Scaling Smart — Leveraging Manufacturers Early to De-Risk Investment and Commercialization | USA '25

Joe Mullings  0:05  
All right, good afternoon. Thanks for being here final day after lunch. Hopefully the carb counts aren't too high and we'll keep you as engaged as possible. So just always like to get a feel for in the audience anybody before we start pulling down the road, contract manufacturers, anybody related to that business in the office? Okay, one, there, two, there, three, there. So you're a CMO or design house, outstanding. No secrets. Don't get don't give away the secrets. Okay? And those using a CMO somewhere in their business right now, or thinking about selecting a CMO. Great. Okay, just so I know, because it is a workshop, and I want to try and offer as much value as possible across the board. And I'd also like to include some of the CMOS in some of the dialog as well battle test it. So, gentlemen, why don't we start with introductions, Brian on the end there, and we'll work it back my way. 

Bryan Lord  1:00  
Sure. Hi, good afternoon, everybody. My name is Brian Lord. I'm the CEO of Pristine Surgical we're located in the greater Boston area, actually, in what I like to call the tax free zone of the greater Boston area, in New Hampshire, just across the border. There's a story there, why we're there, which we'll get to. And we make single use arthroscopes. So you can think about it as a kitted scope that has a component that's a razor blade side of things, and then it plugs into a piece of capital equipment as well. So we'll talk more about the product as we go.

David Van Slingerland  1:31  
Okay, good afternoon. I'm David Van Slingerland, the CEO of sterling industries. We are a cdmo. We've been in business for 40 years. We are headquartered in Toronto, but we have facilities in the Midwest, in Michigan as well. We produce products. In the first 30 years, we produce products only for the strategics, and then in the last 10 years, as the make versus buy decisions by strategics have occurred. We're now moving downstream to work with scales and startups, because that's where probably most of the innovation and product development comes from, and they need help to get to commercialization. 

Joe Mullings  2:14  
So to that point, let's start there, and then I want Brian's journey to you as a contract manufacturer. What dynamics have you seen in the last five to seven years, customer base, customer acquisition and the things you look for before you take on a partner?

David Van Slingerland  2:31  
Sure. So evolutionary, the strategics were taking on much more risk early. So they were looking for startups that has now evolved to scale ups. So we originally started to work in the scale up space. So what's a scale up? Somebody who's got regulatory approval, somebody that may have a minor, small commercialized footprint and has a proven product. Now we're starting to see the evolution as the strategics, and even investors have moved to post commercial companies. Now, the burden of development is moving earlier and the assistance that is required, because now you don't have the strategics helping their investments along to get to commercialization. You now have the startups that have to kind of go it alone. And as we know, resources are finite in the startup world, and so they need resource augmentation, and they need somebody that probably knows the roadmap of how to get to commercialization. 

Joe Mullings  3:44  
Got it and Brian, so that's where you enter with pristine chair. At least give me the arc of the story as valuable and as brief as you can of how did you show up on Sterling's foot doorstep, and were you already producing, or were you in ideation?

Bryan Lord  4:05  
Yeah. So I think if you think about sort of the myriad of different case studies that a group like Sterling could have, or all contract manufacturers could have, you cut a full spectrum of sort of turnkey, and Let's optimize to all the way on the other end of the spectrum, where you're really even pre ideation, if you will. So we are much more towards that end of the spectrum. So the company was founded, we like to say we were virtual before virtual was cool, kind of as a necessity. So the original platform for for pristine was developed by a couple of surgeons. Had an idea that actually moved to a relationship with the contract development group called DECA research in Southern New Hampshire and the greater greater in Manchester, New Hampshire. So all of our first generation research is really done specifically there at deca, with a virtual organization around it, making sure that we have investment that comes in Docs that are advising. But the contract development work was really done in partnership with deca, their whole strategy and their development from, from and, you know, very clear mandate is to get to a proof of concept, and preferably to 510 k. So I think everybody knows the kind of standard approach that oftentimes companies take. We do a two step approach to a 510 k approval. And we did that. So we got a proof of concept on the initial 510 k, and our engagement then with DECA was complete. So now what go find somebody who can help build it. You expect that some elements of that prototype then transition into the manufacturing side of things, kind of, you know, in a straightforward basis. And you also expect that you have to do some DFM in order to move to the to the high scale side of things. And so that's when the search began. As I recall, we actually, we got introduced because Sterling had a particular relationship, a particular capability and a critical component for our device. And so you know many different serendipitous ways that you you know that you meet people, that's where it started. And if from there, we started to understand a little bit more about the breadth of their capabilities. That really was, was beyond just that, that singular component. And so then we push off, for sure, to Shure or from Shure, excuse me, and said, Okay, now we need to do is develop this from a manufacturing perspective. So I give you that somewhat lengthy in spite of your admonition to keep it brief, somewhat lengthy story, because you can see that how early it was that we actually started to engage. And so what was most important for us at that stage was somebody who had the ability to scale, certainly, and I knew, given the client base that Sterling had, that they, you know, support the best of the best in the industry, but also a willingness to come very early on a comparative perspective, right? So we had at least some proof of concept and regulatory approval in hand, but, boy, we didn't know what we didn't know in terms of what we needed to do in order to alter the device and do the DFM to get into the kind of production that we have today. Look, there's competition for the business. And so there's a competition for the business that occurs sort of from a sales perspective, but then there's a competition for the business that also occurs from the engineering perspective. And without revealing too much about the extent of my liberal arts background, it's pretty hard for liberal arts major to actually discern into the sales side of things and kind of figure out what's going on there. But, yeah, I actually discern and weigh the competing, you know, approaches from the engineering perspective. So that's challenging, but part of part of it, it just is. And so, you know, you've got some sort of preferred methodologies that might be reflective of the core competencies of those groups. And I think that certainly was, was reflective in this case. And you have to listen carefully, and you have to ask some, I think, important questions to try to understand whether it's just better or whether it's preferred. And those are, those are tough, tough processes, but natural, right?

Joe Mullings  8:01  
So one of the things I want to go back to rewind the story a little bit, because there's a lot of founders at this at this event, and generally, who you pick to start out with determines a lot of things that happen well and less optimally, moving down range. So when you went into deca, right? So those who don't know DECA Dean Cayman is a legend for for all righteous reasons, but you're also you're getting an ideation house. You're not necessarily getting a house that's thinking about volumes down range as much as they should have in the volumes that you're in and in an emerging market with single use scopes, right? So in a redo, what would you wish you had known when you in the first contract with Dean or DECA that would have changed some other decision making down range. That's question number one, and I have a question number two after that. 

Bryan Lord  8:56  
It's good question. I don't I don't know that. Look, David might say, So correct me if I'm wrong, that perhaps if you came with a surgeon in a really basic prototype that wasn't anywhere close to what the what it needed to be, that you could take that and start from there. But I think that you know, the way it worked out in hindsight is probably the way that you know about the way it should, which is that you got a doc who, as I remember the interview that the Dean did with respect to the early days of pristine where he said he almost can, you know, kind of replay the tape in my head. He said, Look, you know, it wasn't the nature of the prototype that was really compelling to them, looking at at this as an opportunity, but it was really about the docs communicating need, and that there was need in the market for some innovation in the space. It was Dean's idea to do the to take the prototype and make it single use. I think when we, when the doc saw, identified a need, and. Took a swing at a relatively rudimentary prototype. Dean coming and said, I don't really care about your prototype, but I understand the need. What can we do, and how can we do it in a way that actually advances where he knows better than most, where technology is going. We can do this in single use, knowing where microelectronics are going and everything else. Everybody's eyes got big and said, Let's do that. Let's address the need, and let's do it in a way that's forward looking. And I think look, not to pat ourselves in the back too much forward looking beyond what we knew that forward looking would look towards. This was long before you sort of understood what digital technology in you know, this conference would be talking about as a sort of what year was that? Oh, gosh, that was eight years ago. Okay, yeah, maybe nine. So those you don't get that type of perspective about the future from very many people, and that's why Dean Kamen is Dean Kamen. And I think we were very fortunate then to start with that type of forward thinking, and then what we had to do is kind of build into that vision. So we had to build into that vision from a prototype perspective. And they said, Okay, we've done our job. And, you know, obviously we'll help with the transition, help with, you know, some, some introductions and the like. But Dean wants to go back and solve the next big problem, correct, right? That's his, his world class sweet spot. So then we transitioned and filled that in. So I guess it's, it's a fairly, it's a good and a fairly, it's a, as usual, Joe, a provocative question, but I don't know that I would have, I don't know that we would have gotten there if we would have sort of not had that sort of push the envelope visionary introduction and then transitioned to then fully ability to reach back and sort of grab that and take that into high volume production. The combination those two things, frankly, has been, I think, critical for us to be able to do what we need to do. This has been a tougher technology lift, and I think even dean would have thought, certainly more than I would have thought, probably more than than you've would have thought. But without those sort of two yin yang, something I don't know the we could have built the bridge. 

Joe Mullings  12:12  
So David, Brian shows up on your doorstep with this prototype, so to speak, working prototype as a cdmo. What are you looking at when you assess whether you want this as a customer base?

David Van Slingerland  12:25  
So I think one of the things that we apply to all folks that show up at our doorstep, everything from the mad scientist doctor who's got this great revelation, to folks that have already serially delivered medical devices. But in many ways, we think similar to what, how an investor would think and and what I mean by that is, you know, you look at one of the first questions we ask is, what's your Tam? And if they don't even know what a tam is, then it's we know that the direction, the direction of the conversation is, kind of goes elsewhere, but it's really understanding. Does it have legs? And have they? Has the person bringing the idea to you thought this through, what's their market share going to be, you know? So if they say, Yeah, we're going to sell, you know, a million of these things. So Brian was actually able to articulate that as and, and as a point of reference, a million is 4% I think, of all procedures. So that's a pretty modest, that's a pretty modest number to say, Yeah, we're happy with 4% of the market. You know, if you have somebody who shows up and says, Yeah, I'm gonna get 80% of the market, and then you just starts, like, really, you know, unless there's, like, nobody else, you know, if you're making something for maybe Antarctic penguins or something like that. 

Joe Mullings  13:42  
But why is that important to know? Because Are you making heavy investments in the beginning and later in the game?

David Van Slingerland  13:47  
So it comes in a variety of ways. Most of it's opportunity cost. So you know, our engineering team is is a finite commodity. They're expensive guys, and I don't want to assign them to a project that is going to go away in two months out of the gate, either because, you know, the the device owner is is, you know, just doesn't have their act together, or they don't even have the money, and that's the other part of it. Is the other part of it is, do you know what it takes to commercialize? Do you know all the steps that you have to go through? It's not just about getting regulatory approval. That's the, I don't wanna say the easy part, but it's, how do you then commercialize that after you have your 510, K What? What are all you know, it's, it's not inexpensive, and there's a lot of people that get sticker shock from all of the regulatory work you have to do process, validations, equipment validations. Maybe you have to get capital equipment. You know, you have to decide, even we decide, are we going to do everything internally, or are we going to outsource some of the stuff? So you have to go through this entire process to understand, what are we really signing up for? 

David Van Slingerland  15:00  
So You really are an investor, to a certain extent, through the vetting process and the diligence process, and you'll look at that and oftentimes ask to go through that as if you were going to be writing a check,

Joe Mullings  15:11  
because, in essence, you kind of are writing a check 

David Van Slingerland  15:13  
Absolutely. 

Joe Mullings  15:15  
Yeah, Brian, were you ready for that experience as a first timer? 

Bryan Lord  15:20  
Well, I think so. I think that I knew how much we needed for that cm to reach back. And as a result, you know, that you need somebody who's willing to invest in a fairly, you know, significant pathway. Again, I think we learned that pathway had a longer, you know, stretch to it than perhaps we expected. But nevertheless, I think we were well aware that there are the large behemoths that you've got to come to with 10 million units to, you know, get a return phone call from. And so you needed to look for a select capability, interest, willingness, entrepreneurial mindset, you know, to move earlier, necessarily. You know, looks, in some cases, those that just happens naturally, those folks select themselves out. But I think we had an instinct that we needed, you know, to find a partner that was willing to, you know, you call it what you want, but invest is a really good word. 

Joe Mullings  16:18  
When do you make a decision as a business owner and a founder to not have a backup plan in case the cdmo becomes insolvent or resource constrained, because I've seen that happen from my side many, many times.

Bryan Lord  16:40  
So I have always 

Joe Mullings  16:43  
it's like a relationship. I'm asking if you ever cheated on? 

Bryan Lord  16:45  
Yeah, thanks. Thanks, Joe. It's Look David. You can choose how you disclose your customer base, but David's got, you know, at Sterling customers, they're amongst the bluest of the blue chips, and the youngest of the young bucks, you know, and in between, it's always given me confidence that if it's good enough for the bluest of the blue chips, it's going to be good enough for us. And they're probably more aggressive in discerning that question than I need to be, especially given our funding, relative funding, you know, startup pathways that you have to go through. So I've always had a lot of confidence given the company that I was able to keep in the portfolio of customers that I knew I was a part of.

Joe Mullings  17:32  
And earlier in the conversation, I was listening, because, I mean, I know both you very well for a couple of years, but not knowing all this story, it's almost as if you took a partnership role as a Sherpa for him, when I think about you going to Korea with him, because obviously, who were the other subs in the relationship, you had a stake in their success as well, because the kind of final came to you, right? Is that very typical from your experience? Do you take that much of a partnership role, or does the founder, Owner, strategic or small, emerging tech company decide where you play with them?

David Van Slingerland  18:09  
Well, certainly, our approach is to be partners. You know, as I tell people, we don't take transactional business. So if somebody comes to me and says, can you build me 100,000 of these and we'll shake hands and see each other, maybe in the future. That's not the type of business. I call it rental business. I want long term partnerships. We have partnerships with some of our strategics that have been in place for 25 years. So that's, you know, that is a commitment to the partnership and a commitment to how we want to do business. So I would much rather prefer that than somebody who's just going to dump something on my lap and say, Please make it and we'll see you later. You know now, we did have that through COVID, obviously, because it wasn't maybe necessarily the person's prerogative to do that. But COVID ended, thankfully, and the need for the the products that we were making and that so,

Joe Mullings  19:03  
so, if so, so there's entrepreneurs sitting in this room, and there were Brian was with pristine six, seven years ago. What? What? What is your what is your list that they should be going to cdmo with that would allow them to have the most robust potential experience, vetting process and final decision making process as they go out and evaluate those? For you. 

David Van Slingerland  19:27  
Oh, you're asking me, 

Joe Mullings  19:28  
yeah, you're sitting there and somebody knocks in your door with a scope seven years ago. 

David Van Slingerland  19:32  
So I think there's a couple of things, understanding the market, understanding what is MVP for that, for that product set, and also the understanding where they like a self realization of where the gaps are. What do they have? What don't they have? From a knowledge base? Do they have engineering resources? Do they have ideation resources? Have they done this before? Are key things, and the other thing is also a. A willingness to iterate. And lastly, don't let perfect be the enemy of good enough, because I can tell you, and for those of you have delivered devices, the first thing you deliver is not going to be perfect. And maybe, by design, maybe you don't want to deliver all futures immediately, but in general, you're going to get market feedback. You can do as much market research as you want, but in if you're inserting your product into case flow, you're going to get an, you know, you're going to have 10 doctors who will give you 15 opinions on how they should use the device, right? So this is how you know, how we expect that the founder and their organization want to work, and we find that that's probably the most synergistic. And, you know, and we're in it, we're in it to be partners. If you think about it, design has when the design ends, the music stops and the check stop, right? Because the designs over with. So you could argue that there's, you know, some reluctance for the design house to finish the design, because they want to keep getting paid. In our case, our, you know, our goals are very much aligned with the founders goals, which is, they want to sell, and if they sell, we get to make because ultimately, we're first manufacturers. All of these other things we do are means to an end. Like even, you know, we're very vertically integrated. We have injection molding, we have machine jobs, we have lots of other toys that the engineers get to play with, and the ops people get to play with. But those are all a means to an end. At the end of the day, it's about creating commercialized product to sell in the marketplace, yeah,

Bryan Lord  21:49  
if I may, if they're first time founders in the audience that are sort of thinking through the same thing and wondering, Gosh, what a complex process to work through. Yes, but I think it's actually really pretty simple. I always think about in almost any interaction whether the interests are aligned or whether they're divergent. If you start there and say, align your interests, the rest of it falls into place. If you have misaligned interests, it's almost impossible to actually do the things you need to do. It's just a fundamental, you know, criteria. So David, you your comments sort of triggered that thought in my mind. It was clear in the way that our initial discussions went that there was no resistance. In fact, consensus around making sure that interests were aligned from the beginning that gives you a lot of confidence that the details can be figured out underneath it, number one, and I think number two, if you have the opportunity to work with a cm where you know that you get access to the top guy, that makes a big difference as well. I think as I look back, I didn't know any different. I just expected that that was the case. You know you chat with what I think that's rare. And so David, to your credit, look, we were, you know, we've been on conference calls this week together. You know about a few things that we're fine tuning. So, you know, it's very different. You can, you know, myriad of different avenues, but if you can align interests and have personal and over time, build a relationship, put a lot of dinners together, we traveled to places together, and then what you have is alignment of interest, and really, at the end of the day, trust. So you can have all kinds of stuff where you talk about, you know, injection molding techniques and bonding, blah, blah, blah, and all that sort of thing. But to me, those are the two the most fundamental things I look back on, and why this partnership worked. It sounds a little Kumbaya, but that's the that's the base, you know, reality of I think the rest of it falls into the details, when you can get those two things right. 

Joe Mullings  23:47  
as both business owners and both always concerned about, rightfully so, about economics and funding. Is there ever a time that you've considered having a piece of the action in a partner and shared on that. And have you ever thought about back and forth, sharing that with whoever vendors? I know, what happens in the search business is we will preserve cash and take skin in the game on those Does that ever occur? Should, should, should any of the entrepreneurs out here think about that with relationships.

David Van Slingerland  24:19  
They're your shares. So I'm not going to say anything. 

Bryan Lord  24:22  
They're your shares too. 

Joe Mullings  24:23  
Well there, well, there's my answer anyway. Next question, right? No, I think, look, I think that's an important thing, though, because we do it as well, you know, and, and it just sends a signal to the partner, like, I'm in this with you, you know, I've got x in the game. So I didn't mean if that wasn't supposed to be asked, 

Bryan Lord  24:41  
I was smirking because I want to let him answer, you know, disclose, but if you piggyback on the previous comment, there's no better way to align your interest together than for you to be, you know, aligned and as shareholders. And we're grateful to have David as and Sterling as a shareholder in the cup. Me so that that weaves it even deeper. If you're looking for even further distinction. Look, that's not a requirement. That's that's a really cherry on top, but it certainly does solidify the alignment of interest.

Joe Mullings  25:11  
You want to add anything to that, or just go to next question. 

David Van Slingerland  25:16  
You know, I think there's other things other than being a shareholder. And you know, somebody asked me one day, well, if pristine didn't make it, you know, is it going to topple your business or affect your business? And you know? And the answer is no, but sorry, but, you know, I think we're on the journey together. So I've been in investor meetings. Brian's brought me to investor meetings because the investors asked, Who's making this thing for you? What you know? Can they achieve your vision? So, you know? So I've been trotted out on a few occasions to explain, you know, it's, it's sort of coming from the horse's mouth, as opposed to Brian saying, Yeah, trust me to the investment, you know, investors, or possible investors even, yeah, and so that's the other thing. Now, I don't know if other CMS do that, or would be willing to do that, but certainly that's, you know, back to we're all in. That's, we are all in. 

Joe Mullings  26:13  
Yes, I think that's a pretty powerful statement. Is to bring it to investors. And to your point, if you're looking for money. You're going to be biased in their eyes. But bring out the contract manufacturing partner, or manufacturing partner. Let's leave the contract manufacturing partner around. I think that's critical. Absolutely. What didn't we cover here that we should have covered? I know we only have a couple minutes left. Is there anything in particular I think would be valuable for the audience, and if there are any questions while I'm doing this. Hands up. Certainly feel free to that. But what didn't we talk about?

David Van Slingerland  26:44  
Not specific to Pristine but, you know, I think I also look at why we have other folks come to us from other CMOS. So they're looking to leave their current cmo for a variety of reasons. Typically, quality is a concern. Scalability is a concern. You know, we've had situations where the C the CMO, went bankrupt and right on the eve of commercialization, and they've come to us, and then the last one is capability. And so we've taken on a number of assignments where we've done a manufacturing transfer of gen one and continue to make that in the marketplace. And then we've been involved in the evolution and the bit and the design of gen two, which is typically a variation on the theme of gen one. It's just an improvement. But again, it's we get experience under our belt of gen one, but then we're making gen two and many CMS that are assembly houses only. Don't have extensive engineering teams like we do, can't play in that game. And so there is a cost to move your manufacturer, and that's the other thing to consider. You know, where are you in your journey? Do you expect? You know, are you going to go in for the cheap and cheerful guy to start with, and then you know, graduate when you know you've gotten some traction, whether it be from an investment perspective or from a from a market acceptance perspective? So that's the other thing you have to also think about is, what is the ultimate journey of your device and what's your exit look like? You know, the other benefit that somebody like us adds is because the strategics have long been our customers. If you think about it, if your exit is to sell to a strategic, it becomes a turnkey sale, because the strategic can just show up and say, Hey, we just bought pristine or whomever it is, stop shipping it to Brian over here, and start shipping to our distribution center over there. And by the way, can you please make 10x of them? You know, we're involved with other strategics that they have. They're looking at buying a product, and they will come and ask us, okay, you're at 50,000 a year right now. Maybe we want to do 500,700 50,000 tell me how you're going to get there, or how you can do that with this product. And so we're happy to do that to show that there is a that there is a plan. And, you know, I think the strategics are more about, you know, you know, you look at somebody like J and J, they would prefer not to make anything, you know, in within reason, of course. And then you get others who want to make everything, or most things, but for those that want a turnkey solution, that's another thing to look for. 

Joe Mullings  29:35  
Brian, anything as we close out here, that you want to share, that we didn't talk about. 

Bryan Lord  29:40  
I think one thing that occurred to me, also, for the first time CEOs, is that this sounds rather kind of step functioning in the way that it sort of described the relationship. What really happens, though, as well, it's important to sort of foreshadow, is, as you initiate the relationship with a cm, your enterprise is developing at the same. Time. And we went from a very small level of participation with Gosh, sort of 95 five in terms of the percentage of people from pristine and the percentage of people at Sterling, to now a much more balanced configuration. You sort of grow into that relationship. And that's important at the end of the day. You want to have, you know, a balance where you can lean against each other and bring something to the table on both sides, when that's been an intentional effort on our part. It might sound a little counter intuitive that as you go you know, shouldn't you sort of rely more and more and more on your CM? And we actually have gone the opposite way. What we said is we need to actually build more capability in order to be be good partners together with it, with the CM. And so that's something to sort of expect as you mature, as moving towards that, that development phase, I'm sorry, towards that manufacturing phase that you got to bring some additional investment to the table as a, as a on the company side, 

Joe Mullings  30:53  
Great. Question. 

Audience Question  30:54  
My question is about tariffs, changing tariffs, and more about sourcing. So we have electronics from Southeast Asia, cameras from India. How do you think this is going to affect production costs, margins for manufacturers in the United States, and ultimately, inventory and lead time for for companies like us?

David Van Slingerland  31:15  
So we've certainly had lots of conversations with lots of different customers who have a lot of different characteristics. It's a complex equation, depending on where things are coming from. So you talked about a very diverse supply chain. So you're if you think about it, labor rates, loaded labor rates, India, $5 Mexico, 15 in we're Canadian, so we think about Canadian dollars 20 or $28 these are all US dollars, by the way. And in the US labor, $38 loaded. So it becomes an equation of tariffs versus uplift in labor, and that's driven by how much labor content do you have in your product. If you have a very low labor content, then you're probably not concerned about bringing on a slight uplift in labor cost, but if you have a high labor content, then it's probably bringing it to the US as an example, will probably far outstrip the money that you'd spend on tariffs. The other thing is, you can do final assembly in the US. So if you think about it, if I bring in a finished device, that's $1,000 that's I'm going to pay Tara phone $1,000 if I bring in plastic components, plastic might be $1 for a piece of plastic. Now they're only paying 25 cents on that. So you can mitigate some of the the tariff risk by bringing things in in pieces, and then do the final assembly in the United States, where you're adding all the value and the cost, the value of the good is going to its final price and but if you do it in the US, you avoided tariffs. So there's a lot more to it. Every every situation is different. But I just gave you a couple of examples just to talk about you know that it's not just a yes or no answer, I guess.

Joe Mullings  33:03  
Thank you. Well. Thank you very, very much for attending and sharing and listening. So let's hear it for our panel, please.