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Jan 15, 2010 (Vol. 30, No. 2)

OEMs Redefine Role in Biotech Sector

Modern-Day Original Equipment Manufacturers Do More than Provide Private-Label Instruments

  • Trends

    Click Image To Enlarge +
    Pall Life Sciences reports that its OEM customers are increasingly interested in working in partnership.

    Drug developers are likely to see more OEMs involved more collaboratively in the equipment and assays they use. For example, Pall Life Sciences’ OEM customers are increasingly interested in working in partnerships with OEMs to tap into the OEM’s knowledge base to actively develop solutions. “They want extra value,” Kara Cannon, vp of diagnostics and biotechnology, points out. “We do a lot of customization work,” and also offer consulting services at the OEM level.

    Drug developers are also seeing increasing levels of standardization around open platforms, which enhances flexibility and competitiveness of applications. Total solutions are also becoming more popular as manufacturers tap into best-of-breed technologies that are already matched and tested, helping their drug development clients minimize the testing and analyses that typically accompany platform and application purchases.

  • Why OEMs?

    Click Image To Enlarge +
    BioTek Instruments' OEM business is focused on microplate instrumentation.

    Companies are turning to OEMs rather than developing projects themselves, partially in response to the belt-tightening that is afflicting nearly all industries. “A number of companies have come to us to evaluate the cost effectiveness of outsourcing (through Promega’s OEM) versus manufacturing themselves,” Silveira says. “Drug developers purchase a number of our assay systems for drug screening. Rather than open hundreds of small tubes/bottles, they purchase the products in larger custom sizes, making it more convenient and economical for them.”

    As Jason March, director of marketing for small instruments at Hamilton, points out, “most companies don’t make all their subcomponents.” Their expertise lies elsewhere. Working with OEMs helps manufacturers redeploy staff to focus on their core competencies.

    The OEM approach also can dramatically reduce time to market. Tecan’s Brändle reports time to market for a dedicated instrument is typically three to four years, while customizing a platform-based instrument can be accomplished in only 12 months. “A platform approach,” he says, “is best for companies wanting rapid prototypes, flexibility, and fast time to market.” However, he continues, “that approach is not cost optimized and specific applications typically need only about 30 percent of the functionality that is available.”

    Other benefits include accessing intellectual property, expanding product lines, adding value to existing lines, and freeing staff to concentrate on more sophisticated, technical products rather than commodities. The result increases profits, and sometimes, locks in customers.

    From the OEM’s perspective, this is a channel strategy that results in long-term business-to-business relationships. As such, it is somewhat more stable than direct sales and supports the goal of increasing profits. Although OEM gross margins typically are lower than for direct sales, they are offset by lower sales expenses, Hrusovsky says. OEM work also provides manufacturers with the opportunity to better leverage their IP and product portfolios.

    “For our own business,” Barush says, “it allows us to maximize incremental revenue, lowers the cost of doing business, and helps us smooth manufacturing forecasts. It also helps lower component costs, increases market penetrations, and exposes us to new technologies or chemistries. It also lowers costs to users.”

    “For us, it makes sense to stay focused on our expertise and to look for companies that complement that expertise rather than trying to be all things to all people,” adds Pall’s Cannon. One of Pall’s areas of expertise is separations, so it ports that expertise into developing separation solutions and devices. But, rather than take the next step toward packaging a full assay kit, Pall often prefers to partner with experts in that competency, thereby providing a better solution to drug developers.

    That model is repeated throughout the industry, as companies seek others with complementary strengths to add value to their own offerings. Last July, Tecan took the unusual step of highlighting two of its still-developmental technologies to potential OEM clients at the AACC meeting.

    “This generates a pull effect,” Brändle explains. Now, rather than merely designing concepts in response to requests for bids, Tecan can choose companies with which it wishes to partner for more robust, mutually beneficial alliances. Other OEM options include customizing its existing platforms, developing specific instruments to specification, and supplying components.

    BioTek also thrives on customization work. “We pretty much sell our off-the-shelf products as OEM, from software through complete automation packages,” Barush says, but the OEM instruments that are destined for specific kits are optimized for the assays they will run.

    OEM arrangements have opened many niche markets these manufacturers otherwise could not have entered. BioTek components, for example, are now used in endotoxin testing, food testing, animal testing, agricultural testing, and blood screening. This exposure increases the value of the brand, but also expands its own consumables markets.

    OEMs in the biotech sector today are exceeding the original parameters of providing private-label instruments and internal components. In the process, distinctions are blurring so that an OEM may just be your next partner.

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