Despite the uncertainties associated with Brexit and the Covid-19 pandemic, Irish medical device manufacturer Vitalograph is ahead of revenue targets.
‘In the medical device business in Europe,’ explains Frank Keane, CEO of cardio-respiratory device manufacturers, Vitalograph, ‘We have a perfect storm at the moment. There’s Covid-19, which is putting different demands on the sector, then there’s the uncertainty caused by Brexit, and meanwhile there’s the major changes due to new regulation – the impending EU Medical Device Regulation.’
Vitalograph was founded in the UK in 1963, when founders Margaret and Dietmar Garbe developed a device that could test miners for ‘black lung’. A family-owned enterprise to this day, the firm is now a global leader in respiratory diagnostics, with facilities in Ireland, Germany, Japan and the USA. The company exports to clients across the world and has recently cornered the cough analysis market in clinical drug trials.
Since 1974, Vitalograph has performed all of its manufacturing and R&D in Ireland, from a facility in Ennis.
‘We’ve had a lot of support from Enterprise Ireland over the years,’ says Keane. ‘We have had R&D support, a job expansion scheme, a LEAN initiative, marketing support…. the practical supports are fantastic. For example, they recently helped us to get very good distributors in South Africa and Zimbabwe.’
This year, management has attended several Enterprise Ireland seminars and, more recently, webinars, to find out how best to prepare for Brexit. ‘That’s been a great help for understanding the implications for customs. That’s where we have been getting the majority of our knowledge on customs changes – they’ve kept us informed as much as is possible.’
While the pandemic is dramatically altering the market and even affecting the supply chain, the sector is already experiencing the financial impact of Brexit, which will likely create obstacles in the near future. To address these challenges, the company has broken down Brexit-related issues into four categories: regulatory approvals, finished products to the UK, components from the UK, and transport.
Regulatory changes are already proving very expensive for the company.
‘Both our Irish facility and our UK facility are accredited by the British Standards Institute (BSI), headquartered in Milton Keynes in the UK,’ explains Keane. ‘The effect of Brexit is that BSI UK has lost its certification as a notified body. That means that any company accredited by them can no longer sell into the EU.’ BSI’s solution was to set up a Dutch subsidiary, and Vitalograph is now accredited by BSI in the Netherlands. The change has had huge financial implications for the company.
‘All our products have to be labelled with the notified body’s registration number. And that number has changed. We had two years to make the change, but it’s a huge job. We have 16,000 mouldings and labels that needed to be changed. That became a major cost for us. We’ve had two full-time staff working on it for two years: one new hire and another transferred from another position.’ He estimates that this has cost the company about €500,000 in personnel, tooling and design changes.
Another issue, and one that is causing real uncertainty for the company, is that once the UK leaves the EU regulatory system, they are going to set up their own medical device approval system. The difficulty for a company like Vitalograph, is that legislation is still stuck in the House of Lords, and changes are still being made to it. ‘So, we don’t know what it’s going to be or how quickly we are going to have to act,’ explains Keane. ‘It’s out of our control. All we can do it sit on the side-lines and wait.’
Although Vitalograph exports to Europe and the USA, the UK is one of their biggest markets.
There are two aspects of Brexit that are going to affect sales to the UK. The first is that products sold into the UK will have a tariff for the importer. ‘The tariff is about 6% according to WTO rules under a no-deal Brexit. It is paid by the importer, but actually, the importer is us in this case,’ explains Keane. ‘It’s our headquarters that will import the devices.’
There is also an issue with bringing material into Ireland. Vitalograph Ireland sources some of its components from the UK. After 31 January, in the case of a no-deal Brexit, there could be tariffs coming into Ireland. ‘Our overall policy is to source as much in Ireland as we can, but Ireland has a very small supplier base,’ says Keane. ‘We will try to switch to countries other than the UK where possible, but some components are quite bespoke and difficult to source elsewhere.’
Transport routes are a major concern. Over 90% of Vitalograph’s products are sent through the UK to mainland Europe, by road. At the moment, there is no way for the company (and other Irish exporters) to bypass the UK.
With the UK leaving the EU, it is anticipated that goods coming through the UK will be subject to checks, delays, and costs. ‘This is our biggest worry,’ explains Keane, ‘because half our business is supplying products and services to clinical drug trials and we need to be able to deploy very quickly.
Despite the various upheavals in Europe, the company is ahead of its revenue targets this year. ‘But,’ says Keane ‘it’s been very messy.’
‘While the demand for hygiene devices and remote monitoring has gone up, a lot of more usual clinical testing isn’t happening – so other areas are down. Our direct sale model is obviously down too.’
One reason that Vitalograph has coped so well through this turbulence, is that they have built up a very strong business with devices and services for clinical drug trials. They began to develop the area about 15 years ago, and it is now growing by 20% per annum. Something that has been particularly successful, is cough measurement in clinical drug trials.
‘The project was actually initially partially grant-aided by Enterprise Ireland,’ says Keane, ‘and it has been so successful, creating many, many jobs and bringing in a revenue of over €50 million.’
For now, Vitalograph is expecting just to ‘swallow the 6%’ tariff’ and adapt to the new approval legislation. But they are aware that it may become necessary to start manufacturing products for the UK market in England.
‘That’s not something we want to do,’ says Keane, ‘and we have no plans to do it now. But we might have to.’