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The Device Industry Flourishes in America's Heartland and Out West
The Western and Midwestern regions of the United States are home to some of the device industry’s leaders, but they also serve as a backdrop for some emerging high-tech hubs
November 1, 2008
13 Min Read
The advice, "Go West, young man," popularized by Horace Greeley in the mid-1800s, encouraged settlers to migrate westward to seek out new opportunities on the frontier during an era of expansionism and manifest destiny. But this advice could just as easily be imparted to medical device manufacturers. The Western and Midwestern regions of the United States are home to thousands of medical device OEMs and suppliers, including multiple industry leaders. Regional infrastructure, support from local development groups, and contributions from universities have enabled these regions to flourish as global medtech centers. In this Regional Roundup, MPMN takes a look at the medtech industry's presence in hotbeds such as Minnesota and California, as well in several up-and-coming hubs located in Missouri, Michigan, Ohio, and South Dakota.
Despite recent national and state-wide economic turmoil, reports show that biotechnology companies in California have still been able to secure venture capital in the third quarter of 2008. As a firmly established major hub for medical device manufacturing and biotech research, California has the business networks, grant programs, airports, and extensive shipping, rail, and trucking systems to keep productivity up, even during an economic downturn.
Both the Los Angeles/Orange County area and Silicon Valley showed increases in the percentage of venture capital investment in medical device companies, while San Diego showed a decrease, according to a MoneyTree report. Reports from MoneyTree and Dow Jones VentureSource also show that the San Francisco Bay area has extended its dominance as the nation's largest cluster of biotech and medical device companies during the third quarter, both in terms of dollars raised and number of deals, according to BioRegion News. "The larger investment in biotech companies compared with medical devices marks a change from some recent quarters," reports BioRegion News. "But in perhaps a more telling sign of shifting interests among tech investors, the company that received the largest venture capital award [in California] during the third quarter was not a biopharma, as has been in recent years, but a solar energy company."
Although current economic conditions and national priorities may be affecting quarter-to-quarter investment data, California's network of more than 4500 medical OEMs, suppliers, and research centers continues to grow. Organizations such as the University of California (UC) San Francisco Center for Bioengineering continue to work to transfer discoveries from research laboratories to real-world applications. With more than 300 participating companies, the UC Discovery Grant program awards life sciences research grants to foster relationships between UC researchers and businesses in the state. The organization notes that one in three California biotech companies was founded by UC scientists and one in four U.S. biotech companies is located within 35 miles of a UC campus. Such efforts show that the Golden state is still a land of golden opportunities for medical OEMs.
In the world of medicine and medical device manufacturing, Minnesota is a land of firsts: the first to develop blood pumps and pacemakers; the first to perform open-heart surgery; and the first to invent drug-infusion pumps, artificial blood, and anesthesia monitors. No wonder the state is home to medical device giants such as Medtronic (Minneapolis) and St. Jude Medical (St. Paul), world-class institutions such as the Mayo Clinic (Rochester, MN), and a host of suppliers and startups. Reflecting the prominence of the bioscience industry, the Minnesota-based trade association LifeScience Alley (St. Louis Park, MN) has more than 580 member organizations.
In 2007, most Minnesota-based medical device companies were located in the Twin Cities counties of Hennepin, Ramsey, and Anoka, notes an October 2008 economic trends report published by the state's Department of Employment and Economic Development (DEED). Employing more than 29,000 workers, the industry was divided among five sectors: electromedical apparatus manufacturing (80 companies), surgical and medical instrument manufacturing (101 companies), surgical appliance and supplies manufacturing (99 companies), ophthalmic goods manufacturing (24 companies), and dental laboratories (139 companies).
Although only 1% of Minnesota's employees work in the state's medical device sector, the local industry has a major impact nationally. According to the U.S. Economic Census, Minnesota ranks second behind California in medical industry employment and in the value of shipments from the electromedical and electrotherapeutic apparatus manufacturing industry. In addition, the statewide concentration of employment in medical device manufacturing is nearly four times the national average.
Following the 2001 recession, medical device employment in Minnesota continued to grow, outpacing overall statewide employment and U.S. total and medical device employment in every year through 2006. Even in the face of what many believe is the worst economic downturn since the Great Depression, Minnesota medical device startups attracted $220.8 million worth of venture capital investments in the third quarter of 2008, the best quarterly performance in eight years. More than half of the funds went to seven medical device firms, including CVRx Inc. (Minneapolis)--a supplier of active implantable technology for the treatment of high blood pressure--and Cardiac Concepts Inc. (Hopkins, MN)-- a developer of an implantable medical device that improves congestive heart failure by treating central sleep apnea.
In addition to hundreds of medical device companies, the state also boasts research institutions such as the University of Minnesota, with campuses in Minneapolis and elsewhere. In 2006, the university ranked 12th nationwide in the level of R&D expenditures for the life sciences, according to the DEED economic trends report. And with R&D come patents. Between 2002 and 2006, Minnesota registered 2333 medical device patents, representing 10.5% of the U.S. total. Only California registered more medical device patents during that period.
The Minnesota medical equipment and supplies industry is expected to grow by 14% in the 10-year period from 2006 to 2016, projects the DEED report, adding more than 2100 jobs. In addition, electronic instrument manufacturing, which includes electromedical and electrotherapeutic apparatus manufacturing, is projected to grow by 12%, expanding employment by 2900 jobs. All the more reason to dive into the land of 10,000 lakes.
When one thinks of the Midwest medical device manufacturing industry, the Minneapolis area perhaps comes to mind. But farther east, the industry is flourishing in areas such as Ohio. In 2007, Ohio could boast that nearly 800 bioscience-related firms were resident in the state. A year earlier, more than $1.3 billion were invested in Ohio to promote the state's bioscience industry, a jump of more than $300 million since 2004, according to BioOhio (Columbus, OH). In 2006, venture capital investments were higher in Ohio than in any other Midwestern state. Employing 12,000 workers, medical device producers and distributors were the largest employers in the state's bioscience industry, according to a 2007 BioOhio report.
Luring traditional suppliers of products as varied as valves and precious metals, Ohio's medical device sector is rapidly making a name for itself. With 625 FDA-registered companies at the start of 2008, Ohio ranks second among all Midwestern states in the number of such firms, ahead of Minnesota (577), Michigan (448), and Indiana (359). With 966 FDA-registered companies, only Illinois tops Ohio.
"Most of these companies are second- or third-generation family-owned manufacturing companies," remarks Baiju R. Shah, president, CEO, and cofounder of BioEnterprise in Cleveland. "These are not startups, these are not venture-backed enterprises. Instead, they are your traditional Ohio manufacturing base that is quietly and, I think, quite opportunistically transitioning into the space of medical manufacturing." Ohio's existing manufacturing base, which used to be concentrated in the automotive, rubber, and other large-scale industries, provides a strong foundation for the state's growing bioscience economy, notes Shah. Many small Ohio companies that have made industrial products for generations are finding a new niche in the medical device industry.
If you're looking for a region that is ripe for a high-tech boom, then meet me in St. Louis. Dubbed the BioBelt because of the more than 400 plant and medical sciences companies that reside there, the St. Louis area is gaining prominence in the high-tech sector as its cluster of biotech and medical device companies continues to expand. Targeted research facilities, in conjunction with a supportive environment and affordability, have drawn a plethora of medical product OEMs, pharmaceutical manufacturers, and suppliers to the BioBelt, among them are several global leaders in the life sciences industry. The area is currently home to more than 150 manufacturers of surgical and medical instrumentation, employing an excess of 3300 people.
Bolstering the expansion of the medical device industry in the BioBelt is a hospitable business environment. Ranked fourth in the 2007 Forbes list of "Most Affordable Places to Live Well," St. Louis is an attractive location especially for startups and fledgling companies because they can attract talented workers at lower wages owing to the affordability and high quality of life in the region, according to the St. Louis Regional Chamber & Growth Association (RCGA). Startups can further flourish in the region thanks to the support of several advanced technology incubators, including CORTEX, the Center for Emerging Technologies, and the Nidus Center for Scientific Enterprise. Moreover, 16 venture capital funds have home or branch offices in the region with more than $1 billion under management dedicated to life sciences, according to RCGA.
The region also puts a heavy emphasis on cutting-edge research in such groundbreaking areas as nanotechnology. PixelEXX Systems (St. Louis) in collaboration with Washington University are exploring the development of nanoarrays, which could improve cancer and drug research. The Siteman Center of Cancer Nanotechnology Excellence is also involved in researching the potential of nanotechnology for the treatment of cancer and commercialization of such technologies. "There are obvious reasons why St. Louis has been attractive for healthcare startups--the five life sciences-focused venture funds, the medical schools, the teaching hospitals, and the universities with $400 million-plus in NIH research conducted annually," Frank Stokes, CEO of Innovate St. Louis, told Medical Technology Investment Digest in 2007. "But it's the longer-term competitive advantages, as mature companies, that keep them here."
While Michigan is renowned for its manufacturing industry, the state's ties to the sector are rooted in the automobile industry. Unfortunately, the Michigan-centric U.S. auto industry, which is dependent on the performance of The Big Three--Chrysler, General Motors, and Ford--has taken some serious hits in the current economy as sales continued to decline in October by 32%, resulting in the weakest performance in 25 years, according to Automotive News.
With the automobile industry in crisis, Michigan is turning its attention to other manufacturing sectors as a means to help weather the economic storm. Officials are encouraging manufacturers to diversify their capabilities and transfer skills to serve stronger markets, including the medical device industry. The state already boasts almost 450 medical device manufacturers and suppliers ranging from small contract manufacturers to the global orthopedics giant Stryker Corp. (Kalamazoo, MI).
Local associations and economic development groups are playing an instrumental role in assisting companies to diversify their target markets. In April, the Oakland County Department of Economic Development & Community Affairs hosted an event aimed at educating Tier 1 and Tier 2 automotive suppliers about the medical device industry. In addition to a brief overview of the industry, the conference touched on such areas as intellectual property, FDA regulations for device manufacturing, and how to make the transition to serving the industry. The organization is now compiling a directory of companies that attended the workshop to help OEMs identify potential suppliers in the region, which include companies specializing in contract manufacturing, injection molding, rapid prototyping, stamping, CNC machining, and tooling.
Further supporting the growth of medical device manufacturing in Michigan is the West Michigan Medical Device Consortium, established in 2007 to promote collaboration among Michigan-based medical device companies and to try to keep device makers' supply chains within the state. "There are more than 15,000 medical device manufacturers in the United States, and yet there is still under-capacity in the market. This is where the WMMDC steps in. The consortium is working together to build West Michigan into a nationally recognized region for medical device ideas, development, and manufacturing," says Linda Chamberlain, a representative of the West Michigan Science & Technology Initiative.
Along with the overwhelming regional support for the medical device industry, Michigan is prepared for rising prominence in the industry thanks to a continually growing knowledgeable workforce. Fifteen public universities, more than 60 independent universities, and 30 community colleges contribute to a skilled labor pool, especially in areas such as engineering. In fact, Michigan issued the third most engineering degrees in the country last year, according to the Oakland County Department of Economic Development & Community Affairs. Furthermore, area universities are active in medical device research, touting projects focused on biomedical sensors, implantable devices, and planar metal foil stents, for example.
Under the watchful eyes of Mt. Rushmore, South Dakota's industrial landscape is changing. From the state's rich agricultural foundations, niches of manufacturing have cropped up, catering to the meatpacking and food processing industries and fabricating metal parts for construction and transportation equipment. Most recently, staples of the state's economy, such as livestock and corn, have served to attract and inspire biotech research for agriculture and sustainability. The combined resources of existing biotech research programs, the state's highway system, and the state's proximity to major medical manufacturing hubs, such as the Twin Cities, are attracting more medical device OEMs to South Dakota.
Medical device OEMs with operations in Minneapolis or St. Paul can find South Dakota to be a helpful neighbor. Offering a comparatively lower cost of living and no corporate income tax, the state is a close-by alternative for companies looking to reduce operating costs. Empi, for example, is a manufacturer of noninvasive medical products for physical rehabilitation that has its headquarters in St. Paul. Founded by a native South Dakotan, however, the company recognized the potential benefits of moving its manufacturing operations to Clear Lake, which is located near South Dakota's Minnesota border. Because costs associated with setting up operations and workers compensation were significantly more expensive in the Minneapolis area, the company set up shop in Clear Lake. It now employs 16% of the town's population.
In addition to no corporate income tax, incentives such as no taxes on business inventory, personal income, or personal property have helped the state create a supportive environment for growing businesses. Small biotech companies and research initiatives are flourishing, according to the Governor's Office of Economic Development in Pierre. Between 2001 and 2005, the state increased expenditures in academic R&D and industry-financed R&D at universities by 106.2 and 94.3%, respectively, and was rewarded with an increase in awards from the National Institutes of Health, according to the Governor's Office. Research centers and biotech companies are collaborating on projects such as bioadhesives, signal transduction pathways, and soft lenses that offer the rigidity of gas-permeable lenses. Fostering such explorations into today's emerging technologies reflects the state's Old West traditions of cultivating crops and jobs for its citizens.
Copyright ©2008 Medical Product Manufacturing News
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