medical devices in massachusetts state of the industry · (kpis) relating to innovation (in terms...

Medical Devices in Massachusetts

State of the Industry July 2019

© 2019 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 1

Contents Foreword 1

Executive Summary 2

Industry Analysis:

Innovation: PMA, 510K, Patent Approvals 5

Venture Capital Funding 8

Mergers and Acquisitions 9

Talent and Cost of Living 10

Research University and Hospitals 11

Medical Device Exports 12

Summary 13

Next steps 14

Welcome,

Grant Thornton is collaborating with MassMEDIC for our second annual Massachusetts medical device industry report. Life sciences continue to play a vital role in the state’s economy, contributing significantly to the region’s growth and prosperity. Some of this year’s observations:

• Massachusetts leads all other states in medical products exports as a percentage of total exports with a value of $5.7 billion

• The state ranks second only to California for venture capital funding for medical devices

• Massachusetts is a strong source of talent for future growth, jumping up in rank from third to second for jobs in the medical device industry this year

Our research suggests that despite its strength, certain Massachusetts medical device KPIs are falling. In response, MassMEDIC and Grant Thornton are collaboratively launching a working group to explore stimuli to anticipate disruption and help the state maintain its leadership position.

If you are interested in learning more about this working group or how Grant Thornton can help your organization, please contact us at the information below.

Pat Shafer Managing Director Healthcare Life Sciences Grant Thornton LLP T 646.379.8307 E [email protected]

George Serafin Healthcare Life Sciences Leader Grant Thornton LLP T 973.722.3922 E [email protected]

mailto:[email protected]



State of the medical device industry in Massachusetts Executive Summary

This year’s study examines several Key Performance Indicators (KPIs) relating to innovation (in terms of patents and approvals), economic impact (exports and share of GDP) and talent (employment, salaries and education). Overall, Massachusetts fares well. However, many indicators are revealing disappointing trends, such as reductions in PMA and 510(k) approvals.

Ecosystem KPIs

• Innovation: Massachusetts’ seven prominent research hospitals attracted $2.9 billion of National Institutes of Health (NIH) funding in 2018. The state ranked 2rd among all states for medical device patents and PMA approvals, and 3rd for 510(k) approvals. Massachusetts outperforms all states in many categories when adjusted for state GDP.

• Economic impact: The over 400 medical device companies in Massachusetts contribute 23 percent of the state’s total exports, again the highest in the nation. The tariff concerns with China at the time of this report are not likely to affect the export of Medical Devices as only 10.5% of medical device exports go to China (the Netherlands represents the greatest share (12.7%). Massachusetts ranked second for venture capital investment ($14.9 in 2018). Massachusetts ranked fourth in medical device acquisitions over the same period.

• Talent: Massachusetts ranks third for total number of medical device employees with 24,815 workers in that field. Boston-Cambridge is the 13th metropolitan area nationwide with the largest proportion of workers in science or engineering occupations (8.8%), compared to 16.8% for San Jose, ranked first, or 9.7% for San Francisco.

With respect to innovation, some of the key indicators are declining. PMA and 510(k) approvals dropped from 107 in 2017 to 89 in 2018 (17%). Patent approvals fell from 2029 in 2017 to 1976 in 2018. PMAs have leveled off at 4. One must ask what is behind the slowing innovation scores. What disruptors could potentially derail the growth of the medical device industry in Massachusetts?

MassMEDIC and Grant Thornton are facilitating a working group to explore root causes and identify opportunities to stimulate the Medical Device industry as well as the broader life sciences ecosystem in Massachusetts.

Please see page 15 for more information.


The medical device industry contributes significantly to the Massachusetts economy

• Life Sciences jobs have grown 28% in the greater Boston area in the last 10 years.

• Over the same period, 12 million square feet of commercial lab space was developed to address the growth in the biopharma and medical devices sectors (a 71% increase).

• The Cambridge life sciences lab vacancy rate decreased by 40 basis points to 1.7% in 2017. The Boston lab vacancy rate is 2.5%.

• The cluster’s expansion continues to drive the development of Seaport, Somerville and other Boston suburbs.


State Gross Domestic Product 2014-2017

Source: Bureau of Labor Statistics, U.S. Department of Commerce / Bureau of Economic Analysis

Massachusetts is smaller in terms of population and state GDP than many of its life sciences rivals

Population Estimates 2014-2018 (Millions)

• Massachusetts’ population has grown 5.4% over the last 10 years to just under 7 million residents.

• Massachusetts’ GDP has grown by 8% annually between 2015 and 2017, second highest growth rate of the cohort behind California’s 9% over the same period.

• Hospital, nursing, and residential care are the largest contributors to MA GDP.

• California’s GDP is bolstered by the agriculture, tourism and technology industries.

• Minnesota’s GDP is driven largely by manufacturing and energy.

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Massachusetts is a leader in medical device patent approvals when adjusted for GDP

Source: US Patent and Trademark Office

MA Medical Device Patent Approvals 2015-2018

Medical device patent approval rates have decreased from 2017 levels

California is the consistent leader in the number of medical device patent approvals from 2016-2018, with Massachusetts following as a consistent second. Minnesota also has a proven record for medical device patents, and leads when adjusting for GDP.

Medical Device Patent Approvals 2014-2018

Patent Approvals Normalized for GDP 2014-2018


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CV36%

Diabetes5%GI

2%IVD18%

Monitoring

Neurology

Opthalmic

Respiratory

Surgical

Urology 1%

United States Medical Device Breakdown

CV50%

IVD30%

Opthalmic10%

Surgical 10%

Massachusetts Medical Device Breakdown

CV30%

Diabetes8%

GI 3%IVD

23%

Monitoring 3%

Neurology8%

Opthalmic9%

Surgical 16%

California Medical Device Breakdown

0.02.04.06.08.0

10.012.014.016.018.0

2014 2015 2016 2017 2018

US Device Pre-market Approvals (PMAs) have been mixed

02468

1012141618

2014 2015 2016 2017 2018

Source: FDA PMA Database

Overall PMA approvals declined in 2018

• In aggregate, Massachusetts ranks third in PMA approvals behind both California and Minnesota since 2015.

Massachusetts leads California in PMA approvals when adjusted for GDP

• In 2018, Massachusetts outpaced all other states when adjusted for GDP.

• PMA approvals in Massachusetts levelled off from 2017 to 2018 after three consecutive years of growth.

Data suggest a narrow range of therapeutic areas for PMAs in Massachusetts.

• Collectively from 2014-2018, medical devices targeted for cardiovascular diseases dominate the PMA approvals throughout the US (37%) and in both Massachusetts (50%) and California (30%).

• Massachusetts approvals represent a smaller range of therapeutic areas with in vitro diagnostics and cardiovascular medical devices accounting for 80% of all PMAs from 2014-2018.

Cardiovascular dominates Massachusetts' PMA approvals Figures reflect data from 2014 to 2018

PMA Approvals (2014-2018)

PMA Approvals (MA, 2014-2018)

PMA Approvals Normalized for GDP (2014-2018)


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The rate of 510(k) approvals has declined from 2015-2018

Source: FDA 510(K) Database

Massachusetts is second to Minnesota when adjusted for relative state GDP

• In 2018, Massachusetts outpaced California in the total number of 510(k) approvals with 89 vs. California’s adjusted count of 62 (actual count is 323). Minnesota’s count of 86 rose to 132 when adjusted for GDP. Pennsylvania registered 102 510(k) products.

• The number of medical device products moving through the 510(k) approval process in Massachusetts is down 44% since 2015.

• It is anticipated that these figures will continue to decline as the FDA tightens the 510(k) approval process in order to ensure that the products being vetted through the process are compared to more appropriate predicate devices.

510(k) Approvals (MA, 2014-2018)

510(k) Approvals normalized for GDP (2014-2018)

510(k) Approvals (2014-2018)


VC Funding by Deal Stage (2017, Billions)

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Early Stage Late Stage

The medical device industry is competing for VC funding

Top 5 States: VC funding (2017, Billions)

VC funding by product type in Massachusetts

California leads in total Venture Capital (VC) funding for medical devices

• In 2017, there were a total of 567 medical device venture capital deals totaling $14.9 billion in value.

• California is the clear front-runner with $5.7 billion of VC funding for the medical device industry in 2017.

• Massachusetts had seven times as many deals as Minnesota and three times as many as Pennsylvania.

• When adjusted for GDP Massachusetts funding is close to that of CA.

• In both Massachusetts and California, late stage VC deals in the medical industry accounted for the majority of the deals.

• Other states with a strong medical device ecosystem (such as Texas and Pennsylvania) have slightly more investment in early stage medical device deals.

Biotech exceeds all other life sciences sectors for VC funding in Massachusetts

• Within the medical device sector, drug delivery devices leads the medical device sector with 14% of the total VC Funding.

• One possible explanation is the growing prevalence of combination products leveraging drug delivery devices to administer better-funded biotechnology products.

Source: Pitchbook

VC funding levels adjusted for GDP

(2017, Billions)

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Surgical Devices

Pharmaceuticals

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Biotechnology

Drug Delivery

Therapeutic Devices

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Medical Device M&A activity in Massachusetts is steady

Medical Device Acquisitions (Deal Value in Billions)

Medical Device Acquisitions (Deal Value in Billions, MA, 2014-2018)

Source: CAP IQ

Overall Medical device M&A activity is inconsistent from year to year

• Overall M&A activity in the medical device industry varies greatly from year to year, with peaks in activity as seen in 2016 driven primarily by large acquisitions.

• In 2018, Massachusetts’ medical device M&A activity totaled $2.3 billion from 13 deals on record.

• In Massachusets, there was a 38% decline in the total value of the deals from an all-time high of $3.7 billion in 2017.

• This decline represents a reduction in average deal value as the number of deals remained steady compared to the previous year.

• Massachusetts placed 4th for the total value of M&A deals collectively from 2014 to 2018, behind California, Minnesota, and New Jersey respectively.

Overall trend of increasing M&A Activity in Massachusetts from 2014 to 2018

• Despite a decrease in total value of deals in 2017, there is still a clear trend towards more M&A activity during the period of 2014-2018.

• From 2014, the total value of M&A deals has increased 47% to the levels seen in 2018.

Count of Medical Device Deal Acquisitions (2014-2018)


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Massachusetts’ Medical Device industry attracts top talent

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Source: Bureau of Labor Statistics, MassBioEd, National Center for Science and Engineering

Massachusetts trains and attracts top talent

• The 2017 average MA med-tech wage reached $121,909, 10% higher than that of California. Wages increased in 2017, especially in Minnesota and Texas (+30% and +14.5% respectively).

Advanced degrees in the biomedical sciences distinguishes Massachusetts

• 5.3% of PhD degrees in the field of science and engineering nationwide were completed in Massachusetts in 2017. The state ranks 4th after California (11.2%), New York (7.4%) and Texas (7.4%).

• Within those fields, 20.3% of Massachusetts’ PhD degrees were completed in Biological and biomedical sciences or Biomedical engineering — Compared to 19.3% in California, 12.1% in Minnesota and 16.9% in Texas.

Boston is among the 10 most expensive cities to live in nationwide

• Housing Market: Due to continued growth and high cost of living, the median property value in Cambridge is currently $670,200, compared to $600,300 in San Diego. The median value is $385,400 for Massachusetts and $217,600 nationwide.

• Median household income: The median household income in Boston-Cambridge-Newton, MA-NH, grew 4.02% to $85,691 in 2017, which is higher than Massachusetts median income of $77,385. San Diego stands at $76,662.

Medical Device Industry Avg. Wages (Thousands, 2015-2017)

Medical Device Industry Employment (Thousands, 2015-2017)

2018 Med-Tech Employment Adjusted for Population (Millions, 2015-2017)


Massachusetts is home to prominent universities and research hospitals

MA hospitals received $2.89 Billion in NIH funding in 2018. In 2017, Boston represented 7.5% and 72% of total NIH funding across the U.S. and Massachusetts, respectively.

Total R&D Expenditures ($)

Total Life Sciences ($)

% Life Sciences

Massachusetts 3,927,934 1,672,546 43% Public 662,393 383,920 58% U. Massachusetts, Medical School 279,884 279,884 100% U. Massachusetts, Amherst 210,416 74,257 35% U. Massachusetts, Lowell 69,677 13,892 20% U. Massachusetts, Boston 70,019 11,478 16% U. Massachusetts, Dartmouth 26,102 2,217 8% Framingham State U. 1,901 1,833 96% Private 3,265,541 1,288,626 39% Harvard U. 1,123,160 633,462 56% Boston U. 421,360 265,371 63% Tufts U. 223,409 173,969 78% Massachusetts Institute of Technology 952,017 129,735 14% Northeastern U. 142,349 30,366 21% Brandeis U. 68,437 30,140 44% Boston C. 58,088 13,811 24%

• The total enrollment in public and private colleges and universities in Massachusetts is approximately 431,000 students across 29 public institutions and 78 independent colleges - Compared to more than 2 million students in California.

Life Sciences represented 43% of MA universities R&D expenditures in 2017

• The percentage was higher for public universities (58%) than private ones (39.5%). Among private universities, Tufts had the highest Life Sciences allocation (77.9%), ahead of Harvard and MIT (respectively 56.4% and 13.6%).

• Minnesota, California and Florida had higher contributions, i.e., 65%, 62% and 54% respectively.

• Since 2008, the Massachusetts Life Sciences Center (MLSC) has directly invested or committed more than $640 million and leveraged more than $2 billion in third-party investment.

Source: NIH Reporter, Massachusetts Department of Higher Education, MassEcon, Massachusetts Life Sciences Center, National Science Foundation, Pharmaceutical Research and Manufacturers of America.

Higher educa�on R&D Life Sciences expenditures in Massachusets

(Thousands, 2017)

Source: NIH Reporter

Beth Israel Deaconess Medical

Center 240 awards

$128 MM in funding

-1.5%

Brigham & Women’s

560 awards $388 MM in

funding - 0.5%

Harvard Medical School


funding - 2.8%

UMass Med Worchester 345 awards $160 MM in

funding

+ 3.9%

Mass General 906 awards $465 MM in

funding + 18%

Dana Farber 228 awards

$172 MM in funding

+ 18%

Boston Children’s


funding

+5.7%

MA programs and initiatives to support the Life Sciences development in the fields of:

• R&D and Biosciences infrastructure development

• Venture capital, entrepreneurship, and Innovation

• STEM Workforce and Education


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Massachusetts leads with medical device exports relative to total state exports

Massachusetts medical device exports totaled $6.13 Billion in 2018, an annual increase of 7.7%

Source: International Trade Administration, U.S. Department of Commerce

Medical Device Exports as % of Total Exports (2015-2018)

Global Trends in the Export of Medical Devices

• Massachusetts is the top U.S. exporter of medical devices as a percentage of total exports. In 2018, Medical, surgical or dental instruments and appliances contributed the most, representing 4.6% of the State total exports.

• In-vitro diagnostics substances presently account for more than half of Boston medical devices exports, followed by electro-medical equipment (20%).

• Canada, China, Mexico, Germany, and Japan are Massachusetts top 5 trading partners. Overall, they accounted for 42.6% of the State total exports in 2018.

• Exports to China and Japan increased by 14.6% and 16.2% respectively compared to 2017. On the other hand, the United Kingdom contribution decreased by 47.9%.

• The impact of trade tariffs policies still has to be assessed since China is included in the local medical device manufacturers’ supply chain.

• Cameras used in medical and surgical contexts are among the products that are subject to a 25% import tax at the time of this study.

Boston Total Medical Device Exports - Segment Contribution (2016-2018)

0% 20% 40% 60%

In-vitro diagnostic substances

Electro-medical equipment

Irradiation apparatus

Surgical and medicalinstruments

Surgical appliances andsupplies

Dental equipment and supplies

Ophthalmic goods

2016 2017 2018


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Summary: Despite MA's strong performance, innovation activity is leveling or declining

510(K) Approval (MA, 2014-2018)

PMA Approval (MA, 2014-2018)

The future of the medical device industry in Massachusetts

• MA 510(k) approvals decreased from 107 in 2017 to 89.

• PMA approvals held steady at 4.

• Massachusetts medical device patent approvals declined from 2029 in 2017 to 1976 in 2018.

• The strong state of research funding funneling into the state will continue to support innovate biomedical research and development at the states’ top university and hospital centers.

Number of Medical Device Patent Approvals (2015-2018)

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2015 2016 2017 2018

Source: FDA 510(k) and PMA Database, US Patent and Trademark Office


Next Steps: Working to support Massachusetts’ continued strength in medical technology

Sustaining growth in the medical device sector requires proac�ve aten�on to

talent, capital, infrastructure, culture, and quality of life

MassMEDIC and Grant Thornton have collaboratively launched a working group to explore ways to stimulate the next wave of medical device innovation in Massachusetts.

The working group will include a broad range of stakeholder groups that will meet on periodic basis to identify and address the industry growth factors.

Source: Grant Thornton LLP


About Grant Thornton

Founded in Chicago in 1924, Grant Thornton LLP (Grant Thornton) is the U.S. member firm of Grant Thornton Interna�onal Ltd, one of the world’s leading organiza�ons of advisory, consul�ng, tax, and independent audit firms. Grant Thornton, which has revenues in excess of $1.75 billion and operates 59 offices, works with a broad range of dynamic publicly and privately held companies, government agencies, financial ins�tu�ons, and civic religious organiza�ons.

For more informa�on on our life sciences industry prac�ce, please visit our website

For more information please contact: Brian Johnson E [email protected] Pat Shafer E [email protected]

Authors: Osric Forrest and Narendra Sharma Contributors: Segolene Balling and Ian Persaud



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