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In San Antonio biosciences industry, Valley sees model for its economic future
September 22, 2013

Jim Daley works on the circuitry of their medical device at EO2 Concepts July 22 in San Antonio. The company's device delivers a steady steam of oxygen to a wound via a portable device that can be worn on the hip, improving healing times. (Photo by Nathan Lambrecht)

By Jared Janes, The Monitor

SAN ANTONIO - When OsteoBiologics closed its San Antonio manufacturing operation in 2009, it was the genesis of a larger economic success story for this city.

Founded in the mid-1990s, the privately owned OsteoBiologics traced its origins back to bone and tissue repair research conducted at San Antonio's medical school. Although OsteoBiologics' operations in Texas ceased a few years after a London-based medical technology company bought it out, it was hardly a net loss for San Antonio.

Buoyed by knowledge and expertise gained at OsteoBiologics, company executives would later go on to form a handful of different startups in San Antonio that were generated from ideas and connections developed there.

"It's not whether someone comes along and buys another company, but it's whether the original company seeds other companies," said Fred Dinger, OsteoBiologics' former CEO who now heads a San Antonio-based firm that develops technology for sinus surgeries. "You get some branches on the family tree."

From its roots in research developed at the University of Texas Health Science Center to its eventual rebirth in a diverse array of thriving companies, OsteoBiologics' entire life cycle is an example of what works in San Antonio.

And San Antonio itself is a model that the Rio Grande Valley hopes to replicate as it embarks on its own path toward development of a medical school and a top tier research university.

No one could have predicted the eventual role that the University of Texas Health Science Center at San Antonio would play in the region's greater economy when it was chartered in 1959 by lawmakers and later sprung forth from a hundred-acre dairy farm conveyed to the state. Similarly, it's difficult to project what the healthcare and educational landscape will look like in the Valley some 50 years into the future.

But a best case scenario for South Texas could be what happened in San Antonio, a region of similar size and stature as the Valley when its own medical school started, said Francisco Cigarroa, the University of Texas System chancellor and the former president of the Health Science Center. UT's Health Science Center has been an economic engine fueling San Antonio's emergence as a nationally respected center for the biosciences.

"It doesn't happen overnight, but if one just takes a look at San Antonio before the medical school got created and then after the medical school got created, you can really see the impact of a school of medicine," Cigarroa said. "There's no reason why that can't happen in the Valley."

FINDING A NICHE

Like San Antonio's healthcare industry, it might take time for the Valley's to find its place.

As the home for several military medical headquarters, San Antonio always had a strong foundation to build on, but the industry mostly flew under the national radar for decades despite its local significance.

Former Mayor Henry Cisneros, returning home after stints in Washington, D.C., and Los Angeles, felt the city could do more to capitalize on its status as a home for bioscience research and innovation. At his recommendation, San Antonio formed BioMed SA in 2005 to raise the industry's profile nationally and accelerate its growth.

But another purpose behind BioMed SA's establishment was to serve as a connector group behind different pillars of activity, said Ann Stevens, a former pharmaceuticals executive who has been BioMed SA's president since its creation. While San Antonio had the entire infrastructure in place, Stevens found the disparate pieces - from researchers to the capital sources to entrepreneurs with business knowhow - often weren't on the same page.

"(Companies) don't exist by accident. They have to be consciously thought of and put in place," Stevens said. "Otherwise, it doesn't happen. Discoveries are being made every day at a university but only a few of them come out and become commercial products."

So BioMed SA set out to help commercialize the intellectual property developed by the Health Science Center and the University of Texas-San Antonio, two key sources of innovation in the city. While San Antonio's medical school is widely recognized as an original source of innovation for its bioscience industry, the sector eventually could stand on its own.

Each successful company often produced another one (or two), all the while building on San Antonio's strengths.

From the beginning, BioMed SA had identified five areas of focus for its healthcare industry, including diabetes and obesity, neurosciences, cancer, infectious diseases and wound care and trauma.

With the nation's largest military medical treatment center already in place, for example, San Antonio is a recognized leader in the area of wound and trauma care. Playing off the development of local startups and the success of its homegrown Kinetic Concepts, a global corporation that produces wound healing products, San Antonio has become a draw to companies elsewhere based on its expertise in advanced wound care.

Last year, a Canadian medical device startup called Innovative Trauma Care selected San Antonio for its U.S. headquarters. The company, which invented a butterfly clamp that covers a wound to quickly control severe bleeding, selected San Antonio because of assets such as its headquarters for military medicine and the National Trauma Institute.

Just as San Antonio played to its strengths, the Valley must do the same, said Keith Patridge, the president and CEO of the McAllen Economic Development Corp. While the Valley's strengths could be its prevalence of chronic conditions such as diabetes and obesity, it could also be its proximity to the border.

Already, McAllen has drawn interest from pharmaceutical companies looking at the city as a place to run clinical trials on both sides of the U.S.-Mexico border to quickly get their product to market.

"Everywhere there's a medical school, it has become a major economic driver," Patridge said. "Our challenge is to identify our niche and go after it."

RIGHT INGREDIENTS

San Antonio's success started with a stent.

Dr. Julio Palmaz developed and patented the balloon-expandable stent in 1988 shortly after he became a professor at the Health Science Center. Now used each year in about one million cardiac surgeries worldwide, Palmaz's stent is a preferred treatment to clear clogged arteries and has revolutionized cardiac care.

But Palmaz's entrepreneurial success was also an early symbol of the economic potential being unlocked at the Health Science Center.

First and foremost, medical schools exist to educate students as physicians and healthcare providers with the goal of having them stay and practice in the area where they were educated. The overall healthcare of the community is also improved by having access to highly trained physicians and specialists at a medical school.

Its economic potential, though, can't be overlooked.

A 2009 study by the American Association of Medical Colleges found medical schools in Texas alone had a total economic impact of $31.5 billion, contributing 210,000 jobs and injecting nearly $1 billion in revenues into government coffers. In San Antonio, a city with one of the state's nine existing medical schools, the Health Science Center was also the catalyst for the development of an economic sector that has substantially grown in recent years.

San Antonio's healthcare and biosciences industry, which includes everything from clinics and hospitals to pharmaceutical companies and medical equipment manufacturers, has added more than 40,000 net new jobs over the past decade, according to a Greater San Antonio Chamber of Commerce study. The industry now employs one in every six San Antonians, or about 150,000 people.

Dr. William Henrich, the president of the Health Science Center, said the primary good that the Health Science Center produces is for the health of people, but it's impossible to ignore its economic return. Palmaz's stent was the most visible invention to rise up through the Health Science Center's research, but new pharmaceuticals, surgical instruments and other discoveries are created and commercialized every year.

Henrich said the medical school was a seed that germinated into San Antonio's healthcare and biosciences industry, one that is now more than double the size of the city's famous tourism and hospitality business.

"(Clinical care, education and research) are principal ingredients in the Health Science Center and will be in the new medical school as part of the larger university in South Texas," Henrich said. ""No one can predict exactly what the positive economic impact will be in the Rio Grande Valley, but it's going to be a very positive development for that area of Texas."

‘FEEDER FISH'

For the executives who found startup success after OsteoBiologics, their niche remained medical devices.

OsteoBiologics, or OBI, developed and manufactured products - initially based on technology spun out of the Health Science Center - which expedited healing for bone and cartilage injuries. Although OBI found commercial success by pushing the boundaries of medical technology, it was acquired for $76 million in 2006 by a global corporation that eventually shuttered its remaining San Antonio operations.

That's the paradox.

What appeared to be the end of OBI's story was really just the beginning.

Four major startups were eventually founded by the team that built OBI, extending the company's legacy beyond its first products and continually enhancing San Antonio's reputation.

A key group from OBI formed another company that made orthopedic implants and instruments. OBI's former director of marketing founded Aperion Biologics, a firm pioneering the use of animal tissues to repair sports-related injuries in humans.

Mark Niederauer, another top OBI executive, went on to launch EO2 Concepts, which developed a device that delivers a continuous flow of pure oxygen to a wound to vastly improve healing times for diabetic foot ulcers and other wounds that don't respond to treatment. Niederauer, EO2's chief technology officer, said San Antonio has manufactured itself into a medical device factory thanks largely to what started at the Health Science Center.

Not everything is derived directly from the Health Science Center anymore, but it generated the networks, expertise and reputation that props up San Antonio's biosciences sector.

"What you'll find is when you've got companies being successful, you'll find a mix of people finding local technologies to expand on or they go find technologies from outside to bring into San Antonio," Niederauer said. "It's getting enough people and expertise that you've got local things to build on."

In doing so, OBI and other original companies like it changed the image of San Antonio.

Dinger, the former CEO of OBI, recalled that when he first sought funding to put its first line of products on the market, his investors asked him to move the company to a medical mecca like Boston. Dinger convinced them to give OBI time to prove it could be successful in San Antonio.

Now, San Antonio is a city with more allure.

Medtronic, the Minneapolis-based medical technology with 45,000 employees worldwide, selected San Antonio four years ago through a nationwide search as its home for a diabetes education division. The expansion created 1,400 jobs but, perhaps as importantly, gave San Antonio what the BioMed SA president termed the "Good Housekeeping Seal of Approval" as a biomedical city.

Dinger said San Antonio was able to woo Medtronics, in part, because of the available pool of people with the right experience that are constantly refining or developing new technologies. After Dinger left OBI following its acquisition, he eventually went on to form ENTrigue Surgical, a company specializing in medical devices for sinus surgeries.

In July, ENTrigue was sold to an Austin-based medical device company, continuing what Dinger jokingly referred as the city's line of "feeder fish" that contributed to its bigger ocean.

"The big fish are swimming around, and we exist to be eaten," he said. "Once we're eaten, we'll go recreate ourselves again."

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