Originally Published MX November/December 2003
BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT
Home Base, U.S.A.Medtech executives have a full plate in deciding where to set up operations. Economic development agencies make their pitch.
For medical technology executives today, sizing up site selection within the United States is no easy task. From known medtech hot spots to emerging centers of life sciences and biotechnology, the options for choosing a location are as wide as the country itself. How do manufacturers narrow the field? What are the strategies of economic development agencies to build or expand upon industry clusters?
This report takes a look at the factors and locales that shouldn't be missed in any domestic site selection discussion.
Medtech Hubs
In the United States, there are particular areas with well-known medical technology presence. Although different in their characteristics, these regions each offer a confluence of resources, including research programs, top-tier universities, skilled labor, and industry association support. These medtech hubs include:
| State | Number
of medical device companies |
| California | 2217 |
| New York | 895 |
| New Jersey | 784 |
| Massachusetts | 764 |
| Florida | 748 |
| Pennsylvania | 722 |
| Ilinois | 717 |
| Texas | 513 |
| Ohio | 504 |
| Minnesota | 411 |
| MDRWeb report of the top-10 states with medical device companies. | |
According to a 2002 report from the California Healthcare Institute, the Bay Area is home to more than 800 biomedical companies, forming the largest cluster in the state. Leaders in biotechnology, medical device, and pharmaceutical fields are collaborating with biology and information technology firms to create new devices and stimulate innovation.
In the south, San Diego has transformed its economy from dependence on the defense industry to science. According to the San Diego Regional Economic Development Corp., San Diego has the third-largest concentration of biotechnology companies in the United States, with nearly 500 firms. In 2002, the San Diego life sciences industry received $530 million in venture capital funding.
The state's biomedical strength relies largely on its education infrastructure. According to the University of California, one in three U.S. biotechnology companies is located within 35 miles of a U.C. campus, and U.C. scientists are credited with founding one in four California biotech firms.
Industry associations that support the state's medical technology companies include the California Healthcare Institute, Biocom/San Diego, and the Southern California and Silicon Valley biomedical councils.
Massachusetts. The medical device industry is a renowned force in Massachusetts. Many of the world's largest medical device companies are located in the state, creating a critical mass that includes Boston Scientific, Smith & Nephew, and Philips Medical Systems.
Associations that support the industry include the Massachusetts Medical Device Industry Council and the Massachusetts Biotechnology Council.
Among the state's advantages are its extensive network of teaching and research hospitals and highly skilled workforce. The concentration of labor is potent: according to the Massachusetts Alliance for Economic Development, the state's share of medical device industry employment is nearly three times larger than in the nation as a whole.
Minnesota. In Minnesota, a 350-mile-long corridor known as Medical Alley extends from Rochester through the Twin Cities and features more than 8000 healthcare-related companies. Medical Alley is also the name of the state's burgeoning trade association, which is currently developing two spin-off organizations—one focused on early-stage venture capital funding, the other on receiving grants from local and national foundations.
The Mayo Clinic in Rochester continues to operate as one of the best-known medical facilities in the world. With more than 1500 physicians and scientists on staff, the clinic functions as a center of patient care, research, and education. Two hospitals are affiliated with the clinic, including Saint Mary's Hospital and Rochester Methodist Hospital.
According to the Minnesota Department of Trade and Economic Development, the state's medical technology industry employment increased 33% between 1991 and 2001, to more than 23,000 people. Top medical technology manufacturers operating in Minnesota include Medtronic, 3M, and Guidant.
This year, Minnesota's state legislature established a biotechnology and health science job opportunity building zone, which will provide tax incentives to existing and start-up bioscience companies in areas near the University of Minnesota and the Mayo Clinic Institute.
Washington. The Seattle metropolitan area and Washington State, well known for their technology infrastructure, are also recognized as premier centers of biotechnology and medical technology. The Pacific Northwestern state is home to such institutions as the University of Washington, the Institute for Systems Biology, the Fred Hutchinson Cancer Research Center, and the Pacific Northwest National Laboratory. In addition, the Bill and Melinda Gates Foundation, established in 2000, grants millions of dollars annually to support research related to global health issues.
The Washington Biotechnology and Biomedical Association estimates that there are approximately 170 biotechnology companies in the state, employing about 15,000 people. According to the association, employment in this area is expected to double by 2005. The association also estimates that the biotechnology sector generated $2 billion in gross business income in 2000, a 64% increase from a decade before.
Leading medical device companies in Washington include Siemens Medical Systems, Agilent Heartstream Technologies, and Micronics. Immunex is the largest biotechnology company in the Pacific Northwest, with more than 1400 employees.
Florida. In 2001, the Sunshine State ranked as the ninth largest biotechnology center in the country, according to Enterprise Florida. Florida's high-tech corridor, which covers 21 counties in the central and southern parts of the state, includes more than 23,000 people employed in medical device manufacturing.
At the University of South Florida, the Moffitt Cancer Center and Research Institute is a nationally recognized center that receives more than $40 million in federal and corporate research grants annually.
In Jacksonville, to the northeast, the Mayo Clinic offers medical education and research programs. The clinic, with more than 300 physicians, is affiliated with St. Luke's Hospital.
Other medical institutions include St. Vincent's Medical Center, which is part of a larger health system that has served Jacksonville and surrounding communities for nearly 90 years. In July, St. Vincent's Medical Center was named as a leading heart care hospital in a survey by U.S. News & World Report that ranked the country's best hospitals.
Top medical device manufacturing companies in Florida include Baxter Healthcare, Beckman Coulter, and Boston Scientific.
Texas. At the center of Texas, Austin flourishes as a medtech industry cluster. The state capital city is home to approximately 85 bioscience companies that produce products and services such as pharmaceuticals, preventive medicines, medical devices, laboratory tools and analysis, and gene-based cancer therapies.
The state is also a leader in biomedical innovation: according to the Texas Department of Economic Development, about 1820 biomedical patents originated in Texas between 1997 and 2001. And in 2002, the National Institutes of Health awarded $981 million in grants to Texas institutions and companies.
The University of Texas (UT) system encompasses five medical universities across the state. The University of Texas at Austin, the largest public university in the country, recently established a department of biomedical engineering. The university also collaborates on research programs with medical institutions that include the University of Texas/MD Anderson Cancer Center and Hospital and the University of Texas Medical Branch at Galveston.
The Texas Healthcare and Bioscience Institute is an industry association comprised of biotechnology, medical device, and pharmaceutical companies from throughout the state.
Hot Spots' Neighbors
Certain U.S. regions have undeniable medical technology presence. On the left there is California and the Pacific Northwest. On the right there is New England. Other industry hotbeds include Florida, Texas, and Minnesota. But what about the cities and regions that border these medtech hubs? A number of neighboring locations are ready to position themselves as desirable alternatives.
South Coast, MA. Fifty miles south of Boston, this coastal region touts its affordability and accessibility. Paul Vigeant, executive director of the SouthCoast Development Partnership, says that companies with R&D headquarters in Boston too often leave Massachusetts for manufacturing.
"As a region, we are going head-to-head with states in other parts of the country that are trying to drag that production level of operation out of Massachusetts and into their regions," Vigeant says.
"As brilliant as the scientists, CEOs, and business leaders are in the technology sector in Massachusetts," Vigeant continues, "they have a geographic block. Many of their competitors are in Silicon Valley, for example, and the notion of a company being in San Francisco and having a production facility in San Jose is a no-brainer. Yet people here think that 50 miles south of Boston is far away—it's this weird idiosyncrasy of New Englanders, and how we perceive space and dimension is one of the barriers that the SouthCoast Development Partnership is trying to break through."
As for production space, Vigeant says that South Coast land may not be abundant but it is affordable. He estimates that the top end of the region's real estate market is $15 to $20 per square foot, compared with $30 to $50 per square foot in Boston.
Another cost advantage is labor, which Vigeant estimates to be 25% less expensive than Boston. He adds that the state's workforce overall is highly skilled.
"In Massachusetts, we tend to think of our workforce as smarter, better trained, and more productive than other places," he says.
Dallas, TX. In Texas, Dallas is eager to make its medtech presence known. According to Chris Kennerly, a local attorney and affiliate with the Greater Dallas Chamber, "a lot of people in the Dallas region view the medtech field as potentially being the next wave of what we had with telecommunications, software, and semiconductors."
A resulting benefit from those industries, Kennerly adds, is that many sites are ready for development and fully wired.
"A lot of sites have the telecommunications connectivity and utility infrastructure that aren't in a lot of other places," Kennerly says. "It's a big selling point. Our combination of ample space and power, plus a wired infrastructure that is move-in ready, makes it easy to locate a facility here at a low cost."
Kennerly says that while Dallas does not yet offer a critical mass, its business environment is driven to succeed. "The sense here is that anything the business community sets its mind to, it can accomplish," Kennerly says. "With this focus on biotech and medtech companies, we feel we're poised over time to take an increasingly large share of those companies from other areas in the country. It's just a matter of continuing to build on the momentum we're starting to get."
Kennerly says the state's overall medtech force serves to benefit Dallas. "It's a 45-minute plane flight between Dallas and Austin, and there are a lot of companies that have dual facilities," he says. "The interaction is smooth and easy and happens all the time. The more companies that are in Austin or Houston help to attract companies to Dallas, because you have additional capital, management expertise, and labor."
Irvine, CA. Irvine's biotechnology and life sciences cluster may not be much of a secret. With more than 200 bioscience companies and a 7500-acre technology park, the city has already established its presence. How does Irvine continue to build upon its success? Paul Hiller, Destination Irvine's executive director, has a few ideas.
"The big difference is the University of California at Irvine," Hiller says. "The research programs and facilities at UCI are incredible. That's going to have a major impact on companies, especially if they're involved in biomedical engineering, neurobiology, or molecular biology."
Hiller says that the university, including its teaching hospital and research park, also helps to attract venture capital funding. "It does matter where a company is located," he says. "Without venture capital, an area really can't be that competitive in terms of trying to attract companies or nurture the start-ups that spring out of research being done at universities.
"Investors want a company to be affiliated with a university like UCI," Hiller continues. "You've got good people and great research going on, so you're more likely to be successful than a place that has mediocre research and a limited labor pool."
Hiller estimates that Orange County's bioscience workforce includes 15,000 people. In Irvine, 58% of residents have a bachelor's degree and 25% have graduate degrees, many in science and technology fields, he says. "The educated labor force that we have here is staggering," Hiller says.
In terms of positioning itself as a desirable life sciences location, Irvine focuses on its assets. "One of the things we try to do is get companies to visit here—we want them to see the quality of life, sit down with people at UCI to learn about the programs, and tell them firsthand that we'd love to work with them," Hiller says.
Snohomish County, WA.Just north of Seattle, Snohomish County is a suburban market with plenty of land and an eye toward attracting the biotech industry.
Companies with major facilities in the county include Celltech R&D, ICOS, Nastech Pharmaceutical, Philips Ultrasound, Seattle Genetics, and Sonus Pharmaceutical.
According to growth projections of the Economic Development Council of Snohomish County, the biotech and biomedical real estate market is expected to increase 72% by 2005.
Deborah Knutson, president and CEO of the Economic Development Council of Snohomish County, says the expensive real estate market in neighboring King County works in Snohomish County's favor.
"We're very supportive of what's happening in the Seattle area because as companies spin out of the research institutions and incubate, they may want to come here to manufacture," she says.
Knutson says that Snohomish County's growing industry development is tied to a biotech and biomedical devices park in the town of Bothell. Overall, the county is home to nearly 23% of the state's biotech and biomedical companies and 26% of all employees, according to the economic development council.
Rather than recruiting companies from out of state, the council looks inward.
"We are really active on the local level," Knutson says. "In March, we cosponsor Invest Northwest, an investors conference for biotech and biomedical devices. We also sponsor breakfasts with the biotech community, and we communicate with the media to tell the public why this is an important industry to keep here."
Shasta County, CA. In Northern California, the Bay Area dominates the medical technology market. However, a growing number of medical device manufacturing companies are taking their operations farther north, to Shasta County.
Jim Zauher, president of the Economic Development Corp. of Shasta County, says the county is well suited for companies that are past the R&D stage and ready to manufacture.
"If it's basic manufacturing, the labor requirement is more on the mid-tech level with assemblers, technicians, and machine operators," he says. "One of the reasons the medical device industry fits well for us is that we have that sort of labor pool."
Located alongside the Sacramento River, the county boasts a high quality of life at an affordable price. Zauher estimates that Shasta's utility rates are half as expensive as they are in other parts of the state.
"You can stay in California and still lower your costs by considering areas like Shasta," Zauher says. "We'd much rather have companies stay in the state than leave if they are looking for an area where they can manufacture less expensively. And every manufacturer today, because of the competition worldwide, has got to be concerned about the cost of doing business."
Site Selection Factors
As medtech manufacturing executives know, site selection decisions involve more than seeking the nearest industry cluster to set up operations. Other factors come into play, including quality of life, economic incentives, and nearby research facilities.
Quality of Life. A location's quality of life can significantly impact its desirability as a manufacturing site. Whether it's an urban metropolis or a suburban market, medtech executives and company employees want to live in an area that suits their needs. Common selling points are affordability, climate, and low crime rates. Other bonuses may include access to transportation or cultural institutions.
In Kansas City, transportation is a highlight. According to Tim Cowden, senior vice president of business development at the Kansas City Area Development Council, the Kansas City metropolitan area has more freeway miles per capita than any other major market in the country. "From a workforce perspective, that means employees are able to commute longer distances without hassle," Cowden says.
Cowden adds that Kansas City is unique because it affords company personnel a balance between their work and personal lives. "We believe that Kansas City possesses some of the best attributes of larger cities—big-league sports teams, cultural amenities—but with the access that is usually found in smaller cities," he says. "In larger cities the hassle factor can be so high in terms of fighting traffic, that maybe people don't go out as often as they'd like to."
Economic development agencies tout the accessible size of certain Southern locations as well. In Charleston, SC, medtech executives will find a medium-sized coastal community.
David Ginn, president and CEO of the Charleston Regional Development Alliance, says that the city's assets include a historic district with quality restaurants and hotels.
"Charleston's charming way of life is very attractive to medical technology people," he says.
Ginn adds that the city's assets are good for business. "Not only does our location help to recruit and retain good executives," he says, "but it's a good location for them to entertain their own customers."
Economic Incentives. State and local governments vary on the number and size of the economic incentives that they offer. Property tax abatements, employee training grants, and business-friendly enterprise zones are typical examples of financial support.
Last year in Indiana, a significant tax restructuring effort and job creation plan was passed into law to stimulate the state's economy. Part of the plan targets the life sciences industry and provides new funding for technology parks and rural development. In addition, the plan extends the state's R&D tax credit and creates new tax credits that are intended to promote venture capital initiatives and investments.
Through economic incentives, Indiana government entities have demonstrated strong support for one of its largest companies, Baxter Pharmaceutical Solutions (Bloomington). The Indiana Department of Commerce, the Bloomington Economic Development Corp., Monroe County Commissioners, Monroe County Council, and the City of Bloomington have all contributed financial incentives to the pharmaceutical company that total nearly $21.2 million in tax abatements, tax increment financing, employee training grants, and infrastructure assistance.
"In the short time that Baxter has been part of the Bloomington business community, it has already made significant contributions to our economy by creating new jobs and making capital investments," says John Fernandez, mayor of Bloomington. "The city wishes to do whatever it can to ensure that future expansion opportunities for the company take place here."
In June, Baxter Healthcare announced plans to enhance its contract manufacturing services for pharmaceutical and biotech companies by expanding its Bloomington facility. The company's total expansion investment is expected to be approximately $100 million, spread over seven years.
Research Facilities. A strong university and research network can go a long way toward attracting both medtech executives and venture capital funding. For executives, a cluster of MDs, PhDs, students, and scientists can mean a rich labor pool. For investors, the combination of R&D and academia can lead to the development of new technologies.
In some areas, such as Massachusetts, there are enough industry-related higher-education institutions to form a critical mass.
Paul Vigeant of the SouthCoast Development Partnership says that Massachusetts's extensive university network drives the region's economic development. "We think Massachusetts's intense concentration of higher-education institutions is a competitive advantage," he says. "It adds to that notion of an intellectual cluster." Among the state's universities and hospitals are the University of Massachusetts Dartmouth, the SouthCoast Hospitals Group, and Caritas Saint Anne's Hospital.
In Michigan, a life sciences corridor was conceived in 1999 by the state government, University of Michigan, Wayne State University, Michigan State University, and Van Andel Research Institute to build on their collaborative strengths in biomedical research. The corridor has since evolved to include life sciences companies that stretch from Detroit to Grand Rapids. Since its inception, the corridor has invested $142 million in nearly 80 projects.
In Kansas City, the University of Kansas, the Stowers Institute for Medical Research, and the Kansas City Area Life Sciences Institute combine to form an industry cluster.
Tim Cowden of the Kansas City Area Development Council says that those institutions are assets to attracting life sciences companies to Kansas City, as well as attracting venture capital funding.
"Without that type of support and infrastructure, there's no way that we could be successful in attracting life sciences investment," he says.
Conclusion
Choosing where to set up or expand operations is no easy task. Medtech manufacturers must decide what location is best for their business as well as their employees. To narrow the field, executives must weigh their companies' needs against what various U.S. regions and economic development agencies have to offer. Whether it is more important to be near a medtech cluster, in a tax-friendly zone, or at a location with a high quality of life will help determine what site is best.
Copyright ©2003 MX
