China Restricts Supply of Components to Top U.S. Drone Maker

Uncovering Risks Tied to Ethylene Oxide (EtO) Sterilization in Healthcare

September 27, 2024

Case Study

Executive Summary

Through its purchase of a supply chain risk management illumination, a U.S. government client tasked Exiger Government Solutions (“Exiger”) with assessing the risks to the medical device sterilization industry associated with proposed Environmental Protection Agency (“EPA”) regulations of ethylene oxide (“EtO”) and identifying possible sterilization alternatives to EtO.
Exiger identified that the proposed regulations could indeed have a major impact on the sterilization market and sector supply chain. Fortunately, alternative sterilization methods could help to reduce these ramifications.

Overview of Proposed Regulatory Actions

On April 11, 2023, the EPA proposed two new standards for U.S. EtO sterilization companies to help reduce exposure to EtO, after concerns were raised regarding EtO’s carcinogenic properties. These proposals are designed to reduce EtO emissions into the atmosphere and better protect workers exposed to EtO during medical device sterilization.
- Reduce Emissions: The first proposed rule would require EtO commercial sterilization facilities to cut EtO emissions by 80%. Companies will have 18 months to comply with the rule if it becomes finalized and will need to report EtO emissions to the EPA.
- Reduce Usage: The second proposed rule would require medical device sterilization companies to reduce and monitor the amount of EtO used to sterilize medical devices and to mandate workers wear personal protective equipment at certain EtO levels.
Exiger found that there are currently 86 EtO sterilization facilities and 6,129 hospitals in the U.S. Not all EtO sterilization facilities are used for medical device sterilization.

Potential Industry Impact of Proposed Regulatory Actions

Reduction in U.S. Medical Sterilization Capacity: The EPA proposals, as drafted, could reduce total sterilization facility capacity by 30-50% on average and up to 70% for select facilities, which could cause significant disruptions to patient care, according to the Advanced Medical Technology Association (“AdvaMed”). AdvaMed also urges that:
- The 18-month limit for companies to implement EtO emissions reductions and monitoring is too short and will further intensify sterilized medical device shortages.
- A required reduction in the amount of EtO used to sterilize medical devices would necessitate the revalidation of millions of devices to ensure that proper sterility measures are met. This revalidation process could be lengthy and directly impact the supply of critical medical technologies.
Withdrawal from the Industry: The EPA’s proposals could lead to a significant number of small businesses exiting the commercial sterilization industry, as well as supply chain disruptions and impacts to patients, according to the U.S. Small Business Administration’s Office of Advocacy.

Objectives & Methodology

Exiger performed open-source research to identify EtO chemical suppliers, sterilization device manufacturers, sterilization companies, 14 alternative sterilization methods, and companies connected to alternative sterilization methods.
Exiger highlighted the following areas for investigation:
- Risk to the medical device sterilization market associated with the proposed EPA regulations on EtO.
- Analysis of alternative sterilization methods and comparison to EtO.
- Risks connected to EtO companies and alternative companies.
Exiger investigated and risk-assessed 726 companies with its proprietary, risk-based due diligence software DDIQ. Exiger augmented these DDIQ findings with open-source research.

Alternative Sterilization Techniques

Exiger performed open-source research to identify EtO chemical suppliers, sterilization device manufacturers, sterilization companies, 14 alternative sterilization methods, and companies connected to alternative sterilization methods.

Low-Temperature Sterilization Alternatives	High-Temperature Sterilization Methods	EtO Alternatives in the FDA Sterilization Innovation Challenge
Hydrogen Peroxide Gas Plasma (“HPGP”)	Steam and Flash Sterilization	Supercritical Carbon Dioxide (“Sc-CO2”) Sterilization
Ozone Sterilization	Dry Heat Sterilization	Nitrogen Dioxide (“NO2”) Sterilization
Chlorine Dioxide (“CIO2”) Sterilization		Electron Beam (“E-beam”) Sterilization
Gamma Irradiation Sterilization		X-ray Sterilization
Low-Temperature Steam and Formaldehyde (“LTSF”) Sterilization		Vaporized Hydrogen Peroxide (“VHP”) Sterilization
Vaporized Peracetic Acid (“VPA”) Sterilization		Vaporized Hydrogen Peroxide (“VHP”) Sterilization

FDA Encouragement of EtO Alternatives Research
- In 2019, the FDA announced an innovation challenge to identify alternative sterilization methods. The alternative methods are primarily novel and have not been widely researched or implemented.
  - The one exception is E-beam sterilization technology, an accelerator-based radiation sterilization that is already used to sterilize approximately 15% of medical devices in the U.S.
- In 2023, the FDA also launched a sterilization pilot program to help sterilization companies switch from EtO or gamma irradiation sterilization to E-beam or X-ray sterilization.

Key Findings

The proposed EPA regulations on EtO could markedly reduce the output of sterilized medical devices and may cause some companies to exit the sterilization market. These effects would likely severely disrupt the medical device supply chain, significantly impacting patient care.
- The majority of the top 10 companies with U.S. EtO sterilization facilities, determined by revenue, may see significant disruptions to operations if the EPA proposals are enacted.
There is currently no one-size-fits-all replacement for EtO in the medical device sterilization market. However, a variety of alternative sterilization methods may be able to compensate in the event of regulatory action against EtO.
Exiger identified and risk-assessed 42 companies that have EtO sterilization facilities in the U.S. Overall, on average, their risk scores were only slightly elevated. That said, the primary risk driver among companies with U.S. EtO sterilization facilities, especially those with more elevated risk profiles, was alleged regulatory violations.
Exiger risk-assessed 125 companies that were identified through open-source research as manufacturers or providers of alternative sterilization equipment or services. Of the 125 companies, 52 are headquartered outside the U.S.
- Overall average risk for these entities was only slightly elevated, primarily driven by foreign ownership. Six of these companies faced allegations of regulatory violations in the past 10 years.
The main input for most alternative sterilization methods is industrial gas. The seven largest industrial gas suppliers have a very elevated overall average risk, primarily driven by alleged regulatory violations, foreign ownership, and foreign investment.
- The top industrial gas companies are large, multinational firms with extensive foreign investment, including business ventures with state-owned enterprises. At least four of the seven companies have joint ventures or strategic agreements with Chinese state-owned company Sinopec and have faced regulatory allegations and lawsuits in the past seven years.
Cobalt-60, a byproduct of nuclear reactor operations, is the primary input in the gamma irradiation sterilization process, a method currently used to sterilize approximately 40% of all medical devices. Exiger identified and risk-assessed 19 companies that produce or supply cobalt. The average overall risk for these identified cobalt suppliers and producers is highly elevated, primarily driven by risky state ownership connections.
- Seven of the 19 companies have state ownership connections, including to Russian state-owned company Rosatom and Chinese state-owned companies China Isotope and Radiation Corp. and Zhejiang Huayou Cobalt Co. Ltd. Cobalt-60 is only produced in a small number of reactors in Argentina, Canada, India, Russia, and China.

Recommendations

Exiger identified potential next steps to mitigate risks to the medical device sterilization market, including:

Review and become familiar with accompanying Illuminations data via an alternative Exiger product, DDIQ-Analytics.
Consider ordering Exiger-produced analytic reports on entities of interest.
Consider investing in companies that provide alternative sterilization methods.
Consider illuminating other sterilization method sectors and supply chains.

More Resources: