Setting a Fast Pace

If hospitals have their way, the medical device industry in New York City is poised to make a big splash.

Don Yacoe
Nov 21, 2004
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SPL/Photo Researchers, Inc.

If hospitals have their way, the medical device industry in New York City is poised to make a big splash. Eager to ramp up their technology transfer efforts, hospitals have begun to see this business as an easy way to fund research. Professional entrepreneurs are also starting to bet that bringing devices to market can lead to big profits.

Nationwide, the medical device industry – which manufactures everything from contact lenses to wheelchairs, including pacemakers, X-ray machines, and surgical instruments – has shown impressive recent growth. Its market size reached $75 billion in 2002, up 31% from $57.7 billion in 1997, according to the latest figures available from the US Census Bureau, although separate statistics detailing the growth of the New York City-based device industry are not available.

THE LURE OF MEDICAL DEVICES

Compared with most drug therapies, the research costs of devices are low, and the...

ADVOCATING PARTNERSHIPS

Hospitals have also encouraged their researchers to seek partnerships with outside medical device companies. At the Hospital for Special Surgery (HSS), Timothy Wright, a senior researcher at the hospital's tech transfer arm, called HSS Ventures, has joined forces with a number of private companies eager to use his expertise. Two years ago, Wright, who has a doctorate in materials science, was approached by Mathys, a Swiss company that has a 60-year record of developing metal and plastic joint replacements. Mathys was interested in HSS's work with a new class of polymers that have more flexibility than traditional materials, and provide better outcomes for physically active patients.

Wright is also working with Gainesville, Fla.-based Exactech, an orthopedic device maker, on a knee replacement system. He says such efforts have paid off handsomely for the hospital in device royalties.

Although technology transfer has been crucial to the development of the life sciences in New York City, including medical devices, it has its limits, says Jonathan Bowles, director of research for the Center for an Urban Future. The problem is that hospitals usually don't put large amounts of their own risk capital at work, and thus have less incentive to push an idea to the limit – or to stick with it over the long haul before it becomes profitable. "For an industry to really get going, somebody has to come in and take large risks," says Bowles. "That's where the true entrepreneurs come in."

DIALYSIS FLUSH WITH CASH

One entrepreneur clearly in the device business for the long haul is Norman Barta, CEO of Nephros. In the mid-1990s, Barta, formerly an executive with a large dialysis service organization, began working with Eric Rose, chair of Columbia Presbyterian Medical Center's surgery department, on a new therapy for end-stage renal disease. The idea was that a new filtration technique could remove some of the dangerous renal toxins, such as beta-2-microglobulin, that dialysis leaves behind.

In 1997, Rose and Barta formed Nephros to develop the idea, and the company began marketing its new product earlier this year in Europe. Nephros also claims that its approach is cheaper and more patient-friendly than traditional treatments. In September it went public with a successful IPO that raised $12.6 million, according to the Shemano Group, the San Francisco-based investment firm that managed the underwriting. A Nephros prospectus says the company plans to plow the IPO proceeds into marketing, clinical studies, and capital expenses. Officials and Shemano and Venture One, a capital research firm owned by Dow Jones that has tracked biotech IPOs since 1996, said they were not aware of any other IPOs launched by a New York City device firm.

Steven Hochberg, who began his career in the mid-1980s as an investment banker, is an entrepreneur who has founded several device companies. During the past two years he has devoted most of his time to overseeing Biomerix, a medical device company he founded in 2002 with two surgeons. Until early this year, he says, Biomerix focused on developing a porous polymer with applications ranging from vascular repair to orthopedic implants. With the materials research now complete, the company is preparing to seek FDA approval for a handful of devices, including a system to patch up brain aneurisms, and a whole new technology to replace ruptured spinal discs.

Hochsberg has also founded Clinisights, which provides services to medical device companies, and Eminent Research Systems, a research firm that helps device firms navigate the clinical trials process. "We start with the physicians, and move fast in pushing the process along," says Hochberg. "What I like about devices is the shorter time [it takes] to develop them to market, and the fact that with them there's less regulatory hassle."

OPERATING ROOM ELSEWHERE

Although for Hochsberg and Barta New York City serves as the hub of product development, both rely on workers outside the city for most of their companies' operations. Hochsberg's manufacturing operation is in New Jersey, and his engineers are in California. Nephros' customer service operation is in Dublin, Ireland, it manufactures its product in Italy, and it has a team pursuing development work in Colorado. "We are really a virtual company in terms of physical location, the real reason I'm in New York is because of the intellectual energy here," says Barta. "Being anywhere else would put me at a disadvantage."

Despite the quickening of activity, there are limits to how far the medical device industry can evolve in New York, says Mark B. Leahey, executive director of the Medical Device Manufacturers Association. Device makers have historically avoided the city because they require not only easy access to medical researchers, but also locations where manufacturing costs are cheap and venture capital is plentiful. Because of its high expenses and lack of space, devices are not likely to be assembled in New York. Also, says Leahey, the marketing of devices will continue to dominated by large companies located in and around Boston, San Francisco, and Minneapolis.

FUTURE IS LOOKING BRIGHT

<p>Mark Wan</p>

But with its special combination of abundant doctors and other medical researchers, tech transfer at hospitals, and a growing cadre of entrepreneurs, New York City could well become a leader in the early-stage development of medical devices, say industry experts. Andrew Firlik, a surgeon who is also a venture capital partner with Sprout Group, a unit of Credit Suisse First Boston, says that one of the final ingredients that could make this a reality – namely serious interest from venture capitalists – is beginning to materialize. The Sprout Group's Manhattan office, Firlik says, has 4 partners – he is one – who focus specifically on biopharmaceuticals, medical devices, and life science infrastructure technologies.

Biometrix's Hochberg says that more engineers with experience in bioscience would also help the device industry in New York City reach critical mass. "It would really be great if a university here builds a big biomedical engineering program," he says.

If the device industry in New York continues to build on its recent advances, it can ride the momentum that the $75 billion device industry now enjoys, says Mark Wan, partner at Three Arch Partners, a Portola Valley, California-based investment firm. "With the aging of Americans, and strong advances in materials science, the device industry is on a growth path, and certainly is not as subject to the swings of the business cycle as other tech areas," he says. "There is no reason why the city can't take advantage of this."

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