From the shadow of Boston's celebrated biotech industry, a lesser known sibling is emerging — the powerful medical device industry, which generates annual shipments from Massachusetts of at least $5.5 billion, up from $4 billion in 1997. Many of the devices are used in advanced medical procedures that save lives or greatly improve the quality of a patient's life.
Throughout Greater Boston, the medical device industry has quietly surged over the past decade as giant companies like London-based Smith & Nephew, Johnson & Johnson and HP/Philips, based in the Netherlands, swooped in to buy up local manufacturers. The industry developed in old machine shops and low-profile medical office and industrial buildings in suburban cities like Waltham, Mansfield, Attleboro and Andover.
As Greater Boston braces for recessionary winds in 2009, the robust medical device industry has helped position the region to weather the economic storm. Not only are many medical device firms holding their own in retaining revenue, but some are expanding. Covidien, a global provider of health care products based in Mansfield, Mass., about 20 miles southwest of Boston, is outgrowing its 470,000 sq. ft. headquarters.
“We're actually looking to expand that property. We have a proposal in with the Town of Mansfield to add another 115,000 sq. ft.,” says Bruce Farmer, vice president. In fiscal 2008, the company generated net income of $1.4 billion. It has 41,000 employees in 59 countries.
Until now, Covidien has leased its Mansfield facilities, but it plans to spend $7 million to buy the new building, mainly for research and development. The company will spend millions in renovation, bringing the total investment to about $50 million, Farmer says. Covidien makes devices used in laparoscopic surgery, as well as sutures, ventilators and products used in X-ray imaging. It occupies a mix of office and industrial space.
Another company powering the sector in Greater Boston is Smith & Nephew, the United Kingdom's largest medical technology firm, with 2007 global revenue of $3.4 billion. It specializes in orthopedic trauma and reconstruction products.
There is no indication of a retrenchment in production for 2009, says Joe Metzger, senior vice president of Smith & Nephew's Endoscopy Division in Andover, Mass. “Like everyone else we'll be watching to see what effect the economy may have.”
But demand has not subsided. “People are having elective surgeries, people get hurt, and they still need to get better and have a more active lifestyle,” Metzger says. “People talk about getting scoped.” In this procedure, surgeons go in with an arthroscope through a small incision and do minimally invasive surgery. Many of the firm's products are made in Mansfield.
That facility was expanded in 2002 from 60,000 sq. ft. Today, about 60% of the leased 100,000 sq. ft. is used for manufacturing, while another 100,000 sq. ft. in Andover houses the company's endoscopy division headquarters.
Wealth of brainpower
The availability of teaching hospitals and world-class academic institutions, from Massachusetts General Hospital to Harvard University and the Massachusetts Institute of Technology (MIT), plays an important role in attracting medical device companies, as does the cluster of medical technology firms.
Boston's other charms — the nearness to the Atlantic Ocean, and the short drive to mountains and lakes, as well as the city's arts and cultural offerings — help to attract well-paid employees to the sector. Direct flights to major European and Asian cities also help companies conduct business internationally.
As the device companies research and test new products, many work with surgeons at the teaching hospitals. Some companies have their physicians sit in on surgeries to examine their products at work or improve the existing technology. Surgeons also are invited to the companies to discuss potential new products.
The Massachusetts Medical Device Industry Council (MassMedic), which brings together manufacturers, product developers, suppliers, research institutions and health centers, has grown to 400 from 300 members about four years ago.
Steve Clancy, executive vice president of CB Richard Ellis New England, has watched the medical device industry blossom over the past two decades as he sold or leased 25 million sq. ft. of industrial, office and research space.
The sector's growth has largely been unheralded, he says. Fostered by the scientific climate near Harvard and MIT, some companies sprang to life in Cambridge and then moved to the suburbs, where industrial space costs a fraction of the $60 per sq. ft. of Cambridge.
The broker saw the little machine and metalworking shops and small-town silversmiths drawn into the lucrative and precise medical instrument trade. When they grew large enough, big out-of-state corporations made them offers they couldn't refuse, leaving a number of companies owned by foreign or U.S. giants based outside the state.
In July, Theragenics, a medical device firm based in Buford, Ga., announced it would pay $47.8 million in cash for privately held Needle Tech, a needle manufacturer in Attleboro, Mass. that earned $16.9 million in revenue last year. Theragenics Chairman and CEO Christine Jacobs called the acquisition “a good fit” for the Georgia firm, whose output includes a product used to treat prostate cancer through radiation therapy.
“Needle Tech was in an old mill building in the bowels of Attleboro. It was a classic example of what I'm talking about,” says Clancy. Even as Boston's office and industrial sectors begin to show signs of strain under the pressure of the nation's economic and credit constraints, with negative absorption in certain sections of the metro area, he remains optimistic about the medical device industry.
The Greater Boston industrial market experienced negative absorption of roughly 523,000 sq. ft. in the third quarter of 2008, CB Richard Ellis reports, a worsening performance from negative second-quarter net absorption of about 200,000 sq. ft.
“I don't want to say it's recession- proof. But it's not making luxury yachts. Hospitals still need to function and people still get sick,” Clancy says. “There's a big, aging demographic going on out there.” That's why the sector holds up better than others, Clancy says.
Rising revenues
Following BD Medical's acquisition of Beaver Surgical in 1989, the company grew from a 100,000 sq. ft. facility in Waltham, Mass. to 135,000 sq. ft., says Doug Lawrence, general manager and vice president of the ophthalmic division. He is also chairman of MassMedic.
“Most of our products are used in cataract surgery. In about 30 minutes a patient can have the cloudy lens in his or her eye removed and replaced by a plastic implantable lens,” he says.
Based in New Jersey, BD Medical is one of the largest device companies in the world, with 2007 revenues of $24 billion. Ophthalmic revenues generated by the Waltham facility and one in the U.K. rose from $69 million in 2007 to an estimated $79 million in 2008.
The device sector uses both office and industrial properties for administrative, research and manufacturing, and adaptable flex space. New York-based research firm Reis reports that office vacancy rates in the metro area rose from 11.4% in the third quarter of 2007 to 11.8% in the third quarter of 2008. Effective rents increased from $30.65 per sq. ft. to $34.32 in the third quarter.
The industrial vacancy rate was higher than office vacancies at 13.6% in the third quarter, but that was an improvement over the same period last year when the vacancy rate stood at 15.1%.
The sector is distinct from bio-tech, human gene research or other life sciences industries, although many people lump them together. “Smith & Nephew is not a biotech company. Boston Scientific is not a biotech company,” Clancy says. “A lot of it is machining. It's just not that sexy.” Given the achievement of the device companies, he expects even greater strides. “I've tried to tell people about it.”
Denise Kalette is senior associate editor.
BOSTON - BY THE NUMBERS
LARGEST PRIVATE EMPLOYERS
-
Massachusetts General Hospital
21,457 employees -
Harvard University
19,292 employees -
Brigham & Women's Hospital
13,839 employees
Source: BRA
CITY POPULATION
4.1 million
Source: Boston Redevelopment Authority (BRA)
UNEMPLOYMENT RATE:
5.1%
Source: BRA, Mass. Executive Office of Labor and Workforce Development
METRO AREA VITAL SIGNS
Office:
11.8% vacancy, 3Q 2008
11.4% vacancy, 3Q 2007
$34.32 rent per sq. ft., 3Q 2008
$30.65 rent per sq. ft., 3Q 2007
Source: Reis
Multifamily:
6.1% vacancy, 3Q 2008
5.8% vacancy, 3Q 2007
$1,659 effective rent, 3Q 2008
$1,592 effective rent 3Q 2007
Source: Reis
Retail:
6% vacancy, 3Q 2008
5.9% vacancy, 3Q 2007
$21.77 rent per sq. ft., 3Q 2008
$21.55 rent per sq. ft., 3Q 2007
Source: Marcus & Millichap, CoStar
Industrial:
13.6% vacancy, 3Q 2008
15.1% vacancy, 3Q 2007
$5.26 rent per sq. ft., 3Q 2008
$5.20 rent per sq. ft., 3Q 2007
Source: Marcus & Millichap, CoStar
Hotel:
73.9% occupancy, 3Q 2008
79% occupancy, 3Q 2007
$170.49 average daily rate, 3Q 2008
$165.76 average daily rate, 3Q 2007
Source: Smith Travel Research
MAJOR PROJECTS
Fan Pier - One Marina Park Drive: The first phase of the 21-acre project along South Boston's waterfront is finally taking shape. It includes an 18-story, 500,000 sq. ft. office tower and 40,000 sq. ft. of retail.
Developer: The Fallon Co.
Completion: 2009
Cost: $3 billion
Fairmont Battery Wharf: Prices for condominium residences of one bedroom or larger at the mixed-use development start at nearly $1.2 million. The North End development includes 105 condos, a 150-room hotel, a spa and restaurants.
Developer: Fairmont Hotels & Resorts
Completion: 2008
Cost: $300 million
45 Province Street: At the foot of Beacon Hill, the new 45 Province Street project will offer 150 luxury condos in a 31-story building that is walking distance to employment centers such as the State House.
Developer: The Abbey Group
Completion: 2009
Cost: $85 million
See also: Devices inject $1 billion into economy