Does the Northwest U.S. Have What it Takes to Grow Medtech?

Anastasia Thrift and Chris Newmarker

They have strong niche medtech industries, but there is still plenty of room for growth in Washington and Oregon.

The U.S. Northwest really doesn’t have an equivalent to an Amazon or a Microsoft when it comes to medical devices. But local medtech industry boosters argue that some strong niche sectors, including ultrasound imaging and defibrillators in Washington state, still put it on the map.

“We have a very strong and healthy medtech ecosystem,” says Chris Rivera, president and CEO of the Washington Biotechnology and Biomedical Association (Seattle).

“The advantage for Washington State is we have a community that gets together frequently and make introductions. Having that collegiality, it really helps to accelerate innovation and partnerships,” says Rivera, who sits on two advisory boards at the University of Washington (UW; Seattle), for therapeutic and medtech devices. (WBBA also works closely with the Center for Commercialization, the technology startup support network at UW.)

Oregon officials also have medtech growth ambitions, even though their local industry is even smaller than Washington’s.
Still, the region’s medical device sector is dwarfed by the the major U.S. medtech hubs in California, Minnesota, and Massachusetts. Of the 25 areas with the largest employment levels in medical devices and equipment in 2012, the Seattle metropolitan area ranked 20th and the Portland metropolitan area ranked 25th, according to a Battelle analysis of U.S. Bureau of Labor Statistics data.

There are positive signs, however. NIH funding to medtech has declined over the past four years, but grants to groups in Washington have slightly increased, keeping pace with the strongholds of California and Massachusetts. According to the report from Columbus, OH–based Battelle, Oregon and Washington ranked in the top five states for bioscience patents in agricultural business and bioscience IT, respectively; Washington made it to the top 10 for biochemistry as well as for biomedical imaging.

Building on Niches in Washington

Previous University of Washington ingenuity, Rivera says, set the region’s ultrasound imaging field on the fast track. Transfer technology from UW helped Advanced Technology Laboratories Inc. of Bothell, WA, commercialize its use in 1974. Since then Washington has remained vibrant in the medical ultrasound industry, Rivera says.

“More than 30 companies have spun out from that area. If you’re in the ultrasound industry, this is kind of the epicenter from around the world.”

Even better, ultrasound is increasingly relying on software, a great strength in the region.

“Ultrasound algorithms are all software based; the software piece is getting bigger.” Rivera says this growing sector in medtech holds plenty of promise for Washington medtech outfits.

Another medical device breakthrough occurred nearby as well, when local company Physio Control (Redmond) was founded in 1955 to manufacture direct current defibrillators created by Seattle cardiac surgeon Karl William Edmark.

The open question is whether the ultrasound imaging and defibrillator niches, as well as the software expertise in the area, will translate into more startup activity.

There seems to be fewer startups than in the past, according to David Albert, MD, a serial medtech entrepreneur who had a company he started called Data Control that was headquartered in Seattle during the late 1990s before its sale to GE.
“It’s a secondary center, Seattle is, for medical technology,” said Albert, who works out of Oklahoma City and is the founder and the chief medical officer at San Francisco–based mobile ECG firm AliveCor.

Rivera says WBBA mentors about 100 regional startup companies yearly; of that, he says roughly two-thirds are medtech, many with founders coming from UW.

“Our last economic report listed 290 medtech companies in the state.” That includes “some pretty good size multinationals,” he says. “Spacelabs. Siemens has good-sized presence here.”

“We have a large number of large, multinationals that have established a footprint here, primarily through acquisition.” Rivera lists Olympus (which acquired Spiration), Fujifilm (SonoSite Inc.), L’Oreal (Clarisonic), and Sony (Micronics) among them.

The area needs more money to turn local ingenuity into commercial innovation. To drive that, WBBA helped form WINGS, the Washington Medical Technology Angel Network, a 501(c)(4) company that has met quarterly since 2010 to bring seed money to viable businesses. Out of roughly 220 medtech applications from startups, 58 have been invited to present to investors; out of those, 15 have received investment from WINGS angels. Those companies have raised over $150 million, Rivera says, with more than $9 million coming from wings investors.

In Seattle, one of the companies to receive funding from WINGS was Mirador Biomedical, creator of small, single-use physiological monitors. Its single-use Compass devices are noteworthy for their portability.

“Roughly in the past 12 months, half of the companies that have presented to investors are software-based, and several have received funding, Rivera says. “The trend I’m seeing, lines are much more blurry, if you think of medical devices from five or 10 years ago. You’re seeing companies deliver therapeutics with devices.”

WBBA member company EKOS Corp. (part of BTG International) is also part of the therapeutic delivery trend. It uses ultrasound accelerated thrombolysis and, according to Rivera, is investigating a way that its ultrasound transducer can remove blood clots from the brain.

To the east, in Spokane, business support networks are also trying to drum up cash for local entrepreneurs and supplement a growing healthcare industry with medical device manufacturing. Washington State University designated Spokane as Washington’s health sciences campus and is advocating for a medical school at that campus; UW had been working in collaboration, but now is establishing its own medical school in Spokane, as well as its own research facility.

Drawing from the talent pool there and beyond, Greater Spokane Inc. is one of the groups that’s actively rousing business in the medical technology field. Last December, GSI’s technology industry manager, Gary Mallon, contacted Dahl Natural (now BioSense Solutions) and helped the company apply for grants, hosted associates when visiting the region, shared incentive ideas, and led tours of potential properties. Health Sciences and Services Authority (HSSA) of Spokane County granted Dahl Natural $499,954 in matching funds.
“We absolutely see this as critical to Spokane’s future in the next 50 years. This is pivotal,” Mallon says. “Right now we are trying to take advantage of grants for early stage opportunities. This opens it up to more companies outside of Washington so we can use it as a recruitment tool.”

Tax incentives help, too. Washington State has incentive programs for bioscience and medical device companies, such as sales tax deferral for more than seven years for new construction and equipment for biosciences and medical devices. A Spokane legislator also has allowed GSI to take roughly $11 million of its sales tax to help support health sciences in a variety of ways such as recruiting health sciences professionals.

While it is improving its medical research infrastructure, Washington still lacks top-tier universities similar to Harvard, MIT, Caltech, and Stanford, which drive significant medical technology research in Massachusetts and California.

Still, Washington’s has a lot going for it and it will be interesting to see if the region emerges as a leader in the nascent digital health field. With Google and Apple debuting significant digital health platforms in 2014, Forbes is speculating that Seattle-based Amazon could be mulling a similar play soon. Supporting that rumor is the fact that Amazon recently met with FDA officials. While details of the meeting are sparse, more telling is Amazon’s recent hire of Babak Parviz, who helped start Google’s smart contact lens program. If Amazon (or Microsoft) follows Apple and Google into health tracking technology, it could bolster the industry in Washington state.

Can Oregon’s Medtech Industry Also Grow?

If Oregon is less visible of a medical technology environment, it has the potential to grow with lower cost of living, support of business groups, existing medtech companies who want to expand, and established research institutions.

“We’re heavier on the hardware, they’re heavier on the software,” claims Colin Sears, of Business Oregon (Salem, OR), when comparing Washington to Oregon.

“We couch Oregon’s competitive advantages into two ways: low cost of doing business, and our tax structure is set up very well for traded sector companies.” The region’s proximity to the medtech bastion California can be considered a bonus, too, Sears says.
A combination of factors could further the region’s medtech industry growth, according to Skip Newberry of the Portland-based Technology Association of Oregon. When it comes to development potential, Newberry ranks Oregon’s tech industry first, medtech second, personal digital tools third.

“The medical and healthcare-related companies that are here, including the athletic and outdoor industry, the academic institutions here, the tech industry, which is innovative and growing rapidly, and the fact that the public sector is very supportive of the medical/healthcare industry in Oregon” can create success, Newberry says.

His group TAO teamed up with the Oregon Bioscience Association in September to further work on expanding the regional medical, health, software, and hardware industries. The mutual goal is to strengthen resources, especially in “emerging health technologies,” Newberry said.

“Medtech does have support, but the personal digital health arena is an area that is evolving out of and relates to high tech, medical technology and bioscience. In other words, to focus on personal digital healthcare requires nurturing and support of the other three areas.”

Newberry and colleagues created the TAO Healthcare Information Technology (Health IT) Community as a way to share best practices, ideas, and contacts in Oregon’s Healthcare Technology world. It hosts panels and events to strengthen the business community that is seeking to further personal health.

TAO works with companies such as GE and microscopy tool manufacturer FEI that develop medtech products. More broadly, it supports high tech company growth, Newberry says, with “workforce, capital, strengthening the engineering and manufacturing ecosystem, etc.”
It also spreads the word about what companies are local and why they are successful, to market the region to other firms that are looking to expand here, entrepreneurs who are looking to start here, investors who are looking to invest here, etc.

It’s not all roses near Portland, however. The state’s medtech industry has seen layoffs. Welch Allyn, announced earlier this year that it will shift its hospital monitor production from Beaverton to Mexico and New York, resulting in a plant closure and 84 layoffs by the end of 2014. Some good news countered that: the company said it will expand R&D efforts in Beaverton and move to a new facility at the Nimbus Corporate Center, focusing on software and wireless products.

Research and development could be a rising area of growth for other firms if they tap the resources at hand. There’s research at Oregon State University, Portland State University and Oregon Health and Science University.

State agencies are able to provide funding and encourage growth, too. The Oregon Translational Research and Development Institute is partially funded with Oregon State Lottery funds through the Oregon Economic and Community Development Department for enterprises devoted to science. OTRADI’s stated goal is to connect therapeutic development and technology with the people it treats. The Oregon Nanoscience and Microtechnologies Institute links state government to nanoscience and microtechnology R&D institutions and industry in the Northwest. ONAMI was created to expand the benefits of technology innovation to traditional and natural resource industries.

Long-Term Prospects

Frankly, the jury is out over how much medtech growth the U.S. Northwest might see. But it is undoubtedly changing: moving from equipment manufacturing to software and personal digital health products. Business incentives, capital infusion and technology innovation—combined with networking and know-how—could make the difference.

For the region to be competitive with the major medtech hubs based in Minnesota, Massachusetts, and California, it will need to be bolder with respect to innovation.

While the area is home to a number of medical device startups, there number is somewhat limited and they could use support. Seed capital for young companies is sorely lacking.

The Pacific Northwest, however, has a unique geographical advantage, being close to the device hub based around Vancouver and not far from California. While both Washington and Oregon have programs in place to help drive growth in the life sciences industry, if they expanded those programs, they could convince companies and employees from other West Coast locations to relocate there.