Life Sciences Report

By Todd Miller

When you think of a greenhouse in Pittsburgh and environs, Phipps Conservatory comes to mind. Since 2002, however, the word has had a double meaning in our corner of the world. That’s because of the Pittsburgh Life Sciences Greenhouse (PLSG), which was designed to be western Pennsylvania’s economic development engine for biotechnology tools, molecular diagnostics, medical devices, therapeutics and health information technology (HIT).

The PLSG received initial funding from major foundations and the Commonwealth of Pennsylvania to leverage the intellectual capital of Pittsburgh’s world-class universities and medical facilities to establish life sciences companies. Over the past 16 years, the organization has generated more than $620 million annually in salaries paid to employees of companies and academic labs, and it has invested in 84 companies. Among those organizations, 38 percent have been in the medical device sector, 24 percent in HIT, 15 percent in therapeutics, 13 percent in biotech tools and 10 percent in molecular diagnostics.

Among those 80-plus organizations, more than 50 remain active and 11 of them have been acquired by other companies. One such company is Blue Belt Technologies, based in the Strip District. Three years ago, it was purchased by Smith & Nephew, a London-based manufacturer of surgical devices and wound care products. Since the company began 15 years ago, employment has risen from 3 to 125 people.

Other successful exits include RedPath Integrated Pathology, Inc., a molecular diagnostics company which was acquired by Interpace Diagnostics and still operates in the Strip District, and Net Health, which the Carlyle Group, a publicly traded investment banking firm, acquired in 2017.

Today, the PLSG serves as a resource center and incubator which has brought outstanding university researchers and experienced life sciences executives to the region to accelerate the commercialization of technologies and products developed by startup companies and in academic labs, mostly at Carnegie Mellon University and the University of Pittsburgh.

“The scope of life sciences has been widening over the past decade,” said Jim Jordan, who became PLSG’s president and CEO in 2016 after serving the organization in various capacities since 2005, including chief investment officer.

According to Jordan, who also teaches at Carnegie Mellon University’s Heinz College of Information Systems and Public Policy, “The challenge we face nationally is that we spend the most of any country on healthcare, and the quality of our care is ranked 11th. So, unless life sciences products do something that adds value to the healthcare system by curing a disease or reducing cost, it’s hard to justify investment.”

Going by the Numbers

Tech companies in the Pittsburgh region have attracted more than $3.5 billion in funding over the past ten years, including $2.1 billion over the past five. According to the Midwest Healthcare Growth Capital Report 2017, the Pittsburgh-area biosciences companies which have obtained the largest amounts of investment capital over the past year are Complexa ($40.6 million), ALung Technologies ($40.1 million), Cognition Therapeutics ($38 million), Innovu ($8.6 million), PennAlt Organics ($6.6 million), Knopp Biosciences ($5.8 million), Peptilogics ($4.8 million), Carmell Therapeutics ($3 million), Rijuven ($2.3 million), Sharp Edge Labs ($2.1 million) and Alternative Medicines Group ($1.6 million).

Additionally, the Pittsburgh region received more than $570 million in National Institutes of Health (NIH) funding in 2017, the most recent year for which data are available. Ninety-six percent of that amount went to area universities and the balance went to healthcare companies.

Although the development and production of medical devices has been a traditional strong suit of the region’s biotech sector – due largely to a heritage of inventing and manufacturing that goes back some 250 years — consolidations have reduced the presence of such companies in Pittsburgh, as well as nationally and internationally, leading PLSG to focus more extensively on health IT companies. Recently, the organization received a grant for HealthIT Pittsburgh, an initiative to help vendors in southwestern Pennsylvania find each other and establish business relationships.

“The scope of life sciences has been widening over the past decade,” said Jim Jordan, who became PLSG’s president and CEO in 2016 after serving the organization in various capacities since 2005, including chief investment officer.

Regardless of a life science-based company’s focus, Jordan firmly believes that “our job is to get companies through the valley of death” so they can obtain funding from venture capitalists and angel investors. With more than half of domestic venture capital funding in the biotech sector going to companies in California, Massachusetts and New York, Jordan sees investors becoming more interested in Pittsburgh-area companies.

“As the cost of doing business goes up on the East Coast and West Coast, investors are looking for value in the Midwest, and that bodes well for Pittsburgh.”

While medical device manufacturing becomes a smaller percentage of the region’s life sciences sector, the emergence of minimally invasive technologies, such as laproscopy for gall bladder, lung and other types of traditionally invasive surgeries, has kept demand for medical devices strong.

“With the FDA becoming more transparent in its requirements, time-to-market is shortening, and that trend bodes well potentially for device manufacturers, provided they can show physicians and hospitals that their products or technologies will reduce costs,” said Alan West, PLSG’s executive-in-residence. He is also a former CEO of Carmell Therapeutics, a PLSG portfolio company, as well as a former executive in the biotech divisions of Johnson & Johnson and Boston Scientific.

It’s a HIT

When it comes to HIT, Hank Safferstein, another of PLSG’s executives-in-residence, sees a highly favorable landscape for companies in this category now and in the future. “The ability of artificial intelligence and machine learning help to inform clinical trial design and increase the homogeneity of patients randomized into clinical trials. HIT can help to de-risk clinical development and improve time-to-market of pharmaceuticals and devices, as well as improve the quality of patient care.”

What’s more, as a board director of ARIEL Precision Medicine and senior vice president of Cognition Therapeutics, a PLSG portfolio company, and as a former executive with Omrix Biopharmaceuticals, a commercial-stage company that develops and markets bio-surgical and passive immunotherapy products, Safferstein knows first-hand that HIT is an attractive investment because it requires less capital than other life sciences sectors. “Typically, an IT company requires $15-$20 million in investment capital to reach a meaningful liquidity event for investors, compared to a much greater amount needed by a pharmaceuticals company, which often has a long slog ahead of it in obtaining required FDA approvals.”

Other HIT-related solutions in the life sciences arena include intelligent voice assistants used in researching neurodegenerative disorders such as ALS (Lou Gehrig’s Disease) and Parkinson’s. These technologies, many of which have been developed at Carnegie Mellon University, deconstruct how brainwaves affect body movements, giving researchers insights to developing medications which relieve symptoms, as well as devices or aides which help individuals increase their mobility.

“Because almost every object today operates using some type of software, the possibilities in health IT are vast,” said Safferstein.

Another way that HIT is helping improve efficiency of patient care is management of patient flow within a network, as large health systems have invested in HIT solutions that allow physicians to work with colleagues across different specialties within the network. As a result, doctors can avoid bureaucratic hurdles when helping patients obtain the best care in a timely manner.

When Dollars Make Sense

Alicia Varughese, a PLSG investment manager, has her finger on the pulse of funding sources and levels. Medical Devices and HIT remain strong sectors because, compared to the molecular diagnostics and therapeutics sectors, the time between development and marketability is relatively short. She expects HIT to become stronger in the years ahead because “we live in a technology-dependent world where HIT is being integrated in almost every product. There is not going to be a single area in healthcare that will be left untouched by the advance of health IT.”

Additionally, Varughese, who works with entrepreneurs and emerging startups to provide the strategic support necessary for their commercial success, believes research related to big data and artificial intelligence conducted at Carnegie Mellon University and University of Pittsburgh (i.e., UPMC Enterprises) should solidify the region’s position as a center for the development of AI-based technologies, especially in digital health and precision medicine.

“Because almost every object today operates using some type of software, the possibilities in health IT are vast,” said Safferstein.

The strength of investment is exemplified by the number of companies that have received Series C funding. In 2014, for example, Complexa, Inc., a clinical-stage platform anti-inflammatory and fibrotic disease-focused biopharmaceutical company, completed a $13 million Series B financing which was led by JAFCO Life Science Investments, a part of JAFCO Co. Ltd., a Tokyo-based private equity company. In 2017, they went on to raise $62 million in Series C financing led by New Enterprise Associates (NEA) and Pfizer Venture Investments.

Other companies, such as Cognition Therapeutics, have moved to the Pittsburgh region from California. Factors that drew Cognition to the region include a strong life sciences research infrastructure, clinical prowess and PLSG fostering a community of life sciences entrepreneurs to accelerate development of technology platforms.

As for whether the region’s workforce will be able to meet the demands of companies in the life sciences sector, Jordan is confident that the area’s institutions of higher learning are up to the task.

“Besides Carnegie Mellon and the University of Pittsburgh, Carlow, Duquesne, Robert Morris and West Virginia University all have programs in the biological sciences that can help to ensure a steady supply of talent to help life sciences companies in our region remain on the cutting edge.”