A Changing MedTech Landscape in Southwest United States

The Lone Star state rises even as California remains king in the nation’s southwest quadrant

By Chris Newmarker

When Canadian wound clamp company Innovative Trauma Care was searching for a U.S. headquarters in 2012, it did not turn to the usual suspects such as Minneapolis, Boston, San Francisco, or San Diego.

The Southwest region of the United States has a robust medical device industry.

The Southwest region of the United States has a robust medical device industry. Image from Flickr user Marxchivist.

Instead, the company's co-founder and president Dennis Filips settled on San Antonio, TX--for good reason, too. The home of the Alamo also has the San Antonio Military Medical Center, the U.S. Department of Defense's only stateside Level I trauma center, and a niche cluster of wound care device companies including Vidacare Corp. and Kinetic Concepts Inc. (generally called KCI).

"There was already a pool of talent down there. ... If we had gone to San Diego or Boston, it probably would have taken longer to make the right connections," Filips says. It also helped that the city of San Antonio made a $300,000 equity investment in Innovative Trauma Care, and there were eager angel investors and a few venture capital outfits such as medtech innovator Mir Imran's InCube Labs with a presence in the Lone Star State.

The story of San Antonio's medtech growth involves a cluster focused on a specific niche, in this case trauma care; the willingness of public and private sources to pony up some money; and a lower cost of doing business. It is a situation that is repeating itself across Texas in other cities including Austin and Houston, and a reason why the medical device landscape is shifting ever so slightly in the southwest quadrant of the United States.

California by far is still king in this region, but Texas is fast-growing. There are also glimmers of medtech activity in states including Utah, Colorado, and Arizona.

"We've found that it costs a lot less to build a company in Texas than in California or somewhere else," says Imran, CEO of San Jose, CA-based InCube Labs, which also has a San Antonio office. "Clearly the growth rates are higher in Texas and the South than in California, Minneapolis, and Boston," Imran says.

Coralling Texan Medtech Clusters

Texas' rise has had plenty of hitches, and is far from complete. Don't expect a bunch of medical device company executives wearing ten-gallon hats anytime soon.

Imran thinks the three major U.S. medical device industry hubs--California, Minnesota, and Massachusetts--have three major things going for them: a plethora of groundbreaking ideas produced inside and outside of universities, a large community of entrepreneurs who who can identify fruitful ideas and cultivate them into promising companies, and a large pool of risk capital to pay for medical device development.

Imran suspects that Texas has the academic institutions and the ideas, but is lacking in the other two areas. "Texas has great entrepreneurs, but you need a large quantity. You need thousands to produce hundreds of companies. You have 30, 40 entrepreneurs, you're lucky to get 10 new companies a year. Risk capital is also lacking," Imran notes.

And Imran sees funding as a tricky problem for the state: "Risk capital comes to locations where there are lots of deals. But in order to have lots of deals, you need risk capital."

To solve the issue, Texas' state and local governments have been stepping in to provide public cash to hopefully get enough deals flowing so that more venture capitalists take notice and get involved.

Governor Rick Perry's 2005 creation of the Texas Emerging Technology Fund (TETF) dealt the state itself a hand in the medtech game. While not solely interested in medical technology, in the past year alone TETF has announced assistance to five medtech startups as well as the creation of an academic Center for Cell and Organ Biotechnology, a collaboration between the Texas Heart Institute and Texas A&M College of Veterinary Medicine & Biomedical Sciences.

To date, the TETF has allocated more than $203 million in funds to 142 early-stage companies, and more than $216 million in grant matching and research funds to Texas universities, according to Perry's website.

Another public source of funding is the multibillion-dollar Cancer Prevention and Research Institute of Texas. The institute suffered a scandal in 2012 over what appeared to be the awarding of an investment to a company without required scientific or business review. A top official who resigned  has since been charged with a felony over the incident. Perry and other top Texas officials allowed the Institute to resume grant awards in October 2013 after a state-mandated overhaul.

For Innovative Trauma Care, the city of San Antonio's willingness to invest public money sent a welcoming message, Filips says. (The city also supports BioMed SA, a nonprofit working to drive local growth of the healthcare and bioscience sector.)

How Filips discovered San Antonio is an example of how personal networking can slowly but surely build a business cluster. Filips, MD, is a surgeon who served 20 years in the Canadian Forces, including tours in Afghanistan. He saw enough serious combat wounds to recognize the dangers of wasted time as people try to use a tourniquet or other methods to stem blood loss. Along with Ian Atkinson, PhD, Filips started Innovative Trauma Care in 2010 to develop and commercialize what is now the FDA-approved iTClamp. It resembles a hairclip, but its flesh-piercing needles are sophisticated enough that Filips compares it more to the head of a giant jungle ant in the way it can clamp down on a wound.

The iTClamps can be quickly and easily applied to open wounds caused by, say, shrapnel. "I think it could have made a huge difference at the Boston Marathon bombing," Filips says.

As Filips prepared to start the company, he networked through the wound care industry and met Philip Faris, who from 2005 to 2010 was CEO of the San Antonio-based emergency vascular access company Vidacare. Faris introduced Filips to San Antonio and eventually became Innovative Trauma Care's executive board chairman in 2012, the same year the company opened its San Antonio location.

"He like what we we're doing, and we formed a good business relationship and personal friendship," Filips says of Faris.
Innovative Trauma Care recently embedded itself even more into the San Antonio wound care community with the addition of KCI's former CEO Cathy Burzik to its board. "At the board level, there is a tremendous amount of experience behind the company," Filips says.

Innovative Trauma Care is still headquartered in Edmonton, Alberta, but nearly half of its roughly 20 employees are now in San Antonio, and Filips expects to hire more people in Texas as the company continues to ramp up commercialization of the iTClamp.

"They had the right combination of ... executive management team, the right investors, the right city politics, the right institutions research-wise. It all came together in San Antonio. We're just as thrilled a year later and think it was the right move," Filips explains.

San Antonio's wound care device Mecca isn't the only niche medtech cluster in Texas.

Houston has long been a center of cardiology and cardiovascular research. The Houston Methodist DeBakey Heart & Vascular Center, the Baylor College of Medicine, and the Texas Heart Institute are all in Houston. So is the University of Texas MD Anderson Cancer Center, as are such companies as Cyberonics, which develops neuromodulation implantables, and Nanospectra Biosciences, which is looking into particle-based thermal ablation of solid tumors.

NASA's Lyndon B. Johnson Space Center ensures that a vibrant aerospace medicine community also thrives in Houston.
Austin has meanwhile turned itself into an innovation hub, and even showcases the latest cutting edge technologies at its annual South by Southwest festival. Companies such as e-MDs, a leading player in the electronic health records space, got off the ground in Texas' capital city. And Austin is home to the Texas Healthcare & Bioscience Institute, whose members include a number of big medtech names, as well as the Texas Medical Device Alliance, a trade association "to help medical device companies become and remain successful in Texas."

The 2012 Texas Medical Devices Industry Report lists Austin as an orthopedicas and diagnostics hub.

A network of suppliers to the device industry can also be found throughout the state. Among them are test-and-measurement firm National Instruments (NI), which calls Austin home. NI's medical devices division helps companies design, test and validate their products.

Another Texas company, Dallas-based Texas Instruments, manufactures a range of electronics used in an array of medical devices.

Incidentally, Dallas/Ft. Worth is a medical device hub in its own right and is known for wound care and eye care products manufacturing.

California Still Dominates

Despite the optimism in Texas, it is worth noting California remains the dominant medical device state in the country. California has "a lot of great ideas, huge amount of risk capital, preponderance of experienced entrepreneurs and managers and business people," Imran says.

The Los Angeles-San Diego corridor alone boasts a combined total of nearly 100,000 people in medtech and includes the headquarters of Irvine, CA-based Edwards LifeSciences and Allergan and San Diego-based telecommunications giant Qualcomm and its Qualcomm Life subsidiary.

There are three main clusters in Southern California, in Los Angeles, Orange, and San Diego counties. According to the California Biomedical Industry 2013 Report, Los Angeles County has attracted large medtech companies such as Johnson & Johnson's Biosense Webster and Medtronic, while device companies focusing on cardiology, interventional neurology, orthopedics, and ophthalmology have gravitated to Orange County. San Diego, on the other hand, has a strong biotech contingent and is emerging in the digital health space.

Meanwhile, the the San Francisco Bay Area/Silicon Valley nexus nearly equals the south in medical device jobs. While SoCal beats out the Bay Area for core medical device jobs, the north is on par with the south for overall jobs in the life sciences.

The Bay Area also attracts the largest share of venture capital investment in the country. Over the years, a significant amount of venture funding has supported medical device development. Recently, however, the amount of venture funding going to medtech projects has been dwindling but surging in the so-called "digital health" segment.

Northern California could play an important role in inventing the future of medical technology. The region has already played a key role in driving the trend of medtech consumerization, which transfers innovation from the tech field to healthcare. Already, smart devices are spurring the innovation of an array of novel medical devices and body monitoring technology.

California also has some of the most prominent medical research entities in the world. The National Institutes of Health gives California more grant money than any other state, roughly 15% of the total NIH funding in the country. The Bay Area is home to Stanford University; University of California, Berkeley; and University of California, San Francisco, while SoCal has the University of California, Los Angeles (UCLA); University of Southern California (USC); and the California Institute of Technology (CalTech).

UC San Francisco actually receives the most NIH funding among California universities, receiving about $500 million in the first nine months of 2012 alone, according to the California Biomedical Industry 2013 Report. Stanford brought in more than $334 million, and UC Berkeley netted nearly $119 million.

Other Glimmers of Growth

There are also signs of some medtech growth in other southwest U.S. states such as Utah, Colorado, and Arizona.
Edwards Lifesciences, Merit Medical Systems, and Nelson Laboratories are on the roster of the state employers in Utah. The state has more than 600 firms in the life sciences space, about 100 of which are medical device companies.

Salt Lake City-based companies include Medron Inc., which develops and manufactures disposable medical products; Nelson Laboratories, a provider of microbiological and quality assurance testing; MasterControl, which provides medical device software solutions; Myriad Genetics Inc., a leading molecular diagnostics firm; and Moog Medical (formerly Zevex), which offers contract manufacturing and lab services.

The Salt Lake City metro area is also home to divisions of CR Bard, and Becton Dickinson Medical. Merit Medical Systems, a worldwide designer, developer, manufacturer and marketer of medical devices used in interventional and diagnostic procedures, makes its headquarters in South Jordan. Earlier this year Edwards Lifesciences announced it will be doubling its workforce in Draper to about 1000. These new positions will fill roles in areas such as engineering, manufacturing and administration.

Not all roads lead to Salt Lake City, however. Down in Provo, for example, FlexLeg LLC makes a hands-free crutch alternative for temporary lower-leg injuries such as a broken ankle.

All this success did not occur in a vacuum. The University of Utah (Salt Lake City) hospital and medical school are known for medical device innovation, particularly in orthopedics and cardiovascular devices. The university has a program, the Center for Medical Innovation, to encourage collaboration with industry and to commercialize innovations developed by students and faculty.

The Colorado medical device industry is centered along the metro corridor of Fort Collins, Denver, Boulder, and Colorado Springs. Companies range from a Sandoz unit of giant Novartis in Broomfield to Denver's Eldon James, whose BioMed cleanroom facility focuses on the manufacture of products designed for the life sciences, biomedical, pharmaceutical and similar applications.

Another global giant, Covidien PLC, employs about 1850 people at its Gunbarrel, CO, campus, which has roughly doubled in size since 2006. In 2012 it opened a new 63,000-sq-ft research and development center at the Gunbarrel location, which is roughly equidistant from Boulder and Longmont. And a trip to Longmont might find the medtech maven at Operator Interface Technology, which makes copper antimicrobial keyboards.

The Colorado Bioscience Association (CBSA) claims the state's medtech industry is the sixth-largest in the nation and creates over 27,000 jobs. CBSA partnered with the state government to create the Bioscience Discovery Evaluation Grant Program which awards funding for emerging and early-stage companies and commercialization infrastructure.

Colorado's leading educational institutions in the medtech space are the University of Colorado at Colorado Springs, said to be the fastest-growing university in the state, and the University of Colorado at Boulder, which claims the largest research university in Colorado. Colorado State University at Fort Collins is home to the School of Biomedical Engineering, the first of its kind in Colorado. The school says its "crossfunctional program integrates physical, chemical, and mathematical sciences with engineering principles and clinical studies to address society's current and emerging needs in the health fields."

While the medical device industry's presence in Nevada, New Mexico, and Oklahoma is limited, Arizona has a relatively strong and growing medtech industry. At present, the state's medical device industry comprises nearly a third of the state's non-hospital medical employment.

The state is actively trying to expand its presence in what it refers to as bioscience, which includes everything from medical research to biotech and medical device development.

In 2002, Arizona launched a Bioscience Roadmap with the help of the non-profit Flinn Foundation (Phoenix, AZ). The organization committed to help fund the growth of the state's bioscience presence to make it globally competitive.  A decade after the roadmap was launched, the state's bioscience sector witnessed job growth that was four times faster than the national average, according to a report from Battelle Technology Partnership Practice. In less than a decade, the number of bioscience jobs grew by 45%, from 68,318 in 2002 to 99,018 in 2011.

Also supporting the growth of Arizona's bioscience industry is AZBio (Chandler, AZ) and the accelerator BioAccel (Phoenix). The latter organization supports a range of bioscience firms and recently launched an accelerator dedicated to medical device applications known as BioInspire (Peoria).

The funding climate in the state, however, remains a hurdle. According to the Flinn Foundation's A Bridge Crossed report on the state's bioscience industry, venture funding in the state dipped 68% from 2011 and 2012. The funding dedicated to bioscience ventures was the lowest it had been since 2009.

The lack of funding--not to mention entrepreneurs--is not just an Arizona issue but an issue across the southwest outside of California. So while there are some green shoots, medtech executives are probably asking the same question the farmers in the southwest asked a hundred years ago: Is it going to rain?

Chris Newmarker is senior editor of MPMN and Qmed. Follow him on Twitter at @newmarker and Google+

Stephen Levy contributed to this story.

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