As the saying goes: Everything’s bigger in Texas. Thanks to a concerted statewide effort coupled with promising growth opportunities in the market, that boast of ample proportions now applies to the region’s medical device industry as well.
Although not yet on the scale of such medtech hubs as Massachusetts and Southern California, Texas’s medical device industry has made great strides in recent years. Concentrated in Dallas-Ft. Worth, Houston, San Antonio, Austin, and their surrounding areas, the state’s biotechnology industry was estimated to have an economic impact of $75 billion in 2009, according to the Texas Healthcare and Bioscience Institute. A subset of biotechnology, medical product manufacturing has similarly contributed to the state’s economy, with value of shipments reported at $3.97 billion. The sector now also employs more than 11,800 people at roughly 710 establishments. And thanks to generous state funding to the sector along with new high-tech suppliers supporting the industry, Texas is emerging as a major medtech contender.
An Enterprising Environment
A variety of factors has contributed to the medical device industry’s recent boost in prominence in the Lone Star State. Chief among them, however, has been a well-orchestrated initiative by the state government to support specific industries showing potential for stimulating local long-term growth and economic development.
Identified as one such promising industry, medical device manufacturing—under the umbrella of biotechnology and life sciences—has reaped the benefits of this growing government support throughout the past decade. Heading up this effort, Governor Rick Perry helped to launch the Council on Science and Biotechnology Development in 2002. Along with the Texas Legislature, Perry also authorized the establishment of the $295 million Texas Enterprise Fund (TEF) in 2003, which was created as a deal-closing incentive with the intention of attracting new businesses and generating jobs in the state.
While the fund drew fire from critics last year for falling short of job-creation expectations, it has brought new business and helped to build up the biotech presence in the state, especially in the last two years. The TEF has awarded $93.1 million in funds to biotech-related projects as of March 2010, according to the Office of the Governor.
And that investment has yielded some results. In May 2009, for example, medical device giant Medtronic Inc. (Minneapolis) announced that San Antonio would serve as home base for its Diabetes Therapy Management and Education Center. A $6 million investment from the TEF, coupled with various incentives and grants from local governments, clinched the deal. San Antonio landed another economic victory this past August when Becton, Dickinson and Co. (Franklin Lakes, NJ) disclosed that it would be bringing its North American professional services headquarters to town, aided by a $1.5 million investment by TEF. Garnering a similar investment, Bethesda, Maryland–based Hanger Orthopedic Group relocated its headquarters in September to Austin.
“State and local incentive packages together committed more than $22 million to these companies through tax abatements, skills development funds, and grants uniquely tailored to each project,” according to Lucy Nashed, media relations specialist for the Office of Governor Rick Perry.
Investing in Innovation
Putting its money where its mouth is, the state government has further shown its dedication to the medical device industry through the Texas Emerging Technology Fund (TETF). Set up in 2005, the fund serves to promote and finance technological innovation across the biotech industry and other key clusters in the state. Since then, $38.6 million has been invested in 32 medical device technologies, according to the Office of the Governor.
As recently as September, Governor Perry announced that the fund would contribute $9.2 million to three spinout companies from the incubator InCube Labs. The allure of such support prompted the companies—which are focused on treating anemia, epilepsy, and atrial fibrillation—to relocate from California. “The recent announcement from Governor Perry about how three companies were coming from California to San Antonio shows how the Texas market is opening up opportunities to technology companies,” comments Veronica Marques, business development manager, medical business unit, at Texas Instruments (TI; Dallas). TI specializes in analog, embedded processing, and wireless semiconductor products for a range of medical applications, including imaging equipment.
It is this state-funded commercialization support that is helping Texas to gain prominence in the medical device industry, concurs Greg Crouch, life sciences business director at National Instruments (Austin), which supplies software and hardware products for medical device design, testing, and development. “What Boston and California had that Texas didn’t early on was a foundation of entrepreneurs and startup companies that could make it to that next level,” he says. Intending to turn things around in this respect, the TETF helps innovative companies to circumvent the difficulty of obtaining venture capital (VC) funding and provides early-stage support to innovative emerging technologies.
“Where Boston and California were very efficient was bringing technology out of the university and through commercialization groups,” Crouch notes. “The state of Texas is just now lowering the barriers of moving technology intellectual property through the commercialization group out into the industry.”
Improving this process has been a major focus of the TETF, he says. The University of Texas at Austin (UT), for example, now has an Office of Technology Commercialization (OTC) to facilitate technology transfer from the lab to the commercial space. “UT has a strong suit in terms of its OTC,” adds David Niewolny, medical market segment marketing manager, microcontroller solutions group, at Freescale Semiconductor (Austin), an embedded solutions provider to the medical device industry. “I try to stay as close to those guys as possible. With some of the things coming out of the UT biomedical engineering professors’ research, it’s almost as good as a VC fund to get into that early.”
Although state funding has been flowing more freely in recent years, it isn’t the only means of encouraging local innovation and entrepreneurship. VC funding in the area also seems to be improving, however, as do incubation programs. Niewolny names the Houston Angel Network, as well as life sciences-focused VCs PTV Sciences (Austin; Houston) and Santé Ventures (Austin), as being beneficial to building up the medical device industry in Texas. “Having a couple of VC firms that only focus on healthcare investing makes the climate that much better. Having the support and funding around you makes starting a business here that much easier,” he says.
High-Tech Firms Chip in to Growth
There’s no arguing that the state’s various initiatives during the past decade have helped put the Lone Star State on the medical device industry’s map. But state funding to the sector isn’t the only contributing factor. Diversification strategies set into motion by local electronics—and notably semiconductor—companies have also played a role in building up the medtech presence in Texas in recent years.
Texas, and Austin in particular, is considered to be one of the closest domestic high-tech rivals to Silicon Valley. The daily direct Austin-San Jose flights are even nicknamed “The Nerd Bird” because of their frequent transportation of tech workers between the two hubs.
But while many semiconductor companies historically offered catalog parts to medical device manufacturers, there was not a dedicated push to be a serious supplier to the industry. That changed in the past five years, however, when the semiconductor industry began to slip and companies sought more stable markets to target. As a result, Texas saw some of its high-tech companies join the medical device fold.
“We have previous knowledge from other markets,” says Marques of TI. “We know the process technology. We know what it takes to make products affordable and portable. And we’re taking that same knowledge that we used in other markets and applying it to the medical market.”
Niewolny of Freescale Semiconductor agrees as to how the transferrable skill set made the medical device industry a good fit for the company’s capabilities. But he questions the long-term commitment of some of the high-tech companies that have jumped on the bandwagon. “I think there’s a lot of follow the leader being played. One company jumps in and everyone else gets concerned; they don’t want someone else to capitalize on that market and they miss out,” he adds.
Following the leader by electronics companies has benefitted the medical device industry, however. The past few years have seen a flood of progressive products, including various advanced chipsets and analog front-ends, enter the market from semiconductor companies. Freescale has concentrated its efforts on serving manufacturers of high-end consumer medical devices, namely for diabetes care and remote patient monitoring. TI, on the other hand, divides its medical focus into four primary areas: consumer medical, patient monitoring and diagnostics, medical imaging, and medical instruments. Both companies, however, are enthusiastic about the development of application-specific solutions for the medical market.
“The electrical engineer 10 years ago thought that he had to go out, buy a device, learn about it, find some third-party pieces of software, and basically build everything himself,” Niewolny says. “The way the industry’s going, we’re building more and more for the customer; everything is getting more application specific. We’re not just providing a piece of hardware or a base-level stack. There’s an evolution of providing hardware, software, and specific parts for vertical markets.”
Involvement of Texas chip companies in the medtech industry could also be a boon to the state as telehealth/telemedicine begins to take off in the next few years. Companies such as TI and Freescale are already planning how to apply their wireless connectivity experience to make progress in this emerging market. “In the case of telehealth, we are helping our customers bring down the cost and improve the function of products,” Marques says. “We know how to do that and apply that to the medical market.”
Learn about biomedical engineering programs in Texas and how they may help bolster the region's medtech industry.