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Medtech in the Southeast

Regional medical device centers are poised for growth through innovation and collaboration.

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.

State
Employment
Payroll ($ millions)
Sales ($ millions)
Alabama
2,328
109.4
516.8
Florida
19,949
1,074.9
5,656.9
Georgia
6,801
413.3
2,583.5
Mississippi
771
43.3
175.6
North Carolina
7,804
380.7
2,706.5
South Carolina
3,702
199.6
1,370.8
Tennessee
5,820
323.1
2,073.3
Table I. Estimated 2006 employment, payroll, and sales of medical technology industry in Southeastern states. Source: U.S. Census Bureau data, adjusted by the Lewin Group.

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).

Industry
2001
2002
2003
2004
2005
2006
Q1 and Q2
2007
Medical devices
    and equipment
166
134
107
40
223
216
161
Biotechnology
173
236
186
199
232
143
195
Table II. Venture capital investment in the Southeast by industry (in $ millions), from full year 2001 through the first half of 2007. Source: Thomson Financial for Pricewaterhouse-Coopers-National Venture Capital Association MoneyTree Report.

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 (Chapel Hill, NC), 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).

Sector
Firms (no.)
Output ($ millions)
Florida
Tampa Bay
Florida
Tampa Bay
Medical devices
522
119
6,997.77
2,388.54
Biotechnology
779
146
1,883.68
241.73
Pharmaceuticals
94
23
3,327.18
841.92
Total
1,395
288
12,208.6
3,472.19
Table III. Number of medical products companies and their output, by sector, in Florida and the Tampa Bay area. The number of firms columns represent 2005 data. Output—a measure similar to sales—is based on 2004 figures. Source: Center for Economic Development Research, College of Business Administration, University of South Florida.

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

Not surprisingly, Florida medical device firms seem to have an easier time attracting investors than those in other regions of the Southeast. In the second quarter of 2007, Florida medical device firms attracted $45 million in venture capital investments—the vast majority of the $59 million that was dispersed across the entire Southeast (see Table IV).2

State
2006
Q1 2007
Q2 2007
Alabama
0
0
0
Florida
113
30
45
Georgia
33
20
5
Mississippi
0
0
0
North Carolina
71
52
3
South Carolina
0
0
0
Tennessee
0
0
7
Table IV. Venture capital investment in medical device and equipment companies in the Southeast, by state (in $ millions). Source: Thomson Financial for PricewaterhouseCoopers-National Venture Capital Association MoneyTree Report.

North Carolina. North Carolina is home to 142 medical technology companies, an increase of 35% since 1996. In 2006, medical technology companies in North Carolina employed 7222 people.4 Major medical technology companies with operations in North Carolina include BD Technologies (Durham and Research Triangle Park), Teleflex (Research Triangle Park), Baxter (Marion), Wilson-Cook Medical (Winston-Salem), Arrow International (Asheboro), bioMérieux (Durham), Closure Medical (Raleigh), and Coeur Medical (Washington).

The state is also home to a number of smaller and start-up medtech firms. Their recent product launches have focused on technologies such as percutaneous cardiac defibrillation, site-specific biological delivery technology, new-tissue coagulation devices for surgeries, implantable wireless sensors, nonvascular stent technology for pulmonary and gastroenterological purposes, point-of-care diagnostics, biopolymers for tissue repair, and wireless handheld units for diabetes testing. One such start-up firm, Advanced Liquid Logic, was recognized as a Frost and Sullivan 2007 entrepreneurial company of the year and as a runner-up in the 2007 Wall Street Journal Technology Innovation Awards competition.

Capital is flowing steadily into North Carolina medtech firms. Since 1999, healthcare technology companies in North Carolina have raised more than $545 million in private and public equity from investors, according to data compiled by the North Carolina Biosciences Organization. Among these investments were $370 million for medical device companies, $99 million for diagnostics firms, and $76 million in investments in medical information technology businesses.

Many of these investments have enjoyed successful exits in recent years. Closure Medical (Raleigh), a wound-closure technology company, was acquired by Johnson & Johnson Inc. (New Brunswick, NJ) for $426 million in 2005. Quill Medical (Durham), a developer of barbed suture technology, was acquired by Angiotech (Vancouver) for $40 million in 2006. TriPath Imaging (Burlington), a cervical cancer diagnostics firm, was acquired in 2006 by Becton Dickinson (Franklin Lakes, NJ) for $350 million. In addition, TranS1 (Wilmington), which develops minimally invasive surgical procedures for the treatment of lower back pain, garnered $82 million in a recent initial public offering.

Growth in North Carolina's medtech industry has been supported by a variety of state assets. These include university biomedical engineering programs; a cluster of existing medical device and device component manufacturing and prototyping companies; adequate venture funding resources; and a supportive, albeit small, medical device vendor community, including expertise in regulatory, reimbursement, marketing, legal, and research services. And with the anticipated emergence of more combination medical technology products coming to market in future years, North Carolina is well positioned given its breadth of scientific and academic centers in universities across the state.

North Carolina has also benefited from the work of several early-stage incubators with a focus on medical devices. Of these, one of the most successful has been Synecor, a medical technology incubator founded and operated by device industry pioneers with deep roots in North Carolina. With operations in both the Research Triangle area and Northern California, Synecor and its related start-up companies have raised more than $123 million and created 61 new jobs in North Carolina since 2000. One Synecor start-up, InnerPulse Inc. (Research Triangle Park), has raised nearly $100 million and hired more than 40 employees.

The emerging success stories across North Carolina's medical technology industry prompted a recent systematic assessment of the industry's potential for future growth. This study, conducted by Louden, included national, regional, and statewide interviews. In September, the North Carolina Biotechnology Center published Louden's report surveying national trends and state-level industry growth, and identifying the challenges and opportunities for future medical technology growth in North Carolina.5 The report identifies opportunities in the convergence of existing medical technologies with other technical fields in which the state already has core strengths. These include the state's internationally recognized base of biotechnology assets, a strong information technologies industry, and emerging strengths in nanotechnology.

To coordinate these assets and to strengthen the basic infrastructure now supporting medical technology growth, the report recommends creation of a new resource: the North Carolina Center for Advanced Medical Technologies. The center will focus on attracting additional talent to assist emerging companies with business management, product development, regulatory and reimbursement issues, intellectual property, financing, and other key challenges. Medical technology industry leaders are now working on a business plan for the proposed center, with a goal of launching the new entity in 2008.

Conclusion

Although number, size, and prominence of medical device firms in the Southeast may pale in comparison with those in other U.S. regions, pockets of activity continue to merit attention as local authorities invest in creating the infrastructure and business climate required to sustain successful medical device operations.

Likewise, as medical technologies continue to converge, it's likely that states and pocketed communities will continue to adapt existing strengths in fields such as biotechnology and information technologies in order to meet the specific needs of medical device firms. Future advances in medical technologies are likely to arise from cross-disciplinary collaborations, and multiple Southeastern communities have—or are fostering—the academic and business environments needed to spark and support such shared efforts at a grassroots level.


References

1. State Impacts of the Medical Technology Industry (Falls Church, VA: Lewin Group Inc., 2007); available from Internet: www.lewin.com/newsevents/publications.

2. "The PricewaterhouseCoopers-National Venture Capital Association MoneyTree Report" (New York: PricewaterhouseCoopers, 2007); available from Internet: www.pwcmoneytree.com.

3. The Medical Products Industry Cluster in Tampa Bay and Florida (Tampa, FL: Florida Medical Manufacturers Consortium and the Center for Economic Development Research, College of Business Administration, University of South Florida; 2007).

4. "Employment and Wages by Industry, 1990 to Most Recent" [online resources] (Raleigh, NC: Employment Security Commission of North Carolina, 2007); available from Internet: www.ncesc.com/lmi/industry/industryMain.asp#industryWages.

5. North Carolina's Strategic Plan for Advanced Medical Technologies (Research Triangle Park, NC: North Carolina Biotechnology Center, 2007); available from Internet: www.ncbiotech.org/resource_center/07_med_plan.pdf.

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