Medical Devices Manufacturing: Prescription for Success

By Rachel Hillman and Jennifer Ridgeway
October 2008

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Minnesota has a rich history in the research, development, and manufacture of medical devices and supplies, dating back to 1949. The medical device industry, while seemingly small, is highly concentrated in the state, particularly in the Twin Cities region.

The value of Minnesota’s medical device sector clearly extends beyond employment. The state is a national leader in manufactured medical devices, which contribute to the state’s gross domestic product and the value of goods exported. Many other factors have added to the success of this sector and its complementary industries. The employment outlook is excellent, with the medical device industry expected to expand in the future as the aging population demands more health services. The presence of nationally renowned research universities and medical centers will help drive innovation in Minnesota’s medical device industry for years to come.

Thanks to a handful of well-known industry giants, most Minnesotans know that the state is home to firms that create and manufacture medical devices. But the industry goes beyond those few big name companies. In 2007 there were a combined 455 firms in the electromedical apparatus manufacturing and medical equipment and supplies manufacturing industries.

Medical device businesses research, develop, and produce everything from catheters and pacemakers to dental instruments, eyeglass lenses, and hearing aids. Altogether these firms employed 29,351 workers in 2007, accounting for 1 percent of total jobs in Minnesota (see Table 1).

Most medical device firms are located in the seven-county Twin Cities region, accounting for more than 85 percent of statewide medical device employment. In fact, the vast majority of industry employment is in just three counties: Hennepin, Ramsey, and Anoka.

Figure 1 shows the statewide distribution of industry employment. Five counties outside the Twin Cities in the metro fringe and in the Rochester and St. Cloud metro areas have between 0.5 percent and 5 percent of statewide jobs in the medical device industry. However, there are also pockets of employment in other cities and towns around the state. In some cases those communities have only one medical device firm in the area, while other cities, especially in the Twin Cities region, have many more firms and jobs.

Regardless of whether they are in the Twin Cities or in Greater Minnesota, most medical device manufacturers are small. Eighty-two percent of Greater Minnesota firms and 63 percent of firms in the seven-county metro area have fewer than 20 employees. However, in the metro region there are more large firms, and those firms have a larger share of employment. In Greater Minnesota about 79 percent of the medical device jobs are in firms with more than 100 employees. That figure rises to nearly 95 percent in the Twin Cities region, and 39 percent of those jobs are in firms with more than 1,000 employees. [1]

Small but Significant

One percent of all jobs in the state might seem small, but that number belies the importance of the medical device industry in Minnesota — particularly as it relates to a larger medical and technology cluster — and the stature of the local industry in a national context. According to the U.S. Economic Census, Minnesota ranks second in the nation behind California in industry employment and in the value of shipments from the electromedical and electrotherapeutic apparatus manufacturing industry. The statewide concentration of employment in medical device manufacturing is nearly four times the national average.

Industry employment growth in the state also has been strong, outpacing national employment change and the rate of growth in every other state from 2001 to 2006. [2] Medical device employment in Minnesota continued to grow following the 2001 recession, and the pace of growth has been better than overall statewide employment and U.S. total and industry employment in every year through 2006 (see Figure 2).

Beyond Employment

While employment in the medical device sector is highly concentrated in Minnesota and employment growth has been significant, the industry’s impact extends well beyond our state’s borders. With sufficient supply to meet local consumer needs, Minnesota manufactured medical devices are exported to other regions of the country and abroad. In 2007 Minnesota exported $2.1 billion in the “miscellaneous manufacturing” industrial category (which includes medical devices), ranking seventh nationwide (see Table 2). [3] Five countries received 67 percent of Minnesota’s 2007 exports in this category: Ireland, Belgium, the Netherlands, Canada, and Japan.

Export data is also available for products, as defined by the Harmonized Tariff System (HTS), which provides some additional insight into medical device exports. In 2007 Minnesota exports in orthopedic and artificial body parts (i.e., hearing aids, portable medical devices, and pacemakers) and non-electrical medical/surgical instruments totaled $2.1 billion. For more information on Minnesota trade statistics, please visit www.exportminnesota.com/itradestats.htm.

Sales of medical devices also contribute to the state’s overall wealth. In 2005 Minnesota’s gross domestic product (GDP) ranked 16th among states. The value of miscellaneous manufacturing products, including medical devices, was $3.7 billion and accounted for 1.4 percent of the state’s GDP. Among all states, Minnesota ranks sixth in the total value of miscellaneous manufactured goods and second in the growth rate of the value of goods produced by this industry sector (see Table 3).

Major industry presence, employment concentration, and value of products are just some of the reasons Minnesota’s medical device industry excels. Many other factors contribute to the success of this industry, which is why the industry cluster approach provides us with helpful tools for identifying and understanding the interrelationships of the medical device industry and other local industries, and assessing local strengths and challenges.

Medical Devices and More

The Minnesota medical device industry goes back several decades. Some of the most notable milestones include the creation of Medtronic in 1949 and the development of the world’s first pacemaker in 1957. (See sidebar, “Historic Timeline of Minnesota’s Medical Device Industry”)

Certainly other states had budding medical device entrepreneurs at that time, so what made Minnesota’s industry the star it is today? Cluster theory would suggest that much of the reason can be attributed to the interconnection of people, firms, and institutions that led to its development.

Minnesota’s medical device industry started with collaboration between health care, university research, and technologic expertise, and that collaboration has continued to support the cluster’s growth. In addition to the 455 industry firms in Minnesota that compete and collaborate on many levels, the state is also home to premier private and public research institutions like the University of Minnesota and the Mayo Clinic in Rochester. The University of Minnesota campuses ranked 15th nationwide among colleges and universities, with research and development (R&D) expenditures of more than $594 million, and 12th nationwide in R&D expenditures in the life sciences in 2006, [4] Overall, Minnesota ranked 21st among states in all R&D expenditures at colleges and universities in 2006, [5]

The presence of these research institutions and their commitment to research and development is one reason Minnesota companies also hold a sizeable number of medical device patents. Between 2002 and 2006 Minnesota registered 2,333 patents in medical devices, representing 10.5 percent of medical device patents in the United States. [6] Only California held more medical device patents (6,500) during that time period.

In addition to medical device firms and research organizations, the state has attracted and grown capable local suppliers. The cluster map in Figure 3 details some of the primary interrelationships in the cluster, but there are also a host of connections between various other industries and groups.

By bringing together a diverse group of industries into the medical device cluster, medical device manufacturing overlaps several other state industry clusters, including information technology, biosciences and life sciences, analytical instruments, and others.

The industry is also considered to be a significant part of the larger biotechnology cluster in Minnesota. According to the BioBusiness Alliance of Minnesota, medical device manufacturing accounted for 77 percent of the state’s biobusiness technology sector in 2002 — more than twice the U.S. share of 34 percent. [7] Research by the Harvard Business School ranks the Minneapolis-St. Paul metropolitan area second in the nation (by 2004 employment) in the medical devices cluster, seventh in the analytical instruments cluster, 11th in the information technology cluster, 12th in health services, and 17th in biopharmaceuticals. [8]

Related Industries and Groups

The industries with some relationship to the medical device cluster experienced mixed growth trends in recent years. Outside of medical devices and hospitals, growth from 2001 to 2006 was strongest in the Twin Cities region in pharmaceutical and medical manufacturing, followed by medical and diagnostic laboratories. Job losses were greatest in computer-related manufacturing industries.

Many organizations also exist to help strengthen and support the medical device industry and the complementary health and technologies industry sectors. Medical Alley was formed in 1984 to support the state’s health care industry, and MNBIO, Minnesota’s chapter of the national Biotechnology Industry Association, was formed in 1991. Together these organizations, now known as LifeScience Alley, have more than 500 member organizations, including medical device manufacturers, pharmaceutical companies, health providers, education and research institutions, and government agencies, to name just a few. The BioBusiness Alliance of Minnesota also seeks to strengthen the state’s bioscience future in part through linking potential and existing Minnesota businesses with technical, educational, and financial resources.

The process for developing new products and bringing them to market can be long, and access to financial resources that appreciate the long-term perspective is key. Risk-friendly venture capital is especially important for small companies with limited capital of their own — an important segment of the medical device industry. During first quarter 2008 Twin Cities companies garnered $38.5 million in venture capital investment, and the largest share of that (87 percent) went to three medical devices and equipment companies. There were also investments in an electronics and instrumentation company that works with optical components, and in a health care-related consumer product company, potentially increasing the actual impact on the larger industry cluster (see Table 4). In all, the metro area accounted for 93 percent of statewide investments and 3 percent of nationwide investment in medical devices and equipment companies during the first quarter.

During calendar year 2007 companies across Minnesota together received $427 million in venture capital investments, $184 million (43 percent) of which went to medical devices and equipment companies. Combining medical devices and health care, the share of statewide investments increases to 55 percent.

The growth of medical devices and related industries, firms, and institutions has also fostered access to specialized human capital. That includes employees who move from one organization to another or who start their own firms, as well as graduates of local programs. Several public and private colleges and universities around Minnesota offer degree programs related to the medical device industry, from design and production to sales and regulatory affairs. Postsecondary degrees awarded in 2004-2005 in Minnesota included more than 1,900 degrees in biological and biomedical sciences, including biomedical technologists, biotechnology laboratory technicians, and biomedical engineers. [9]

The Future of the Industry

As Minnesota’s medical device industry grows, access to a trained workforce will continue to be important. Employment projections suggest that the medical equipment and supplies manufacturing industry will grow 14 percent from 2006 to 2016, adding more than 2,100 new jobs to the state economy. Electronic instrument manufacturing, which includes electromedical and electrotherapeutic apparatus manufacturing, is projected to grow 12 percent, adding nearly 2,900 new jobs. Employment growth will be greatest in the Twin Cities, which has a larger share of medical device industry employment.

In addition to providing good jobs (the average weekly wage in the industry is 163 percent of the average weekly wage in Minnesota), supporting employment in this industry creates other far-reaching benefits. Some of those benefits, such as the billions of dollars the industry brings in from sales to other countries and the value it contributes to state GDP, are easy to quantify. Others, such as the value of the industry to the medical community and individual health care needs, are more difficult to assess. It is clear, however, that employment in medical devices has spillover effects in the Minneapolis-St. Paul metro area, where medical devices are closely tied to a number of medical, high-tech, and other related firms and institutions.

 [1]According to the U.S. Census Bureau’s Nonemployer Statistics, there were also 125 medical equipment and supplies manufacturing firms without paid employees in 2005. Together these firms had receipts in excess of $7.2 million.
[2]Based on authors’ analysis of available Quarterly Census of Employment and Wages data from the U.S. Bureau of Labor Statistics.
[3]In addition to medical equipment and supplies, the Miscellaneous Manufacturing sector (NAICS 339) also includes jewelry, toy, and musical instrument manufacturing.
[4] National Science Foundation, Academic R&D Expenditures Series, FY 2006.
[5]Ibid.
[6]U.S. Department of Commerce, U.S. Patent and Trademark Office, “Patenting by Geographic Region (State and Country), Breakout by Geographic Origin, 2002-2006.”
[7]Online at www.biobusinessalliance.org.
[8]Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School. Copyright © 2005 President and Fellows of Harvard College. All rights reserved.
[9]Minnesota Office of Higher Education, Degrees and Other Awards Conferred by Minnesota Postsecondary Institutions, 2004-2005. An additional 12,894 degrees were awarded in health professions and related clinical sciences.
[10]Belden, Doug. “‘BioSMART’ Bringing Future to Arlington – Struggling High School Hopes to Prepare Students for State’s Bioscience Industry.” St. Paul Pioneer Press, July 23, 2007.

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