All major industries have a central hub. For technology it’s Silicon Valley, and for the automotive industry it’s Detroit. Major industries create hubs naturally for easier collaboration, resulting in increased innovation and, ultimately, greater overall industry growth. Being part of an industry hub means easier access to financing, vendors, and experts in your industry, and the presence of competition increases the drive for companies to create the “next big thing.”

Image by User:Renschi81, via Wikimedia Commons

The United States has traditionally looked to California, Massachusetts, and Minnesota as the hubs for medical device manufacturing and innovation. With the exception of Florida, the Southeast has not been a major player in the industry in recent years. A renewed focus on medical devices, however, is forcing many companies to reconsider the Southeast as a hub for the industry.

Medtech Growth in the Region

Medical device companies in the southeastern region as a whole are growing. In early September 2012, for example, medical device companies led the South Carolina jobs report. The state’s medical devices and equipment industry added 15% more jobs and 13% more companies between 2007 and 2010. During the first three quarters of 2012, 19 deals (meaning buyouts, mergers or acquisitions) were completed in the medical device industry in the Southeast, according to PitchBook, a private equity database. Of those 19 deals, two were acquisitions, and of the 17 remaining deals the average deal size was $9.7 million, based on publically reported financial information.

But South Carolina isn’t the only southeastern state seeing growth in the medical device industry. Georgia and Alabama are also seeing growth, and with its “Research Triangle,” encompassing the cities of Raleigh, Durham, and Chapel Hill, NC, has already proven itself as an integral part of the medical device industry. Georgia is home to more than 300 bioscience companies, about half of which are medical device companies. Birmingham, AL, plays an important role in university research and incubator activities in the industry.

Why the Southeast?

The Southeast provides companies with a variety of resources and support that can help medical device companies get off the ground and gain traction in the space. Benefits of doing business in the region include:

• Tax Credits and Business Incentives. From a financial perspective, the Southeast, and specifically Georgia, offers medical device companies generous tax credits and incentives. For example, medical device companies performing research and development work in Georgia may be eligible to receive the Research and Development (R&D) tax credit, a lucrative credit that can be monetized even if a company has no revenue and a tax loss. A number of other states in the Southeast offer similar R&D tax credits.
   
• Infrastructure. The Southeast is a region rich in manufacturing and vocational history. As such, the region already has most of the infrastructure necessary for medical device companies in place. This means an easy and logical transition for medical device companies. The region is also known for its vocational training and boasts skilled laborers to work in the medical device companies.
   
• Academic and Research Environment. The Southeast is brimming with opportunity for medical device companies, as the state boasts a number of medical schools and one of the country’s top technical institutes, the Georgia Institute of Technology. More importantly, Georgia is home to the Saint Joseph’s Translational Research Institute (SJTRI), a world-class medical device and therapeutics innovation center, and the Global Center for Medical Innovation (GCMI), a state-of-the-art product development center that increases the speed at which medical innovations get from concept to market. Both of these resources allow today’s medical device companies to get a leg up on competitors in other parts of the United States and enable them to get their devices to market more quickly.
   
• Professional Support. As the Southeast continues to grow in this space it is important that medical device companies are supported in the overall marketplace to promote continued growth and the development of additional resources. This is where organizations such as the Southeastern Medical Device Association (SEMDA) step in. SEMDA is a nonprofit association headquartered in Atlanta that supports and promotes medical device companies throughout the Southeast. The organization provides a means for medical device companies and investors to network and build a community and provides them with the resource they need to grow.

• Transportation. Medical device exports represent about 20.9% of revenue for companies in the United States, according to market research firm IBIS World, and they are expected to increase. The Southeast provides the ideal location for transportation between the deep-water ports in Charleston, SC, and Savannah, GA, a network of highways and railways connecting the region to other major hubs around the county, and access to the world’s busiest international airport in Atlanta. The airport puts Atlantans within five hours of any city in the continental United States.

As the medical device industry continues to grow and new companies enter the market, a hub for the industry will form in the Southeast. The region provides the innovative resources and professional and financial solutions companies are looking for when determining the location for their medical device company. Could the region become the Silicon Valley of the medical device industry? Yes.
 

Mitchell Kopelman is the partner in charge of the technology and life sciences practice at Habif, Arogeti, & Wynne (Atlanta). He focuses on helping medical device companies with R&D tax credit studies, mergers and acquisitions, and proactive tax and accounting planning. He also works with companies as they expand globally or enter the United States. Kopelman graduated from Georgia State University with a bachelor’s degree in accounting. He can be reached at mitchell.kopelman@hawcpa.com.

Ori Epstein is a tax manager in Habif, Arogeti, & Wynne’s technology and life sciences practice. He regularly speaks at medical device industry conferences on topics such as the excise tax, business trends within the medical device industry, and tax planning and preparation for medical device companies. Epstein graduated from the University of Georgia with a bachelor’s degree in accounting and a master’s of accounting with a concentration in tax. E-mail him at ori.epstein@hawcpa.com.