The state of medical devices in South Florida innovation

 

Special to the Miami Herald

Kevin W. Smith and his partners split nearly $200 million when they sold Miami-based surgical equipment manufacturer Symbiosis in 1996 to healthcare heavyweight Johnson & Johnson. Smith and other Symbiosis alumni became independently wealthy the day of the sale. But they’re back in the game in a big way.

The medical device business is an odd business ... A lot of people do it as a vocation,” Smith said. “It’s a thing you do because you love the work and find it very interesting and rewarding. It’s not like a lot of other businesses. It really isn’t.”

With help from many employees who were part of the old Symbiosis crew, Smith now runs a similar Miami company called Syntheon, which develops advanced surgical devices and sells the rights to market them in exchange for royalty payments based on sales. Smith declined to disclose Syntheon’s royalty percentages but said the basis for royalty payments this year from such medical product companies as American Edwards, Boston Scientific and Johnson & Johnson will be about $500 million of sales.

Syntheon is part of a growing community of medical device companies in Florida, although the U.S. economic recession from late 2007 to 2009 stunted its growth for a while. A 2012 study by the independent Battelle Memorial Institute found that the number of jobs in the medical devices and equipment industry increased from 2001 through 2010 by 7.3 percent to 16,237 in Florida. During the same decade, the number declined 0.3 percent nationwide to 343,468 jobs. The Battelle study also found that the number of Florida companies in the medical device and equipment industry increased 50.9 percent to 498 during the last decade, while the number nationwide grew at a slower 11.7 percent pace to 6,957.

More than just an assembly hub, the medical device industry in South Florida has a major focus on research and development. Many of the most important products at South Florida medical device companies are not for sale in the United States and are still in testing. They include, for example, an artificial knee that transmits data after implantation, a tiny tube implanted in the eye that relieves the symptoms of glaucoma, and a medical device that delivers a toxic treatment for liver cancer while protecting the safety of health care professionals who operate it. The delivery device is for “bio-toxic drugs, cell-killing drugs,” said Norman Weldon, an investor in Surefire Medical Inc., the company developing the product. “Our job is to kill liver cancer.”

Weldon is well-known in Miami circles. He is a former chief executive officer of the old Cordis Corp., which Johnson & Johnson acquired in February 1996 for $1.8 billion. Weldon also is the former CEO of a Cordis spinoff called Corvita, a Miami-based developer of artificial arteries that Pfizer Inc. acquired in June 1996 for about $85 million. He resides in Evergreen, Colo. and Amelia Island, and remains active in South Florida through Surefire Medical, which has about 15 employees in Miami.

Indeed, more than a few professionals in South Florida’s medical device industry, including Syntheon CEO Kevin Smith, can trace their professional lineage to Cordis, a one-time leader in the market for cardiac pacemakers before quality issues led the company to exit the pacemaker business and focus on the angiographic catheter market. Cordis had about 3,620 full-time and part-time employees about a year before its 1996 sale to Johnson & Johnson.

“What happened was a lot of spinoffs. A lot engineers like myself went out on their own and started small companies,” said former Cordis employee Frank Avellanet. At Cordis, “my first project was to develop the first lightweight implantable pacemaker.” He is now a Fort Lauderdale-based executive of St. George Medical, a stent developer based in the British Virgin Islands.

Not every investment pays off in the volatile medical device business, of course. Avellanet helped launch a research-intensive business venture, called Miami Cardiovascular Innovations Corp., that tried to develop a cardiac stent made of molecular material. “The company is no longer in business,” Avellanet said. “We basically ran out of funds. We were being funded by the University of Miami and individual investors.”

But Avellanet has kept busy. His employer St. George Medical expects to raise funding to further develop a coronary stent with an unusually flexible design applicable to multiple patient conditions. “I need to start hiring people,” he said. “I need directors, I need engineers, I need managers.”

The Affordable Care Act, the sweeping federal reform of medical care, imposed a 2.3 percent tax on sales of medical devices. Some companies in the device industry see the tax as an obstacle, but its impact is uneven.

“It's concerning. It’s 2.3 percent of your total revenue. It’s not off of your profit, it’s off of your sales. It definitely gets in the way of innovation,” said Jay Pierce, chief executive officer of Dania Beach-based Ortho Sensor, which sells devices that surgeons use to improve placement of artificial knees.

Some manufacturers of medical devices don’t have to pay the tax, however. MSK Precision Inc. in Tamarac, for example, makes private-label surgical devices for other companies to sell.

“We don't pay [the tax] because we don’t market and sell directly to surgeons,” said Scott Betz, general manager of MSK Precision.

Presumably, many development-stage ventures testing medical devices are more concerned about generating sales than paying the excise tax. In any case, Florida has one of the largest statewide collections of medical device manufacturers in the nation. According to Enterprise Florida, the state government's economic development agency, Florida has the second-largest number of medical device companies registered by the Federal Food and Drug Administration. The economic development agency also says the medical device industry employs 19,000 Floridians and that most of the companies are located in the Interstate 4 corridor in Central Florida, the Jacksonville area and South Florida.

Here are five South Florida companies that are major players in the medical device industry:

InnFocus

InnFocus of Miami has raised about $30 million of investor money to develop a medical device that would replace eye drops in the treatment of glaucoma, the disorder that causes fluid pressure within the eye. Miami-based InnFocus is preparing to conduct clinical trials and obtain approval from the U.S. Food and Drug Administration (FDA) for “a micro-tube that’s implanted in the eye,” said Leonard Pinchuk, the chief scientific officer of InnFocus, a development-stage business with 10 employees. “The micro-tube is made from a proprietary biomaterial that we synthesize here, and it shunts fluid from under the cornea ... to effectively lower intraocular pressure to a safe range.”

Usually the initial treatment for glaucoma is eye drops, “and about half the people don’t comply with the regimen, and their vision begins to deteriorate. Then you can go into surgical approaches, which are very draconian,” Pinchuk said. “This will replace the surgical component.”

While InnFocus seeks FDA approval to sell its glaucoma-treatment device in the United States, “we also are expanding in Europe, where we are approved for sale,” Pinchuk said. “We now have three-year data showing that we keep the [fluid] pressure in a safe range, and these are from patients whose medication was no longer effective.”

The clinical trials for FDA approval will begin with 75 patients at 10 sites and expand to 450 patients at 25 sites. Even if trials go well for InnFocus, the company may not win FDA clearance for its micro-tube technology until 2017. “This is why we need the $30 million [of capital],” Pinchuk said.

Separately, Pinchuk is guiding the development of a related company called Innolene, which has created an intraocular lens for cataract patients that is more flexible than the Plexiglas versions that ophthalmic surgeons have been using for the past half-century.

“The ones we're developing are like a Gummy Bear,” Pinchuk said. “The advance is in the material. ... We are currently negotiating a deal with a large country that is interested in this lens.” Pinchuk is co-founder, president and chief executive officer of Innovia, an 11-year-old Miami company that has spun off both Innolene and InnFocus as separate companies.

MSK Precision

Tamarac-based MSK Precision is a contract manufacturer of medical devices and other products that has been operating in Broward County since its start-up in 1979.

“Probably 70 percent of our business at this point targets medical devices from instrumentation to implants,” said Scott Betz, general manager of MSK Precision. The company precisely shapes, or “machines,” components for medical instruments and does assembly work, too. It has a 35,000-square-foot production facility registered with the U.S. Food and Drug Administration and work force of 52 employees. “These are good jobs,” Betz said. “We invest a lot in our employees.”

The 34-year-old company faces challenging business conditions, though. Competition from Asia has heated up. Some customers of MSK have moved production work from the Tamarac company offshore to Asian manufacturers. “Fortunately, a lot of it has come back” for various reasons, “in particular quality,” Betz said. “They have to keep us around to bail them out, so to speak.”

Still, some MSK customers who buy medical devices and resell them to hospitals are under dire pricing pressure. “[Recently,] I talked to one of our customers, and they shared with us — they sell directly to hospitals — they had a hospital that mandated a 35 percent price decrease,” Betz said. He said one factor is uncertainty stemming from the Affordable Care Act, the landmark law mandating that adults get medical insurance or pay a penalty. “There's just a lot of people who don't know what our healthcare system is going to look like in five or 10 years,” he said.

MSK also faces staffing challenges because South Florida workers with precision machining experience are scarce, so the company emphasizes on-the-job training. Some of its employees, for example, have entered an apprenticeship program that the South Florida Manufacturers Association operates out of the Atlantic Technical Center in Coconut Creek.

“We're very passionate about keeping manufacturing alive in the United States,” Betz said.

OrthoSensor

OrthoSensor, founded in 2008, has commercialized disposable sensors that promote optimal placement of implants during knee-replacement surgery. The Dania Beach company produces sensors that deliver data during surgery that help doctors pinpoint the positioning of knee implants to minimize or eliminate complications after surgery. OrthoSensor markets the disposable sensors through leading sellers of medical devices including Biomet Inc., Stryker Corp. and Zimmer Holdings Inc.

“Our sensors make the implants better,” said Jay Pierce, chief executive officer of OrthoSensor who previously had 20-year career with Johnson & Johnson. Some of OrthoSensor’s 46 employees also are developing a “smart” knee implant that would allow doctors to remotely monitor such post-surgery conditions as range of motion, fluid accumulation and material wear. Within a year, Pierce said, OrthoSensor aims “to have smart implants approved by the FDA to monitor some of those things.”

The remote monitoring technology is applicable to implants of artificial hips and shoulders, too. Another technology in testing at OrthoSensor is nerve stimulation by smart implants to reduce post-surgery pain. Pierce said artificial knees and hips that wirelessly deliver data after implantation would fit well with the Affordable Care Act because under the landmark law, quantifiable patient outcomes will become a bigger determinant of compensation for healthcare providers. OrthoSensor products are part of “a new category called intelligent orthopedics,” Pierce said. “This is transformational innovation that stands to change the playing field in orthopedics.”

Investors apparently agree. The company has raised $53 million of investor money so far, including $13 million in October. “We may need some additional growth capital,” Pierce said, “but right now we’re OK.” The University of Miami, Florida International University and the University of Florida are supplying much the engineering expertise that is driving the development of OrthoSensor. “It used to be challenging, finding good engineering resources in Florida,” said Pierce, who moved to Miami in 1995 to run a medical device unit in Johnson & Johnson's Latin America division before going into business for himself. “Now it’s not as challenging, and all the universities get some of the credit.”

Syntheon

Syntheon is a serial invention business that designs medical devices for larger companies. The privately held, Miami-based company makes money by developing medical-device technology and licensing the know-how to larger companies with greater marketing muscle in exchange for sales-based royalty revenue.

“This year we're going to get royalties on about $500 million worth of sales,” said Kevin W. Smith, president, chief executive officer and co-founder of Syntheon. “We’re very profitable ... All of the deals we do are royalty-based deals.”

Syntheon currently is collecting royalties from Johnson & Johnson, Covidien, Boston Scientific, Olympus, American Edwards and other companies that have licensed its designs of advanced surgical equipment and other medical devices. “Those are some companies we currently have deals with,” Smith said. “With some of those companies, we have multiple deals. Most of our work has been in the general area of advanced surgical equipment in recent years.” He said the business has been profitable since the inception of Syntheon more than a decade ago, so outside capital has been unnecessary: “We ended up doing it with essentially zero startup capital.”

The company has a 60,000-square-foot production facility and headquarters in southwest Miami-Dade County near Zoo Miami. Its workforce fluctuates between 35 full-time employees and 100, depending on whether the company has one or more development projects under way. All of the employees are engineers by training. “Even my head of business development is an engineer,” Smith said. “We’ve got a building full of really smart people that are highly motivated. We have an excellent reputation in the industry.”

Smith personally has obtained 124 U.S. patents for inventions including such medical devices as his implantable radiation-therapy device, flexible surgical clip applier and radial jaw biopsy forceps. Many Syntheon employees previously worked under Smith's leadership at a Miami-based manufacturer of surgical equipment called Symbiosis, which Smith and the other owners sold in 1996 for almost $200 million. “We put the band back together,” Smith said. “It’s not all the same people, but it’s a lot of the same people.”

TissueTech

Doral-based TissueTech Inc. has a regenerative tissue business that is generating eight-figure annual revenue. The company, founded in 2001, has patented technology based on the use of amniotic membrane from human placentas to enhance the natural healing process for eye injuries, tendon injuries and others.

TissueTech has about 80 employees in South Florida at its 20,000-square-foot production facility and home office in Doral and its research-and-development facility in Kendall.

“We work with nonprofit tissue banks to obtain placental tissue donated by mothers,” said Amy Tseng, president and chief executive officer of TissueTech. “Basically, this is otherwise thrown-away material. We make good use of that.”

Tseng said the company collects revenue of almost $30 million a year. Her husband Dr. Schesser Tseng and his collaborators have obtained more than 40 patents held by TissueTech. He is the chairman and chief scientific officer of the company and a corneal research specialist at the Bascom Palmer Eye Institute of the University of Miami, the nation's top-ranked hospital in ophthalmic services, according to U.S. News & World Report.

“He found in the late 1990s that using amniotic membrane to cover the eye surface would encourage your host-system stem cells to restore better,” Tseng said. “Basically, this is his technology, and I just help him to commercialize it.” Tissue Tech’s product line includes a removable medical device that temporarily holds amniotic membrane in place on an eye wound for 10 days.

Although TissueTech gets its amniotic membrane for free, the company spends money to screen the donations for communicable diseases and store them, among other expenses. “Our job is to make sure the tissue can be transplanted,” Tseng said. TissueTech faces some headwinds in the amniotic membrane business because competition is intense, “especially in wound care,” Tseng said. “There are a few publicly traded companies that grow very aggressively in that space.”

But the outlook at the Doral company is positive because “the technology is very exciting ... Amniotic membrane has become a frontier for a lot of wound treatment because it’s very effective,” she said. “It’s a natural way to recover.” Some institutional investors like what they see in TissueTech. In August, River Cities Capital Funds and Ballast Point Ventures invested a total of $10 million in the company.

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