho-paedic device industry and surface coatings, using the already established Australian companies as a base from which to work.

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