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Makeshift Medtech Meccas


Medical device and life-sciences manufacturing clusters are surfacing in the most unconventional places, leaving traditional healthcare strongholds to rely on little more than their reputations for survival.

Michael Barbella • Managing Editor


It’s the start of a new workweek—the last before the unofficial end of summer—and Joan Koerber-Walker is headed to a business meeting in Flagstaff, Ariz. She is driving north from Phoenix on Interstate 17, the main road that connects the two cities via Coconino National Forest, a 1.85 million-acre smorgasbord of flatlands, deserts, mesas, Ponderosa Pine forests, alpine tundra and volcano peaks. Near Sedona, the highway approaches the edge of the Mogollon Rim, a giant, slanting escarpment of volcanic and sedimentary rock and pine.


On this particular morning, the road is empty, leaving Koerber-Walker free to absorb the natural beauty of the landscape without any distractions.


“I’m driving up into the mountains, through majestic Ponderosa Pine forests. As I’m going up, on the side of the road, there’s incredible cacti and the flora are reaching for the sky,” she said. “The sun is hitting the mountains and the ridges, and it’s turning all different colors. The desert is in bloom and it’s absolutely beautiful. I’m surrounded right now by mountains and vistas most people will only see in a picture book.”


The desire to live and work amid picture-book vistas, mountain ranges and flowering deserts may partly explain the explosive growth in population in the Grand Canyon State over the last several decades. Between 1990 and 2010, Arizona’s population skyrocketed 74.4 percent, according to U.S. CensusBureau figures. While the Great Recession and housing downturn have slowed that growth lately, the state nevertheless recorded an impressive 25 percent jump in total residents between 2000 and 2010.


With its dry, sunny climate, natural beauty and laid-back lifestyle, Arizona certainly has become a melting pot of sorts for both foreign and domestic residents seeking refuge from cold, snowy winters (or gloomy, gray rainy seasons), hectic commutes, weather-related cataclysms (sorry, dust storms don’t count), pricey real estate, or the hum-drum nuances of everyday life.


In recent years, however, Arizona has proven itself to be more than just a pretty state. It has cultivated medical device and life-sciences industry clusters that are beginning to rival the more traditional medtech hubs of Southern California, Massachusetts, the Twin Cities area of Minnesota, and Florida. While these regional medtech monarchs are in little danger of being overthrown anytime soon, their support system steadily is being chipped away as cities, counties and states better known for their touristy vacation spots or delicious delicacies launch special programs, invest funds or tout their research and development prowess in an attempt to establish thriving hotspots of biomedical innovation.


Arizona, for instance, overhauled its commercial tax laws earlier this year and created new business incentives to spur economic development and entice more companies to the state. The Arizona Competitiveness Package—signed into law in mid-February—increases the electable state corporate income-tax sales factor, reduces the corporate income tax to 4.9 percent starting in 2014, and increases the Research & Development tax credit by 10 percent. In addition, the overhaul provides corporate tax credits of up to $9,000 for each qualifying new job and accelerates the depreciation schedule for business personal property (the idea there is to spur new equipment purchases and other capital investments).


Besides jumpstarting the state’s economy, the new business incentives are designed to build upon Arizona’s solid foundation in medical research, bioimaging and bioinformatics, infectious disease and cancer treatment. Each of the state’s three major universities act as a research center, with Arizona State ranked among the top 10 in the nation for the number of inventions disclosed per $1 million of research spending.


The presence of a branch of the Mayo Clinic and such medical technology behemoths as Medtronic Inc. (in Tempe), W.L. Gore & Associates Inc. (nestled in the mountains of Flagstaff), Agilent Technologies Inc. (in Chandler) and Ventana Medical Systems Inc. (in Tucson) has resulted in a strong network of skilled healthcare workers, scientists and researchers in Arizona, particularly in the areas of neuroscience, bioengineering, diabetes, genomic science and cardiovascular development. Such genius helped nurture the development of homegrown SynCardia Systems Inc., a Tucson-based firm that invented a total artificial heart approved by the U.S. Food and Drug Administration, Health Canada and European Union regulators. Originally used as a permanent replacement organ, SynCardia’s Total Artificial Heart currently is approved as a bridge to human heart transplants for patients suffering from end-stage biventricular failure. More than 950 artificial hearts have been implanted in patients worldwide,according to the 10-year-old company.


Naturally, economic development executives are proud of SynCardia’s accomplishments. But they are equally as proud of the factors they believe helped spawn the innovation: the “spirit of collaboration” in Arizona’s life-sciences sector and the scientific freedom the state reputedly gives its medical researchers.


“One thing that medical device researchers like about Greater Phoenix is we’re always trying something new,” agreed Barry Broome, president and CEO of the Greater Phoenix Economic Council.
“When you’re in a place like Greater Phoenix and you’re in healthcare, the biggest challenge is not being in San Francisco [Calif.] or Boston [Mass.]. When people start asking why they should relocate or start a company here, one of the things we tell them is this: We are a little bit behind the curve than a place like Boston but that is a good thing if a medtech researcher wants to do something different because people here are very receptive to modern and groundbreaking ideas. Traditional medtech markets may have a more mature reputation, and their research may be more robust from an aggregate standpoint, but they are probably not more innovative.”


Maybe not, but it still can bedifficult to compete with reputedinnovation epicenters such as Stanford University, the MassachusettsInstitute of Technology and morerecently, the Medical Devices Center at the University of Minnesota.


Koerber-Walker, however, isn’t convinced the state is at a disadvantage in the field of medical technology research. She contends that Arizona has something far better than reputation—a spirit of collaboration not found anywhere else in the country.


“There’s a collaborative spirit that is ingrained in the culture here in Arizona,” noted Koerbler-Walker, president and CEO of the Arizona BioIndustry Association, a Scottsdale-based trade group formed to help grow the state’s bioscience community. “We live in a desert. For generations, you could not succeed if you did not learn how to work through a partnership. You don’t see the competition or the unwillingness to share information here that you see in some of the more established markets. We share resources here. When you share resources and collaborate, you move forward faster. In Arizona, we know how to work together.”


Texas: From High-Techto Biotech


Much to Koerbler-Walker’s dismay, a similar spirit of collaboration exists nearby in the Lone Star State, where a declining semiconductor industry, a strong network of highly regarded hospitals and generous incentive packages from the government contributed to a 35.5 percent increase in the number of life-sciences companies between 2001 and 2008. As a result, job creation in the industry exploded in the middle part of the decade, growing by 8,600 positions annually between 2003 and 2009 for a five-year annual growth rate of 14 percent, according to figures from the Austin-based advocacy group Texas Healthcare & Bioscience Institute.


The life-sciences industry in Central Texas has grown more moderately than other regions but it’s been bolstered by a solid base of companies, hospitals and research centers. The life-sciences cluster in the Austin area not only boasts medical technology giants such as St. Jude Medical Inc., Thermo Fisher Scientific Inc., Hospira and Medtronic Inc., but also a significant number of orthopedic firms (ArthroCare Corp., DJO Surgical, Hangar Orthopedic Group Inc., Minimus Spine Inc., Spinal Restoration Inc., Spine360, Wenzel Spine Inc., Zimmer Spine and Zimmer Orthobiologics), giving the Warsaw, Ind., area a run for its money.


“The Austin area has always been known for high-tech, clean energy and more recently, digital media,” Charisse Bodisch, vice president of economic development for the Austin Chamber of Commerce, told Medical Product Outsourcing. “But the life-sciences industry over the last couple of years has really just started to explode. Hangar Orthopedic relocated its corporate headquarters here last year from Maryland, and one of the big reasons was the environment here. We have a community where you can really grow a life-sciences company.”


Austin breeds its life-sciences firms in much the same way it nurtures other types of businesses: through networking, incubator programs, funding, and a heaping dose of Southern hospitality. The University of Texas-Austin and Texas State University, for instance, both have created offices to help life-sciences and medical equipment manufacturers commercialize their ideas. Help with financing is available through the state’s Emerging Technology Fund, a program established in 2005 to prevent innovative concepts from leaving Texas. In the three most recent fiscal years for which statistics currently are available (Sept. 1, 2007 through Aug. 31, 2010), the Texas Emerging Technology Fund (TETF) handed out 113 grants totaling $259.5 million. Jonathan W.Taylor, TETF director, credits the program with attracting researchers to the state, helping secure more matching grant money from outside sources and shepherding promising companies through the early stages of development between discovery and demonstrable product, when “traditional sources of financing are few and far between.”


Once financing has been secured, life-sciences companies can tap into the knowledge and network of two of the nation’s largest healthcare systems—Ascension Health (parent company of the Seton Family of Hospitals) and HCA (parent firm of St. David’s Healthcare)—to conduct scientific research and/or participate in a clinical trial.


“There are a lot of places in the country that sound great to go to but it can be very difficult to get in the door to talk to somebody, whether it be at a university or a hospital. You’ve got to know the right people to get in the door,” Bodisch explained. “Austin is a very open environment. When we’re working with a company and having a meeting, we might invite some existing companies in the area, some people from the universities and people from the technology incubators so that a company can immediately get networked and get connected. And any question can be answered with a simple phone call. If a company is wondering who they can contact at a particular hospital system to see how they can work with patients or tap into a clinical trial, or do some research, the answer is just a phone call away. It’s just an incredible environment and that kind of networking and collaboration spurs growth.”


Bouncing Back from Loss in Michigan


Last month, Health.com, a website devoted to medicine, wellness, diet, nutrition, fitness, recipes and weight loss-related issues, published a list of the 10 most depressing states in America. Michigan was among them: “Few states have been as battered by the economic downturn as Michigan,” the website's brief write-up on the state read. “With unemployment as high as 20 percent in some counties, it’s not surprising that residents might be feeling distressed.”


Granted, it was difficult not to feel some distress during the Great Recession. And, Michigan certainly was affected more than other areas of the country (the state lost more than 332,000 jobs in the recession, and the unemployment rate still hovered around 16 percent this past winter). But residents in the Great Lake State are resilient, and they’ve managed to find the silver lining in a very dark, very angry storm cloud.


That silver lining has come in the form of heart stents, needles, pharmaceuticals and other life-sciences products. Recognizing the imprudence of relying on the dying automotive industry for future growth, lawmakers and economic development executives mapped out a plan over the last several years to create a flourishing medical device and life-sciences sector (see sidebar below). One of the key components of the plan was a restructuring of the state business tax and better access to funding through programs such as Pure Michigan Business Connect, a $3 billion public-private initiative that matches startup companies and developing firms with those that can provide necessary financing. The program is a pivotal piece of the “economic gardening” approach Gov. Rick Snyder and Michigan Economic Development Corporation leaders are taking to shift the state’s focus from business attraction to business retention.


“The difficult part about attracting business is figuring out who is looking and when,” said Kevin McLeod, vice president of Southwest Michigan First, an economic development organization covering the Kalamazoo area. “We try to have great relationships with some of the site decision influencers around the country but the reality is that Michigan is not the first place that people think of when they want to relocate or start a business. We need to change that.”


The state is doing its best to change that kind of thinking with more effective relocation/business development incentives, tighter partnerships between the educational community and industry, and the launch of an incubator program designed to help medicaldevice companies turn their ideas for new technology into bankable products. Universities are doing their part as well, adding graduate and undergraduate degrees in life sciences-related studies to ensure the industry continues to grow in the future. Grand Valley StateUniversity (GVSU), for example, debuted its biomedical engineering graduate degree this month for both part-time and full-time students. The program, which includes a focus on the design, research and development of medical devices, has a maximum 30-student capacity per year.


The Allendale-based school launched the graduate program just two years after adding a minor in biomedical engineering to its undergraduate engineering degrees. Developed with support from local companies and the West Michigan Medical Device Consortium, the program is backed by a grant of nearly $700,000 from the National Science Foundation that pays for equipment and startup costs.


“My dream is the program becomes embedded in the community of medical device companies and we’re making a difference by starting companies and growing companies,” GVSU engineering professor John Farris, who developed the program with professor Samhita Rhodes, told mlive.com, a 24/7 news, information and social interaction network. “We’d like to be a place where innovation happens.”

* * *

There was a time not too long ago when medical device manufacturing and advances in life sciences occurred mostly in certain parts of the United States. The Minneapolis-St. Paul, Minn., area was renowned worldwide for its advancements in medical technology, particularly cardiovascular care. The Massachusetts Institute of Technology, on the other hand, carved out a reputation for fascinating scientific discoveries and groundbreaking clinical trials. And with little competition, the town of Warsaw, Ind., home to 12,415 people, effortlessly transformed itself into the world’s orthopedics capital. But the world has changed. Globalization, recessions, near-Depressions and a decline in the traditionally strong manufacturing sectors of airplanes and automobiles have led a growing number of states to build biomedical clusters of their own to compete with the older, more traditional locales. The result has been a fierce battle between the haves (places like Southern California, Florida, the Midwest and Massachusetts) and the have-nots (alternative hotspots such as Arizona, Texas and Michigan) for supremacy. While the longstanding rulers have given up some ground recently, they are not about to go away quietly. As one industry expert told MPO: “The life-sciences industry is very competitive. Building a successful life-sciences cluster is not easy. You can’t just rely on reputation. You have to identify the elements needed for a successful life-sciences industry and then make sure they are available. Otherwise, you’re going to lose out to the competition. And trust me, there’s a lot of competition out there.”

Survivor: Michigan –How a Faltering Industryis Reinventing Itself

Most people love a good comeback story. As a society, we tend to build up our heroes—regardless of entitlement—knock them down, and then cheer them on as they stagger toward redemption. Such an iniquitous process can be both vexing and frustrating, but it is one of the only ways of effectively weeding out the false idols from those truly deserving of our worship.


Many of the cultural icons who have earned our respect and admiration through the years found salvation through reinvention, a practice dominated mostly by actors, musicians and, to some extent, professional athletes who want to stay relevant in their field and win new fans. Perhaps no other celebrity has worked harder to reinvent herself over the years than Madonna, a.k.a. her “Madgesty,” Material Girl and Kabbalist. The singer/songwriter/actor/director/producer/author who’s been burning up the Top 40 music charts for nearly 30 years has had more incarnations than the Dalai Lama. Each new transformation—from sexpot to mother to spiritualist to Lady of the(English) Manor—has kept the Bay City, Mich., native in the public spotlight and reinvigorated her career. Such genius surely is worthy of our respect.


Madonna is not the first entertainer or public figure to master the art of reinvention for the sake of immortality, nor will she be the last. Decades before the singer’s family ever stepped foot in the Midwest, a young dancer named Lucille LeSuer was metamorphosing into the Academy Award-winning legend of Joan Crawford. Dozens have followed in her footsteps since then, including Betty White, Ron Howard, Patrick Stewart, Brooke Shields, Jamie Foxx, Robin Williams, Will Smith and Mark (“Marky Mark”) Wahlberg, among others. Athletes have reaped the benefits of reinvention too, using the practice either to extend their flailing careers (NFL quarterback Brett Favre is a prime example) or return to the top of their game (Michael Vick’s ostensible rebirth as a starting quarterback on a top NFL team shows just how quickly we can forgive and forget).


Politicians have jumped on the reinvention bandwagon as well to turn around the fortunes of decaying cities, states and industries, and in the process, win votes. Pittsburgh, Pa., may forever be known as the “Steel City” for the volumes of steel it produced after World War II but the once-gritty metropolis largely has moved on from its industrial roots, transforming itself into a technology mecca with 1,600 tech firms and an unemployment rate nearly two percentage points lower than the national average.


Michigan’s elected officials are hoping for a similar success story in the Great Lakes State, where population losses, skyrocketing foreclosures and high unemployment have combined to create dismal economic conditions in recent decades. Detroit, once the center of America’s manufacturing muscle, is now littered with empty factories, burned-out homes, crumbling schools, silent banks and abandoned police stations. Its population dropped by 25 percent between 2000 and 2010, according to U.S. Census Bureau figures, and the state is ranked among the top 10 in foreclosure rates (one in every 417 households, data from RealtyTrac’s July 2011 Foreclosure Market Report indicates). For a time, Detroit was the nation’s most prosperous manufacturing city; now, much of it lies in ruins, decimated by eroding industries and vicious recessions. Without a reinvention, “Motor City” could very well deteriorate into a crumbling wasteland.


Politicians agree that Detroit—as well as the state—need to reinvent themselves to better compete in the global market and prevent the further erosion of its economies. Legislators already have begun the process by restructuring the state’s business tax code to help small companies and entrepreneurs. The plan signed by Gov. Rick Snyder in mid-May cuts overall business taxes by about $1 billion in the fiscal year starting Oct. 1 and $1.7 billion the following year. It replaces the MichiganBusiness Tax with a 6 percent corporate income levy while eliminating various types of tax credits and exemptions.


Snyder hopes the tax code overhaul will serve as the basis for the state’s reinvention, a word he used quite often in his gubernatorial campaign last fall. “We need to…come together as Michiganders to reinvent Michigan,” the venture capitalist said upon taking office on New Year’s Day.


Snyder, however, might be surprised to learn that residents have been banding together for quite some time to reinvent the state. Quite honestly, they haven’t had much of a choice: The automotive industry no longer is a reliable engine for economic growth. Having wrestled for decades with shrinking profits and crippling economic downturns, Michigan’s Big Three automakers—General Motors Company, Chrysler Group LLC and Ford Motor Company—have become more of a burden than a boost to the state and national economies.


As a result, manufacturers that depended on the automotive industry for the bulk of their business have been forced lately to diversify into other fields to make ends meet. Many have turned to the medical device sector, lured in part by its impressive growth rates (at least 6 percent annually for the next several years, by one account) and its relative stability compared with other industries.


Such growth potential and stability helped convince Omega Plastics and Delphi Corp. to test the waters of the device market recently. Omega, a Clinton, Mich.-based plastic injection molder and provider of prototyping and low-volume contract manufacturing services, typically earned about half of its revenue from automotive customers. In 2009, the company formed a medical division to combat a slowdown in vehicle part orders. Today, more than one-third of Omega’s business comes from medical device customers looking to take advantage of the company’s tooling, development and device manufacturing services.


Delphi has a similar success story, though the seeds for its diversification arguably were planted in 2003, when the Troy, Mich.-based manufacturer of auto parts recruited Baxter International executive Christophe Sevrain to start a medical device unit. Entering the device realm made sense, Sevrain reckoned, given the automotive industry’s proficiency in engineering and manufacturing. “We thought it would be pretty straight forward,” he told Xconomy Detroit, a business, technology and life-sciences news website. “We were very, very good at manufacturing. We felt autos had a lot to bring to the medical industry.”


Indeed they did—within three years, Delphi Medical Systems Corp. generated more than $100 million manufacturing an array of devices from medicine pumps to portable oxygen tanks. Delphi executives credited the unit’s success to its expertise in fluidics and optics as well as its ability to provide the moderate-volume, high-complexity assemblies many medical device customers demand.


Despite its success, Delphi sold the device unit during bankruptcy proceedings two years ago to concentrate on the production of auto parts. Though the switch ended Delphi’s foray into the medical field, it nonetheless marked an important cultural change for the company,Sevrain said. “Delphi was a poster child for inflexibility. It was a very rigid company. A lot of people did not want to change,” he told Xconomy Detroit. “There was a tremendous amount of resistance [to making medical devices]. People liked to stick to what they knew best. But Delphi Medical changed the status quo. The company is now more willing to change and adapt.”


Thanks to its change in psyche, Delphi is once again eyeing up other markets. Last fall, the company signed an agreement with Watertown, Mass.-based WiTricity to develop wireless charging stations for hybrid and electric vehicles.


Ford is working with the Massachusetts Institute of Technology to develop a technique that would measure heart rate, stress and relaxation to determine the correlation between stress and driving ability. However, Ford’s motive is one that is driven more by customer convenience than by a desire to enter the medical market.


Still, there has been enough interest in diversification among automotive component suppliers recently to warrant support by state economic development organizations, counties and trade groups. In the spring of 2008, as the Great Recession began to take shape, Oakland County (part of the greater Detroit metropolitan area) sponsored a seminar for Tier 1 and Tier 2 automotive suppliers interested in branching out into medical device manufacturing. The seminar explained ways the suppliers could break into the industry, license intellectual property and learn U.S. Food and Drug Administration regulations.


The state of Michigan has retained Auburn Hills-based CJPS Enterprises, a healthcare consulting firm founded in 2000 by Sevrain, as a sub-contractor for the Life Sciences Pipeline portion of the 21st Century Jobs Fund initiative administered by the Michigan Economic Development Corporation (MEDC). The Pipeline is designed to link the state’s 1,118 life-sciences firms with vendors of related products and services. State funding allows program participants to access CJPS Enterprises’ consulting at a discounted rate.


The MEDC also has hosted an Automotive Supplier Diversification Summit that focused on alternative growth opportunities, while a similar event held in 2009 by the Grand Rapids-based The Right Place Inc. attracted more than 300 automotive suppliers.


Also in 2009, the Automotive Industry Action Group (AIAG) and the Michigan Biosciences Industry Association launched a program designed to educate auto makers in quality improvement tools and methodologies for medical device production. “It is imperative that we collaborate…to help our members diversify as well as take best practices for quality improvement and apply them in other industries,” AIAG Executive Director J. Scot Sharland said. – M.B.
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