While the headquarters of the world’s largest medical device and diagnostics corporations have historically been located, well, elsewhere, California has long occupied a role of central importance for the advancement of medical technologies.
In fact, it would be hard to imagine what today’s medtech sector might be like without the influence of California’s early medtech entrepreneurs. The R&D processes created by those product developers— sometimes without significant corporate funding or the resources of government or university labs—have given the medical device industry a number of distinctive characteristics when compared to other life sciences sectors.
Today, California’s entrepreneurial culture continues to be an important foundation of medtech innovation. But the growth and increasing sophistication of the sector over the past four decades have elevated the need for many other resources.
California’s academic resources have proven up to the challenge, with 11 of the top 100 universities on the Shanghai index located in the state. Top players include the University of California campuses at Berkeley, Davis, Irvine, Los Angeles, San Diego, San Francisco, Santa Barbara, and Santa Cruz, plus the well-known private powerhouses at the California Institute of Technology, Stanford University, and the University of Southern California. Several of these universities have programs focused directly on medical technology innovation and entrepreneurship.
For instance, UC Irvine’s Samueli School of Engineering houses the Edwards Lifesciences Center for Advanced Cardiovascular Technology, an academic-based research and training center aimed at fostering an interdisciplinary approach toward the understanding of cardiovascular disease.
At Stanford, the schools of medicine and engineering came together to create the Stanford Biodesign program, whose mission is to train students, fellows, and faculty in the Biodesign process, a systematic approach to needs-finding and the invention and implementation of new biomedical technologies. Key components of the program include classes in medtech innovation, mentoring of students and faculty in the technology transfer process, and career services for students interested in medtech careers.
USC boasts the Alfred E. Mann Institute for Biomedical Engineering, a nonprofit organization intended to bridge the gap between biomedical invention and the creation of commercially successful medical products that improve and save lives. The institute was established by wellknown serial medtech entrepreneur Al Mann, who selected USC because of its rich pool of biomedical talent.
Equally important, life sciences activities in California’s universities are relatively well funded. In fiscal year 2015, according to the 2016 report of the California Life Sciences Association (CLSA), San Diego, the National Institutes of Health (NIH) awarded California scientists more than 7,300 research grants totaling $3.26 billion—the most of any state in the nation. In addition to the usual university suspects, top NIH grant recipients in California during FY 2015 included the Scripps Research Institute in La Jolla, a nonprofit research institution whose philosophy emphasizes the creation of basic knowledge in the biosciences for its application in medicine. (See Table 1)
“California is blessed with a rare combination of very favorable factors that help drive innovation,” says Josh Makower, MD, MBA, a consulting professor of medicine at Stanford University Medical School and cofounder of the university’s Biodesign program. “There’s an amazing pool of senior, experienced entrepreneurs, inventors, and innovators who are capable of mentoring others; a constant flow of talent from nearby companies and universities; and a culture of innovation stemming from years of successful local companies such as Fairchild, Intel, Apple, Oracle, Guidant, Devices for Vascular Intervention, Perclose, Facebook, Twitter, Ardian, Acclarent, and so on.”
Makower is his own best example. A serial entrepreneur in his own right, he is founder and CEO of ExploraMed Development LLC, Mountain View, one of many West Coast medtech incubators. (See Table 2) In addition, he is a venture partner with New Enterprise Associates, Menlo Park, where he supports the firm’s investing activity in the medical device arena. And he is coauthor of a compendium created to support teaching efforts in Stanford’s Biodesign program.
“In California, we have access to a wealth of innovation and knowledge generated from local tech companies, universities, and health systems,” agrees Joe Randolph, president and CEO of the Innovation Institute, a medtech incubator based in Newport Beach. “Medical device manufacturers are at our fingertips in Camarillo, Irvine, Menlo Park, Mountain View, Pleasanton, Redwood City, San Diego, San Francisco, San Jose, Santa Rosa, and even Silicon Valley. Even the likes of Google and Apple have stepped into the medical device space with new apps and wearables.”
California’s universities are making the most of their advantages, turning out a steady stream of life sciences graduates who are prepped and ready to take on employment in some sector of the state’s life sciences industry. According to the CLSA, the state’s universities awarded nearly 1,300 life sciences doctorates in 2013, feeding an industry that employed more than 281,000 people in 2014. Of those employees, the largest proportion was found in the medical devices, instruments, and diagnostics sector, which rose to employ more than 74,000 in 2014.
“What makes California unique is its high level of academia, venture capital, workforce, infrastructure, space—and of course California’s entrepreneurial and risk-taking spirit—that together create a prime location for startups and entrepreneurs looking to make their footprint in the booming medtech space,” says Sara Radcliffe, CLSA president and CEO. “With nearly 75,000 employees up and down the state, medical technologies make up by far the largest sector of California’s life sciences industry.”
Access to Capital
As important as California’s academic institutions are in the process of becoming, the state’s medtech sector was a productive engine of innovation long before universities ever got into the act. “Everywhere in the world, port cities have historically been the hubs of innovation, because that’s where trade and cultures came together to forge new thinking and new ideas,” says Randolph. Because of its diverse population and key role in international commerce, California has similar attributes that distinguish it from most other states.
“Today, California is a travel destination for tourists because of its weather and entertainment attractions,” he says. “But it’s a destination for new medtech companies because of its universities, tech companies, commerce, and access to venture capital.”
Unquestionably, access to large pools of venture capital controlled by local groups of investors willing to underwrite earlystage R&D was a major factor in the rise and success of California’s medtech innovation sector—and it remains an important underpinning for the sector today.
Nationwide and across all industries, California companies are often the destination of choice for venture capital investments. According to interim projections for 2015, California was expected to pull in roughly 60 percent ($37.4 billion) of all venture capital invested in US enterprises during the year. Massachusetts, with the next-highest total of venture investments, was expected to receive billions of dollars less.
California’s lead over other states is even greater when it comes to the life sciences. Interim projections estimated that roughly $4.79 billion in life sciences venture capital would be invested in California companies during 2015—more than double the investments expected for the second-ranked state—again, Massachusetts. (See Table 3)
And the story is just the same when investments in medical technologies are considered. For 2015, California was projected to receive $14 million of the $40 million in venture capital invested nationally in seed-stage medical device companies. And even higher proportions were projected for venture-backed funding across early-, expansion-, and later-stage medical device companies.
In return for such strong support of California’s culture of medtech innovation, venture capitalists have traditionally been rewarded with double-digit returns on their investment in timeframes that made the pharma sector look glacially slow.
But that was then.
While venture capitalists nationwide still favor investment in medical technology start-ups, they are less likely than in the past to get involved with seed- or early-stage companies, preferring to wait until new products have been derisked through bench and clinical testing—and sometimes even regulatory clearance, according to the National Venture Capital Association, Medical Innovation and Competitiveness Coalition. In part, such investor hesitancy has arisen because of widespread concerns about the health of the medtech ecosystem, including both the competence and pace of regulatory systems in the US and abroad, as well as the mechanisms that lead to coverage, payment, and adoption by healthcare payors and providers. As the source of many such start-ups, California’s medtech community has experienced a greater fall-off in seedand early-stage VC investment than many other regions.
Fortunately, California is also rich in angel investors, who have begun to play vital roles in supporting seed- and earlystage medtech ventures during the past decade. (See Table 4)
CB Insights reports that from 2009 to 2014, the nation’s top 20 angel investors did just over half of their deals with companies based in California’s Silicon Valley. Moreover, 9 of the nation’s top 20 angel groups are based in California, including 5 of the 10 angel groups ranked as having the strongest networks— important both for strategic expertise in a field such as health technology and for raising additional capital. Such a heavy concentration of angel capital plays well for California’s medtech sector. From 2011 through the middle of 2014, the nation’s top 20 angel groups invested heavily in Internet- and healthcare- focused deals, with healthcare capturing 21 percent of the groups’ investments.
“California has a strong medtech ecosystem, with a well-educated workforce, innovation-oriented academic centers, and strong venture funding,” says Jan B. Pietzsch, PhD, consulting associate professor of management and engineering in Stanford’s Biodesign program and CEO of Wing Tech Inc., a consultancy that helps companies evaluate the clinical and business potential of medical technologies. “In addition, California is home to innovation in other tech sectors that exert a positive influence on medtech.”
“California is rich in talent, research funding, and venture capital investment, and is the birthplace of biotechnology and a leader in exciting new fields such as digital health, genomics, and precision medicine,” agrees CLSA’s Radcliffe. “When all factors are combined, it becomes clear why California is a sought after location for talent, entrepreneurs, and investors alike to establish their home.”
New Waves of Innovation
According to CLSA, California is home to 2,848 life sciences companies. While 1,186 of those companies are in the biotechnology or pharmaceutical sectors, the remaining 1,662 companies form a strong majority with a focus on medical devices and equipment. Whether fresh out of the box or long established, California’s medtech companies are often at the cutting edge of new developments in healthcare.
“An exciting trend that is beginning to attract the attention of investors is the application of electromodulation,” says Ahmed Enany, president and CEO of the Southern California Biomedical Council, Los Angeles. “This approach uses implants to deliver electrical current at specific frequencies near or around certain nerves—the vagus nerve, for example—to target and solve such medical problems as inflammation and hypertension, which have previously been treated with drugs. If the approach works, it would enable clinicians to treat patients without risking the side effects associated with drugs.”
Enany cites several examples of California companies that have begun to explore electromodulation therapies. NeuroSigma Inc., Los Angeles, is developing trigeminal nerve stimulation (TNS) for a variety of disorders, including epilepsy, depression, attention deficit hyperactivity disorder, post-traumatic stress disorder, Lennox-Gastaut syndrome, and traumatic brain injury. The company’s TNS therapy can be delivered via its noninvasive Monarch external trigeminal nerve stimulation system. The company is also developing a minimally invasive subcutaneous TNS system.
SetPoint Medical in Valencia is developing an implant and conducting research to demonstrate that its technology can be used effectively to treat debilitating inflammatory diseases, such as Crohn’s disease and rheumatoid arthritis. SetPoint’s microregulator is designed to supplement the body’s natural inflammatory reflex by providing built-in therapy at a lower cost and improved safety compared with drugs or biologic solutions. “If they are successful,” notes Enany, “this would be first time that anybody developed a device to treat inflammation, thereby avoiding the side effects of the drugs currently used to treat inflammation.
“This is a field that is even starting to attract the attention of big pharma companies,” says Enany. “GlaxoSmithKline got turned on by electromodulation, and ended up creating a fund specifically to invest in the field.”
A similar approach is used by Bioness, also in Valencia, which markets implantable and non-implantable devices designed to help patients beat paralysis and restore full or partial movement to people who have suffered from accidents, stroke, multiple sclerosis, or other degenerative disorders of the central nervous system. The company’s L300 Foot Drop system is for patients living with foot drop, while its L300 Plus system is for foot drop plus thigh weakness. The company’s H200 Hand Rehabilitation system is used for hand paralysis therapy.
Electrostimulation also led to Los Angeles County’s latest FDA premarket approval, which was granted in 2013 to Second Sight, located in Sylmar. The company’s Argus II retinal prosthesis system provides electrical stimulation of the retina to elicit visual perception in blind individuals with severe to profound retinitis pigmentosa. The implant is an epiretinal prosthesis surgically implanted in and on the eye that includes an antenna, an electronics case, and an electrode array. The external equipment includes glasses, a video processing unit, and a cable. “The device receives a signal from the glasses that the person wears,” explains Enany. “The signal is transmitted to a computer, which in turn sends the signal to the implant. The implant translates the signal into electrical impulses that the brain can translate into shapes.
“This is a very exciting technology,” says Enany. “It opens the door for more advanced devices in order to make blindness a thing of the past, which is the ultimate objective of Second Sight.”
While advancing technologies may be the bread-and-butter of California’s medtech sector, responding to the megatrends influencing healthcare is also essential for companies that expect to be seen as leaders in their fields.
“We’re seeing a great deal of interest in consumer-oriented devices, including medical applications created to run on smartphones and other consumer electronic devices,” says Pietzsch. “Companies are also expressing heavy interest in personalized medicine, including the use of genetic markers for diagnostic purposes.”
For Makower, some of the products of such new approaches constitute an entirely new field that he terms ‘healthtech’. “Healthtech is the combination of traditional device technologies transformed into a form factor that allows customers or patients to use the technology themselves safely, potentially disintermediating the traditional medical-industrial pathway, reducing costs, and improving the quality of their experience,” he explains.
“It’s been widely recognized that healthcare is becoming much more consumer-driven, with many patients going online first to learn about their condition even before they see their first physician,” Makower adds. “It follows that if solutions to their needs could be made available directly through ecommerce or retail channels, those consumers would be highly likely to purchase and use those technologies, as they do other consumer products, before they seek more expensive alternatives.”
Makower offers the example of a new hearing technology by Eargo in Mountain View as an example of just such a device. “Eargo has created a truly invisible hearing technology that is fully rechargeable (i.e., no batteries required), does not require fitting or molding, and can be purchased directly from the company at a fraction of the cost of traditional hearing aids.”
Similarly enabled by advanced electronics is a smart contact lens developed by Google, Inc., now part of Alphabet, that can tell diabetes patients about their blood glucose levels. “This is an example of a breakthrough innovation that is also disruptive, because it eliminates the constant finger pricking,” observes Randolph. “They use a wireless chip and miniaturized glucose sensor embedded between two layers of soft contact lenses to continuously measure glucose in tears.”
On the basis of such advanced technologies, Alphabet has launched a new company called Verily Life Sciences that is focusing on innovations that affect millions, such as cardiovascular disease, cancer, and mental health. Following Verily’s launch, Johnson & Johnson announced a collaboration with Verily to create an independent surgical solutions company, Verb Surgical Inc. in Mountain View that will develop robotic surgery platforms integrating advanced technologies.
Randolph agrees that consumer engagement is an important element of devices now under development. “We are seeing a proliferation of medical devices that help the consumer become more accountable for their own care, including tracking fitness, mental health, and overall health,” he says. “And we’re also seeing a trend toward adopting consumer engagement products from other industries, including retail, where they engage digital consumers at every touchpoint in the customer experience.”
The depth and breadth of California’s life sciences sectors often encourages synergies that might be difficult to explore in other region of the country. “We’re seeing compelling advances in the fields of digital health, genomics and next-generation sequencing, and precision medicine,” says Radcliffe. “In the case of digital health, this is also an example of a convergence across two sectors where California has long led the way—computing and wireless telecommunications technologies, and the life sciences.
“Similarly, fulfilling the promise of genomics and precision medicine will also require ‘big data’ technologies and tools, also positioning the state at the forefront,” she adds. “We’re excited by the innovations we are seeing in all these fields.”
Enany agrees that digital health is a trend that shows signs of continuing long into the future. “We have a lot of companies developing digital health solutions, including software, applications, wearables, and other types of devices that incorporate digital technologies in order to solve health problems,” he says. “Also important are transdermal or implantable devices that can continuously transmit patient information to caregivers.
“And if you can add to these products the ability to manage big data and develop analytics based on them,” says Enany, “that can go a long way toward anticipating medical problems, resolving them efficiently, and preventing hospital readmissions.”
Right now, says Enany, digital health is one of healthcare’s strongest areas of investment. “Digital health is receiving more investment money than traditional medical device, biotechnology, or pharma companies. It was expected that digital health investments in 2015 would exceed $6 billion. From the standpoint of new technologies, that’s an area where people ought to be watching.”
But just as often as new medtech companies ride the crest of a growing healthcare trend, they must also keep in touch with needs expressed by patients and physicians. The resulting technologies and companies may not always have the appeal of a new smartphone app, but their sheer practicality and utility can provide a solid foundation for a successful business.
Randolph agrees that the voice of users plays an important role in medical device development. “I am really impressed with how clinicians step up when they observe that existing products are not doing the job to promote healing,” he says. “At our Innovation Lab in Newport Beach, several of our California-grown technologies include good examples of this traditional route to product development.”
He cites in particular these two: VisuFlow by St. Joseph Health System, Irvine, a software product that helps clinicians visually manage step-by-step processes; and Sharpshell by St. Joseph Health System, also in Irvine, a device for entrapment and disposal of contaminated medical sharps, which will help address the staggering total of roughly 600,000 needlesticks and sharps-related injuries reported in US hospitals annually.
In addition, says Randolph, “one physical therapist designed the Dart, a device that creates angular resistance and activates isolated muscle groups to help heal the ankle after injury, something that was not available when he injured his ankle in his earlier years as an Olympic hopeful soccer player. And, an orthopedic surgeon found that he did not have access to a device to properly elevate the hand after surgery or injury, so he designed a hand elevation support device that allows for ambidextrous use and is easily adjustable to fit most users.”
The Next Act
Radcliffe notes that California’s medtech sector has benefitted from state government policies that recognize and reward the value of life sciences innovation. She cites the support that Governor Jerry Brown provided for recently enacted legislation that exempts life sciences companies from paying state sales tax when purchasing equipment used for R&D and manufacturing.
California’s approach to nurturing such innovation is paying off. According to CLSA, California’s life sciences sector currently employs 281,000 people, has 1,235 therapies in the development pipeline, and generates $130 billion in revenue annually.
“But for the medtech sector to continue to grow and thrive here in California, we need to make it easier for our entrepreneurs to move new ideas forward,” says Radcliffe. “This includes encouraging sound government policies—particularly tax, intellectual property, regulatory, and coverage and payment policies—that recognize and reward the value of life sciences innovation.”
This article was written by Steve Halasey, a contributing editor to Medical Design Briefs. Additional information is available online at www.medicaldesignbriefs.com/CaliforniaMedtechMore.