Table Of Contentii'
EXECUTIVE SUMMARY
THE MEDICAL
DEVICE INDUSTRY IN
MASSACHUSETTS
f
fit
u'
Ian Clayton-Matthews
University of Massachusetts Boston
Acknowledgments
The authorgratefullyacknowledges the supportand assistance ofthenumerous
My
individualswho helped carrythis studyto a successful conclusion. special
thanks go to SusanMachuga, assistantprofessorofaccountingand finance at
UMass Boston, forherexcellentassistance in researchingthe medical devicespublic
companies inMassachusetts and the United States. Mygraduateassistant, Udaya
R. Wagle, provided mewith constanthelp andresearchondemand throughoutthe
project. I would also like to thankThomasJ. Sommer, executive director of
MassMEDIC. His knowledge ofthemedical deviceindustr)'and his timelyand
helpful assistance were absolutelynecessary. StevenLandau, directorofeconomic
research and analysis at the UMass Donahue Instimte, provided friendlysupport
and good advice throughout the project. Iwould also like to thanktwo reviewers
who gave meuseful comments and additional insights: Peter Doeringer, professor
ofeconomics at Boston University, andYolanda Kodrzycki, assistantvice president.
Federal Reserve BankofBoston.
The editorial and research staffofthe DonahueInstitutewere alsoinstrumental in
the production ofthis report: Carolyn DashMailler, managingeditor; Kathleen
Lafferty, editor; Rebecca Loveland, research analyst.
Finally, this reportwould nothave been possiblewithoutthe followingindividuals,
who so thoughtfoUyoffered their time so that I could learn aboutthe medical
device industry. In a real sense, theyare coauthorsofthisreport:
Joel \Wmstcm,founderandvicepresidentofviarketing.AssuranceMedical
Bruce Beauchemin, vicepresidentofRegulatoryAffairs, BostonScientificCoiporation
CeceNewman, chanvnanandexecutivevicepresident, D&R ProductsCo., Inc.
Richard B. Newman,president, D&R ProductsCo., Inc.
David Fleming,ffvupseniorvicepresident, Genzyme Corporation
Mark Speers, managingdirectorofHealthAdvances, Inc.
Dr. David Glass,associatedirector. OfficeofSponsoredResearchandLicensing,
MassachusettsGeneralHospital
John Wallace, chiefoperatingofficer. Nova BiomedicalCoiporation
John Brooks,geiteralpartner, Prism VenturePartners
Hooks K.Johnston,Jr.,seniorvicepresident. Smith +Nephe-iv Endoscopy
Kevin Connors,generalpartner, Spray VenturePartners
JayCaplan, vicepresidentofoperations, ThoratecCorporation
David Sheehan, associatedirector, UMassMedical, OfficeofCmmnercial Venttiresand
IntellectualPropeity
s
EXECUTIVE SUMMARY
THE MEDICAL
DEVICE INDUSTRY IN
MASSACHUSETTS
Alan C1ayton-Ma11hew
University of Massachusetts Boston
Alan Clayton-Matthewsisan assistantprofessorandthedirectorofquantitative
methodsin thePublicPolicyProgra?nat the University ofMassachusettsBoston.
He isalsopresidentoftheNew EnglandEconomicProject.
MassMEDIC
MassachusettsMedicalDeviceindustryCouncii
Hooks K.Johnston,Jr.
Chairman
Thomas Sommer
J.
ExecutiveDirector
Written and produced bytheUniversityofMassachusetts Donahue Institute's
Economic Research andAnalysisdivision.
Steven Landau
Director
Carolyn DashMailler
ManagingEditor
Rebecca Loveland
ResearchAnalyst
RuthMalkin andAndrewHall
ResearchAssistants
Kathleen Lafferty
CopyEditor
Nina Dudley
Designer
Copyright2001
UniversityofMassachusettsDonahueInstitute
ThecontendsofthispubHcationmaybereproducedonlywithpermissionoftheauthor.
ThisstudywasfundedbyMassMEDICandtheUniversit\-of.MassachusettsEconomicProject.Copiesof
thefullstudyareavailablefromtheUniversityof.MassachusettsDonahueInstitute(413)545-0001.
Thispublicationcanbeviewedon-lineatwww.donahue.umassp.edu.
CONTENTS
How Is the Medical Device Industry Defined? 1
Overview 2
Massachusetts Medical Devices in a National Context: State Rankings 2
Basic Characteristics ofthe Massachusetts and U.S. Medical Device Industry 4
Number and Size ofEstablishments 4
Industrial Composition ofthe Medical Device Sector 4
Productivity 4
Demographic Characteristics ofMedical Device Manufacturing Workers 5
Occupation 6
Education 6
Employment Wages, Salaries, and Benefits 7
Age, Gender, Race, and Ethnicity 7
The Economic Impact ofMedical Devices on the Massachusetts Economy:
Industry Linkages 8
Industry Linkages: Suppliers 8
Industry Linkages: Customers 9
The Economic Impact ofMedical Devices on the Massachusetts Economy:
The Multiplier 9
Current and Future Trends 10
Employment 10
Wages and Implied Productivity 10
Exports 11
Trends in Products, Markets, and Technology 11
Venture Capital 13
The Role ofHospitals and Universities 14
Government Regulation 14
The Food and DrugAdministration (FDA) 14
510(k) Submissions 15
Premarket Approval Submissions 15
FDA
Industry's Perception of Regulation 15
Health Care and Financing Administration (HCFA) 15
HCFA
Industry's Perception of Regulation 16
Policy Considerations 16
Conclusion 17
Endnotes 18
References 20
Digitized by the Internet Archive
2015
in
https://archive.org/details/nnedicaldeviceindOOclay
We
benefitfrom medicaldevices throughoutourlives,youngandold,
healthy andsick. Prenataldevelopment ismonitoredby ultrasound
i^u.. Spons,nj,„esareMa,nosed.nh MRImacUn.andfi.ed
with arthroscopic tools. Heartblockagesare clearedwith angioplasties
—
anddrug-coatedstents. Devicesijjclude thesimple andmundane eyeglassesand
— —
thermometers andstretch to the boundariesoftechnology laserscalpels, needles
embeddedwith microprocessors, magneticresonance imagingmachines, andartificial
hearts. Allareproductsofthe rnedicaldevice industry.
THE MEDICAL DEVICE INDUSTRY IN MASSACHUSETTS
HOW
IS THE MEDICAL DEVICE INDUSTRY DEFINED?
Medical devices have drasticallyreduced theinvasivenessofsurgical procedures, short-
enedrecoveryrimes, and lowered medical costs. This trend iscontinuingatarapid
pace, aidedbyadvancesin electronics and biotechnology. Fordiabetics, forexample,
internalpumpstomonitoranddeliverinsulin are beingdevelopedandmaybe the closest
thingyettoan artificial pancreas. Medical devices and biotechnologydevelopmentsare
becomingmore complementaryovertime, as devices ofincreasingsophistication and minia-
turization are used to delivernewpharmaceutical and biotechnological products. In the
future, nano devices maybe used to deliverbiological agents directiyto cancercells.
The field ofmedical devicesis the largerpartofamedical science sectorthatsupports
thehealth servicessector. Accordingtostatistics fi-omthe 1997 EconomicCensus
(DepartmentofCommerce, 2000a), themedicalsciencesectorinMassachusettswas
composed ofthree industrygroups:
1. Medical devices consisted of264manufacturingestablishmentswith 20,756 employees,
a payroll ofS989million, and shipments of$4.0billion.
2. Pharmaceuticals consisted of57 manufacturingestablishmentswith 5,612 employees,
a payroll of$270 million, and shipments of$1.8 biUion.
3. Biotechnologyconsisted of282 research establishmentswith9,311 employees, apayroll
of$589million, and shipmentsof$1.5 billion.
Altogether, the medical science sectorconsisted of603 establishmentswith 35,679work-
ers, apayroll ofover$1.8 billion, and shipmentsof$7.3 billion. This sectoris therefore
largerin size than several keyhigh-technologysectors. Itis largerthan computers and office
equipmentorelectronic components (includingsemiconductors), which had recentemploy-
mentlevels of25,600 and 31,000, respectively.
THE MEDICAL DEVICE INDUSTRY IN MASSACHUSETTS
OVERVIEW
and medical instruments, and electromedical and
Massachusetts medical devices contribute to the electrotherapeuticinstruments.
heahh and quaHtyofHfe ofpersons here in the Importantlinkagesexistbetweenmedical device manu-
state and around theworld, which maybewhyso manyof facturers and manufacturersofelectronics, producersof
the sector's industryexecutives, scientists, engineers, and precision metal components, andplastics
productionworkers chose careers in this field. On a more manufacturers.
— —
mundane butstill important level, the production of Everydollarofoutput produced bymedical suppliersis
medical devicesalsocontributesto the economic health associated with another45 cents ofgoods and services
produced byotherfirmsinMassachusetts, and every
Medical Device Employment in Massachusetts, 997 100jobs in medical devicesis associatedwith an
1
BY Industry additional 79 jobs in the state.
Employmentand wages in medical deviceshavegrown
UBORATORY
APPARATUSES fasterthan in manufacturingas a whole.
ANDFURNITURE
The agingofthe population and growth inworldwide
IRRADIATION
APPARATUSES percapita incomes should provide a platform forstable
SURGICALAND
MEDICAL and steadygrowthofthe sector.
INSTRUMENTS Research, development, and improvements in techno-
logy,sovital to this sector, aresupported in largepartby
the state's hospitals and bv'suppliersofventure capital.
Federal governmentregulation bythe FDAand the
HCFAdirectlyimpactthesector'sgrowth and
f1 ELECTRAONMDEDICAL profitability. Indirectly, theyimpact the quantitv- and
ELECTROTHERAPEUTIC qualityofhealth care services available to the general
APPARATUSES
23% population.
In orderto fostercontinued growth inmedicaldevices
INVITRODIAGNOSIIC and to keepMassachusetts in the forefrontofthe
SUBSTANCES SURGICALAPPLIANCES industry, state publicpolicyshould focus on providing
7% OPTHALMICGOODS ANDSUPPLIES qualitvpublic education, workon loweringthe high
11%
costofliving in Alassachuserts, promote .Massachusetts
SOURCE:U.S.BUREAUOFTHECENSUS.1997ECONOMICCENSUS
as a place to dobusiness, and developa liaisonwith the
andvitalityofthe Commonwealth. The purpose ofthe industrj'.
this reportisto enumerate theways in which the sector
MASSACHUSETTS MEDICAL DEVICES
affects the state's economy, quantifythese effectswhere
possible, and explore currentand future trendsin the IN A NATIONAL CONTEXT:
STATE RANKINGS
industry.
As a preview, the keyfindings ofthe report maybe Usingfourmeasuresofeconomicsizeand impact
—
brieflysummarized as follows: from the 1997 EconomicCensus value of
Massachusetts is a leadingstate in the productionot shipments, employment, pa\Toll, andvalue added (labor
—
medical devices. plusoverhead) expressedinboth absolutesize and per
Medical deviceworkers are more highlyskilled, better capita terms,Minnesota andMassachusettsappeartobe
educated, and betterpaid than workers inmanufactur- the two topstates in the productionofmedical devices.
—
ingasawhole andin the economyoverall. ThoughMassachusetts does notrank firston anyofthe
ProductioninMassachusetts is concentrated insurgical eightcriteria, itrankshighon all.
THE MEDICAL DEVICE INDUSTRY IN MASSACHUSETTS
2
Interms ofsheersize, California and Illinois rankfirst form eachstate's total score as the sum ofits rankscores
andsecond, respectively, on all fourmeasures. on each category.' Usingsuch a simple scheme,
Massachusettsranks third invalue ofshipments, fifthin Minnesota andMassachusettsrankfirstand second,
employment, third in pa\Toll, and fourth invalue added. respectively, on the fourpercapita measures and tie for
Minnesota ranks fourthin value ofshipments, fourth in third on the fourabsolute size criteria. Combiningall
employment, fourth in payroll, and third invalue added. eightcriteria,Massachusetts ranks second behind
NewYorkranks third in employmentand fifth in pavToll, Minnesota, and ahead ofCalifornia, Illinois, Connecticut,
and Florida ranks fifth in bothvalue ofshipments andval- and Utah.
ue added. In termsofpopulation and overall economic The thrustoftheserankingsisconfirmed by
acti\'ity, California, Illinois, NewYork, and Floridaare far conversationswith industryexecutivesin the
largerthan eitherMassachusettsorAlinnesota, so their Commonwealth. Minnesota andMassachusetts have simi-
higherrankings on measures ofabsolute size do not laragglomeration economies, with a favorable mixof
indicate a higherconcentration ofmedical device highereducation, medical, and high-tech industries.
manufacturing. To rankstates in terms ofconcentrationof Whybe concerned abouthowMassachusetts ranks in
medical device activity, percapita comparisons are measures ofmedical device production relative to other
appropriate. states? The one-word answer is "exports." Over halfthe
Intermsofpercapitameasures,Minnesota ranks first outputofthe Commonwealth's medical device industry
onallfour,whereasMassachusettsranksthirdinvalueof is exported to otherstates orcountries.^ Because
shipments, employment, andvalue added, and second in revenues from exports are ultimatelyreceived by
pa\Toll. Utah,with a small presence in termsofabsolute Massachusettsworkers and suppliers ofcapital to the
size, rankssecond inemployment, fourth invalue of state's medical device companies, industries that export
shipmentsandvalue added, and third in pa\Toll. Connecti- support the state economy's health and growth. Given
cut, roughlyhalfthesizeofMassachusettsin absolute size, the agglomeration economies that are favorable to
—
rankssecond invalue ofshipmentsandvalue added, fourth production ofmedical devices that is, the state's
inemployment,and fifthin pa\Toll. Illinoisranks fourthin concentration in higher education, teaching hospitals,
—
payroll and fifthin employment, andNebraska ranks fifth precision production, and electronics Massachusetts
invalueofshipmentsandvalueadded. would be expected to rankhigh in measures ofrelative
Onewayto combine these criteria intoa single productionvolume, and itdoes.
comparisonmeasure is to assignarankscore toeachand
Rankings of Top Five Medical Device States by Production Characteristic
Absolute Size Per Capita
1
VALUEOF VALUEOF
SHIPMENTS EMPLOYMENT PAYROLL VALUEADDED RANK SHIPMENTS EMPLOYMENT PAYROLL VALUEADDED
CA CA CA CA MN MN MN MN
I
IL IL IL IL 2 CT UT MA CT
MA NY MA MN MA MA UT MA
3
MN MN MN MA 4 UT CT IL UT
FL MA NY FL 5 NE IL CT NE
Source:U.S.BureauoftheCensus, 1997EconomicCensus
THE MEDICAL DEVICE INDUSTRY IN MASSACHUSETTS
3
BASIC CHARACTERISTICS OF THE
1997 on capital expenditures forall medical device
MASSACHUSETTS AND MEDICAL
U.S. manufacturingestablishmentsinthestate.
DEVICE INDUSTRY
Industrial Composition ofthe Medical
Number and Size ofEstablishments Device Sector
According to the 1997 Economic Census, there InMassachusetts, the largest industryin the medical
were 264 manufacturingestabUshments in the device sector,with 37 percentofmedical device
state's medical device industry. These companies employment, is surgical and medical instruments. The
employed 20,800workers, or 3.39 ofeverythousand resi- nextlargest,with 23 percentofemployment, is
dents. Nationally, therewere 335,800 employees in 1997, electromedical and electrotherapeuticapparatuses. In
or 1.26 per thousand residents. The industryis thus 2.7 contrast, these two industries comprise 31 percentand 16
times as concentrated inMassachusetts as in the nation percentofnational medical device employment,
overall. Thevalue ofshipments from the state's respectively. The relative concentration ofthese two
manufacturing facilities totaled $4.0 billion, with a industriesinMassachusettsreflects the state's
payroll in 1997 of$1.0 billion. comparative specialization in precision specialty
Aggregate salesare dominated bya handful oflarge production and electronics.
companies. In a 2000 Boston BusinessJournal surveyof The distributionofemployment inMassachusetts
thelargest25 medical device employersinMassachusetts, amongtheothermedical deviceindustriesis 11 percentin
1999sales ranged from $2.8 billion for Boston Scientific surgical appliances and supplies, 9 percentin irradiation
Corp., the largestcompany, to $2.5 million forUroMed apparatuses, 9 percentin ophthalmic goods, 7 percentin
Corp., the 24th-ranked companyin termsofsales. invitro diagnosticsubstances, and4 percentin laboratory
As of1998, there were justovertwo dozen apparatuses and furniture. Relative to the nation asa
Massachusetts-headquartered, publiclyheld medical device whole, Massachusetts has a higherproportion ot its
companies, with $3.2 billion employmentin irradiation apparatusesand a lower
in sales. Although thevast proportioninsurgical appliancesand suppliesandinvitro
majorityofcompaniesare diagnosticsubstances.
privatelyheldandsmall by
comparison (approximately Productivity
halfofthese manufacturing /Another important industn-characteristic is productinty.
establishmentsweresmall, In conjunction with emploNinent, producti\it)-
employingfewer than 20 determines the sector's contribution to the economic
employees), theyare productand income itgenerates. WTiereasMassachusetts
criticallyimportantto the manufacturingoverall is characterized byhigh productiv-
vitalityand technological advancementofthis industry. ityrelative to the nation, medical devices is a high-
One indicatoris the scale ofventure capital funding, productivit}'sector relative to manufacturingwithin
whichistargeted tosmall start-ups. Overthe four Massachusetts.Accordingto the 1997 EconomicCensus
quarters endingin the third quarterof2000,venturecapi- (U.S. DepartmentofCommerce, 2000a), productivityin
tal fundingreceived bythestate'smedical device firms medical devices, measured by thevalue added per
totaled $314million (PriceWaterhouseCoopers, 2000). To production worker hour,^ exceeds thatotoverall
illustrateits magnitude, this investment is roughlyequal manufacturinginMassachusettsby 52 percent, capital
to the total research and developmentspendingofthe 26 expenditures perworkerin medical devices exceed those
Massachusetts-headquartered publiclyheld medical device ofoverall manufacturingin Massachusetts by 26 percent,
companiesin 1997 andisnearlytwicetheamountspentin and the proportion ofemployeeswhohold non-
photocourtesyofSmithirNephew, Inc.,EndoscopyDivision
THE MEDICAL DEVICE INDUSTRY IN MASSACHUSETTS
