Medical device manufacturing is emerging as one of Wisconsin’s most dynamic industry sectors and is projected to become a key driver for exports from the state.
The U.S. medical device market size is around $110 billion, and it is expected to reach $133 billion by 2016, according to SelectUSA, a U.S. government effort to facilitate business investment.
Wisconsin boasts a significant concentration of medical device companies, with leaders such as Wauwatosa-based GE Healthcare and Milwaukee-based Mortara Instrument Inc., and a variety of smaller companies cropping up, all riding what is considered the sector’s second surge.
Medical and scientific instruments are the second-largest export commodity from Wisconsin, according to federal export data provided by the Wisconsin Economic Development Corp.
In 2014, Wisconsin companies exported $2.17 billion in the category, representing 9.3 percent of all state exports. That is an 18-percent increase since 2009, when medical and scientific instrument exports totaled $1.84 billion.
The medical device sector’s first growth spurt occurred from about 1985 to 1990, when it experienced a powerful burst of innovation, according to Lee Swindall, vice president of business and industry development for the WEDC.
The industry’s second ascent started in the early 2000s and continues today, propelled by the investment – and reinvestment – in the development of better, more effective technology.
Besides developing innovations, medical device companies contribute to the state’s economy through employment, exports and research. Although these companies have challenges to meet and trends to address, most agree the sector is only going to continue to grow.
A leading employer
Wisconsin is home to a specialized employment concentration in medical device manufacturing, with a 50-percent greater concentration in the state relative to the national average, according to a 2014 report from the nonprofit research and development organization Battelle and the Biotechnology Industry Organization.
Wisconsin’s medical device sector accounted for 13,073 jobs in 2013, representing an increase of 12 percent from a decade earlier, according to the U.S. Bureau of Labor Statistics.
The combined Milwaukee and Madison region ranks seventh in the nation for medical device employment, according to the Battelle/BIO report. The Milwaukee market has 6,745 medical device jobs, and the average annual wage for those employees is$84,177.
One of the largest employers in the state is GE Healthcare, which has its U.S. headquarters in Wauwatosa. It employs approximately 6,000 in Wauwatosa, Waukesha, Milwaukee and Madison and more than 50,000 globally. GE Healthcare also is directly or indirectly responsible for one in every 132 jobs in Wisconsin through its supply base, according to Rob Reilly, chief marketing officer for the company.
Another company with a large local presence is Mortara Instrument, a designer, developer and manufacturer of non-invasive cardiology devices and technologies. Mortara has 202 Milwaukee employees, 80 more nationwide and 110 internationally.
“It’s really about the jobs,” said chief executive officer Justin Mortara of his company’s contribution to the local economy. “We employ a full spectrum of positions.”
Mortara is currently hiring for 11 positions in the United States and anticipates adding another 50 employees over the next two to three years.
Mortara and GE Healthcare are considered part of the electromedical and electrotherapeutic apparatus manufacturing industry, as categorized by the North American Industry Classification System. The industry, which specializes in products such as electrocardiographs, pacemakers and hearing aids, provided 1,263 Wisconsin jobs in 2013, according to the BLS.
GE Healthcare also is part of the irradiation apparatus manufacturing industry, which provided the greatest employment of all the industries in 2013 with 4,494 jobs in Wisconsin. In fact, 34 percent of the nation’s employment in that industry is in Wisconsin, and the state’s concentration of these jobs is 16 times higher than the nation.
Companies in the irradiation apparatus manufacturing industry are engaged in manufacturing irradiation apparatus and tubes for applications such as medical diagnostic, medical therapeutic, industrial, research and scientific evaluation.
A strong exporter
China is the top export destination for medical and scientific instruments. In 2014, Wisconsin exported $347.64 million of those products to China, up 84 percent from 2009 and 7 percent over 2013.
Other top destinations are Japan ($245.1 million), Canada ($152.5 million) and France ($134.6 million).
The No. 1 exporter in the state is GE Healthcare, according to Reilly, exporting $1.5 billion worth of products every year to more than 100 countries. GE Healthcare directly and indirectly accounts for $3.8 billion in economic activity in the state, he said, with one dollar for every $60 or so in the state’s economy generated through the company.
Additionally, GE Healthcare has approximately 1,000 Wisconsin-based suppliers that it does more than $400 million in purchases with annually, including about $100 million done with more than 150 small business suppliers.
“We have a tremendous footprint in the state,” Reilly said.
As for Mortara, it has distribution arrangements to sell in every major international market, with approximately 40 percent of its total sales being made outside the United States.
A growing sector
A variety of drivers are contributing to the medical device sector’s current growth in Wisconsin, according to the WEDC and the companies.
First, there is an aggressive push from medical providers and insurers for innovation, efficiency and effectiveness in medical device applications, according to Swindall. This need has sharpened over the past three years and will intensify in the next three to five years.
Other factors powering the growth, he said, are an aging demographic eager for new advancements and an increase in nanotechnology applications for diagnosis, monitoring and treatment.
Mortara, which is the No. 2 provider of electrocardiogram (ECG) devices in the world, is one example of a Milwaukee company experiencing a vast amount of growth.
It has doubled in size over the past five years in terms of employees and sales, according to Mortara, and it is growing on average in excess of 10 percent each year.
Mortara has reached capacity at its 64,000-square-foot headquarters facility at 7865 N. 86th St., which contains administration, sales, marketing, service, engineering and manufacturing. Its other building, a 50,000-square-foot facility at nearby 8220 W. Sleske Court, used for additional manufacturing and shipping and receiving, also is full.
Thus, the company is currently in the preliminary stages of building a new facility that will serve as a centralized manufacturing hub. The building, which could be up to 60,000 square feet in space, will be located at 8585 W. Bradley Road, another nearby location.
Mortara does not yet have an anticipated completion date, but he hopes to break ground this spring.
The new building will be one more in a series of expansions for the company.
Mortara said the growth of his company is due in part to cardiovascular disease continuing to be a significant health threat, as well as the No. 1 killer in some countries. Other growth drivers are the aging demographic and the rise in investments in the health care systems outside the United States. In particular, China, Brazil and the Middle East are big growth markets right now for Mortara.
Reilly echoed a similar perspective on the latter, saying GE Healthcare’s growth is driven by the unique needs of both the “developed world” and the “developing world.”
“We have products we make here in Wisconsin that help those countries build their infrastructure for the first time,” Reilly said. “Both sides present opportunities. We just have to play the game differently to account for the different market dynamics.”
New companies, new innovations
“The health care industry is totally reshaping itself,” Reilly said. “There’s a premium on innovation.”
An example of one of GE Healthcare’s newest products that was designed, developed and produced in Wisconsin is the Revolution CT, a scanner that creates high-quality images using lower doses of radiation.
While GE Healthcare is a household name, several new and lesser-known Milwaukee-area medical device companies are rapidly making great strides in the sector.
One such example is Germantown-based Somna Therapeutics LLC, which in March began selling its REZA BAND UES Assist Device in approximately 10 countries.
The REZA BAND is a non-medication, non-surgical medical device that applies slight external pressure to the neck to help reduce symptoms of laryngopharyngeal reflux by preventing regurgitation of stomach contents through the esophageal sphincter. The band, which requires a doctor’s prescription, is worn just below the Adam’s apple to press on the cricoid cartilage area. It aims to reduce symptoms including chronic throat irritation and cough, hoarse voice, difficulty swallowing and postnasal drip that can be caused by acid reflux.
Somna president and CEO Nick Maris expects the company to experience accelerated growth due to the number of people suffering from acid reflux. According to the American Society for Gastrointestinal Endoscopy, gastroesophageal reflux disease affects 20 percent of Americans.
Furthermore, Maris said other solutions – acid-suppressing pills, surgery or sleeping upright – are expensive, ineffective and impractical.
“The acid reflux market is thirsting for another option,” he said.
The REZA BAND could indeed be a strong option for many, as 86 percent of patients in clinical trials had a successful outcome using it and reported significant reduction in symptoms after two weeks.
To accommodate the expected growth, Maris said he expects the company to expand from seven employees to 20 by the end of the year. He also said Somna Therapeutics plans to offer a complementary portfolio of products in the future.
Another growing local company is Inter-Med Inc., doing business as Vista Dental Products. The company announced in March that it plans to move from a 35,000-square-foot space at 2200 Northwestern Ave. in Racine to a similarly-sized space at 2200 South St. in Racine. The new location doubles the size of its available office facilities and provides the opportunity to further expand in the future, as it sits on a five-acre site.
Inter-Med also said it expects to expand from 46 to 89 employees over the next three years. The growth is driven by growing demand for its dental products, including small equipment, engineered therapeutic solutions and pre-filled syringes.
One new product, an oral cancer detection product, is slated to enter the market in November following FDA approval. In development for about six years, it will become the only device that can detect oral cancer in the pre-cancerous stages.
Finally, the company is gearing up to launch its third subsidiary, Euro Dental Depot, which will distribute Vista Dental’s and other companies’ dental products in the European Union.
Why Wisconsin?
The state provides a strong environment for the medical device sector for a number of reasons, including its high density of hospitals, clinics and research facilities, Swindall said.
John Ziobro, owner of Oconomowoc-based SpectraMedEx LLC, said, “It’s a good mix between large and small companies and a good mix of academia and government. There is a big desire to help companies succeed.”
SpectraMedEx specializes in strategic business development for startup, small and mid-sized medical device companies.
According to the Battelle/BIO report, Wisconsin’s research universities are especially focused in the biosciences relative to other fields, with their $934 million in bioscience academic research and development in 2012 accounting for 70 percent of all academic research, compared with 61 percent for the national average.
Many local medical device companies, including GE Healthcare, partner with area universities. GE Healthcare has a 10-year, $30 million research relationship with the University of Wisconsin-Madison to develop next-generation diagnostic imaging technologies.
In addition, Somna Therapeutics’ REZA BAND was developed based on two decades of scientific and clinical research conducted by a leading gastroenterologist at the Wauwatosa-based Medical College of Wisconsin. The three-year-old company itself was founded through a partnership with MCW.
“(Wisconsin is) a good environment with wonderful research and development institutions like MCW or UW-Madison or Marquette,” Maris said. “Many wonderful innovations come out of these that can be birthed here in Wisconsin.”
Lastly, Swindall said Wisconsin possesses a deep supply chain from which medical device manufacturers can source.
The relationship between Wisconsin and the medical device sector is a symbiotic one, with the state also benefiting from the sector’s high profile here.
“It helps to anchor and root our key competency in medical research and development here,” Swindall said. “The second is it helps to strengthen our supply chain through diversity. If we didn’t have them here, we would be much less diverse and have fewer sources to which to sell our output to consumers around the globe.”
The state’s employment rate is also boosted from the medical device sector.
“Our biggest impact is jobs,” Mortara said of his company. “Real jobs with real benefits and opportunities for people to step into employment, and it’s not just design engineers. It feels really good to have all levels of employees with all levels of education and backgrounds under this roof, and that’s what we’re doing for the state.”
Maris added that the presence of medical device companies enhances the reputation of Wisconsin and extends its specialties beyond its industrial roots. In addition, he said the sector helps to retain more homegrown college graduates who do not have to go to Illinois, Minnesota or other parts of the country to build their careers.
Finally, Reilly added that medical device companies and the state’s provider network also benefit from each other because the former’s next-generation innovation can be tested at local hospitals and other health care settings.
Sector trends
The growth in the medical device sector is fueled by a variety of factors, including the once-in-a-generation kind of change happening in the delivery of health care market.
“The first big thing happening is with demographics and budget issues in Washington, there’s not any more money that can be poured into health care, so everything we do has to be targeted at making them more productive,” Reilly said.
Another trend, said Reilly, is the migration of care outside of hospitals and into outpatient settings.
Mortara is seeing that trend as well, especially as it pertains to using diagnostic devices such as ECGs in primary care settings in order to detect – and treat – diseases quicker, thereby resulting in better, more cost-effective outcomes.
The rising use of home health care also is fueling growth. Ziobro said he is seeing a rise in home-based health care monitoring products either in the form of standalone systems or smart technology. He asserts this is driven by technological advances and general health and fitness awareness.
Another big trend cited by Mortara is the integration of devices with the Electronic Medical Record.
“It’s an absolute must,” he said of the integration. “The devices themselves do not live on an island… Today, clinicians spend so much time in front of the EMR that if it’s not in the EMR it’s almost like it’s not there.”
Finally, Mortara said the rising threat of hospital-acquired infections has led his company to start moving from devices with hard-to-clean keyboards to devices with smooth, touch-style interfaces that are easier to swipe clean. According to the Centers for Disease Control and Prevention, one in 25 patients, on an average day, contracts at least one infection from a hospital visit.
Bright future
The medical device manufacturing sector is poised for continued growth, according to Reilly.
For starters, $2.9 trillion was spent on health care in the United States in 2013, with another $8 trillion spent globally. Plus, 10,000 people are turning 65 every day, he said.
“As we get older, our health care needs grow,” Reilly said. “We’re already in an industry representing 20 percent of the economy, and it will only grow with the demographics over the next five to 10 years. We love playing in an industry that is 20 percent of the economy and with hard problems to solve. That’s where we do our best.”
Mortara also said he expects the medical device sector to grow.
“So it’s growth not just in terms of the population getting older, but the technology is allowing us to go into places that we previously couldn’t have reached,” Mortara said.
Swindall expects the medical device sector to see moderate growth of about 7 percent to 8 percent over the next five-plus years both in Wisconsin and nationwide.
“The demand for highly effective, lower-cost medical care will continue to power the innovation force in this industry forward,” he said. “We have the technological innovation edge here, and we will continue to exploit that.”
