Countdown to Michigan 2031: Will Medical Devices Lead the Way?

3/28/11Follow @xconomy

If Michigan was looking for an industry to bolster its future high tech economy beyond automobiles, medical devices would appear to be a good bet.

HandyLabs and Accuri Cytometers, both University of Michigan spinoffs based in Ann Arbor, MI, were recently purchased by Benton, Dickinson & Co.

With nearly $8 billion in revenue last year, Stryker is rapidly becoming a major player in medical devices. The company, based in Kalamazoo, MI, recently spent $1.5 billion to acquire the neurovascular business of Boston Scientific.

Traditional auto supply manufacturers, including Roush Life Sciences and Delphi Medical, are now expanding into medical devices. Two new medical schools are in the works in Michigan while the U-M medical school is ramping up efforts to convert its research into bankable technology.

“All of the pieces seem to be falling into place,” said Tim Peterson, managing director of Arboretum Ventures in Ann Arbor, which funded HandyLabs and Accuri. “The trend line looks really good.”

Ten or 15 years from now, Michigan will view this moment as a turning point, he says.

Whether Peterson’s prediction is a sound one is just one of the important questions that will be debated at Xconomy’s Michigan 2031 forum next month. The April 14 event—which will bring together some of Michigan’s most prominent investors, academics, and entrepreneurs at Detroit’s TechTown—will discuss the shape and makeup of the state’s high tech economy 20 years from now, including the role medical devices will play in that economy.

Michigan has a lot of work to do in the meantime. The state’s medical device community is largely scattered, disorganized, and underfunded, observers say.

“We have no good, strategic plan,” says Stephen Rapundalo, CEO of MichBIO Institute in Ann Arbor. “We don’t even know what we have.”

From 2004 to 2009, Michigan attracted $439.6 million in bioscience-related venture capital, good enough for 18th place in the United States, according to the Battelle Report.

Of that money, medical devices (diagnostic and therapeutic products) captured only 21 percent, or $92 million, with the vast majority going to pharmaceuticals and biotechnology. By contrast, venture investments in Minneosta medical device firms totaled $1.2 billion and Ohio medical device startups grabbed $394.2 million.

Michigan’s medical device sector has actually shrunk over the past several years, the Battelle Report says. In 2008, the state had 500 device-related “organizations,” down 13.1 percent from 2001, compared to 0.4 percent gain for the entire country.

In that time period, the number of Michiganders working in medical devices fell 4.3 percent to 12,339, while employment in the industry across the United States rose 2 percent to 435,509 people.

But some experts think money is not the main problem. Scott Merz, president of MC3, a medical device incubator in Ann Arbor, says the state lacks “anchor” companies that entrepreneurs and investors can build around.

Minnesota, for example, boasts three major medical device makers—Medtronic, Boston Scientific, and St. Jude Medical. Alumni from those companies in turn launch their startups and invest in and advise others.

“There are a lot of [device] companies here,” Merz says. “What we’re missing is the presence of the big guys. If I had a lot of money, I would do whatever I could do to have Medtronic have [more of] a presence here. We need that anchor.”

Could Stryker be that anchor? The life science community in western Michigan certainly hopes so.

The region, including Kalamazoo and Grand Rapids, is already home to a strong cluster of medical device and drug companies. With 1,947 people working in medical devices in 2008, the Kalamazoo-Portage area boasts the second highest concentration of medical device employment in the country for medium-sized metropolitan statistical area, according to the Battelle Report.

In Kalamazoo, Styker has provided significant support, including capital, talent, and expertise, to the medical device community, says Pat Morand, managing director of the $50 million Southwest First Life Sciences Fund (SWMF). The fund is bankrolling Monteris Medical, a Kalamazoo-based device startup that uses thermal energy to destroy tumors from the inside out.

Kevin McLeod, a former Stryker executive, now runs the nascent Michigan Medical Device Accelerator in Kalamazoo, which currently is developing four device startups.

And last week, Western Michigan University in Kalamazoo said it received a $100 million cash donation to establish a medical school, an institution that will further strengthen the local medical device industry, Morand says.

The state still has some highly organized neighbors to contend with.

In Minnesota, the quasi-public BioBusiness Allliance of Minnesota recently commissioned an exhaustive strategic plan called Destination 2025. The report painstakingly detailed all of Minnesota’s life science-related companies, research institutions, and organizations, recommended specific ways for them to collaborate, and set clear goals for the state to accomplish by 2025.

Ohio, Wisconsin, and Illinois, for their part, have been more far more aggressive at growing local startups and attracting outside capital and companies than Michigan has been.

For example, Michigan lacks a strong public-private entity to market and bankroll lifescience companies the same way Third Frontier and Ben Franklin Technology Partners does for Ohio and Pennsylvania respectively.

“Michigan has the elements,” Rapundalo of MichBIO says. “We just need to fill in the gaps and integrate them.”

With any luck, Michigan 2031 will spark ideas for doing just that, so I hope you’ll join me at TechTown on April 14. To register now, click here.

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