Growing the Region's Biomedical Ecosystem Ecosystem_1… · B. Life Sciences Industry (Biopharma...

Growing the Region's Biomedical Ecosystem

August 19, 2019

Bi-National Biomedical Cluster Ecosystem Briefing & Call to Action

1

© 2019 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd

Objectives

§ Share findings of the recent BioEPJ ecosystem assessment

§ Explore opportunities to bring life sciences businesses to the region and grow quality of life for the community

§ Engage the community

2


Agenda

Introductions 5 Minutes

Who is in the audience? 5 Minutes

Current state of the BioEPJ ecosystem 10 Minutes

The promise of medtech 10 Minutes

Recommendations 10 Minutes

Audience sentiment 5 Minutes

Panels 15 minutes each

3


Who's in the audience?

With what group do you most closely align?

A. Government

B. Life Sciences Industry (Biopharma and Medical Device)

C. NGO

D. Healthcare

E. Educator / Academic

F. Citizen

4


What is your perception of the region?

Where do you perceive the region is today? (select all that apply)

A. Wonderful community, wouldn't change a thing

B. Wonderful community, but we need to focus on some structural issues

C. We need to better manage public opinion

D. We need more government support for business

E. We need to address some quality of life issues

5

Bio EPJ Ecosystem SnapshotThe Ingredients for Growth

© 2019 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd7

Objective§ MCAF commissioned Grant Thornton to examine key challenges and identify opportunities to

refresh its strategy to promote growth in the BioEPJ cluster

Approach§ Review documentation (extensive source documents, external references)§ Conduct Interviews and working sessions across extensive regional and stakeholder footprint§ Develop and prioritize recommendations§ Create a Roadmap for realizing the vision of a healthy and growing life sciences ecosystem within the region

Metrics§ 51 interviews in both El Paso and Juarez

Study specifics

- Manufacturers (10)- Suppliers (6)- Non-profit / Government (15)- Universities (14)- Thought Leader / Consultant / Developers (6)


§ The region possesses unique manufacturing skills and sources of talent that can be leveraged in the medical device field

§ The region benefits from standards of quality in manufacturing which can be replicated for medical devices

§ Significant cost savings on manufacturing offered in Juarez are a key differentiator

Overview

Strengths Challenges

§ The automotive industry remains the main contributor to the Juarez economy; Medical device representation remains lower

§ In Mexico, Tijuana is a fierce competitor in the medical device field

§ The current border crossing challenges are a threat to the development of the local medical device sector

BioEPJ boasts 2 complementary communities, both strong in Life Sciences


PATIENTS & PROVIDERS

Innovation & Manufacturing

Engine

INFRASTRUCTURE

CAPITAL

REGION

TALENT

CULTURE

§ Incentives§ Political will§ Passion§ Collaboration§ Customs

§ R&D competencies§ Manufacturing§ Management§ Education & training§ Internships

§ Incubators§ Hospital beds§ Manufacturing§ Laboratories§ Water, Sewer§ Bandwidth§ Hotel beds§ Highways, etc.

§ Venture capital§ Lending§ Private equity§ Grants

§ Quality of Life§ Transportation§ Border access§ Commercial real estate§ Housing§ Outdoors

§ Clinical trials§ Translational research§ Sense of purpose

§ Both El Paso and Juarez have strong economic bases; Texas is a leader in the United States, and Mexico is a leader in Latin America

§ The region has significant untapped potential in terms of talent and cost of living

§ Better access to suppliers and R&D will provide a catalyst for growth

§ A focus on complimentary capabilities such as "digital" will enable a compounding economic growth cycle

§ An influx of Medtech activity would lead to§ Increased average wages (Texas industry average

is $90,128 compared to El Paso average wage of $38,720)

§ Retention of graduates§ Reduction in the costs of social services

Recipe for an effective Life Sciences ecosystem


State Gross Domestic Product (2015 - 2017)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2015 2016 2017

Millio

ns of

curre

nt do

llars)

Source: Bureau of Labor Statistics, U.S. Department of Commerce / Bureau of Economic Analysis

MA CA IL MN PA TX

Texas is strong economically, with a notable medtech track record

0

1000

2000

3000

4000

5000

6000

2016 2017 2018

MA CA FL MN PA TX

Top - 6 States: # Approved Medical Device Patents

California and Texas are economic leaders among states with medical device clusters

California, Massachusetts and Minnesota lead in medtech patents


… and places among the top 5 in medtech approvals

510(k) Approval Count (2015 – 2018)

050

100150200250300350400450500

2015 2016 2017 2018

Source: FDA 510(K) and PMA Databases

MA CA PA FL TX

PMA Approval Count (2015 – 2018)

0

2

4

6

8

10

12

14

16

18

2015 2016 2017 2018

MA CA MN PA TX

FDA marketing authorizations for medical devices referencing an existing approved "predicate" product

FDA marketing authorizations for "first in kind" medical devices


The region lags behind the top clusters

Below represents a collection of North American Life Sciences clusters

ClusterTalent &

Labor Force

Collaboration, Partnership &

NetworkingLeadership & Governance

Access to Innovation

Infrastructure & Real Estate

Branding & Marketing Value Chain Funding Business &

Local Climate

BIO-EPJ

Houston, TX

San Diego, CA

Warsaw, IN

Philadelphia, PA

NYC, NY

Boston, MA

Chicago, IL

Work in progress

Medium

Strong

12


Juarez’s manufacturing capabilities represent a foundation for growth

13

§ The stability of the medical device market is attracting new industry players that originally catered to consumer products or more volatile industries

§ Long history of manufacturing encourages growth in medical device manufacturing but continues to grow in sections of medical device industry that rely on material and component manufacturing

JUAREZ

§ Complimentary services to the manufacturing industry, for example sterilization, sample testing and distribution are central to El Paso’s medtech growth

§ There is the potential for higher value complimentary services such as research and design, digital solutions and innovation

§ Biomedical industry is predominately composed of smaller and mid-level players with two anchoring industry players

EL PASO

Trends Opportunities

Global trends represent regional opportunities

The Medical Device IndustryA Catalyst for Growth


JUAREZ§ Juarez is the second largest contributor to Mexico's

medical devices exports after Tijuana (50%)§ Savings from manufacturing medical devices in

Mexico are currently estimated at 21.2% compared to the U.S.

§ The State of Chihuahua attracts the highest amount of Foreign Direct Investment (FDI) in medical devices nationally: $ 73.5 million compared to 65.2 for Baja California in 2016

§ Total IMMEX employment in Juarez is 302,654. Seven percent of 329 companies participating to the IMMEX program focus on medical devices.

§ 3,312 students graduated from Industrial Engineering, Mechanical, Electronic and Technology programs in the State of Chihuahua in 2016 compared to 2,529 in Baja California

EL PASO

15

§ Medical device manufacturing 5 year growth in Texas is 3.9% to reach revenues of $2bn in 2017.

§ Medical devices accounted for 3% of Texas total exports in 2018. The state is ranked 6th

nationwide.§ The Life Sciences/Medical devices sector

contributes to 1,022 local jobs in 75establishments locally

§ 15 educational programs are directly relevant to the Life Sciences field

§ The El Paso Foreign Trade Zone contributed to 2,366 jobs in 2017

§ Fort Bliss represents a major source of talent as 500 soldiers retire locally each month

The Medical Device sector positively impacts the region


Industry employment and wage performance

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

2015 2016 2017

Num

ber o

f Em

ploy

ees

0

20000

40000

60000

80000

100000

120000

140000

2015 2016 2017

Aver

age

wag

es

Source: Bureau of Labor StatisticsMA CA FL MN TX

Top 5 States: Medical Device Industry Employment (2015 – 2017)

Top 5 States: Medical Device Industry Wages (2015 – 2017)

The region has an opportunity to leverage the critical mass of the industry in Texas

…and bring high-paying jobs into Paso del Norte

©2019 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd

$30.6

$29.95

$28

$19.78

$18.12

GLOBAL LEADING MANUFACTURERS

(billions)Based on 2018 worldwide sales

Three of the top five global leading manufacturers in the world have

manufacturing or contract manufacturing locations in the El

Paso – Juarez region

17

The region has proven ability to retain major players

© 2019 Grant Thornton LLP | All rights reserved | U.S. member firm of Grant Thornton International Ltd 18

Cross Border Initiatives

§ The US - Mexico Bilateral Forum on Higher Education, Innovation and Research (FOBESII) was launched in 2014 to expand opportunities for educational exchanges, scientific research partnerships, and cross-border innovation.

§ Mexico’s program Proyecta aimed to send 100,000 Mexican students to the United States and bring 50,000 US students to Mexico by 2018.

Healthcare

§ Foreign companies operate in Mexico under a preferential, low-tax cost structure, while still taking advantage of Mexico's lower-cost labor (IMMEX program).

§ In Mexico, the current savings on manufacturing costs for the medical device industry are currently estimated at 21.2% compared to the U.S.

§ The Foreign Trade Zone in El Paso is ranked 11 among over 300 centers in the U.S.

§ 2,366 jobs contribution to the community in 2017

Incentives

§ There are 14 Hospitals in the El Paso region.

§ Texas Tech University research capabilities include the following Schools:§ School of Medicine§ School of Nursing§ School of Biomedical Sciences

§ Medical tourism capabilities have recently expanded in Juarez. The most common procedures performed locally are dentistry (42%), gynecology (22%), preventative medicine (16%), and cosmetic surgery (10%).

The region can leverage economic enablers


Earnings

§ Average earnings for the advanced industries in El Paso is $65,106 per year - Compared to an average of $38,720 for all industries.

§ Texas industry average is $90,128§ In Juarez, the current hourly wage in

INEGI's 'Other manufacturing industries' category is $4.7.

Local Skill Sources

0 50,000 100,000 150,000 200,000Public Administration

Professional, Scientific, and…Transportation and Warehousing

Utilities

Management of Companies and…Wholesale Trade

Manufacturing

Construction

Projected 2018 Annual Wages in El Paso per NAICS (USD)

§ Fort Bliss: second largest military installation in the U.S. (1.12 million acres in Texas and New Mexico).

§ Highly transferrable source of talent to the medical devices sector: 500 Army Veterans transition each month to civilian life .

§ Fort Bliss Estimated Contributions to the Texas Economy in 2017:

- Direct Employment: 48,298- Gross Domestic Product: $23.1

Billion

Workforce

§ 1,022 local jobs in 75 establishments in the Life Sciences/Medical devices sector in El Paso

§ 7% of 329 companies participating to the IMMEX program in Juarez focus on the medical industry

§ Professional, Scientific and Technical Services field is the third highest paying job category locally

§ Talent:§ 500 Army Veterans transition

each month from Fort Bliss to civilian life locally

Medtech growth can reverse the trend of losing skilled talent


Texas Exports Mexico Exports

§ Mexico is the top medical device supplier to the US (92% of exports)

§ Juarez accounted for 12.8% of the total goods traded through Mexican Ports of Entry in 2014.

§ Total Medical Devices exports increased 1.5% from USD 11.4 billion in 2016 to USD 11.6 billion in 2017.

§ The State of Chihuahua attracts the highest amount of Foreign Direct Investment (FDI) in medical devices nationally: USD 73.5 million compared to USD 65.2MM for Baja California in 2016.

§ Medical devices exports accounted for 3% of Texas total exports in 2018, compared to 23% for Massachusetts, 10% for Minnesota and 9% for California. The state is ranked 6th.

§ Medical equipment and supplies represented 47%, while Surgical and Medical Instruments represents 34.8% of El Paso medical devices and pharmaceutical products exports in 2018.

§ Mexico, Canada and China are the top 3 importers for the State, representing a share of 34.8%, 8.7% and 5.3% respectively in 2017.

0 400,000 800,000 1,200,000

Medical Equipment & Supplies

Surgical & Medical Instruments

Surgical Appliances & Supplies

All Other Basic Organic Chemicals

Ophthalmic Goods

Pharmaceuticals & Medicines

Pharmaceutical Preparations

2018 El Paso Exports - Medical Devices & Pharmaceutical Products (in thousand USD)

Medical device exports from the region are significantThe global medical device market reached $440 Billion in 2018 and is expected to grow to $795 Billion by 2030


Economic Growth ModelGiven strong foundation, addition of one viable Medtech R&D can drive compounding growth

Attract 1 R&D firm15 employees

Average wage $90,000

Increased average wage

Testing & Clinical Trials

Manufacturing

Complimentary Services

Attract / retain talent

Expanded tax base

Increases property base

Improved patient health

Increased economy activity

Attracts additional R&D

Increased economic activity

Complimentary services

Increased economic activity

Attracts additional R&D

Growth Cycle

Reduced social cost

Expanded infrastructure

Expanded university programs

Texas Medtech average is $90,128 vs. El Paso average of $38,720


The San Diego – Tijuana Life Sciences ecosystem is frequently rated as one of the top three nationally established cluster. Initially positioned as a hub for research and innovation, the region has been able to leverage its proximity to Tijuana’s manufacturing capability to create an integrated network of device design and manufacturing

Fueled by Academia The Right Talent

Following the founding of the UC San Diego campus in 1960, biotechnology companies have been developed in the area through the commercialization of university research. Additionally, early recruitment for UC San Diego was framed as a place with limited traditional constraints and bureaucracy, generating a culture of innovation and entrepreneurships from the start.

San Diego became the location for research by attracting professors with established networks and areas of research. Additionally, San Diego leveraged the technically trained science and engineering workforce in the region from the large number of naval bases.

Ample Funding

In recent years, increased federal R&D funding has directly benefited the region. Endowments from research institutions and universities allows for continued innovation.

Success Story: San Diego - Tijuana

Spotlight on Baja

§ Tijuana houses the largest concentration of Mexico’s medical device firms

§ Medical devices manufactured in the state are diverse in nature and include highly complex including cardiac rhythm management devices, pregnancy and ovulation devices, and drug manufacturing

§ International investment in Tijuana and Baja California continues to grow existing and new medical device companies in the region

Findings & RecommendationsEnabling MedTech growth in the region


Leveraging the Framework for Growth Recommendations

§ Experience shows that life sciences innovation and manufacturing rely on multiple enablers

§ Deny any one and growth will be limited

24

PATIENTS & PROVIDERS

Innovation & Manufacturing

Engine

INFRASTRUCTURE

CAPITAL

REGION

TALENT

CULTURE

§ Incentives§ Political will§ Passion§ Collaboration§ Customs

§ R&D competencies§ Manufacturing§ Management§ Education & training§ Internships

§ Incubators§ Hospital beds§ Manufacturing§ Laboratories§ Water, Sewer§ Bandwidth§ Hotel beds§ Highways, etc.

§ Venture capital§ Lending§ Private equity§ Grants

§ Quality of Life§ Transportation§ Border access§ Commercial real estate§ Housing§ Outdoors

§ Clinical trials§ Translational research§ Sense of purpose

§ The Bi-national Medical Device cluster must nurture a holistic ecosystem in order to achieve its vision


In Common§ Collaboration: The region lacks a unified approach to cluster

collaboration, and economic players operate primarily in silos§ Maquiladora: Maquiladora tax regime allows for regional

competitiveness and cross-border collaboration

El Paso§ Mindset: Interviewees suggested that El Paso has a focus on service,

but has a poor self-image§ Support: Interviewees expressed a lack of support for members of

the military as well as for companies seeking to establish themselves in El Paso

Juarez§ Mindset: "A lot of drive"§ Passion: The prevailing entrepreneurial spirit is supported both by

both political and educational communities

Recommendations§ Educate the various community

stakeholders on the Life Sciences vocabulary and opportunities for the region, in particular community leaders and students populations

§ Support regional military engagement and hiring in the community

§ Identify new incubators and nurture the region's innovation capabilities

Culture: Leverage strong values


In Common§ Translational Research: Relationships between industry and

providers are maturing, but not quickly enough§ Clinical Trials: Limited supporting resources and lack of

understanding inhibit the opportunity for more clinical trials

El Paso§ Support: The region is medically underserved due to low number of

physicians per patient; a large percentage of physicians over 65 years of age

Juarez§ Patients & Providers: Perception of healthcare in Juarez does not

match existing regional capabilities

§ Recruiting: Interviewees signaled a poor perception of the region that makes recruiting difficult

Recommendations§ Establish the business case to

demonstrate the value of expanding regional clinical trials

§ Introduce new clinical research capabilities in both El Paso and Juarez

§ Increase outreach to recruit additional healthcare providers to the region

Patients & Providers: Tap into hidden resources


In Common§ Missing regional capabilities: (raw materials, repair of equipment) for

integral aspects of manufacturing supply chain§ Clean room capacity: Lack of certified and developed clean room spaces

for manufacturing and R&D in El Paso and Juarez

El Paso§ Reduced capacity: Interviewees reported limited move-in ready real

estate for smaller businesses§ Lack of research space: Local university space for biomedical engineering

research

Juarez§ Limitations in physical space: reduces opportunity for growth for

emerging businesses

Recommendations§ Better understand supply chain

component requirements to identify capacity and capability needs

§ Leverage cross-cluster collaboration to maximize additional capabilities (e.g., connecting El Paso with East and West Coast cities through direct flights)

§ Promotion of local airport routes and accessibility to the US market

Infrastructure: Build on a strong foundation


In Common§ Funding Access: Lack of Angel, Seed, Venture funding limits growth of

innovation and start-ups § Lending: Lack of lending and high interest rate lending in Juarez limits

establishment and growth of key suppliers

El Paso§ Internal competition: competing actions for grant and philanthropic

funding prevents effective collaboration§ Access to Texas Funding: access to grant funding resources (e.g. Texas

Enterprise Fund)

Juarez§ Perception of low value: limits investment opportunity

§ Collateral: Concerns over collateral security limit lending into Juarez

Recommendations§ Develop targeted campaign to

attract expertise of finance and capital to fuel and fund entrepreneurial ideas

§ Attract venture-capitalist organization to area by maximizing its “site selector” benefits

Capital: Invest to attract new capital


In Common§ Border Access and Issues: Restrictions in border access and political

crises, uncontrollable by locals (e.g., migrant crisis, violence) prevents regional cohesiveness

El Paso§ Quality of Life: Quality of life in El Paso is high, burnishing a positive

reputation§ Harmonized Narrative: A lack of a cohesive life sciences narrative

prevents effective promotion of assets and a unified commitment to the biomedical industry

Juarez§ Manufacturing leadership: Juarez enjoys a reputation as a

manufacturing powerhouse and access to US markets§ Negative Perception: Negative aspects of the quality of life in Juarez is

popularized, resulting in negative reputation

Recommendations§ Improve the regional narrative to

mitigate popular adverse perception

§ Further leverage Ft. Bliss skills footprint and understand how it can be repurposed for MedTech

§ Align and leverage unique demographics (e.g., Latino population) to extend clinical trial footprint

Region: Leverage the region's uniqueness


In Common§ Training Development: While a variety of programs exists, the region

lacks an organized structure for training and skills development programs

El Paso§ Untapped talent: Ft. Bliss represents a unique source of talent to support

increased MedTech growth§ Talent misalignment: A misalignment exists between the available

workforce and the jobs requirements in El Paso § Brain drain: Many students leave El Paso after they graduate. It is difficult

to attract a skilled workforce in the area

Juarez§ Soft skills: Extensive opportunities for students in engineering and health

sciences, but softer skills remain elusive§ Technical English Command: Skills remain a challenge in Juarez

Recommendations§ Survey the critical skills required

by future life sciences trends to identify new skills (digital skills, critical thinking, re-training)

§ Develop better alignment between universities and regional needs

§ Establish programs to educate physicians and healthcare providers to promote research and innovation

Talent: Develop, nurture, and retain skilled workers


Focus

Which of the Framework pillars do you believe will drive the greatest growth?

A. Talent

B. Infrastructure

C. Region

D. Culture

E. Capital

F. Patients & Providers

31


Engagement

Where can you make a contribution to growth?

A. Creating a stronger positive perception of the region

B. Creating more opportunities for talent retention

C. Increased opportunities to attract capital

D. Encourage Government can take a stronger support role for business

E. Increasing R&D and innovation opportunities

32


Questions

33

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