“The medical industry has been impacted less than most industries, but the economy is affecting almost everybody at this point,” said John Madden, sales director for the eastern region of MedPlast Inc. in Tempe, Ariz.

“Our sales target is 20 percent year over year growth. That is the plan, and we have every expectation of hitting that target,” said Madden in an interview at the Medical Design & Manufacturing East show, held June 9-11 in New York. “But a lot of people are being cautious right now and I see some programs being cancelled because of a lack of resources at original equipment manufacturers.”

Brian Payson, director of business development for the Nypro Healthcare unit of Nypro Inc. concurs.

“Up until 3-4 months ago we hadn’t seen much impact on the development side, but we saw a couple of programs cancelled, primarily in drug delivery, because they didn’t have the return-on-investment that the companies wanted.”

“Everyone thinks that health care is recession-proof, but hospitals have cut budgets, too, and have delayed going forward on replacing expensive equipment,” said Thomas O’Brien, industry manager for health care for Sabic Innovative Plastics US LLC in Pittsfield, Mass. “But we are starting to see the light at the end of the tunnel. The next few weeks, the next few months will tell the story of whether we are moving up or whether this is just an inventory correction. But I think the second half of this year will be better than the second half of last year.”

Still, because of that caution on the part of OEMs and hospitals, short-term growth, at some companies, will be lower than anticipated.

Nypro, for example, expects sales to increase 6 percent in its fiscal year that ends June 30 after projecting a near double-digit growth just six months ago. Mack Molding, which announced the formation of MackMedical at MD&M East, has scaled back its short-term growth projection from 10-20 percent to 5-10 percent.

But none of that is causing medical device manufacturers or contract manufacturers to alter their long-term growth or expansion plans. To the contrary, they are continuing to make investments and investing to make medical a larger portion of their business.

“Three years ago, we made the decision to shift away from auto and toward high-tech medical business,” said Larry Wilton, chief executive officer of UPG International in Oak Brook, Ill. “In the very near future, medical will be over one-third of our sales and it is climbing like crazy. We are making quantum leaps forward. We spent a lot of capital to expand the business and to put UPG in a league by ourselves and it is paying off.”

UPG expects double-digit growth in its medical business in 2009, said Matt Langton, vice president of sales and marketing at UPG. “Our growth this year is higher than last year. We want medical to be 50 percent of the company in three years.” It is currently 33 percent, with consumer products around 30 percent and industrial, 30 percent. Automotive, which is part of industrial, is less than 10 percent.

Wilton said UPG plans to add a 10,000 square feet white room in existing space at its Monterrey, Mexico, facility by December and said that by mid-2010 its Fremont, Calif., plant by will be producing finished products with fluids, a growing trend in the industry.

“Depending on how successful that particular product is, we would hope to do the same kind of work at our Tijuana and China plants,” said Wilton. “We are getting close to where will have to again expand” the clean room capacities at our Tijuana, Fremont, Suzhou, China plants. He also said UPG might need to expand its Tijuana operation in the next two years.

GW Plastics Inc. in Bethel, Vt., expects flat-to-modest growth in 2009, because automotive business has dropped almost in half. But “2010 looks very good,” said Larry Bell, vice president of business development and marketing for GW. “The tooling backlog is quite strong. That is usually an indication of molding and assembly growth.”

“Health care is about 80 percent of our business,” said Brenan Riehl, president and chief executive officer of GW. “We have flipped the company in the last 10 years from automotive to health care.”

Like others, GW is looking to invest in its medical facilities. “We expect to expand our clean room assembly capacity in Tucson, Ariz.,” to create an integrated molding and assembly center, said Riehl.

“A lot of our customers want an outside partner who can do product design, high-precision molding, tooling and integrated assembly under one roof and on a global basis,” said Riehl. “We are making a strong push into contract manufacturing, integrated molding and assembly. We plan to invest more in contract manufacturing facilities.

To underscore that, GW last month hired John VanBosch as general manager of contract manufacturing to focus on the medical device market. “We see more and more OEMs moving toward outsourcing the complete design, manufacturing, assembly and validation of their products. We have to act as an extension of our customers. Most companies are looking to evolve in that direction.”

“We have ample scalability in all six of our facilities,” said Riehl. “So we have the ability to grow without a lot of capital investment.”

Likewise, Tessy Plastics Corp. earlier this month started to move equipment into its just-completed 40,000 square foot addition to its advanced manufacturing plant in Elbridge, N.Y., that will be used equally for medical and consumer products.

“We will be operating in that expanded space in a few weeks,” said CEO Roland Beck in a phone interview prior to MD&M East. “We will initially be adding 20 molding machines into that space. The clean room capabilities give us the ability to do automated assembly. That is a real key to our growth.”

Beck said business “flattened out” in the first few months of the year, but the company is on track to match $150 million in sales from last year again in 2009. “Business is starting to pick across the board. More real projects are coming out. We could need to expand again later this year,” said Beck, whose company, until this year, has been growing at 20 percent annually since 2002.

That increasing need for contract manufacturers to provide services has many gearing up to fight for share in that space.

Already, for example, Nypro derives 60 percent of its medical revenues from services after a part is molded.

Similarly, MedPlast believes the investments it has made to upgrade facilities since the company was formed 15 months ago are ripe to pay dividends, said Madden.

“Our investments have positioned the company very well for what the OEMs are looking for — ISO 13485 compliance, competitive pricing, clean room manufacturing, tool building, project management and design capabilities,” said Madden.

“It gives us the ability to provide more value-added services and bid on larger programs instead of just shoot-and-ship in a box,” he said. “Our multi-plant capacities can help companies cut down on logistics and risks because we now have standardized systems.

“We have gotten our infrastructure up to where it needs to be,” added Mike Farrell, director of sales for MedPlast. “Going forward, we have to leverage off what we have just done.”