BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT

Medical technology firms in the United States have a significant amount of influence on the economies of the states in which they are located. It's estimated that each medical technology job created in a given state will generate an additional two jobs in that state. Also, each payroll dollar at a medtech firm generates an estimated $1.12 in payroll in that state, and each dollar of medtech sales generates an estimated 90 cents in other sales in that state.¹

States vary widely in the size of their respective medtech industries. Not surprisingly, California, with more than 70,000 medical device workers within its borders, employs more than three times as many medtech workers as any other state. Massachusetts and Florida hold the second and third spots, respectively, with estimated 2006 employment levels of 21,847 and 19,949 respectively.¹

With the exception of Florida, few Southeastern states rank near the top of lists measuring the size of statewide medical device industries (see Table I). However, that isn't to say their industry presences are without influence. For example, Georgia and North Carolina have about 7000 and 8000 medical technology workers, respectively. Each medtech job in Georgia is estimated to generate an additional 3.99 jobs in the state—well above the median state job multiplier for the U.S. medtech industry as a whole. Similarly, each medtech job in North Carolina generates an estimated 3.76 jobs.¹ Thus, it's evident why medtech firms are highly coveted state residents—and ones that are increasingly being targeted by economic development agencies in the Southeast.

Southeastern Medtech Funding

One measure often used to gauge a region's medtech activity is the level of investment being funneled into companies in the region. Medical device companies in the Southeast—defined as encompassing Alabama, Florida, Georgia, Mississippi, Tennessee, South Carolina, and North Carolina—received $59 million in venture capital funding in the second quarter of 2007, or about 16% of the total venture capital invested in the region.² During the same period, biotechnology companies in the region received $91 million. Together the two industries accounted for more than 40% of venture capital funding invested in the Southeast during the quarter (see Table II).

By way of comparison, consider the medical device firms in Silicon Valley's robust medtech cluster, which received $285 million during the second quarter of 2007—about 11% of the total funds invested in the region. Meanwhile, that region's biotechnology firms harvested an additional $299 million. Combined, the industries accounted for about 23% of the region's venture capital investment that quarter. And even that large figure is dwarfed by the $669 million, or 26% of the total, invested in Silicon Valley software companies in the second quarter of 2007.

Thus, although significantly fewer dollars went into medical device companies in the Southeast than in the established Silicon Valley medtech hotbed, the Southeast's investment represented a greater percentage of the region's overall venture capital investment during the quarter.

Although medtech venture capital in the Southeast is far from the levels seen in Silicon Valley or the New England region in terms of dollars invested, such figures are understandable when considering the nature of the region's medical device operations. One difference that distinguishes many medical device companies in the Southeast from those in established medtech hotbeds is their stage of development. Teri Louden, president of The Louden Network (San Diego), says medical device companies in the Southeast tend to be at extremely early stages of development when compared with those in other regions.

"If you look at established medical technology hotbeds—such as Northern California or the Boston area—medtech companies in the area have access to every resource they need, including money," Louden says. "But in areas where the industry isn't as well established, you don't have the concentration of venture capital or angel investors with experience in the medical device field. And in the Southeast, those angel investors are crucial because venture capital investors today aren't putting money into companies until they are at later stages of development. And device companies need more and more initial seed capital these days. Companies need to make early expenditures on intellectual property, FDA and regulatory processes, and reimbursement advisory services. These are as important to support the economic business model as the technology itself.

"States in the Southeast that are focused on start-up activity need to find angel and seed capital funding," Louden adds. "That's the biggest hurdle communities in the region face—they have not had the same level of medical device wealth creation that established clusters have experienced. However, in any geographic area, the success of one medical device company could make all the difference. If a medtech company in the Southeast reaches the later stages of development and doesn't get sold or move out of the region, its success could be enough to spark a cluster of device companies in the area."

Louden notes that, although every state in the Southeast has a handful of small venture capital firms, they are not traditionally the big names and the venture capitalists with years of device experience that executives in the medical device industry are accustomed to seeing. And the Southeastern angel money invested in medtech endeavors is frequently from individuals who are passionate about a specific company; they aren't necessarily investors with medical device experience or expertise. Thus, Louden says, medical device companies in the Southeast tend to place far greater reliance on grant money than companies in other areas of the country. For example, she says, Advanced Liquid Logic (Morrisville, NC), an emerging medtech company developing microfluidic lab-on-a-chip technologies, has raised a major portion of its capital to date through government small business innovation research (SBIR) and other grants.

In addition, Louden says, business incubators in the Southeast tend to play a far greater role in fostering the development of medtech companies than they do elsewhere in the country. "Nowadays, companies need more than technology—they need a firm handle on issues such as intellectual property, regulatory requirements, and reimbursement analysis," she says. "Incubators provide that full-service support that is crucial for device companies in the early stages of development."

Established and Emerging Clusters

Although the Southeast's contingent of medical device companies lacks the prominence of those in other U.S. regions, certain pockets of activity play an indisputable role in the overall U.S. medtech landscape. Florida, for example, has long been a hub for medical device manufacturers and their suppliers, and local officials are making investments to ensure the state continues to attract and retain key industry players. Meanwhile, officials in North Carolina recently put in motion a plan designed to harness the state's existing capabilities and resources for the benefit of its advanced medical technologies industry.

Florida. It's not unusual for regions with strong medical device industries to boast equally or even more robust clusters of biotech and pharmaceutical companies. But despite shared characteristics, each industry has distinct needs in terms of resources, and such needs can sometimes be neglected when all three industries are lumped together under the heading of life sciences and treated by local officials as a single entity.

In Florida, however, there's little question that the state's medical device industry stands on its own two feet. In 2004, the state's medical device industry had a baseline output—a measurement similar to sales—of nearly $7 billion, representing about 57% of the state's overall medical products output. Pharmaceuticals accounted for about $3.3 billion, and biotech products accounted for the remaining $1.9 billion. The medical device industry accounted for a similar percentage of the state's medical products employment and labor income during the same period.³ International sales account for about a third of Florida's medical device revenues.⁴

Despite the fact that medical device firms dominate Florida's overall medical products output and employment, the state is home to significantly more biotech firms than medical device firms. In 2005, there were 779 biotech companies, 522 medical device companies, and 94 pharmaceutical companies in the state.³

In the Tampa Bay area, the medical device industry accounts for an even greater percentage of the overall medical products picture. In 2004, medical device firms reported a baseline output of about $2.4 billion, or about 69% of the area's total medical products output. Output at medtech companies in the Tampa Bay area accounts for about a third of the state's overall medical device output (see Table III).

Similar to the state as a whole, the Tampa Bay area is home to more biotech firms than medical device firms. In 2005, there were 146 biotech companies, 119 medical device companies, and 23 pharmaceutical companies in the region.³

Areas of specialty for Florida's medical device companies include minimally invasive surgery, diagnostic imaging, disposable devices and supplies, orthopedic and cardiac implants, and sterilization equipment.⁴ Many new medical technologies coming out of Florida are developed through collaboration. Florida universities are particularly active in life sciences technology transfer. Twelve of the state's universities have technology transfer programs in place to assist in the commercialization of intellectual property. University research and intellectual property specialties include the following.⁵