Most people in Ohio’s biomedical industry would’ve considered 2010 a good year if just one key thing happened — voters renewed the state’s $1.35 billion, 10-year Third Frontier program, which is designed to energize Ohio’s economy by investing in cutting-edge technology.
It happened. And elation ensued in board rooms, investors’ offices and research laboratories.
By a nearly two-to-one margin, voters approved Third Frontier with a $700 million, four-year extension that’ll keep it alive until at least 2016 — and beyond, the industry no doubt prays. From CEOs to scientists to venture capitalists, nearly everyone in the industry will tell you that Third Frontier has been absolutely critical to the success of Ohio’s growing biomedical industry, which now boasts more than 1,600 organizations with a combined payroll of nearly $4 billion, according to BioOhio.
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From its launch in 2002 through the middle of this year, Third Frontier had granted about $1 billion to research collaborations, entrepreneur support organizations, venture capital authorities and companies. Those grants have generated a $6.6 billion economic impact on Ohio, creating nearly 50,000 jobs and more than 600 companies, according to reports by an independent consultant and the Ohio Department of Development.
But that’s not to say everything was wine and roses for the industry in 2010.
The venture capital industry continues to undergo convulsive change — not to mention far fewer exits than anyone would like. Ohio is not immune to this change, as evidenced by dismal numbers through the first three quarters of the year. Venture investing in Ohio fell 35 percent to $89 million compared to the like period last year.
Comparing 2010 to 2007 (a peak) is even worse — a whopping 66 percent decline in venture investing, according to a report from BioEnterprise. The venture industry’s woes make it harder for promising startups in Ohio and elsewhere to access the growth capital they need to get drugs, devices and other medical technology to market.
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If there’s a bright side to the drop in venture investment, it’s the rise of angel investor groups that have stepped in to fill the void, or at least some of the void. The state boasts an impressive array of well-organized and professionally run angel groups — most notably Cleveland’s North Coast Angels, Columbus’ Ohio TechAngels and Cincinnati’s Queen City Angels — something that bodes well for the industry’s future in Ohio.
Following are a few other 2010 Ohio biomedical industry highlights:
Medical mart marches forward: Thanks to its public funding, Cleveland seems well-positioned to grab an early lead in what’s likely to be a years-long medical mart race with Nashville. The property developer behind the Nashville Medical Trade Center, Dallas-based Market Center Management Co., bet big by planning a medical mart with 1 million square feet of showroom space –10 times (10 times!) the size of Cleveland’s mart.
But the Dallas company may have overreached and has struggled to close deals, so far having announced only three tenants after saying in September that it was close to signing 15. But don’t fall into the trap of proclaiming Cleveland the winner too soon. This one will take a few years to play out. If the industry eventually warms up to Nashville’s concept of “critical mass,” Cleveland’s grand plans could flutter away as depressingly as so many Jake Delhomme interceptions or Mo Williams three-point bricks.
Major investments and exits: Every year brings its share of M&A activity and venture capital investment, and 2010 was no different. The significant deals are too numerous to list, but here are a few:
- Ohio University started off the year with a bang when spinoff diagnostic tests maker Diagnostic Hybrids Inc. was sold in January to San Diego’s Quidel Corp. for $130 million.
- The largest sale of an Ohio biomedical company in 2010 (that we’re aware of ) happened in July, when Twinsburg-based medical products supplier EdgePark Medical was sold to a group of private equity firms for $850 million.
- Notable venture deals of the year include $27.5 million for Beachwood-based radiology outsourcing firm Radisphere, $20 million to Oakwood-based radiation therapy company ViewRay, $18 million to Akron-based imaging company FMI Technologies, and $14.5 million to Garfield Heights-based spinal device maker AxioMed.
Philips establishes imaging R&D center: Philips Healthcare is investing more than $33 million in the first phase of a medical imaging research and development center at University Hospitals Case Medical Center in Cleveland. Business leaders hope the center will bolster Northeast Ohio’s reputation as a hub for innovation in medical imaging technology.
GCIC opens: The Global Cardiovascular Innovations Center — a Third Frontier-backed incubator designed to nurture companies developing products to treat cardiovascular disease — quietly opened in April on Cleveland Clinic’s campus. The $19 million, 50,000-square-foot building is already filling up with tenants, including data management company Explorys Medical Inc. and medical device outsourcing company Farm.
Cardinal piles on acquisitions: Ohio’s largest company by revenues, $100-billion pharmaceuticals and medical products distributor Cardinal Health Inc. (NYSE: CAH), made three major acquisitions to access new markets in 2010:
- In June, Cardinal purchased for $517 million Healthcare Solutions Holding LLC, including the company’s P4 oncology services businesses. The move was aimed at extending Cardinal’s reach in the lucrative specialty pharmaceuticals market.
- Last month, Cardinal reached a $1.3 billion deal to buy Kinray Inc., a New York-based drug distributor. The deal expanded Cardinal’s base of independent retail pharmacy customers by 40 percent to about 7,000.
- Later in November, Cardinal bought Chinese drug distributor Zuellig Pharma China, ushering in the era of the global drug distributor and giving Cardinal a foothold in the fast-growing Chinese market.
In other news involving publicly traded Ohio healthcare companies, it was the end of an era for Elyria-based Invacare Corp. (NYSE: IVC) when long-time CEO A. Malachi Mixon stepped down as CEO. Mentor-based STERIS Corp. (NYSE: STE) seems to finally be putting a year it’d rather forget behind it, after beginning to ship the replacement for its flagship System 1 sterilization system. In December 2009, federal regulators issued a safety alert saying System 1 could harm patients.
Cleveland Clinic’s breast cancer vaccine: A vaccine to prevent breast cancer being developed by Cleveland Clinic researchers has shown “overwhelmingly favorable results” in animals and could be on its way to conquering the disease that kills more than 40,000 American women each year. “If it works in humans the way it works in mice, this will be monumental,” said researcher Vincent Tuohy. Enrollment in human trials could begin next year.
