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  • Marissa Luck

Houston Aims to Become a US 'Medical Device Mecca'

Updated: Oct 9, 2020

City Looks to Leverage World's Biggest Medical Center for Growth

The first successful artificial heart transplant. The first battery-powered heart pump. The first silicone gel breast implant.

These medical device breakthroughs took place in Houston. Now scientists and civic leaders are hoping the city could be home to more medical device innovations, thanks to a confluence of a university's major expansion near the world's largest medical district, the Texas Medical Center, the city's relative affordability compared to high-tech areas such as Silicon Valley, and collaborations with top research institutions.

Texas A&M University System and its partners plan to pour a half-billion dollars into a project near the TMC they say could help turn Houston into a growing hub for medical device innovation. The university system and Houston-based developer Medistar Corp. are behind the $546 million mixed-use complex that features three skyscrapers, including a renovated 18-story tower to house the university's medical engineering program where "physicianeers" in training are required to invent a medical device to graduate.

It's not going to be easy: In a national ranking of regions for the medical device industry, Texas only ranked No. 7, and powerhouse states like California aren't sitting by idly. In Texas, officials are counting on Texas A&M's expanded medical engineering presence to add to public, private and educational research efforts already underway in Houston that could elevate a nascent medical device industry in the state, proponents say.

The work is happening against the backdrop of the proposed 37-acre biotech campus, called TMC3, which is perhaps optimistically dubbed the "Third Coast" for life sciences and is expected to break ground in the second quarter. It may be a reach, and could be partly based on some big Texas bluster, but the effort shows how medical innovation is a driver of real estate development across the United States.

"The ultimate goal is to have both the East and West coasts shaking in their boots — or whatever shoes they’re wearing," Dr. Paul Cherukuri, executive director of the Institute of Biosciences and Bioengineering at Houston’s Rice University, said in an interview with CoStar News.

While the national competition is tough, and gaining funding is always competitive, Houston shows it can take on other cities. Houston is already home to more than 1,760 life sciences companies, and local institutions received $668 million in medical research grant funding from the National Institutes of Health in 2018, a 6.9% increase from the year before.

Bill McKeon, CEO of the Texas Medical Center Corp., the nonprofit that oversees the 50 million-square-foot TMC campus where more than 100,000 employees work, said Texas and Houston are at a critical turning point. McKeon, who spent much of his career in the medical device industry at firms like Medtronic, argues that there is not a single city for known for medical device innovation, research and development, besides clusters in Boston and Minneapolis.

He said CEOs at major medical device companies have started telling him they see Houston as the next go-to place for medical device innovation. McKeon said there are several medical device deals in the works for the proposed TMC3 campus that he expects to announce later this year. Plans for the campus call for 1.5 million square feet of buildings and parks designed to look like a double helix DNA strand from above.

"I think the Medical Center … will be where the medical device mecca will happen in the United States," McKeon said in an interview.

Expansion Challenge

Restrictive covenants inside the TMC historically prevented private, for-profit companies from significantly expanding. Instead, nonprofit hospitals, healthcare systems and research institutions have dominated the district. The new TMC3 campus loosens restrictions for for-profit endeavors, opening new opportunities for for-profit companies to work alongside nonprofits, universities and research institutions.

McKeon said the TMC3 project is sparking interest and investment from private companies. He already has a letter-of-intent with a major industry player for a 500,000-square-foot-building in the complex.

"We’ll be announcing deal after deal after deal with the industry. It’s amazing the speed and the appetite they’ve had," McKeon said. "The sleeping giant has awoken and now we’re open for business."

McKeon and others have noted that the TMC is attractive for product researchers because they can access a large, diverse pool of patients to develop and test new products. About 10 million patients visit the TMC every year, according to the TMC, and Houston is now considered one of the most ethnically diverse cities in the country. TMC3 is meant to put the industry, researchers and startups together to speed the time from idea to manufacturing new products.

"When you’re working with patients, you want that feedback immediately to close the time from innovation to commercialization — and that really requires the industry side-by-side with researchers," McKeon said.

Medical device deals inside TMC3 and the new Texas A&M University complex are expected to add to work already underway nearby at Rice University, a private research university with a medical innovation master’s program. A Rice University team of neuroengineers is developing a headset technology that can directly link the human brain to machines without surgery, backed by $18 million in U.S. Department of Defense funding.

Texas is an attractive option for medical technology startups because of its affordability when compared to east and west coast cities. Among the nation’s 20 most populous metropolitan areas, Houston’s housing costs are 49.3% below the average, and its overall costs are 25.4% below average, according to the Council for Community and Economic Research.

"The cost of doing research and startups out there and in Silicon Valley [is getting more expensive]. People are coming to Houston. I think you’re going to start seeing a lot more [medical innovation] hits coming out of Houston," Cherukuri said.

Financial Collaborations

While cities such as Boston benefit from collaborations with deep pocketed research institutions such as Harvard University and Massachusetts Institute of Technology, and Silicon Valley works with Stanford University, Houston has deep pockets of its own. TMC3 is a collaboration between Texas A&M University Health Science Center, University of Texas Health Science Center at Houston, Baylor College of Medicine and the University of Texas M.D. Anderson Cancer Center.

The UT System and Texas A&M System rank in the top 10 in the nation for largest endowments of U.S. colleges and universities, and Rice University ranks in the top 20, according to the U.S. Department of Education.

Texas has a big challenge in trying to catch up to other states. It lags behind states including California, Minnesota and Massachusetts for the medical device industry. There were 72, 471 professionals working for the medical device industry in California last year, where roughly $2.5 billion of venture capital funding flowed into medical device companies, according to industry magazine Medical Design & Outsourcing. That compares to Texas, where there were just 15,087 professionals employed by the medical device industry and just $53 million in venture capital funneled to industry startups.

The Texas Medical Center, the eighth-largest business district in the United States, has already started to see more interest from the medical device industry.

Fortune 500 medical tech company Johnson & Johnson opened its Center for Device Innovation in 2017 inside the TMC, the multinational firm’s only research and development center dedicated to inventing medical devices to make surgeries less invasive and bring procedures to underserved populations.

Johnson & Johnson also runs an incubator program in the medical center called JLabs @ TMC, alongside an accelerator program for healthcare entrepreneurs called TMCx. The TMC Innovation Institute is also home to AT&T Foundry, which is researching network connectivity for prosthetic limbs. And last year, robotics company ABB opened a 5,300-square-foot facility within TMC dedicated to finding new ways to use robots in the healthcare industry.

Integar, the largest medical device contractor manufacturer in the world, is headquartered in Plano outside of Dallas, and the state is home to several manufacturing facilities for Fortune 500 medical tech companies and subsidiaries such as Stryker, Cardinal Health and Becton Dickinson. One of the largest industrial construction projects underway in Houston is a 1.3 million-square-foot warehouse for Medline Industries, the largest private medical supply manufacturer in the world.

Funding Challenge

Becoming a national leader won't be easy. In speaking with executives at medical technology startups, Cherukuri, the Rice University professor, said raising venture capital funding in Houston continues to be a challenge, though that is changing slowly.

After all, Houston isn’t known as a startup magnet like Austin, which in spite of being a significantly smaller city, raked in $2.2 billion in venture capital funding in 2019 across 263 deals, according to PitchBook data.

Last year, venture capital funneled $543.9 million into Houston startups, the highest number on record for the Houston region, according to an analysis from Pitchbook by the Greater Houston Partnership. Healthcare and life sciences startups were the biggest target for funding, scoring about $244 million across 26 deals, according to the partnership. Half of that total came from Houston’s largest venture capital deal of the year, a $121 million series B funding to the immunology firm Allovir.

Economic development and civic leaders in Houston are trying to spur startup growth in the so-called Innovation District, a proposed 4-mile district stretching from the Texas Medical Center north to downtown and is anchored by The Ion, an innovation hub redevelopment of a former Sears by Rice University in the Midtown neighborhood. Though the proposed Innovation District isn’t without its critics, proponents argue it could be a critical step in building a true startup ecosystem in the city.

Justin Boyar, CoStar's director of market analytics in Houston, said the new Texas A&M program and The Ion could help generate the tech startup and venture capital interest in Houston needed to propel the medical device industry into a more national spotlight.

"Midtown’s growing profile as a soon-to-be burgeoning tech cluster adds to the attractiveness of Houston’s growing medtech R&D cluster profile, as it provides density and room for a medtech presence to eventually grow," Boyar said. "Houston still has a ways to go to gain ground on the top medtech R&D hubs, such as the Bay Area, Boston, Minneapolis-St. Paul, and Warsaw, Indiana … but I do think Houston is moving in the right direction."

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