Originally Published MPMN June 2009

REGIONAL FOCUS: Washington

Innovation Is in Washington's Nature

A young and diverse pool of talent has gravitated to the Northwest’s biotech hot spot

Stephanie Steward

Washington’s highly regarded medical schools and increasing number of employment opportunities are drawing many young people to plant their roots in big cities like Seattle, where they can enjoy both the metropolitan scene and the beautiful scenery that surrounds it. Companies in Washington have taken advantage of the talent available from the universities’ medical and bioengineering programs and research institutions, and, collectively, they continue to form one of the nation’s biotech hot spots.

Successful in Seattle
Washington is home to nearly 200 biotech companies, of which 37% are dedicated to research and development of therapeutic products, 27% are focused on diagnostics, and 21% provide contract manufacturing services, according to Access Washington (Seattle; www.access.wa.gov), the state’s official Web site and economic development resource center. At the epicenter of this activity is Seattle, which the site calls the sixth-largest biotech center in the United States, with 55 firms generating approximately $600 million in annual revenue.

Seattle is also home to the University of Washington (www.washington.edu), which was ranked first in 2009 among primary-care medical schools in the United States, according to annual rankings of graduate and professional programs provided by the magazine U.S. News & World Report. The university’s College of Engineering and School of Medicine’s biomedical and bioengineering program was ranked fifth. “The University of Washington is a great school,” says Faina Zaslavsky, group director of microelectronics solutions for the electronics group of Crane Aerospace & Electronics (Redmond, WA; www.craneae.com), which supplies components for implantable medical devices. The company employs graduates from the school and sponsors summer intern programs as well. “The benefit is the availability of a qualified workforce for direct labor, as well as indirect, and there are a lot of high-tech companies, including medical electronics development companies, that one can draw from,” says Zaslavsky.

Because the local biotech, medical, and software companies have amassed a large nucleus of talent, the area has also become a spawning ground for start-ups, according to Craig Mitchell, president of Adhesa Plate Manufacturing (Seattle; www.adhesaplate.com), which provides labels, graphic overlays, and membrane switches for medical devices and equipment. “It is [the state’s] large, successful businesses that have attracted the people to come here,” Mitchell says. Many students and workers go out on their own to develop new companies, he adds. It’s because of these opportunities and development in the downtown Seattle scene, Mitchell believes, that the city has one of the highest percentages per capita of 30-year-olds, who serve as a vibrant workforce for the medical device manufacturing and biotech industries.
The Reach from the Rim
Washington’s appeal is also directly related to its proximity to the Pacific Rim. Although 89.6% of the state’s population consists of native U.S. citizens, the majority of foreign-born residents come to Washington from Asia, according to the 2000 census. The diversity of talent migrating to the state has helped companies keep up with international trends and stay innovative. “Washington is beautiful, healthy, and diverse, and that brings us people and skills from around the world,” says Gerry Gallagher, vice president of sales and marketing for GM Nameplate (Seattle; www.gmnameplate.com), which specializes in contract manufacturing of user-interface components.
Being on the coast of the Pacific Northwest also enables companies in Washington to work with foreign outsourcing partners in the Pacific Rim and the major manufacturing hubs in the United States equally well. This ability has become essential as outsourcing trends fluctuate.
“Outsourcing of design and validation complicates the tracking of work, especially as the supply chain becomes more fragmented,” says Gallagher. In terms of user-interface components, GM Nameplate has seen an increase in demand from industry for consolidating multiple machines used in hospital rooms and surgical suites, says Gallagher. Such consolidation of technology and modules increases device flexibility and functionality but creates logistical challenges for partners in the design process. Washington’s location, however, is ideal for navigating the complex nature of many design collaborations involving multiple partners, whether in China or California.
“Being close to customers helps business, and more components are being built in Washington due to the proximity to the Pacific Rim,” says Gallagher.
He’s not the only one noticing this trend. “We’re seeing more tool, die, and prototyping production demand coming back to the United States within the last year,” says John Cheung, CEO of Omax Corp. (Kent, WA; www.omax.com), which supplies water-jet cutting machines, including specialized equipment for machining precision medical device parts. This trend is caused in part by the economic downturn, which has caused overall demand for machines to decrease. However, the trend of outsourcing part and equipment production to foreign countries has also declined because of the shorter lead times that companies like those in Washington can provide to U.S. customers, he says.
Growing Pains
Although many of Washington’s medical device manufacturers and suppliers are located in the western part of the state, economic development organizations are focusing on stimulating the growth of the life science industry east of the Washington Cascades, part of the Cascade Mountain range. To do so, one of the state’s leading life sciences associations, Seattle-based Washington Biotechnology & Biomedical Association (WBBA; www.washbio.org), is partnering with state economic development organization Spokane Intercollegiate Research & Technical Institute (SIRTI; Spokane; www.sirti.org), which is located not far from the Washington-Idaho border. Combining WBBA’s resources—it is composed of more than 450 life sciences companies, universities, and other institutions—with SIRTI’s laboratories and facilities promises to help emerging and established companies in the eastern part of the state grow and create more high-paying jobs, according to a joint statement from the organizations. “It is important that we expand our reach in Eastern Washington and capitalize on the tremendous track record that SIRTI has for assisting companies in getting established and positioned for growth,” states WBBA president Chris Rivera.
These efforts reflect the state’s reliance on the life sciences as a major economic driver. Washington depends heavily on business for its tax dollars—approximately 54%—says Gallagher. However, certain estate tax laws are inhibiting the state’s own efforts to encourage business growth, especially among small and family-owned companies. The estate tax, also known as the death tax, pertains to total taxable assets at the time of death. “A big problem for privately owned business is the death tax at 19% over the federal death tax,” Gallagher says. Combined with the current administration’s intended 45% death tax rate, it creates the highest death tax in the country, Gallagher adds.
Such high estate tax rates provide small-business owners with a powerful incentive to limit the size of their companies, according to a May 2009 Los Angeles Times article written by Douglas Holtz-Eakin, a former director of the Congressional Budget Office. In the article, Holtz-Eakin poses the question: “Why would a business owner want to expand his or her company beyond a certain size if the end result will be a large ‘death tax’ bill that will negate much of the hard work and sacrifices the owner and the owner’s family made over the years?”
As a second-generation owner and operator, Adhesa Plate’s Mitchell knows about such challenges faced by multigenerational family-owned companies, as well as start-ups. “I think any business’s success is based on the level of passion at the top,” he says. And whether it’s the drive to create better products or the love for the outdoors, passion is something companies in Washington seem to have in spades.

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