ORANGE COUNTY AT WORK: CAREERS, COMPANIES, CORPORATE LIFE : COMPANIES FIND NOURISHMENT : Medical-Technology Firms in County Turn in Annual Sales of $1 Billion
Laboring inside one of those nondescript buildings that make Irvine’s Skypark business complex a study in architectural conformity, scientists and technicians at Interpore International are turning coral from the South Pacific into bone replacement material.
A few miles away, at UC Irvine, a researcher peers into a microscope, studying the tiny white dots that manufacture insulin. Floating in a Petrie dish, those dots, taken from the pancreas, may bring new hope to thousands of diabetics--and profits to Dr. Art Charles, a UCI scientist-turned-entrepreneur.
And in nearby Santa Ana, fledgling Tokos Medical Corp. has gone from just four employees to nearly 400 in less than four years because of a unique device that helps expectant mothers avoid premature births.
From heart valves to contraceptives, Orange County’s medical-technology industry today generates an estimated $1 billion a year in revenue. And, experts say, this one-time agricultural and resort community is becoming a world leader in this all-important field.
“Probably the biggest concentration of medical companies anywhere in the world is right here in Orange County,” said Chuck Martin, one of the founders of Enterprise Partners, a Newport Beach venture capital firm. “It’s been said that Orange County is the Silicon Valley of the medical business.”
Excluding hospital management companies, health maintainence organizations and other service-related concerns, the local med-tech industry numbers nearly 100 companies and generates close to $1 billion a year in sales, estimates Pieter Halter, editor of Biomedical Business International, a Tustin industry journal.
Though a handful of large companies--all units of national conglomerates--account for about 80% of those sales, Halter said, the majority of the county’s med-tech firms are tiny operations with fewer than a dozen employees each and sales of less than $1 million each annually.
To be sure, Orange County has plenty going for it. A Mediterranean climate, a laid-back atmosphere and proximity to Los Angeles have helped make the county a desirable place to do business.
But for the entrepreneurs and managers who make up Orange County’s growing med-tech industry, the reasons are much more fundamental.
“If you want to start a medical company here you will find everything you need,” Halter said. “You have the engineers, managers and marketing people necessary to do just about anything in the medical devices and diagnostics arenas.”
For instance, when Tokos Medical Corp. sought to relocate from the Silicon Valley area two years ago, Orange County was the logical place to go, said Robert Byrnes, the Santa Ana company’s president and chief executive.
“I wouldn’t have been able to recruit in San Jose the marketing staff with health-care experience that I was able to here,” said Byrnes, who has held senior positions with American Hospital Supply Corp., Genentech Inc. and Caremark Inc. “I guess San Jose would be better than Chicago, but if I had to choose, I’d take Orange County.”
Like so many Orange County med-tech companies, Tokos has been on the fast track to growth. Tokos is turning a profit on annual revenue of about $24 million, said Chuck Martin of Enterprise Partners. Enterprise supplied $750,000 of the $15 million in venture capital funding that Tokos has received.
Similarly, Interpore International’s decision to set up shop in Orange County was influenced largely by the presence of other med-tech firms, said George Smyth, the Irvine company’s president and chief executive.
“When I came on board, I decided to move down here, because of Irvine’s involvement in the medical world,” said Smyth, who before joining Interpore in 1983 was executive vice president of marketing for American Edwards Laboratories Inc.
Venture Capitalists
Another important ingredient found here is financing. Venture capitalists increasingly are moving to Orange County to be closer to the companies in which they invest. Halter, of Biomedical Business International, said there currently are about 30 active venture capital firms operating in Orange County, in contrast with just a handful five years ago.
According to a recently completed study by Arthur Young & Co., there were 32 separate venture capital investments totaling $88 million in Orange County med-tech companies between 1981 and 1986.
During 1986, an estimated $19 million in venture capital was poured into the med-tech industry, in contrast with $7 million in 1985 and $18 million in 1984, said Gregory Ross, a partner with Arthur Young’s Costa Mesa office.
The development of Orange County’s med-tech infrastructure, as local observers call it, can be credited in large measure to the late Lowell Edwards, who more than a quarter-century ago developed the world’s first mass-produced heart valve.
Though Edwards at first expected only to produce a few of the devices, he wound up pioneering a whole new way of treating diseased hearts. In the process, Edwards, who died in 1982 at the age of 84, helped lay the foundation of what was to become Orange County’s med-tech industry.
Today, the legacy of Lowell Edwards is found throughout Orange County’s medical industry. Companies such as Shiley Inc., Bentley Laboratories Inc. and VLI Corp. were all started by entrepreneurs who cut their teeth at American Edwards Laboratories--originally called Edwards Laboratories until its acquisition by American Hospital Supply Corp. in 1966. Indeed, some American Edwards spinoffs have had spinoffs of their own.
“I can probably name 10 companies that were started by people who either worked for Lowell Edwards or worked for companies that were started by people who worked for him,” said VLI Chairman Bob Elliott. “Lowell Edwards certainly catalyzed the growth of the industry here.”
Indeed, the industry segment in which Orange County is a clear-cut leader is cardiovascular medicine, the field Edwards originally pioneered.
“They say there isn’t a heart operation that takes place anywhere in the world that doesn’t involve a product manufactured in Orange County,” said Ralph Sabin, a partner with the accounting firm of Ernst & Whinney.
One the of the newest manifestations of that leadership is Cardiovascular Devices Inc., an Irvine firm whose product keeps track of levels of oxygen and other gases in the blood during open-heart surgery.
Using fiber-optic technology, Cardiovascular Devices’ monitor tells surgeons how much oxygen and carbon dioxide is present in a patient’s blood--all-important information during heart surgery, because the patient is dependent on artificial life-supports, says Jerry Mezger, the company’s chief financial officer. Too little oxygen and the brain dies. Too much carbon dioxide and the patient is poisoned.
Although the company does not expect to become profitable until the end of this year, revenue has been growing at more than 50% a year to $4 million in 1986, Mezger said. Three years after its introduction, the blood gas monitor is used in hospitals across the United States, he said.
Cardiovascular Devices’ founders and managers include several former American Edwards employees. Ted Gourley, Cardiovascular Devices’ president, for instance, was once vice president of manufacturing at Edwards.
While the med-tech companies themselves have been the catalysts for growth, a new and increasingly important force is beginning to influence the development of Orange County’s biomedical and med-tech industries. After years of contenting itself with research for its own sake, UC Irvine is beginning to encourage entrepreneurship.
By fostering its own spinoffs, UCI not only is creating new opportunities for researchers to profit from its labors but also is creating new sources of research income in an age when federal funds are severly curtailed.
For instance, Dr. Art Charles, a member of the medical teaching staff at UCI, and the director of UCI’s Focused Research Program in Diabetes, also is president and founder of Bio Dia Tech, a fledgling university spinoff.
The company is attempting to find a way to supply insulin-producing islets for diabetics.
For competitive reasons, Charles declines to elaborate how Bio Dia Tech--which has about $500,000 in seed money--plans to distribute islets. Charles also has no estimate yet what that business could be worth. Because the islets must come from the pancreas of cadavers, obtaining them in sufficient quantities is a major hurdle to be overcome.
“The biology is understandable, but procurement is the issue,” Charles said. “That’s where creativity is needed.”
Although UCI has been criticized in the past as not being accommodating enough to industry, the university today is attempting to link academia and business. To that end, the Corporate/University Partners Program, or CUPP as it is called, came into being.
The 2-year-old program is affiliated with UCI’s California College of Medicine but receives no direct university support. Instead, it relies on corporate sponsors to accomplish its task of aiding researchers in developing markets for their products. Helping link businesses with qualified university research assistance is a sideline.
And it’s not easy, says Dan Morris, the program’s coordinator and only full-time staffer. A particularly thorny problem is protecting the integrity of academic research. Equally daunting is the task of conquering the suspicion business and academia often hold toward each other.
“It’s very difficult to establish ties between universities and industry. Even when both sides want it, it’s difficult,” Morris said recently. “The two institutions grew up for different reasons and had two separate purposes. They don’t know how to get together.”
Despite some early successes, most notably increasing its roster of sponsors and raising additional funds, CUPP still has a long way to go. Still, the organization is a good example of the new attitude taken toward entrepreneurship by UCI, asserts Bio Dia Tech’s Charles, who said that in the past, the university generally frowned upon cooperation with private business.
“It wasn’t really the university’s mission to help entrepreneurs start companies, but as research money moved from the federal sector to the private sector . . . the university had two choices--either let science go to the private sector, or work with them on a reciprocal basis,” he said. “I think the Irvine campus now is the most advanced in facilitating entrepreneurs.”
