BUSINESS PLANNING & TECHNOLOGY DEVELOPMENT
Executives in the medical technology industry are accustomed to operating in a complex, highly regulated environment with its own special dynamics, economics, and challenges. Therefore, many might not recognize just how poorly the field is generally understood by others, including some economic development professionals. Employed by an array of regional, state, and federal agencies to attract businesses and stimulate economic growth, economic development professionals are often ultimately responsible for the incentives policies made available to medical device manufacturers that set up shop in their region.
This article provides guidance on how medical technology executives seeking to start, expand, or relocate their businesses can frame their goals and needs in a way that will facilitate a successful partnership with regional economic development authorities. The article identifies current disconnects among policies, agencies, and medical technology companies; offers guidance on communicating the needs of the medtech industry to government and economic development professionals; and suggests ways to begin aligning policies.
On the upside, biomedicine is widely perceived as an environmentally friendly and desirable base for employment and economic development. Employees in the life sciences industries tend to be highly educated and often earn considerably more than those in most major industries. The high-wage jobs typically found in the medtech industry and other life sciences industries have significant multiplier effects in regional economies. Regions with strong clusters often show multipliers of three or greater, meaning income in the overall local economy increases more than three times the amount invested in the jobs themselves. In addition, the strong educational infrastructure and regional amenities valued by the biomedical workforce often drive positive changes that ripple into the broader community.
States and regions transitioning from legacy industries such as heavy manufacturing, agriculture, or transportation are increasingly targeting biomedical industries. Envisioning biomedicine as the cornerstone of a reinvigorated or burgeoning economy, government agencies and economic development professionals want to ensure that their locale is perceived as attractive and competitive. However, many agencies fail to recognize that development of a robust biomedical cluster is distinct from the development of more-traditional industries, such as automotives and textiles. Biomedicine is also vastly different from other high-tech industries, such as software and electronics.
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| Illustration by EYEWIRE |
To further complicate the matter, the biomedicine field encompasses at least four distinct industries: medical devices and technology, drugs and pharmaceuticals, research testing and medical labs, and agribiotech. Despite their apparent overlap, companies within each industry have unique infrastructure requirements. For example, biopharmaceutical manufacturers require well-developed water and sewer infrastructure, whereas medical device firms do not have excessive demands for such services.
Unaware of such distinctions, regional economic development authorities struggle to accurately assess the needs of an industry. Their lack of understanding pertaining to the individual needs of each industry often leads to misconceptions and missed opportunities. Such problems can be compounded by a lack of coordination among regional, state, and federal entities.
Current Disconnects
The oft-stated mission of medical technology companies is to improve healthcare by offering novel and effective devices, diagnostics, and therapeutic agents. Manufacturers' successes depend on their ability to develop products that solve problems for specific patients and diseases. When products succeed, companies thrive, shareholder value is increased, and surrounding communities often benefit from the wealth that is created.
On the surface, such a cycle isn't very different from those found in other industries. But a closer look reveals some important distinctions. Perhaps most critical of these is the amount of time and capital—both human and financial—required to bring a medtech product to market. The regulatory burden along the way is intense, and the manufacturing standards are exceptionally high.
As in most industries, a medical device company's need to innovate is continuous. And all the while, a company must also navigate the turbulent waters surrounding funding for basic research, healthcare access and delivery, and the need for rational cost containment. In 2007, these factors are as complex, uncertain, and unfavorable as they've ever been.
In short, the entire medical technology product development process is bound up in the politics of medical research and healthcare policy—yet the connection between the medtech industry and the development of a robust economy is rarely well recognized. Instead, economic development agencies tend to remain focused on influencing the policies that have historically been of greatest importance to their constituents: tax policy, land-use patterns, conventional infrastructure, and workforce development.
To be sure, such factors are important—and they may very well represent the cost of entry for regions hoping to develop a biomedical cluster. Yet medical technology executives looking to start, expand, or relocate their companies are often focused on completely different parameters, such as existing medical technology infrastructures, the presence of sophisticated medtech research and development (R&D) facilities, the number of peer companies in the region, and incentives tailored to the needs of capital- and regulatory-intensive businesses. Thus, medical technology executives can benefit from clearly communicating the importance of such factors and, whenever possible, offering some tactical measures through which an economic development agency can address them.
Another common misconception among government entities and economic development professionals is that the relocation of a single medtech company of moderate size will help build the necessary regional infrastructure to support an entire industry. More typically, successful clusters are built upon a varied foundation of existing infrastructure, human talent, abundant capital, and industry-specific expertise. Several of these key ingredients are highly portable, and in a global economy, it is not necessarily required that a given region boast every desirable characteristic. However, regions that manage to successfully establish a medtech cluster are likely to satisfy many of these needs.
Communicating Needs, Erasing Misconceptions
When it comes to economic development incentives, one size does not fit all. And although it's no secret that healthcare- and technology-oriented industries have special needs, the nuances of the requirements of each individual industry are often unclear in the minds of economic development professionals. For medtech companies and local economies to find success together, each must have a precise understanding of the needs and capabilities of the other.
Industry Considerations. Economic development specialists often must field a range of projects from multiple industries, all supported by limited resources. In many cases, job count and square feet of plant or operations space become the primary driving metrics. Therefore, the incentives offered to industries are often measured in terms of dollars per employee, and regional authorities gauge their success by jobs generated and buildings occupied, regardless of the stage and long-term growth potential of the industries occupying those jobs and buildings.
Unfortunately, medical device companies—even those with solid prospects for long-term growth and viability—do not generally perform well against these metrics. Furthermore, traditional financial incentives sometimes do not match the needs of medtech companies. Mechanisms such as low-interest loans can burden companies that will not generate revenue for years to come, whereas nondilutive grants and patient venture capital with domain expertise can be crucial to the success of medical technology companies.
Different Stages. There are major differences in policies needed to support start-up, midstage, and mature medtech companies. Start-ups require access to seed and preseed capital, business development advice, linkages with potential strategic partners, and proximity to thought centers. Although start-ups have a high risk of failure, they also hold the possibility of high returns. Thus, policies that favor start-ups must help address early-stage capital formation and the development of early-stage business infrastructure. They must provide access to well-developed management talent and address taxes in a way that's meaningful to prerevenue companies (see sidebar). Due to the long lead time associated with product development in the medical device industry, policies supporting companies at this stage need to be developed for the long term. At the start-up stage, companies also have unique financing needs.
Midstage companies—which often have a need to grow their manufacturing and R&D capacities, as well as their workforces—rely on policies that provide for loans or grants to assist manufacturing buildout, programs that develop a full range of workforce talent, and infrastructure to support growth of new products. The available packages are generally tied to projected increases in job creation in a region. Such incentives can be of value for revenue-positive companies, but loans may burden companies still in the prerevenue stage of growth.
Mature companies looking to relocate a division or an entire company require a range of policies and programs. Given the size of many mature medtech companies, involvement by senior state officials is often needed to navigate the entire range of state programs and policies. Large-scale relocations require lots of attention to detail and are considerably more complex. Many states have specialized task forces or action teams that try to address and minimize such complexity. When a large medtech manufacturer is looking to relocate, incentives to do so in a particular region can run in excess of $10 million. Incentives often involve credits for workforce training, state and regional tax incentives, specialized finance packages, low-interest loans for buildouts, and grants and loans for infrastructure and site development.
Critical Mass. Although some aspects of medtech company development can occur in unique, one-off environments, the current successful developmental profile favors an assemblage of peer companies. A critical mass of such companies facilitates the development of intellectual property and the attraction of skilled employees. The concentration of orthopedics manufacturers in Warsaw, IN, and the burgeoning cluster of medical device firms surrounding Minneapolis are excellent examples.
Robust medtech clusters do not spring up overnight. For regions of comparable size to Warsaw and Minneapolis to attract similar concentrations of developed medtech companies de novo, considerable resources would need to be deployed to gain the attention of an entire cluster. For example, Florida has embarked on an ambitious, $1 billion incentives program to attract divisions of major bioscience research institutes to the state. Fueled by a budget surplus, this approach attempts to nucleate clusters by seeding the region with research institutes and physical infrastructure that are likely to promote collaborative interactions with industry or to result in spun-out start-ups.
Certain regions already have the building blocks of a healthy medical device industry in place. In these areas, successful cluster development then becomes a matter of tying the various pieces together. Pennsylvania serves as an example. By leveraging its historical manufacturing assets, major academic medical complexes, research universities with significant federal funding and strong bioengineering facilities, and novel public-private partnerships for commercialization, the state has been able to stimulate significant concentrations of companies in several areas of the state (see sidebar).
Workforce Development. Workforce availability is a commonly touted economic development incentive. Grants for associates- or bachelors-degree-level students—as well as funds to retrain legacy workers—are fairly common and quite useful for mid-sized to large companies. However, a well-developed medtech cluster requires a continuum of employees that ranges from technicians to senior management. For example, workers at start-ups tend to be highly educated and adaptable. Therefore, broad-based training of workers is not a particularly strong incentive for such companies.
Beyond the need to attract and train scientists and skilled technicians, medtech companies of all sizes also have a need for management talent. The need for access to such talent makes proximity to a major university desirable.
The Need for Knowledge. In many regions, knowledge has replaced the natural resources that once drove economic growth. Such knowledge often manifests itself as research and patent output. Technology transfer and direct access to highly specialized R&D facilities have become essential to the operations of medical device firms, but capturing and channeling them is not nearly as easy as with minerals, water, and other traditional resources. Some universities have excellent specialized infrastructures that can be accessed by industry. Coupled with well-trained professionals, these highly developed resources can be of special value, particularly in the emerging areas of biotechnology, nanotechnology, and new imaging modalities.
Technology transfer from regional universities may or may not play a role in a company's location decision-making process. However, technology transfer is an art—not a science—that depends largely on the specific details surrounding a technology, the university that produced it, and its individual inventors. Given that medical device technologies are not bound by geography, local technology transfer offices may not be a major factor in the selection of a given region. More often, technology transfer is more critical for start-ups when they emerge from university-based settings.
Aligning Policies
Alignment of all of these parameters can seem daunting; however, there are some rational guidelines that can help with successful navigation of this landscape. First, medical technology executives must determine if a region or specific agency has any experience in dealing with biomedical companies. If not, companies will be responsible for a considerable degree of education as to specific needs and nuances of the industry at large.
Second, medtech executives must evaluate whether a region offers the type of human talent that the company requires. Such talent could range from individuals with management experience to initial college graduates. Programs that focus on basic worker training may not be appropriate for a medtech endeavor.
Third, medical device companies must evaluate the other types of biomedical firms in a given region. Having strong R&D facilities and pharmaceutical or medical labs nearby may be sufficient to support the creation of a cluster; however, proximity to medtech manufacturing firms operating in a company's same sector is often equally important.
Finally, executives must consider whether the sum of a region's policy initiatives and incentives add up to a strong package that will drive not just short-term objectives, but long term growth. A strong matrix will show a continuum of policies and programs, recognizing that a healthy medical technology ecosystem will include companies in varying stages of development. Policies and programs must support the growth of medtech companies in the region.
Conclusion
Communities as a whole—and economic development professionals in particular—recognize that biomedical industries are typically environmentally friendly and sources of highly desirable jobs. In particular, the lifesaving potential of many medical devices can lead to very real improvements in the healthcare system and patient outcomes. Such potential has lent considerable cachet to the medtech industry. For regions that understand the value of the industry and that appropriately attune their policies and programs to attract and retain medtech manufacturers, economic benefits for all stakeholders are practically guaranteed.
Melvin L. Billingsley, PhD, is president and CEO of the Life Sciences Greenhouse of Central Pennsylvania. Michele M. Washko is the organization's vice president for strategic services.
