BB&T Contributing Writer

AUSTIN — The Austin Chamber of Commerce lists Austin as the nation's 14th largest metro area. It is emerging as a hotspot in medical technology and lifescience and boasts having more than 130 medical device, biotech, biologics, pharmaceutical, diagnostics and contract research companies, as classified in the chamber's BioAustin publication. There is an established infrastructure comprised of venture capital firms, public and private funding organizations, incubators, life science collaboration centers, and a technology commercialization office within the University of Texas at Austin (UT at Austin) that help stimulate entrepreneurship and assist in the growth of the local med-tech and biomed companies.

UT at Austin is the flagship of the University of Texas System with more than 51,000 students, 3,344 faculty and 21,000 staff members. It has one of the world's largest research programs in nanotechnology, including nano-biology and nano-medicine. The university receives $642 million in annual research funding fiscal year.

Large network of hospitals and medical centers

Table 1

Seton Family of Hospitals Operations

• 5 major medical centers, including trauma centers and a children's hospital

• 2 community hospitals

• 2 rural hospitals

• 3 primary care clinics for the uninsured

• Inpatient mental health hospital

• Health facilities for rehabilitation and medical care for well patients

Seton Family of Hospitals is a not-for-profit organization with multiple facilities (See Table 1). Seton recently entered into a partnership with the University of Texas System board of regents and the UT Southwestern Medical Center (Dallas) to increase the amount of medical education and medical research conducted in Central Texas. The relationship is expected to significantly expand collaborative research efforts with the UT Southwestern and UT at Austin and to serve as a generator of spinoff biotech and medical device firms.

Greg Hartman, president/CEO of Seton Family of Hospitals, projects that the new partnership will help attract more physicians to Austin and expand the number of clinical trials conducted by med-tech companies in his hospitals. He noted that “Austin has a wonderful venture capital and entrepreneurial environment that can pull together with bedside clinical care and research, allowing it to be a national leader in bioscience research in the next 5 to 10 years.“

Local VC firms invest exclusively in the lifesciences

Santé Ventures and PTV Sciences are Austin-based venture firms that invest only in healthcare companies, but make investments in companies anywhere in the U.S. Santé Ventures invests (seed or Series A) in early stage companies and remains a life cycle investor until the company is cash flow positive. It retains a board seat in each of its portfolio companies. Kevin Lalande, managing director of Santé Ventures, explained that “Austin has a long and rich entrepreneurial culture . . . and 80% of the state's economy lies within the region bounded by Dallas/Ft. Worth, Houston and San Antonio, with Austin located in dead center.“ Texas has the 14th largest economy in the world and is similar in size to India. Texas ranks third in the U.S. with ongoing clinical trials. It has nine medical schools, the same number as in California.

Government seed funding for lifescience and biotech

The Texas Emerging Technology Fund (TETF), headed by Jonathan Taylor and located at the Office of the Governor, was created in 2005 for the purpose of economic development by commercializing emerging technologies. The fund does not target its investments in any specific industry category. The key consideration is disruptive technology that purports to have a major impact on its industry. TETF has a 17-member advisory committee of high-tech leaders, entrepreneurs and research experts that review potential projects and make recommendations for funding allocations.

To date, the fund has made 167 awards totaling about $370 million, with the average award size being close to $2 million. A total of $197 million has been invested by TETF in companies that have some relationship with universities in Texas. Of these investments, 53% have been in life science and biotech. TETF is the most active seed fund investor in Texas and takes an ownership position. It is often the first investor and does not do follow-on investments, but requires that the companies complete a subsequent investment within 18 or 20 months. TETF funds about 6%-8% of its applicants.

TETF also participates in a program of matching government research grants such as from DARPA, Department of Engineering and NIST/NIH. Only 1 or 2 of these grants are made annually. The recipients have to be in multiple businesses.

A third area of investment by TETF is the research superiority acquisition award. The goal is to bring the world's leading researchers to Texas. This enables its academic institutions to build expertise in key research areas and foster innovation and commercialization.

Local sources provide support for startups

The Austin Technology Incubator (ATI) is funded mostly by the University of Texas and partly by the City of Austin. It is a non-profit organization that provides office facilities, strategic counsel, operational guidance, and assistance in building staff and infrastructure in support of its member companies. Since its founding in 1989, ATI has worked with over 200 companies, helping them raise over $750 million in investor capital. In the past three years, ATI has incubated over 50 companies and helped raise over $70 million during a period of economic downturn. ATI receives about 150 company applications each year across all industries and accepts 6-8 of these applicants.

ATI sponsors an annual Student Entrepreneur Acceleration and Launch (SEAL) program, a two month accelerator for students selected from UT at Austin. These students get real-world, hands-on experience working with startup companies.

Emergent Technologies (ET; Austin) is the general partner of four limited partnership funds that are used to start companies based on novel emerging technologies, primarily in the fields of materials science and the life sciences. The funds typically make the first investment in a company. EMI is not itself an investor but plays an active role in its 16 portfolio companies by developing and executing their strategies and by providing dedicated management services. Each company's chief scientist is usually the investigating professor at a university.

ET is currently undergoing a transition of its business model and is moving towards identifying groundbreaking technologies with strong proprietary positions and large market potential for transforming scientific breakthroughs into technology platforms with multiple commercial applications. This effort in conducted in affiliation with large companies. An example is ET's relationship with Merck (Whitehouse Station, New Jersey) in which opportunities are being sought for delivering siRNA gene silencing technology, aimed at capitalizing on Merck's acquisition in 2007 of Sirna Therapeutics (San Francisco).

Table 2

UT at Austin's Office of Technology

Commercialization Supports the Research Mission

• Evaluates, protects, markets and licenses the university's inventions and software

• Assists in the formation of startups

• Promotes collaboration with industry, investors and others within the tech commercialization ecosystem

• Informs the university's faculty on patent protection and commercialization processes

The Office of Technology Commercialization of the UT at Austin supports the university's research mission, as listed in Table 2. It works closely with university inventors and a network of entrepreneurs, venture capitalists, and angel and corporate investors, as well as the TETF and ATI, to form new ventures that serve the public interest by finding practical applications for university-developed technologies. The university received revenues of $14.3 million during the fiscal year Sept. 2009 to August 2010 from licensing and royalties on products developed using its technologies.

Medical products include orthopedics/spine

Table 3

Orthopedic and Spine Companies in Austin

• ArthroCare

• Ascension Orthopedics

• DiFusion Technologies

• DJO Surgical

• Hanger Orthopedic Group

• LDR Spine

• Minimus Spine

• Pioneer Surgical Technology

• Spinal Restoration

• Spine 360

• Spinesmith Partners

• Wenzel Spine

• Zimmer Orthobiologics

• Zimmer Spine

Austin is home to 14 orthopedic or spine companies, half of which are development stage companies (See Table 3). This rivals similar centers in Warsaw, Indiana and Memphis, Tennessee. Additions to the list occurred in February 2010 when the Hanger Orthopedic Group relocated its headquarters to Austin from Bethesda, Maryland and Pioneer Surgical Technology (Marquette, Michigan) opened a branch in Austin.

Spinal Restoration (Austin) was founded to identify, develop and commercialize new, early intervention, minimally invasive therapies that address unmet needs in spine health management. The company's Biostat System has been developed for the treatment of discogenic low back pain. Discogenic pain affects nearly 4 million adults annually and is caused by the accumulation of painful cracks and fissures within the internal structure of degenerating intervertebral discs. The Biostat System consists of Biostat Biologix fibrin sealant, a human-derived biologic tissue sealant, and a proprietary application device to safely deliver the biologic into the interventebral discs.

Biostat Biologix fibrin sealant forms a dense, resorbable fibrin tissue scaffold that may alleviate discogenic pain by sealing the painful disc disruptions, reducing inflammation, and enhancing natural tissue repair. Spinal Restoration is currently conducting a 260- patient Phase III randomized, blinded, placebo controlled clinical trial at 20 sites across the U.S. The study will assess improvements in patient pain and function at the 6-month primary endpoint and will provide long-term data out to 18 months. Spinal Restoration has funded the development of the Biostat System through two rounds of venture capital financing totally $27 million.

DiFusion Technologies, located within the Texas Life-Sciences Collaboration Center (Georgetown, Texas), is developing CleanFuze antimicrobial technology for use in orthopedic or spinal implants. Preclinical testing has shown that CleanFuze can eliminate active bacterial colonies including MRSA and other virulent strains that are implicated in surgical site infections, the fourth leading cause of death. CleanFuze is a load bearing orthobiologic material that is a combination of PEEK polymer and silver zeolite (a molecular silicate) that was licensed from Agion (Wakefield, Massachusetts). It is being used to fabricate interbody fusion devices and can also be used as a coating on hip stems. CleanFuze was evaluated in a 25-patient study vs. a control group made of just PEEK alone. DiFusion made a 513g filing with the FDA which will allow for a 510(k) pathway “with data.“ for its Class II devices. Safety studies are planned for the fourth quarter of 2011. The company will launch its Xyphos line of posterior interbody devices that do not contain CleanFuze by mid-2011 with revenues projected to be $7 million in 2011. DiFusion is exploring the use of zinc or copper as alternatives to silver. Minimus Spine (Austin, Texas) has developed an integrated system for producing ozone for use by patients with pain from a herniated disc that have not benefited from steroid injections. Ozone has been used in Europe for over 15 years for treating this condition. Minimus has developed a more sophisticated way of creating and delivering the ozone gas to the herniated disc. The product is comprised of a sterile, single-use syringe cartridge

That is filled with oxygen. The syringe cartridge interfaces with a machine which produces a high voltage that converts a fraction of the oxygen into ozone and measures the ozone concentration in real time. When injected into a herniated disc, the ozone causes shrinkage of the disc material which brings pain relief in about 1-2 weeks. About 2% of patients required a second injection within two years. The company plans to conduct a small clinical trial in Europe and launch the product in select international markets, to be followed by considering entry into the U.S. market.

Med-tech products and diagnostics

Apollo Endosurgery (Austin, Texas) has developed flexible surgical tools for use in treating gastrointestinal disorders. It conducted a pilot launch of its initial product, the OverStitch endoscopic suturing system, at the end of 2010. It is a flexible suturing device that mounts on a standard endoscope and allows sutures to be deployed under direct visualization. It is capable of deploying multiple running and interrupted stitches with a single insertion of the endoscope. It can be used with a gastroscope or colonoscope in gastrointestinal surgical procedures. The benefit of flexible surgery is that it minimizes trauma by taking advantage of natural orifices to deliver surgical tools to targeted areas. Apollo Endosurgery is currently pursuing the use of the OverStitch device in bariatric, colorectal and GI surgery with its direct sales force. Other laparoscopic suturing devices that are not flexible are Quick-Stitch from Paré Surgical (Centennial, Colorado) and NeatClose from NeatStitch (Richmond, Virginia/Or Akiva, Israel). Apollo Endosurgery has also had a limited market launch of FlexShears, the only disposable endoscopic scissors. A full product launch is planned for the fourth quarter of 2011.

Inova Labs was spunoff in 2009 from International Biophysics Corp. in Austin as a stand alone company to market the LifeChoice portable oxygen concentrator. It weighs less than five pounds which allows the patient greater mobility than other commercial oxygen concentrators and utilizes pulse wave technology to deliver large amounts of oxygen. The LifeChoice portable oxygen concentrator can be worn as a purse or backpack and can be used while sleeping. According to John Rush, CEO of Inova Labs, the “technology has redefined what a patient can do using oxygen . . . LifeChoice helps patients maintain a normal life.“ The company has 15 patents in process.

Biostable Science & Engineering (Austin) has assembled a team of 7 employees all of whom previously worked at CarboMedics, a marketer of prosthetic heart valves that is a subsidiary of the Sorin Group (Milan, Italy). Biostable is developing an aortic valve repair device known as the HAART (hemispherical aortic annular repair therapy) device for use in aortic valve repair and valve sparing procedures. The program is being conducted in partnership with J. Scott Rankin, MD, a cardiovascular surgeon at the Centennial Medical Center and Vanderbilt University (both, Nashville, Tennessee). Currently, defective aortic valves are replaced and not repaired. Biostable's objective is to repair these valves using its HAART annuloplasty ring. The rings are made from titanium with a polyester covering. They are oval shaped and are produced in 19 mm, 21 mm, 23 mm and 25 mm diameter sizes. The company has completed in vitro, GLP and animal studies and plans to initiate human trials in Europe. The aim is for patients receiving the annuloplasty ring to avoid anticoagulant therapy altogether and be treated only with aspirin anti-platelet therapy after surgery. Biostable received seed and Series A capital financing from Santé Ventures.

Vermillion (Austin), a public company since 2000, introduced OVA1 in March 2010. It is a diagnostic test used to assess the likelihood that an ovarian mass is malignant when it is not indicated by a physician's independent clinical and radiological evaluation. OVA1 is a qualitative serum test that combines the results of immunoassays of five biomarkers into a single numerical score. It the first protein-based in vitro diagnostic multivariate index assay cleared by the FDA. When used in conjunction with ultrasound, OVA1 was shown in a clinical trial to have 97% sensitivity for malignancy. OVA1 is licensed exclusively as a clinical laboratory test to Quest Diagnostics (Madison, New Jersey). Vermillion plans for the future sale of OVA1 to hospitals as an outpatient test. In May 2011, the test was launched in India.

Vermillion has partnered with Johns Hopkins University (Baltimore) for the development of OVA2, the next generation test that has improved specificity for its broader use as a test for diagnosing ovarian cancer.

Vermillion raised $21.8 million in a public offering in February 2011. Some of these funds are being used to develop, in collaboration with Stanford University (Palo Alto, California), a blood test to stratify an individual's risk of developing peripheral artery disease. The test is called VASCLIR and has been evaluated in three studies. It is currently conducting an “Intended Use Study“ in preparation for a clinical trial.