Southern California may be best known for sunshine, palm trees, and movie stars, but the region is also home to one of the most thriving medtech hubs in the United States. The success of several key medical device manufacturers with strong roots in the region has fostered growth of the local industry over the years. Subsequently, a strong support system of suppliers, academic institutions, and investors has cropped up, further securing the area's status as a leading medtech cluster.
But doing business in sunny Southern California doesn't come cheap. And as cost pressures continue to bear down on the industry, some medical device OEMs and contract manufacturers are beginning to look outside the region for lower-cost production sites. As a result, the landscape of one of the most-prominent medical device clusters could be headed for change.
In the Beginning
The medical device industry's deep roots in Southern California began in the 1950s, when drug and device maker Allergan (Irvine) and Edwards Lifesciences (Irvine) were founded in Orange County. By the 1970s, several other medical device companies, including IVAC and IMED, which evolved into CareFusion, had also set up shop in the area.
"Everybody wanted to be in California," recalls Frank Pokrop, director of regulatory affairs at CareFusion (Yorba Linda). Excitement over those early companies and an abundance of engineering talent from such local schools as the University of California, Los Angeles (UCLA) and the University of Southern California (USC), he notes, were sparks that helped the medtech industry to catch fire.
Further bolstering the growth of the medtech sector was the slowing of the aerospace industry, which had a significant local presence from the 1950s to the 1970s. "As it started to wind down, people started to move into other industries," notes Bill Nissim, director of business development and marketing at Bal Seal Engineering (Foothill Ranch), a maker of coil springs used in such medical devices as pacemakers that got its own start in the aerospace market. "A lot of the aeronautical engineers and machinists I've met are now in the medical industry."
Building on this solid foundation, the region now boasts a prosperous biomedical industry that includes the medical device and diagnostic sectors. The industry employs nearly 100,000 people in three main clusters in Los Angeles, Orange, and San Diego counties, according to a recent report on California's biomedical industry from PricewaterhouseCoopers (PwC), BayBio, and the California Health Institute. 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 wireless space. Telecom giant Qualcomm (San Diego), for example, has launched its Qualcomm Life subsidiary, focusing on connected health products, and established a venture arm to support wireless health companies.
In 2011, San Diego County saw more than 1000 new industry jobs, while Orange County added more than 3000. While Los Angeles County lost biomedical jobs, Riverside and San Bernardino counties picked up the slack, adding more than 3500 jobs.
As Southern California's medtech industry has grown, an ecosystem has formed to support it, says Matthew Jenusaitis, president and CEO of OCTANe (Aliso Viejo). Founded in 2002 to help boost technology growth in Orange County, the organization supports medical device companies through a startup accelerator, jobs page, educational programs, and networking events such as its annual Medical Device & Investor Forum. Other trade organizations include the Southern California Biomedical Council, BIOCOM, DeviceAlliance, and the Wireless-Life Sciences Alliance.
Supporting businesses that provide legal, accounting, and marketing services to the industry have also moved in. Knobbe Martens, a law firm specializing in intellectual property, has a large practice in Southern California, as does K&L Gates, a law firm that caters to the medical device industry. PwC, Ernst & Young, and KPMG--accounting firms with life sciences practices--also have a local presence.
Suppliers, too, have set up shop. In addition to Bal Seal, the region is home to a bevy of contract manufacturers that cater to the medical device market, including Aubrey Group, Providence Enterprise, Invetech, and Interface Catheter Solutions.
While the region's universities played a major role in establishing Southern California's medtech industry, they're also key to its ongoing success. In 1997, San Diego State University debuted its Center for Bio/Pharmaceutical and Biodevice Development to provide continuing education for scientists already working in the industry. USC followed suit in 1999 with its Medical Device Development Facility, which focuses on neural engineering.
"You've got a lot of very strong fundamental programs in terms of engineering and materials science, but they've also evolved to offer certificate programs in regulatory affairs, clinical trials, medical device project management, and things to support the different product areas," Pokrop remarks. UCLA, for instance, offers a certificate in medical marketing through its Anderson School of Management, and the University of California, Irvine Extension offers a certificate in clinical trials for medical device and drug development.
Southern California is also home to a number of research hospitals, including UCLA's Ronald Reagan Medical Center, Keck Hospital of USC, and Scripps Health, a nonprofit health system that treats 500,000 patients each year. "Companies can have associations with good doctors and good clinics and form partnerships for testing and developing technologies," Pokrop adds.
A stone's throw away from the San Francisco Bay Area's huge medical device hub, Southern California's medtech industry benefits from its prime location. Hosting one of the world's busiest airports, Los Angeles is a nonstop flight away from markets and investors everywhere, including Asia.
But it's not necessary to jump on a plane to find funding. Southern California is home to cities with some of the highest per capita income in the United States. "One nice thing about Southern California is there are a lot of wealthy individuals here," Jenusaitis says. Since OCTANe's founding in 2002, the organization has connected 120 companies with more than $217 million in investments and equity exits. The area has also attracted such groups as Tech Coast Angels, which claims to be the largest angel investment network in the United States.
Southern California is also close to Mexico, which can benefit companies that manufacture labor-intensive products. "You can get cheaper labor, more abundance of labor, and the ability to move raw material in and out of Mexico," Pokrop says. "Then, you can have it processed and packaged around the world."
But there are other benefits to being close to the border, Jenusaitis says. "Low-cost manufacturing is a secondary impact. It helps; clearly there are some advantages to being close to Mexico. But in general, I think all areas of the country are able to take advantage of that." Some companies, he adds, benefit by outsourcing clinical trials there. "A lot of ophthalmic clinical work is going on in Mexico. It provides a ton of value for Mexico as well as for medical device companies in Southern California."
Can It Continue?
It's not all sunshine in Southern California, however. The region is a notoriously expensive place to live and do business. California has the third-worst business tax climate in the country, according to the nonpartisan tax research group Tax Foundation. Moreover, the Los Angeles-Long Beach area, Orange County, and San Diego ranks second, third, and sixth, respectively, among the most-expensive places to manufacture medical devices.
This situation is leading some companies, such as ResMed (San Diego), a manufacturer of devices to treat sleep apnea, to consider other locations. "California is becoming more and more of a business unfriendly state," remarks David Pendarvis, the company's chief administrative officer. "Taxes are very high, real estate is very expensive, and pay rates are very high." Southern California's high cost of living, he adds, can also make it difficult to attract employees from other parts of the country.
And as if FDA regulations aren't challenging enough, California companies must also clear regulatory hurdles at the state level. "Over the last 5 to 10 years, there's been this creep of laws--environmental issues, Proposition 65 labeling issues," Pokrop says. "That all seems to be unique to California."
As a result, a company such as Bal Seal has diversified beyond Southern California, opening a new facility in Colorado Springs, CO, in November 2011. "I know from talking with the economic development council that they are attracting a medical cluster in Colorado Springs with economic zones, and they have, obviously, lower tax rates," Nissim notes.
As cost pressures increase and the medical device tax goes into effect, more companies might consider leaving Southern California. "I'm surprised that more people haven't done it already," Pokrop says. "Everybody loves the region because of the weather and because there's so much to do. But it's expensive, and that's going to be a growing concern." However, while R&D outsourcing will grow, some companies will likely retain their SoCal headquarters, helping to ensure that the area remains a medtech hub. "I think certain companies will never leave," Pokrop adds.
Welch Allyn, a medical device manufacturer based in Skaneateles Falls, New York, announced that it had received approval from the United States Food and Drug Administration for its iPhone PanOptic Ophthalmoscope. According to a press release by the company, the device is designed to work with the Apple iPhone and can be used by physicians to store, capture, retrieve and send images taken during routine eye exams. The PanOptic viewing scope is designed for viewing the retinal nerve and the fundus of an undilated eye. Since the device uses the iPhone's high-resolution screen, it provides a larger viewing area than a traditional ophthalmoscope. The device is designed for use with both the iPhone 4 and 4S. According to information from the company, the device can increase magnification 26 percent more than other ophthalmologic devices on the market. In addition to improved medical data sharing with patients, the iPhone attachment makes it easier for physicians to maintain compliance. The device is scheduled to ship starting February 11th, 2013. The system comprises both the PanOptic device and a software package called the iExaminer. Rick Farchione is the senior manager of physical assessment at the company. In prepared remarks, he said, "It will increase workflow efficiency by allowing providers to capture and share images from any clinical environment. It is a low-cost way to digitally capture eye imaging and will also make it easier for providers to share images with their patients, helping to improve patient knowledge and compliance." References www.welchallyn.com/pressroom/releases/default.htm
A digital temperature sensor is easily embedded in many electronic systems and encapsulates a temperature sensing chip and a 24-bit analog-to-digital convertor in a QFN16 package. The The Model TSYS01’s technology provides onboard factory calibration coefficients that deliver accurate temperature information accompanied by high measurement resolution; for enhanced application-specific performance, the manufacturer can perform custom calibration upon request. The sensor draws less than 12.5 μA during normal operation and under 0.14 μA in standby mode. Owing to its small size, expansive operating-temperature range of –40° to +125°C, and ±0.1°C accuracy, it can serve as a replacement for thermistors and NTCs. Integration with microcontrollers is achieved via an I2C or SPI interface.
Measurement Specialties will be exhibiting at MD&M West in Booth #430
Measurement Specialties will be exhibiting at MD&M West in Booth #430
MEDomics’ founder Steve Sommer, MD, PhD has a fondness for coining new words. For one thing, he came up with the company’s name, which is an abbreviation for “mutation expert-based diagnostics.” Sommer, who is also the president and chief medical officer of the company, also refers to his company’s focus as “genome-ology,” which is another term he invented. “We are not really diagnostic,” he said in an interview at OneMedPlace in San Francisco. “Diagnostics provides bits of information, typically in a short period of time for a physician to use in their practice. We generate huge amounts of information—orders of magnitude more than any classical diagnostic test.”
|DNA Image from Wikipedia.|
The company is first targeting neurological diseases, such as mitochondrial disease, with its technology. “There are five steps to what we do,” Sommer explains. The first, which is the least time consuming and costly, is sequencing the DNA. “Our tests look at between 1200 and 1600 genes in great detail. We also do a global analysis of the exome—the totality of the 20,000 genes known.”
Step two involves doing core bioinformatics while the third step involves proprietary bioinformatics—”the sophisticated analysis,” as Sommer calls it.
Step four is the mutation expert interpretation. This stage involves taking a huge amount of data, integrating it, and determining why a patient has the disease they do. “Sometimes that can lead to very significant therapeutic benefits, sometimes minor, and sometimes not,” Sommer says. “But in the latter case, at least it identifies what the issue is.”
Mitochondrial disease is an example of the cases that can be helped. The disease is analogous to diabetes, Sommer explains. “Certain lifestyle therapeutic changes will make a big difference in the quality of life,” he says. “You don’t cure the disease but you make a big difference in the quality of life. And that is step four: the actual analysis and the generating of the report.”
“Step five involves is getting back to the physician and helping them figure out how this helps the patient—and the patient’s family,” Sommer says. In the case where a condition is detected for which no obvious therapy exists, the test still can help physicians discern which therapies are unlikely to work. “It is not like there is no information there,” Sommer adds. “The key point is that we can figure out what the implications for the family are.”
Those fives steps are, in a nutshell, what “genomeology” is. Although the company is now focused on neurology, the same approach could be used in any area of medicine. “Cancer is something we are beginning to look at,” Sommer says. “The key point is that there are huge amounts of information.” But just having that raw data doesn’t help much. The company’s value, Sommer explains, is its ability to help distill that data down to something that is clinically actionable—to find the needle in the proverbial haystack of genetic variants.
If you want to develop a whole new product, you must fully understand your technology. Do you have a prototype that works? Can you perform a simulated use case on the prototype? During product development, the idealized, bench top technology will need to be twisted and squashed, simplified and measured to make it into the product your customers will want to buy – do you know the limits? If not, you are not ready for product development. Run bench top experiments until you have a good feeling for the limits of the technology and where it can be adjusted to meet product limitations.
Do you have your IP locked up? Have you done an IP search to see what your competitors have made off limits or implementation areas that you need to stay away from? Understanding the boundaries of the space you can develop in will prevent pricey project resets and wasted exploratory efforts. Instead, you will be able to focus the development team on developing the product in a “safe” space.
Identifying your users, what they need and what they respond to is vital information to feed into product development. Understanding the environment that your product will be used in, as well as the expectations and limitations of the people who will use it, will help inform important product architecture and design decisions. Identifying the additional needs of special users (for example, Laboratory IT specialists for an IVD) will further inform design decisions and streamline the development process. Ideally, a sample of end users will be available throughout product development for quick surveys and longer studies to make sure the product stays on the right track.
Product development is riddled with decision points and trade-offs between the product feature set, product and development costs, and time-to-market considerations. A thorough understanding of your product’s value proposition to your customers will allow you to make those trade-offs in a way that ensures the end product is the right product for your customers.
Of course, there are a lot of business steps to climb before you are really able to start – development team skills, competitive landscape, product fit, distribution models, etc. – but if you were able to meet the four criteria, then you are at least ready to start the technical journey.
Do you have more steps? Tell me about them in the comments.
Malinda Elien is a project manager at Stratos Product Development. She has 14 years of experience in product development, project management and mechanical engineering. Elien previously worked for Microscan Systems designing optical scanning systems for medical environments. She has a SB and SM in Aeronautics and Astronautics from the Massachusetts Institute of Technology.
Futurists Daniel Kraft and Esther Dyson consider who should own personal health data at The Economist World in 2013 Festival. Daniel Kraft is the executive director at FutureMed. He is also the medicine track chair at Singularity University, as well as the founder and CEO of IntelliMedicine.
In between all of these jobs, Kraft will be speaking at MD&M West on how the exponential age will revolutionize medicine. I'm not sure the guy sleeps.
Hologic, a breast cancer diagnosis company based in Bedford, MA announced that it would shut down its Indianapolis manufacturing facility this summer, ultimately leading to 141 layoffs. According to a filing with the Indiana Department of Workforce Development, the plant closure will be broken down into four phases. The initial phase, scheduled for March 20, will result in the layoff of 20 workers. The second phase, beginning May 3, will result in 31 layoffs. A third round of layoffs, involving 88 employees, will take place on May 31. One employee will remain at the plant after the third round to tie up loose strings. The final employee at the plant will receive a pink slip on June 28. The shutdown is not temporary. According to the filing, "These plans, when finalized, would be permanent and [would] result in closure of the facility." The layoffs represent approximately 2.4 percent of Hologics' workforce. References http://www.in.gov/dwd/files/WARN_HologicIncIndianapolis011513.pdf
Smith & Nephew is being sued over a botched hip implant by a doctor who works for the San Diego Chargers. Last year, the company spent the greater part in damage control mode resulting from fallout over faulty ICD leads. The recent lawsuit against the company is a counterclaim to a $2.2-million medical malpractice suit against the doctor. According to the San Diego Union-Tribune, the lawsuit stems from a 2007 botched surgical operation by Dr. David Chao, which caused significant health problems for a patient named Kathleen Adams. Dr. Chao blamed the botched operation on poor training and a fault in the surgical scissors used with Smith & Nephew's hip resurfacing implant. Dr. Chao alleges that the company failed to provide adequate training and had told doctors "to push the tips of the scissors into tissue in a manner such that the surgeon did not have a view of the tips of the scissor tines (i.e., 'blind' cuts)." Court documents state that "Smith & Nephew caused, in whole or at least substantial part, the loss and damage suffered by the patient and her husband, and in turn the losses suffered by plaintiffs in connection with the claim made against them arising from the BHR procedure performed on May 30, 2007. But for the defendants' failure to properly develop reasonably safe procedures and related surgical equipment, and to provide appropriate training and warnings, the plaintiffs would have suffered no claim against them and would have sustained no loss." Dr. Chao is no stranger to the courtroom. Over the past 15 years, Dr. Chao has been named as defendant in 20 cases involving negligence, fraud, personal injury, or medical malpractice. The Medical Board of California is reviewing all available information to determine if Dr. Chao's medical license should be revoked. References http://www.utsandiego.com/news/2012/aug/01/75m-in-damages-in-case-involving-chargers-doctor/