The grants, which awarded about $1 million to each firm, are aimed at accelerating the growth and development of Ohio’s burgeoning biomedical industry, which saw its number of  jobs  grow by 20 percent during the last decade.

The recipients are:

• Arteriocyte: The Cleveland-based stem cell company will further develop its NANEX  technology, which uses stem cells to create (pdf) “universal-donor” red blood cells
• AtriCure: The publicly traded Cincinnati-area cardiac device maker will adapt its AtriClip device to be used in minimally invasive procedures
• Bettcher Industries: The Birmingham-based manufacturing company will adapt its products for use in the fields of tissue and bone recovery, burn treatment and plastic reconstructive surgery
• OrthoHelix Surgical Designs: The Medina-based orthopedic implants firm will launch a new product line it calls the “pocket plating system,” which would involve foot and ankle implants
• PercuVision: The Columbus-area urological catheterization company will develop the next generation of its product, which is designed to improve catheter insertions into the urethra
• U.S. Endoscopy: The Mentor-based endoscopic products maker will expand its product offerings in the urological market
• VasoStar: The Mentor-based company will conduct a safety study on its guide wire system designed to help cardiologists penetrate blood-vessel blockage to place stents in the heart
• Imalux: The Cleveland-based company will improve its imaging device that’s used to detect cancer

Case Western Reserve University also received a nearly $1 million biomedical grant for a project with Cleveland Clinic and Proxy Biomedical to improve the manufacturing processes around a device to reduce stress urinary incontinence.

But JumpStart and the lead investor in the fund, which would be called Euclid Ventures, haven’t given up on the fund and are exploring options to create it, JumpStart CEO Ray Leach said. Initial plans called for a $4 million fund, with half the amount coming from the state and the other half from private investor Keith Brown of Universal Equities.

The future of for-profit Euclid Ventures — if it has one — could involve private or public funding, or both, according to Leach.

“We’re trying to find ways to raise as much capital as we can for companies in the region,” he said.

The idea behind the fund was to co-invest with other venture firms in series A rounds for startups that are too mature for the JumpStart model and had already received seed funding. (Disclosure: JumpStart is an investor in MedCity News’ parent company, MedCity Media.)

Currently, JumpStart receives most of the funding for its existing nonprofit investment fund, which focuses on earlier-stage companies than Euclid Ventures would have, from the state and private sources. JumpStart was founded in 2004 and has received $27.5 million in state funding over its lifetime. That figure accounts for about 45 percent of JumpStart’s overall funding.

Roughly speaking, Euclid Ventures would’ve made about 10 investments at around $400,000 each. Money likely would’ve gone to some JumpStart portfolio companies, though investments wouldn’t be limited to those startups.

It’s that last part — Euclid Ventures’ investment in JumpStart portfolio companies — that raised questions by Third Frontier administrators — or, more precisely, a Columbus-area consulting firm called Invantage Group that was hired by the state to evaluate proposals for the program.

“The reviewers were troubled by the proposal’s frequent focus on specifically aiding JumpStart and the applicant’s lack of accepting market valuations,” said a (pdf) report evaluating Third Frontier proposals.

“The potential for conflict of interest, by an overt focus on investing in existing portfolio companies, raises concern,” the report stated.

Leach chalks up the conflict-of-interest concerns to a misunderstanding with Third Frontier reviewers, and the explanation seems reasonable. The key thing to keep in mind is that Euclid Ventures would’ve invested alongside other venture firms, which would have no incentive to allow JumpStart to hijack the process.

So, for example, if JumpStart intended to use Euclid Ventures as a means of propping up struggling companies and saving face on previous investment decisions, no rational venture firm would want any part of such a deal. Further, if the concern is that JumpStart would use Euclid Ventures to artificially jack up valuations of its portfolio companies in subsequent investment rounds, again, no partnering venture firm that cared about making money would want to touch such an overinflated deal.

The Third Frontier reviewers did praise Euclid Ventures for one aspect of the proposal: JumpStart’s ability to oversee the fund with existing employees, which would make management of the fund much cheaper than it would’ve otherwise been.

“The absence of direct expenses for due diligence and enhanced management services is a benefit,” according to the report.

The program, called Ohio’s New Entrepreneur (ONE) Fund, calls for grants of $20,000 to 10 teams of up to five young people. During the competition, aspiring business professionals will work under the guidance of seasoned entrepreneurs and industry experts to prepare technology concepts and business models that will be pitched to angel and venture investors, according to a statement from the Ohio Department of Development (ODOD).

The ONE Fund is sponsored by Ohio’s Third Frontier technology support program and Ohio State University’s Fisher College of Business.

“We lose some of the best and brightest entrepreneurs every year,” said Ben Lagemann, risk capital program manager for ODOD, which administers Third Frontier. “Now it’s time to start bringing them back and showing them what we have.”

The program is targeting young professionals, recent graduates and young entrepreneurs, Lagemann said. “We’re not limiting ourselves to Ohio,” he said. “We’re looking anywhere we can find the best entrepreneurial minds.”

Any company formed through ONE Fund must be set up in Ohio. The up-to-five-person teams in the competition must have at least two participants who are at least 18 years old. At least half the members of a team must have been enrolled in college within the last three years.

Applications for the program are due on April 24. The competition runs from June 13 to September 1, when participants present their ideas to investors.

“If you are confident your current idea is a game changer, you owe it to yourself to apply now to be here this summer,” the website advertising the program intones.

After securing $4 million in grant commitments from Ohio’s Third Frontier program, North Coast expects to close the private half of its fundraise in the next few months, Clay Rankin, the fund’s manager, said. Rankin and Todd Federman, the fund’s executive director, act as the fund’s administrators.

North Coast’s $5.5 million first fund closed in 2007, and also was comprised of an equal split between public and private dollars. That fund is fully invested in 21 portfolio companies, all of which have a presence in Ohio. The fund enjoyed a flurry of activity in a 15-month period during 2009 and 2010, investing in 13 companies in that time.

“We’ve been as active as anyone in getting deals done in Northeast Ohio,” Rankin said.

Armed with a heftier second fund, North Coast plans to make larger initial and follow-on investments this time around — about $250,000 for initial investments compared to $200,000 in the first fund, and $200,000 for follow-on investments, up from a maximum of $100,000 last time.

North Coast encourages its individual members to participate in “sidecar investments,” with the goal of bringing an aggregate of $500,000 to $1 million to each of its portfolio companies. It’s those sidecars, plus co-investments from partners like state-backed Cleveland venture fund JumpStart Inc., Columbus’ Ohio TechAngel Fund and Cincinnati’s Queen City Angels, that make North Coast’s influence larger than just the size of its own fund.

Between the two funds, Rankin expects to have a total membership of nearly 180 individuals. North Coast Angel Fund functions by majority vote, with members eligible to vote on whether or not to invest in a prospective portfolio company. Such a big number of decision makers could be a recipe for sclerosis, but North Coast avoids that with a rule that requires voters, or proxies, to attend its a meetings to be eligible to vote.

At eight, companies in life sciences outnumber those from any other industry among North Coast’s portfolio companies, and that’s no coincidence. Rankin and Federman pointed to Northeast Ohio’s many assets in the sector — Cleveland Clinic Innovations, Case Western Reserve University‘s biomedical engineering program, nonprofit business development group BioEnterprise, to name a few — as one reason why they expect North Coast’s biomedical investments to continue.

“I think what we’re seeing is the benefit of having a community that’s heavily focused in this area,” Rankin said, highlighting what he considers three medical subsectors of particular strength in Northeast Ohio — imaging, neurostimulation and regenerative medicine.

North Coast’s biomedical portfolio companies include: Cincinnati-based personalized medicine test maker AssureRx Health, Columbus-based heart test company CardiOx, Chagrin Falls-based device maker CerviLenz and Beachwood-based drug developer Great Lakes Pharmaceuticals.

North Coast has already made two investments out of its second fund — information technology companies Znode and Sparkbase. Members have approved a third investment and are conducting due diligence on five other possibilities, Rankin said.

That funding will be split between new investments and some existing CincyTech portfolio companies, of which there are 18.

A $2 million grant from Ohio’s Third Frontier technology acceleration program will combine with $2.3 million in private investment to comprise CincyTech’s $4.3 million second fund. That’s a significant drop-off from CincyTech’s first fund, which launched in 2007 with $10.4 million ($6 million of that amount came from Third Frontier).

But Bob Coy, CincyTech’s president, said the smaller fund isn’t a cause for concern — it just means CincyTech will  begin raising fund No. 3 a little earlier than it otherwise would have. “We’ll just go out and raise another fund next year,” he said. “We’ll continue to invest at the same pace.”

Though the $3 million figure may seem small, Coy stressed that it doesn’t fully measure CincyTech’s reach. A syndicate of angel investors and sometimes venture capitalists typically invest alongside CincyTech at a 10-1 eventual ratio, meaning that $3 million is part of a much larger whole that could eventually reach $30 million.

CincyTech invests only in Southwest Ohio companies, or out-of-town companies that intend to move to the area. The vast majority of its companies are in the biomedical, information technology and alternative energy industries.

CincyTech sources most of its dealflow through the typical channels — local entrepreneurs, law and accounting firms, other investors — but also has access to Cincinnati Children’s Hospital Medical Center and the University of Cincinnati. Cincinnati Children’s, in particular, has been a valuable source of medtech dealflow, including the following portfolio companies: personalized medicine test-maker AssureRx Health and device firms Enable Injections and SpineForm.

CincyTech has taken advantage of another, somewhat unusual source of local dealflow: consumer products giant Procter & Gamble’s decision a few years ago to begin dismantling its pharmaceuticals division. Two companies that own the rights to drugs that began development under P&G are among CincyTech’s most promising — anemia drug developer Akebia Therapeutics and heart-arrhythmia drug developer Blue Ash Therapeutics.

Akebia raised a significant amount of capital ($28 million in a Series A) and expects — if all goes well in clinical trials — to have a drug on the market within the next few years. That’ll make Akebia an attractive acquisition, or more likely, partner, for a big pharmaceuticals firm if the company’s drug continues to prove itself.

The grants come under two different Third Frontier programs, which are designed to funnel growth capital to young, promising technology companies through professionally managed investment funds. With state money flowing to the companies, the idea is that private investors will be more likely to throw their own money in alongside the public funding.

Below are the award recipients and amounts. (Note that each recipient is associated with many collaborating organizations that are too numerous to mention.)

• Cincinnati USA Regional Chamber/CincyTech: $2.25 million
• Cincinnati Children’s Hospital Medical Center: $2 million
• JumpStart Inc. in Cleveland: $6.7 million
• Ohio University: $3 million
• TechColumbus: $3.45 million
• Cleveland Clinic: $2 million
• Lorain County Community College: $2 million
• NDI Healthcare Fund in Cleveland: $2 million
• North Coast Angel Fund in Mayfield Heights: $2 million

Related articles

• Rocket Ventures looks to invest $8M in startups this year (medcitynews.com)
• North Coast Angel Fund back in fundraising mode (medcitynews.com)
• Third Frontier renewal tops Ohio biomedical highlights in 2010 (medcitynews.com)
• Is the Midwest the nation’s hottest venture capital market? (medcitynews.com)

The majority of those investment dollars are expected to go to startups in two industries — bioscience and alternative energy, said Greg Knudson, Rocket Ventures’ director.

Rocket Ventures is a state- and private-funded group whose mission goes beyond funneling cash to promising companies. Like Cleveland’s JumpStart, Rocket also spends a significant amount of time and resources coaching entrepreneurs and helping them develop their ideas.

Not all of the $8 million will go to new investments, however. A portion will also go to follow-on investments in Rocket’s portfolio companies, which number about 12, with plans to invest in about eight new companies, according to Knudson.

Perhaps Rocket’s biggest success thus far is Mithridion Inc., a drug developer that focuses on central nervous system disorders like Alzheimer’s disease. The company has received about $600,000 in funding from Rocket Ventures, and another $8.5 million from other investors, Knudson and Mithridion CEO Trevor Twose said. Mithridion has an Alzheimer’s and schizophrenia drug candidate in (pdf) clinical trials.

Mithridion’s headquarters are in Madison, Wisconsin, but it conducts clinical operations in Toledo and Ann Arbor, Michigan. (Mithridion acquired a small Toledo drug developer in 2008.)

“The Midwest doesn’t have as much venture capital as it should for the amount of technology coming out of the universities,” Twose said. “So the initiative that Rocket Ventures took to set up a fund is very welcome.”

Rocket Ventures launched in 2007 with a $15 million grant from Ohio’s Third Frontier program, a voter-approved initiative designed to stimulate high-tech jobs. The group also pulled in $7.5 million (a 1-to-2 match) in private funding from a large group of investors, include the University of Toledo, Bowling Green State University and several Northwest Ohio county economic development groups.

The University of Toledo and its medical school have been among the group’s best sources of dealflow, Knudson said.

Rocket Ventures typically focuses on pre-revenue companies, and begins with an investment of $250,000. Through follow-on rounds, that per-company amount can grow as high as $1 million from Rocket Ventures, but the average is closer to $500,000. About 60 percent of Rocket’s investments go to biosciences, according to Knudson.

But while Knudson focuses on the day-to-day, he also must keep one eye on securing Rocket Ventures’ future, or at least the future of a second fund. Knudson is hoping for another Third Frontier grant, but expects that this time around, Rocket will have to secure a 1-to-1 match, a far greater challenge than the first fund’s 1-to-2 ratio.

Big changes are coming to the Ohio Department of Development, which administers the Third Frontier program, and that’s created uncertainty for grant recipients like Rocket Ventures. Still, Rocket can only hope that its track record — it’s helped create 80 companies, according to Knudson — is enough to justify more taxpayer dollars rolling into its coffers and then out again to promising early stage startups.

A company that was once the poster child for the joys of living and doing business in Ohio now may have become a cautionary tale about a weakness in the state’s much-celebrated Third Frontier program.

IntElect Medical was launched in 2004 with a piece of a $7.6 million Third Frontier grant to the Cleveland Clinic for brain neoromodulation research. Earlier this year the company made a stealthy move to Boston that it didn’t publicize.

Now that the neuromodulation company is about to be sold — a deal that will no doubt enrich IntElect’s management team, not to mention Cleveland Clinic and personnel there who helped form the company — it’s fair to ask if the Third Frontier grant to the company was a good investment by the state. (It’s important to note that the Third Frontier money didn’t go directly to IntElect. Rather the grant went to the Clinic, which used an unknown amount to help IntElect get started.)

Ironically, Intelect and its CEO Vince Owens star in an advertisement sponsored by the state of Ohio on its OhioMeansBusiness Web site. The ad tells the story of how medical device industry veteran Owens, who’d previously worked in Boston and Minneapolis, came to Ohio to work with IntElect. And along the way, Owens came to appreciate the simple pleasures of living in good ol’ Flyover Country, discovering that he could lead a happy (and cheap!) life amongst we humble, God-fearing Midwestern folk.

“Happily, Vince and his family have found life comfortably uncomplicated in Ohio,” the ad intones, next to an image of a smiling Owens playing football with a child who’s presumably his son on a lush, green field in the midst of a golden autumn day. And the fact that IntElect was launched with state funding no doubt only added to Ohio’s appeal to the company. Who doesn’t like free money?

No wonder IntElect didn’t issue a press release or any formal communication when it pulled up stakes for Boston earlier this year. (Owens hasn’t returned calls from MedCity News. A Cleveland Clinic spokesman didn’t return a call.) Officials from the Ohio Department of Development, which administers the Third Frontier program, weren’t aware that IntElect had relocated to Boston.

There’s absolutely no question that Third Frontier as a whole has been great for Ohio’s biomedical industry, having helped create thousands of jobs and millions in income tax revenues for the state.

And IntElect no doubt provided the same benefits to Ohio’s taxpayers — while it was here. Now, however, any jobs the company creates aren’t likely to come in Ohio. Sure, some Clinic doctors, executives and other investors will get a hefty payday that will be subject to state taxes, and royalties from any sales IntElect ever makes would likely flow back to those same people.

But a wealth-generating tool for a few socioeconomic elites who are probably already fairly wealthy isn’t how Third Frontier was sold to Ohio taxpayers. For the public, the No. 1 issue is and probably always will be (in Ohio, at least) jobs.

There are an increasing number of states infatuated with the Third Frontier approach and similar economic development plans. The IntElect affair presents a strong case for tying such grants to some sort of assurance that all recipient companies remain in the granting state to create jobs. A spokeswoman for the Ohio Department of Development said the state does have “claw back” authority that would allow it to seek repayment from companies that fail to live up to the conditions attached to their funding. But that authority only exists for “direct” recipients of grants. Because IntElect’s money came through Cleveland Clinic, the state would have no authority to claw back any of the cash from IntElect, the spokeswoman said.

Third Frontier advocates may argue that IntElect is merely one that got away, a small scar on the nearly pristine face of a large program that’s essential to restoring (the hope of) prosperity in a state that’s been battered by the loss of hundreds of thousands of manufacturing jobs over recent decades. And they’re probably right.

But it’s tough to argue that IntElect has done enough for the state to justify its free money from Ohio taxpayers.

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.

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.

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.

Considering the group’s first fund totaled $5.6 million, it’s a near certainty that the $800,000 represents just a fraction of the amount that North Coast Angels hopes to raise.

In all likelihood, North Coast Angels is looking to raise $8 million for the group’s second fund. The group received a $2 million Third Frontier grant earlier this year and has applied for another (pdf) $2 million grant from the state-sponsored technology jobs initiative. Each grant requires a one-for-one dollar match, so that’s how we arrived at the $8 million figure.

Todd Federman, executive director of the fund,  politely declined comment. Along with Federman, Clay Rankin, the fund’s managing member, directs most of the fund’s activities.

Billing itself as Northeast Ohio’s first professionally manged angel fund, North Coast invests in companies in industries including bioscience, information technology, electronics and energy. The fund typically invests $200,000 in each company. Members then often chip in a few hundred thousand dollars of their own cash in “sidecar” investments.

North Coast has 21 portfolio companies, including Cincinnati-based personalized medicine company AssureRx Health Inc., Cleveland-based drug developer TheraVasc Inc., and Columbus-based heart diagnostics company CardiOx Corp.

A number of North Coast Angels portfolio companies have attracted additional capital from other investors, as well. TheraVasc, for example, recently raised $1.8 million to fund clinical trials of its drug to treat peripheral artery disease. The fundraise included contributions from JumpStart Inc. and Portal Capital.

John Kasich

When it comes to keeping smiles on the faces of Ohio’s medical industry leaders, Governor-elect John Kasich’s predecessor did him a big favor.

Current (and soon-to-be former) Gov. Ted Strickland led a successful get-out-the-vote campaign that culminated in May with the renewal of the state’s Third Frontier program, a $1.35 billion, 10-year initiative intended to energize Ohio’s economy by investing in technologies in five industry clusters, including biomedical.

Third Frontier may well be the single-most-important state government-related issue to Ohio’s burgeoning biomedical industry.

Advocates credit Third Frontier with creating 55,000 jobs, and generating a $6.6 billion economic impact in the state since 2002. While it may be tough to verify those figures, it’s safe to say that without Third Frontier, the state’s biomedical industry wouldn’t be nearly as strong.

Thanks in part to Strickland’s efforts, voters passed a four-year, $700 million Third Frontier bond issue by a two-to-one margin. The vote extended the program until 2016. Kasich can do his part by extending Third Frontier even farther into the future, said Bob Schmidt, chairman of Cleveland Medical Devices Inc.

Kasich has said he supports Third Frontier, but he’d like to privatize oversight of the program. That’s fine with Schmidt, as long Third Frontier keeps pumping cash into Ohio companies.

“It’s so big that it really sets Ohio apart from other states,” Schmidt said. “This is what really helps small businesses.”

Tony Dennis, CEO of biomedical trade group BioOhio, said Third Frontier could be even more effective through a greater emphasis on innovation and commercialization. He also shared a few other tips on how he thinks Kasich’s administration could boost the industry.

“Removing growth barriers such as low amounts of later-stage private capital, the lagging pace of technology commercialization, and lack of a coordinated workforce and education strategy should be considered by the new administration,” Dennis said.

Baiju Shah, CEO of Cleveland biomedical economic development group BioEnterprise, agreed that continuing to support Third Frontier is a must for Kasich. Shah said he’s confident Kasich will do just that.

But Shah has another concern that involves the problem that’ll likely keep Kasich up late on many nights — Ohio’s impending budget deficit that’s estimated to run as high as $8 billion over the next two years. Shah fears that ripples from the deficit could disrupt into medical innovation that’s funded by the state’s largest hospitals and institutions.

Here’s how the thinking goes: Faced with such a large deficit, Kasich and his allies could look to cut healthcare or education spending — the budget’s two biggest line items. “It’s a matter of how you do it, rather than if you do it,” Shah said.

Slicing the healthcare portion of the state budget likely equates to cutting spending on Medicaid, the fastest-growing and largest portion of state expenditures. Those Medicaid cuts could hit hospitals’ revenues, forcing them to look for savings, and potentially diverting money from research and innovation, Shah warned.

Such cuts to hospitals’ research budgets are a possibility in the face of declining Medicaid reimbursements, but far from a certainty, said Tiffany Himmelreich, spokeswoman for the Ohio Hospital Association (OHA). She acknowledged that “Medicaid cuts are always a big concern for hospitals.”

“If Medicaid dollars were cut, that could impact a lot of different functions for hospitals,” she said. “One of the possible impacts could be research, but there are many variables at play, so it’s hard to say how that would play out.”

Himmelreich said Kasich has shown a willingness to meet with and listen to suggestions from hospital representatives throughout the state, for which the OHA is grateful.

Chris Coburn

Chris Coburn is the captain of Cleveland Clinic Innovations, the corporate venturing arm of the Cleveland Clinic.

The 53-year-old fitness enthusiast and his crew have an important job: nurturing inventions that emerge from several thousand scientists and doctors at the nation’s top heart hospital, and guiding them through a years-long process to commercial viability, according to the Cleveland Plain Dealer.

Coburn, the son of a thoracic surgeon, grew up eating politics and policy. He cut his commercialization teeth at Battelle, building the research institute’s Cleveland-based commercialization unit to 60 people. He has been executive director of what then was known as CCF (Cleveland Clinic Foundation) Innovations since 2000.

Known simply as Cleveland Clinic Innovations (CCI), the group of more than 35 people recently started their second decade with a first-of-its-kind venture ranking, a brand-new incubator building and a growing portfolio of spin-out companies.

Perhaps most impressive, those companies — 33 in all — have attracted more than $340 million in follow-on funding from other investors. About two weeks ago, Arterial Remodeling Technologies, a French company whose technology was developed in part by the Cleveland Clinic, said it raised $8.5 million in venture capital funding to further develop its biodegradable stents.

Among CCI’s other spinouts: AxioMed Spine Corp. in Garfield Heights, Ohio, is developing next-generation spinal disc replacements. Clear Catheter Systems in Bend, Oregon, and Cleveland recently received European approval to sell its active catheter-clearance system PleuraFlow. Tolera Therapeutics Inc. in Kalamazoo, Michigan, last month raised more than $4 million to continue developing a drug that fights organ rejection in transplant patients.

The innovations group has had two exits in its first decade. One — Cleveland BioLabs (NASDAQ: CBLI) — happened through a tiny ($14 million) initial public offering in 2006. Another company, ReVasc, was sold in 2007 to Micrus Endovascular Corp. (NASDAQ: MEND) in San Jose, California, for $1 million, with the potential of $5 million more in future milestone payments.

In addition to spinoffs, Coburn has led his group to licensing revenues of $8 million a year, the Plain Dealer reported. And Coburn is credited with starting the Clinic’s Medical Innovation Summits. The eighth summit — this one on obesity, diabetes and the metabolic crisis — will be held next month.

Coburn told the Plain Dealer about his finest hour — to date — at the helm of Cleveland Clinic Innovations. In 2006, Coburn et. al. set their sights on a $60 million grant from the Ohio Third Frontier to establish the program’s only “mega-center of innovation.” Boarding a bus home from Columbus after a strong presentation to a vetting panel from the National Academies of Science, the group broke out the beer and the single-malt scotch.

Someone read the St. Crispin’s Day speech from William Shakespeare’s play Henry V. Near its end, the speech reads: “We few, we happy few, we band of brothers; for he today that sheds his blood with me shall be my brother.”

“Some of the people in my office would tell you that that moment, that day was the greatest day of their time at Cleveland Clinic,” Coburn told the newspaper.

By the way, the group got their Third Frontier Grant. And Coburn and his staff moved into the resulting technology incubator — the $19-million, 50,000-square-foot Global Cardiovascular Innovation Center on the southern edge of the Clinics main campus — in April.

The Austen BioInnovation Institute in Akron (ABIA) has received a $2.6 million Ohio Third Frontier grant for biomedical sensor research and commercialization.

The project funded by the grant from the Wright Center for Sensor Systems Engineering at Cleveland State University is aimed at developing sensor technologies to diagnose medical conditions and monitor patients’ health, according to a statement from the institute.

It will involve technologies to help patients at risk for chronic  wounds or tissue degradation. Researchers will focus on creating sensor materials to solve issues relating to bladder control, wound healing, diabetic foot ulcers, skin health on amputee patients and the mechanics of connective vascular tissues.

The grant also looks to boost the regional economy by generating licensing revenue, new business and jobs for project partners, as well as Ohio-based spin-off companies, according to the statement.

A number of Northeast Ohio organizations will collaborate on the project, including Case Western Reserve University, Cleveland Clinic Foundation and Parker Hannifin Corp.

The ABIA-led project is one of six that recently received a total of $17 million in Third Frontier grants for the development of  sensor technology.

Cleveland State is leader of the $24 million sensor center grant, made by the Third Frontier in late 2006. But the university was so severely behind schedule for building a center, buying equipment, making grants to research partners — and most of all, raising $50 million in matching money — by late 2008, the Ohio Department of Development froze the grant funding, according to Crain’s Cleveland Business.

The original grant proposal was to build a Wright center at Cleveland State where researchers, scientists, business people and government workers could come together to solve nagging industrial problems with sensors.

The university and development department have since settled on a “Phase 2″ plan for the sensor center and extended its grant funding another three years. Rather than build a center, sensor expertise and resources are housed at partner institutions, including Lorain County Community College.

In addition, rather than make research grants, the sensor center is making commercialization grants that create business and jobs by developing sensor products for market.

Researcher Khalid Lafdi points to a microscopic image of his carbon nanotube fiber on a computer screen.

Who would have thought a smart nanotechnology material that keeps aircraft and wind turbine blades free from ice could help glaucoma patients?

Khalid Lafdi and Ed Timm did.

Lafdi, a research engineer at the University of Dayton Research Institute, invented the material nicknamed “fuzzy fiber” to detect ice on commercial  structures, then heat itself to de-ice the structures, according to the university. Carbon nanotubes are the “fuzz” on the carbon scaffolding.

In May, Lafdi got a big financial boost for his research, winning a $3 million Ohio Third Frontier grant (pdf) for the university’s Hybrid Fabrics for Multifunctional Composites project, according to the Ohio Department of Development.

Lafdi worked with Timm, a University of Dayton graduate and owner of Mobius Therapeutics in St. Louis, Missouri, to design a drain tube for glaucoma patients using Lafdi’s material.

The carbon tubes would drain excess fluid and relieve pressure in patients’ eyes. Mobius Therapeutics, which sponsored the research, supports research and development for advances in treatment for glaucoma.

The carbon tubes could be an alternative to silicone tubes, which must be replaced in most patients because they become encased by naturally occurring growth cells so they no longer drain fluid from the eye.

“Silicone is not just the wrong material to use, it is exactly the wrong material,” Timm said. “Because the body does not see it as a foreign material, the tube immediately becomes encapsulated with fibroblasts as healing takes place around it. As scar tissue builds up over time, the tube can no longer drain fluid and must be replaced.”

Though the carbon tubes also are biocompatible, their fuzz could keep scar material from forming and blocking the tubes.

Glaucoma affects more than 4 million Americans, and is the second-leading cause of blindness and the leading cause of blindness among African-Americans, according to the Glaucoma Research Foundation.

Lafdi and Timm plan to take the carbon eye tubes through animal and human testing, said spokeswoman Pamela Gregg.

The research institute would make the material used in the tests, and could supply it to a company that manufactures the implants, Gregg said.

Lafdi sees other medical applications for his nano-fiber, starting with drainage tubes for children’s ears. “What we will be doing to accommodate another application is to work on the surface chemistry of the nanotubes,” the researcher said in an email. “But the nanocomposite scaffold should remain the same.”

what we will be doing to accommodate another application is to
work on the surface chemistry of the nanotubes. But the nanocomposite
scaffold should remain the same. It might be another direction I should
explore, just to check if the sky is the limit or heaven

Hoffman e-mailed me after reading my post on how the Democratic candidates for governor rank on biosciences. He specifically focused on the idea that Minnesota’s  high taxes drives capital out of the state.

1. CALIFORNIA (48)

2. TEXAS (11)

3. PENNSYLVANIA (27)

4. MASSACHUSETTS (36)

5. KANSAS (32)

6. NEW JERSEY (50)

7. NORTH CAROLINA (39)

8. ILLINOIS (30)

9. MARYLAND (45)

10. OHIO (47)

So what can we conclude from this data? Well, for one thing, high taxes doesn’t always stunt economic growth, especially when it comes to high tech innovation. With the exception of Texas, all of these states don’t enjoy a particularly favorable business tax environment.

But more importantly, the evidence says the strength of the biotech industry is a direct result of  taxes, which, when coupled with generous bonding and strong state economic development authorities, allows states to invest billions of dollars of public money into these technologies.

For example, Massachusetts recently launched a $1 billion to back research and start-ups over a decade. California pledged $3 billion towards stem cell research while Kansas created a $581 million biotech investment fund. Ohio boasts the Third Frontier program and Pennsylvania has the Benjamin Franklin Technology Partners.

In other words, contrary to fiscal conservatives’ zealous faith in private markets, building a viable biotech industry takes public money, a lot of it. And where do we get this money? You guessed it…TAXES!!!!  Not just tax credits but actual state dough.

“State investment in public science makes a difference,” Hoffman said.  “The low tax mantra may serve retail and basic manufacturing well, but if you want knowledge-intensive industries in your state, you pay to play, including taxes.”

Which brings us to Minnesota. The state ranks 43rd in business tax environment, almost dead last, and fares relatively poorly in building a viable biotech industry.

When it comes to high tech innovation, Minnesota taxpayers get relatively little in return for their money. That’s because the state spends next to nothing on economic development. About 86 percent of the state’s annual budget goes to social services like healthcare, local government aid, higher education, and public schools.

Read a little deeper and the data proves a point I’ve long argued: Minnesota is mooching off the success of  its past, preferring to rely on legacy Fortune 500 companies like Medtronic Inc. to pay its bills instead of helping to create the companies (and taxpayers) of the future.

Conservatives and liberals alike need to wake up. Cutting state budgets and vaguely “reducing bureaucratic red tape” won’t create a bioscience industry. Neither will jacking taxes on the wealthy. The question is about priorities: you have x amount of dollars. So how are you going to spend it?

Angel credits and science and technology authorities are great but unless we get real serious in spending state dollars, bioscience in Minnesota will remain nothing but a pipe dream.

GEHC Coils Inc. in Aurora — the former USA Instruments Inc. — will use a $1 million Ohio Third Frontier grant to work with the medical center and Ohio State’s Davis Heart and Lung Institute to design, build and validate MRI coils and surgical fixation devices for children.

The pediatric coils developed from MRI Imaging and Devices for Pediatric Populations project would be used for taking MR images of children’s heads, hearts and other body parts, GE Healthcare said in a release. The Ohio-based collaboration also would develop new ways to keep children still during surgeries that use MRI technologies.

The project belongs to recent efforts to encourage the development of medical devices specifically for children. There is a significant unmet need in several clinical areas for pediatric medical devices, according to the Food and Drug Administration. Yet, potential markets for the devices often are too small for most companies to care about, so doctors end up adapting adult devices for children.

“Use of coils designed for adults result in poor resolution or inability to image small body structures in children,” said Jim Davis, general manager of GE Healthcare’s MR business, based in Waukesha, Wisconsin. “This collaboration will help us produce images with superior clarity to help clinicians improve imaging of pediatric patients.”

MRI seems ideal for pediatric imaging. It has the ability to display anatomy in detail, providing radiologists many ways to examine living tissue without surgery or radiation. In a similar vein, the Alliance for Radiation Safety in Pediatric Imaging has been campaigning for lowering radiation dosages (pdf) for children who get computed tomography (CT) scans.

“Specialized imaging coils and surgical stabilization devices specifically targeting anatomy for young children would be extremely valuable in enhancing the ability to obtain diagnostic images and improve the quality of healthcare for sick children,” Davis said.

Tim Mulcahy, vice president of research, University of Minnesota

Tim Mulcahy’s eyes lit up as the thought suddenly seized him.

“Here’s what we can propose,” said Mulcahy, vice president of research at the University of Minnesota. “Perhaps the university is too risk averse in our assessment” of potential startups.

“We will make any of those technologies and potential companies that we pass on immediately available for the state to invest in,” he said. “They can put some skin in the game in proportion to their tolerance of risk. That way, we don’t lose anything. Either we fund them or they fund them.”

Um … are you serious?

“Why not? Mulcahy said. “We’re being criticized for due diligence because we’re trying to protect our investment resources and technologies, and being criticized by people who are not in the position of having to make the decision to put skin in the game. If you think we’re doing so badly, we’ll give you the direct opportunity to do it yourself.”

By “people,” Mulcahy is specifically referring to Rep. Tim Mahoney (D-St. Paul). The chairman of the House Bioscience and Workforce Development Committee recently told MedCity News that unless the university adopts a more aggressive approach to tech transfer, he will propose a bill that will privatize the school’s Office for Technology Commercialization (OTC), or recommend hiring an university president to “shake up” the office.

“They’re screening companies to death,” Mahoney said.

Mulcahy, a respected research official and a former top candidate to lead the University of Wisconsin at Madison, is not exactly a loose cannon. He is a politically astute guy who frequently works with legislators like Mahoney.

But in an hour long  interview with MedCity News, which he requested, Mulcahy pulled no punches, offering a spirited, often exasperated, defense of the university. He also pushed back hard against Mahoney who says the university is too risk averse in pushing out technologies.

“I actually thought we were working on a team,” Mulcahy said. ” I joke to people: ‘Now I know what Terrell Owens teammates feel like.‘ It’s disappointing. I don’t know what [Mahoney] is basing his assessments on. In many regards, he is ill informed or partially informed … Winning an election doesn’t make you an expert.”

Oh, it’s so on.

First, a little context. When the school recruited Mulcahy out of the University of Wisconsin five years ago, OTC was an operation in name only. Staffed by academics with little or no experience in tech transfer, the office’s record was abysmal, despite the school attracting nearly $500 million in annual federal research money.

From 1984 to 2004, the university spun off 101 companies but only three went public, according to a study conducted by MBA students at the University’s Carlson School of Management. The three startups generated just $9 million in income for the university, with $8 million from just one — Net Perceptions, an Edina-based tech company that went public in 1999 with great fanfare but struggled after the tech bubble burst and moved out of state in 2004.

Almost 95 percent of the school’s licensing income came from one source — Ziagen, an anti-AIDS drug whose American patent expires in 2013. Investors and entrepreneurs often complained about the difficulty of working with the university.

Under Mulcahy, the school recruited former venture capitalist Doug Johnson and former Honeywell Corp. executive Jay Schrankler to run OTC. The two established a $5 million seed fund to develop potential startups and recruited local entrepreneurs to advise and eventually lead companies that spun out of the university.

The two also developed a vetting process in which “technology managers” with industry experience in medical device and software would carefully screen technologies and decide whether to launch a company, license the technology, or just reject it all together. That deliberate approach means the university would only spin out two or three “potential blockbusters” a year.

But Mahoney believes the university should move faster, a criticism rejected by Mulcahy as naive and even reckless.

“That’s easy for someone who doesn’t have to put any skin in the game,” Mulcahy said. “The university owns important technology we can’t afford to jeopardize by making a poor decision. That requires a lot of due diligence. If we were irresponsible, we should be taken out and shot. Starting a company is not a zero sum game. It’s a costly venture. We’re holding a very real financial liability that we may never see” a return on investment.

“It’s ironic,” he continued. “We are being now criticized for bringing the professional due diligence to the operation that people criticized five years ago for lacking.”

But for all of Mulcahy’s efforts, obvious success has been elusive. The university launched only one company last year, compared to four in 2007. And in other key areas, OTC has actually lost ground over the past five years.

In 2009, OTC said revenue totaled $95.2 million, almost double than 2005. But in that same period, U.S. patent filings fell to 65 from 104, disclosures dropped to 244 from 251 and licenses dropped to 50 from 86.

But experts say the total economic impact of technology transfer is hard to measure.

“The [innovation] ecosystem is dynamic and ‘chaotic,’” according to a report by the Association of University Technology Managers (AUTM). “Outputs from research can go into the system and ‘bounce around’ for decades through formal and informal transfer mechanisms. This is a key reason why direct monitoring of impact resulting from research is so difficult.”

“There is a wide range of channels through which university knowledge flows to end users and it is dangerous to focus too narrowly on formal licensing,” the report said. “The final economic impacts are created by partners of the university. Direct influence of the university’s final economic impact is limited. The university’s key role is to help the end users to achieve impact.”

Externals factors like early stage venture capital and partnerships with state government, like Ohio’s widely lauded Third Frontier Program and Wisconsin’s angel investment tax credits, also play major roles in technology transfer. And until recently, Minnesota hasn’t had much of either.

Vance Opperman, a prominent local investor and lawyer who sat on a task force that recommended changes to OTC, gives the university mixed reviews.

“Yeah, there has been some progress,” said Opperman, founder of Key Investments in Minneapolis. “The real question is have they made enough. I think expectations have been too high and OTC has not met those expectations. It depends on the culture [ informing the observer]. The university says it has been a success. But the corporate world probably doesn’t think so.”

Mulcahy said politicians tend to directly connect university research with new companies and jobs, a misguided perception he partially blames on the university. The school should do a better job at managing expectations, he said.

For instance, legislators often express impatience with the Minnesota Partnership for Biotechnology and Medical Genomics, a venture between the university and Mayo Clinic. But the partnership focuses on long-term, cutting-edge research unlikely to produce startups and jobs any time soon.

“If you say that the only value add is the number of companies that you started, I will tell you that you’re missing the boat,” Mulcahy said. “It’s a reasonable metric but it is not the sole metric.”

“Take at look at the Biomedical Discovery District,” he said. “What that’s actually doing is recruiting outside interests in plopping down new buildings, new companies, new accelerators, new investors. They are being attracted here. That should go into the equation of how the university is helping us with economic development.”

“When [Schrankler] and others go outside and talk to investors who typically fly from Boston to San Francisco, if we can get them to slow down a minute and take a coffee break at [Minneapolis-St. Paul International Airport], that’s a value add to Minnesota.”

But legislators must be willing to hear that message, Mulcahy said.

“We as an institution need to inform people, and people have to be open minded to recognize that perhaps the metric that they have glommed onto is not the whole story,” he said.

Given the recent passage of angel credits and the creation of the Minnesota Science and Technology Authority, “I would like the legislature to recognize the urgency [of action] and the possibility that something is within their grasp, and that we should seize upon it.”

The $19-million, 50,000-square-foot building on the southern edge of the Cleveland Clinic’s main campus opened quietly in April. The goal of the Ohio Third Frontier-backed incubator is to house and feed fledgling companies that are developing products and services to diagnose or treat cardiovascular disease, according to its website.

Third Frontier — Ohio’s $2 billion economic development project — also wants to see the Global Cardiovascular Innovation Center (GCIC) incubator drive heart-related products to the market, adding jobs and prosperity to the state’s economy.

“The thing that attracted us most to the Clinic and the GCIC was its blending of science and technology with the drive for commercialization,” said John Griffin, director of the Science and Innovation Division of the Ohio Department of Development. Griffin advises the Third Frontier Commission and Advisory Board.

The GCIC incubator also fits neatly into an emerging trend among industrial incubators: Single-technology incubators — in this case, cardiovascular — which can create cooperative industry clusters within their own walls.

The center’s staff and a complementary staff of Cleveland Clinic Innovations professionals moved across campus to the state-of-the-art laboratory and office space in late April. The center has signed eight company tenants, which are leasing seven of the incubator’s 20 laboratories.

“We’re in negotiations for eight more,” said Mark Low, the product and market development professional who leads the center as managing director. “So that’s 15 out of 20 labs, or 75 percent, that are occupied now, or in late stages of negotiation.”

Out of 35 office and office suites, 22 are leased. “And we’re in negotiation for 11 more. That’s 95 percent of the office space,” Low said.

Space in the incubator’s offices and labs goes for between $20 and $24 a square foot. The space is furnished and fully equipped with gas supplies, exhaust hoods and other things scientists need to develop products. Common areas include ice machines, ovens and bottle washers. Multimedia meeting rooms accommodate presentations and one, video conferencing.

Biomedical space — especially wet lab space — is scarce in Cleveland, according to Baiju Shah, president and chief executive of BioEnterprise, the healthcare business development organization in Northeast Ohio. Incubator space in BioEnterprise’s building, which goes for around $20 a square-foot, is completely filled, Shah said.

The Baker Electric Building on Euclid Avenue, redeveloped by Dick Pace for mostly biomedical companies, also is largely leased, Shah  said. “We continue to have demand that we can’t meet,” he said.

Many of the companies housed in the Clinic’s Innovations incubator are transferring to the GCIC incubator. “In doing that, we stretched our definition of ‘cardiovascular’ a little bit,” Low said. “But it’s for the purpose of getting the whole incubator community going here.”

The incubator recently landed Explorys Medical Inc., the medical research data management company spun off by the Clinic last year. Explorys is building a computer application that assembles, manages and leverages burgeoning medical data — including cardiovascular data — to speed research discovery and bridge clinical information gaps.

Explorys and its 15 employees grew out of their University Circle office front, said CEO Steve McHale. The company plans to stay in the GCIC incubator for about a year, then likely move into its own space, McHale said.

“Our focus is cardiovascular,” Low said. “But to bring in some companies that are up-and-running, a little bit further along and will graduate sooner than the startups really helps us establish the incubation model.”

The GCIC incubator also is leasing space to service providers that could help its emerging cardiovascular companies. For instance, a “virtual tenant” — one that uses incubator space only part time — is the office of a company that helps startups do clinical trials. And down the hall are 25 or so Cleveland Clinic Innovations commercialization, business development and operations, and project managers.

For Jim Cossler, CEO and chief evangelist of the Youngstown Business Incubator — another single-technology incubator — creating a cardiovascular community could be the most important work of the GCIC incubator. “The single-most important thing is to get people out of their labs and talking to each other,” said Cossler, whose incubator works solely with software companies. “Serendipity is the biggest driver of innovation I know.”

In addition to the incubator, the innovation center also makes grants to help companies get going and to develop and commercialize their products. So far, it has made 47 grants — at an average $300,000 — to 28 companies and nine institutional projects, Low said. The companies have created 130 jobs and attracted an additional $125 million in investments.

The GCIC set aside about half of its $60 million grant from the Ohio Third Frontier for commercialization grants. It also set aside some money for attracting companies. So far, it has attracted several companies to Cleveland, including Cleveland Heart from North Carolina, Proxy Biomedical from Ireland and Evolva from Switzerland.

Third Frontier chose the Clinic-backed GCIC as its only “megacenter” of innovation partly because its professionals are well versed in helping biomedical companies, which take more time and skill to successfully incubate.

“The GCIC and Cleveland Clinic Innovations have proven to be quite adept at supporting those companies through the prolonged period of time required to get their technologies into the marketplace,” Griffin said.

The incubator’s Third Frontier grant eventually will run out, likely within two or three years. So the GCIC’s staff of five already is identifying ways to generate operating revenue or grants to keep the incubator and its programs going.

“We’re beginning to turn our attention to what’s next,” Low said. “We’ll continue and expand the programs we’re running. We’ll look to bring in new funding to sustain us. We have concepts for expansion and moving to later stages of investment.”

Perhaps more important than physical space, GCIC professionals offer their know-how to medical startups.

“What we’ve brought to the table is our industry background,” Low said. “We’re bringing a broad and deep experience that’s hands-on, commercially oriented. The feedback that I’m getting from the companies is, they find this invaluable.”

OrthoHelix Surgical Designs Inc.

Third Frontier is Ohio’s $2 billion project to develop the state’s economy by investing in technologies in five industry clusters, including biomedical. In May, voters approved issuing $700 million in bonds to extend the project — set to end in mid-2012 — by four years.

On Wednesday, Third Frontier commissioners approved nearly $14 million in grants for biomedical and medical imaging projects. And OrthoHelix — a Medina, Ohio company that develops orthopedic implant and instrument sets used by surgeons to fix bones during foot, ankle, hand and wrist surgeries — is just the kind of company commissioners like to see.

Its product is high tech and in a cluster and industry targeted for development — biomedical and orthopedic, respectively. OrthoHelix also plans to put its grant money to work by finishing development of a technology called OrthoLock, which promises to create more sales and jobs for the company (and the Ohio economy), and could eventually enable the company to bring its manufacturing — now done in states outside Ohio — in-house.

“We were thrilled for a lot of different reasons, including the fact that we refused to use a grant writer,” laughed Dennis Stripe, OrthoHelix Surgical’s chief executive. His company’s executives wrote their own Third Frontier grant application after getting a quote from a professional grant writer — for $80,000.

The company also was thrilled to be ranked No. 1 among five recommended projects (ppt) in the Taratec Corp. analysis of 28 proposals submitted for $5 million in Ohio Third Frontier Biomedical Program grants. For Stripe, the highest ranking for his company’s proposal — and the Third Frontier Commission’s vote to approve funding it — means, “we have the faith of the State of Ohio behind us.”

For good reason.

“We’re a design-make-and-sell-it kind of company,” Stripe said. “It’s not rocket science. It’s  not stem cell research. It’s not technology yet-to-be proved. It’s differentiated technology that’s better than the competition and that’s exclusive to us.”

Stripe said his company committed in its grant proposal to add 42 jobs over three years to its current 45. “We have a strategic plan to double our workforce,” he said. “We just needed the funding.”

OrthoHelix recently discovered and was able to prove its OrthoLock variable-locking screw technology, which the Food and Drug Administration approved for sale in April, according to the company’s grant proposal. The company will use its grant “for the manpower to complete the technology … and expand the usage of the technology into additional product lines, which will allow us to get into more severe trauma cases,” Stripe said.

The company said in its grant proposal that it generates 90 cents in revenue for every $1 invested in surgical trays. Its products, which fall into five technology groups, generated more than $10 million in revenue last year. With the Third Frontier grant and recent investments, the company expects annual revenue of $50 million by 2013, Stripe said.

In addition, the grant money will help OrthoHelix build more instrument and implant sets to be deployed at U.S. hospitals, said Cameron Rubino, the company’s vice president of finance. “Our industry is a highly capital intensive industry. We have a lot of money going into inventory as we continue to grow our business.”

Stripe expects the main OrthoLock product will begin to be used in surgeries in July. “We roll them out slowly, to make sure everything goes well.” The company also plans to adapt OrthoLock for use on the small bones in the hand and foot.

OrthoHelix already has benefited from Third Frontier. In 2002, OrthoHelix received a $1.2 million loan through the Innovation Ohio Loan Fund, which has been repaid.

In April, the company added $4.6 million to its $14 million Series C fundraise, which started in 2008. Since 2005, OrthoHelix has raised more than $21 million in investor funds.

Dr. David Kay, an orthopedic surgeon who specializes in foot and ankle surgery, and is a managing director of the Crystal Clinic in Bath Township, Ohio, started OrthoHelix in 2004.

The grant awards were made under the Third Frontier Pre-Seed Fund Initiative and Entrepreneurial Signature Program.

– Cincinnati USA Regional Chamber was awarded $2 million for its Southwest Ohio Signature Program: The Next Generation. This program will fund CincyTech USA so it can continue to provide services and investments to Southwest Ohio entrepreneurs with bioscience, information technology and advanced manufacturing companies.

– JumpStart Inc., Cleveland, was awarded $300,000 for its project to fund two advanced energy entrepreneurs-in-residence who will accelerate and sustain the entrepreneurial ecosystem in Northeast Ohio and help transform the region’s advanced energy economy.

– JumpStart also was awarded $865,000 for its Third Frontier Entrepreneurial Network project to provide continued entrepreneurial services to technology startup companies in Northeast Ohio.  Collaborators on this grant include the Akron Global Business Accelerator, Braintree in Mansfield, MAGNET in Cleveland and the Youngstown Business Incubator.

Recommended for more than $4.9 million under the Ohio Third Frontier Biomedical Program:

– CardioX Corp., Dublin, in collaboration with Nottingham-Spirk Design Associates in Cleveland and QTest Labs in Columbus, was awarded $986,373 to finalize designs and clinical protocols for a new method of detecting holes in the heart.

– Case Western Reserve University, Cleveland, in collaboration with Athersys Inc., also in Cleveland, was awarded $1 million to advance the preclinical stage use of Athersys’ adult stem cell product, MultiStem, to regenerate nerves damaged through spinal cord injuries.

– Lanx Inc., Broomfield, Colo., in collaboration with Ohio State University and OrthoNeuro in Columbus, Cleveland Clinic, Ohio Spine Network in Brecksville, American Medical Management, KB Medical and RBK Spine LLC, was awarded $1 million to form an Ohio division in Columbus to finalize the design and commercialization of a device to measure range of lumbar motion in patients with back injuries.

– OrthoHelix Surgical Designs Inc., Medina, in collaboration with Hudak, Shunk & Farine Co. LPA and Orthopedic Research Laboratories, was awarded $1 million to finalize the design of a variable-angle locking technology that will be part of plating systems for foot, ankle and hand surgeries.

– SpineForm LLC, Cincinnati, in collaboration with Cincinnati Children’s Hospital Medical Center, University Hospitals Case Medical Center in Cleveland, Reynolds Consulting and E-Prime Group, was awarded $999,250 to support clinical studies of SpineForm’s HemiBridge System, which is a treatment for progressive scoliosis.

And recommended for more than $8.9 million under the Ohio Third Frontier Medical Imaging Program:

– CardioInsight Technologies Inc., Cleveland, in collaboration with University Hospitals Case Medical Center, the Cleveland Clinic, Battelle Memorial Institute in Columbus, Le Centre Hospitalier Universitaire de Bordeaux, Dr. Michel Haissaguerre and Draper Triangle Ventures in Pittsburgh, was awarded $1 million to commercialize its breakthrough technology for the imaging of electrical activity on the surface of the heart.

– EXCMR Ltd., Columbus, in collaboration with the Cleveland Clinic, University Hospitals Case Medical Center, Christ Hospital, Ohio State University, Quality Electrodynamics in Mayfield, Siemens Medical Solutions, Heart Imaging Technologies and Zukun Plan, was awarded $1,424,694 to support clinical testing and refinement of technology to improve cardiac magnetic resonance imaging (MRI) under stress conditions.

– GE Healthcare Technologies, Aurora, in collaboration with Cincinnati Children’s Medical Center and Ohio State’s Davis Heart and Lung Institute, was awarded $1 million to develop new MRI coils for use with pediatric patients.

– InfraRed Imaging Systems Inc., Bethlehem, Pa., in collaboration with Astro Manufacturing & Design in Eastlake, United Medical Products and Entrotech, was awarded $812,000 to move engineering and manufacturing of the VascularViewer — a technology that enables healthcare providers to better see veins for needle or catheter insertion — to Ohio from California.

– Neoprobe Corp. (OTCBB: NEOP), Dublin, in collaboration with Cardinal Health (NYSE: CAH) in Dublin, STATKING Consulting, Phylogeny Inc. in Columbus and Integrated BioScience Solutions in Loveland, was awarded $1 million to support Phase 3 clinical study and expanded claims for Lymphoseek, a biopharmaceutical that detects cancer in lymph nodes.

– Philips Healthcare, Highland Heights, in collaboration with Case Western Reserve University and University Hospitals Case Medical Center, was awarded $999,175 for a project to develop a PET/CT scanner to measure the amount of blood flow to the heart.

– Ohio State University, Columbus, in collaboration with Philips Healthcare, was awarded $1,740,000 for a project to develop technology that improves the image quality and resolution of ultra-high field MRIs.

– Quality Electrodynamics LLC, Mayfield, in collaboration with Case Western Reserve University and Siemens Healthcare, was awarded $1 million for its project to develop high multi-channel radio frequency coils for knee and breast imaging that are optimized for the latest generation of imaging instruments.

Philips Healthcare

The investment by the Dutch imaging technology company — which could double if a second phase follows — was announced at an afternoon press conference along with the $5 million Ohio Third Frontier grant that landed it.

Ohio is putting $5.25 million toward two projects — including the Philips project — to develop healthcare and biomedical device technology organizations in Cleveland and Northeast Ohio, Gov. Ted Strickland announced during the conference.

A $250,000 grant administered by the Ohio Department of Development will support Cleveland Health-Tech Corridor partners as they attract more biomedical, healthcare services and technology companies to the area along Euclid Avenue between East 22nd Street and University Circle.

That grant was part of the Ohio Hub of Innovation and Opportunity designation, which Strickland bestowed on the corridor during the press conference.

The Ohio Hub program is aimed at helping regions attract clusters of connected businesses, landing investments and workers to create growth in Ohio’s key industries. The first hub is in Dayton, Ohio. Cleveland is the second hub.

The corridor starts at East 22nd Street and extends east, roughly following Euclid Avenue, to University Circle — near the main campuses of the Cleveland Clinic and University Hospitals. The corridor includes seven institutions, seven incubators for young companies and more than 75 biomedical and 45 technology companies.

The plan is to attract more biomedical, healthcare services and technology companies to build on nearly $3 billion in investments already made in the corridor by recycling old buildings and building new ones; providing property management, financing, industry and start-up help to companies; and offering service providers access to four hospital systems.

Strickland also announced a $5 million Third Frontier grant to Philips Healthcare to build the Philips Healthcare Global Advanced Imaging Innovation Center in renovated space at University Hospitals, as well as at newly constructed space in is emerging cancer hospital. University Hospitals is located within the health-tech corridor.

Philips is putting in $33.5 million during the first phase of its center, at which company and UH professionals would test and evaluate new imaging technologies. The center also would develop and test imaging agents, develop new imaging technologies and provide researchers access to the latest advanced technologies.

Philips, which employs 1,100 people at its facility in nearby Highland Heights, Ohio, could invest a similar amount or more in a second phase of the center, according to the company’s submission for Third Frontier grant consideration.

Philips runs its global computed tomography and nuclear medicine businesses from Highland Heights, where it also houses its North American technology refurbishing and service training businesses.

“The goals of this center will be to provide strategic research, development and clinical validation for advanced imaging technologies, further developing our presence in Northeast Ohio and building on our existing partnerships with Case Western Reserve University and University Hospitals,” said Jay Mazelsky, senior vice president and general manager for Computed Tomography and Nuclear Medicine at Philips Healthcare.

“Philips recognizes the State of Ohio’s long-standing commitment to the biomedical industry,” Mazelsky said in a written statement. “Ohio Third Frontier has spurred commercialization collaborations among industry, research institutions and clinical systems. The strength of our partners, the depth of medical imaging talent in the Cleveland region and the steadfast support from the State of Ohio made Cleveland the clear choice for this global innovation center.”

The Philips announcement, along with multi-million dollar expansions recently announced by STERIS Corp. (NYSE: STE) and US Endoscopy, both in Mentor, Ohio make Northeast Ohio easy to sell to investors and technology companies, said Baiju Shah, president and CEO of BioEnterprise, the region’s healthcare business development organization.

“Philips Healthcare’s announcement validates the emergence of Cleveland as a global center of healthcare innovation,” Shah said. The decision to locate its center “within the Cleveland Health-Tech Corridor is an example of what can happen when public entities led by the State of Ohio, private institutions, philanthropy and nonprofits collaborate.”

During their first meeting since voters approved an extension and expansion of the Ohio Third Frontier through fiscal 2015, commissioners also approved $11 million in entrepreneurial support and pre-seed investment fund grants, as well as a fiscal 2011 budget between $125 million and $143 million.

Third Frontier is the 10-year, $1.35 billion program to re-energize Ohio’s economy by investing in projects in five industry clusters, including biomedical. Early this month, voters added $700 million in bond proceeds and four years to the program.

The five commissioners who attended Wednesday’s meeting voted unanimously to fund seven Wright Project grant proposals, including:

Cleveland Clinic: $3 million for its Clinically Applied Rehabilitation Engineering project, which aims at developing, testing, manufacturing and commercializing advanced, rehabilitative medical products for patients suffering from cardiovascular, neurodegenerative, metabolic and musculoskeletal diseases. Collaborators: Parker Hannifin Corp., Bertec Corp., Case Western Reserve  University and the Louis Stokes Cleveland VA Medical Center.

Case Western Reserve University School of Medicine, Cleveland: $2.1 million for its Development of a Quantitative Analysis System for Stem Cells project, which focuses on research commercialization of non-embryonic stem cells from umbilical cord blood as part of a Food and Drug Administration-licensed therapy to help some transplant patients and for testing. Collaborators: Center for Stem Cell and Regenerative Medicine, Cleveland Clinic, Cincinnati Children’s Hospital Medical Center, Cleveland Cord Blood Center, BioInVision, Athersys (NASDAQ: ATHX), PerkinElmer, Thermogenesis (NASDAQ: KOOL), GE Healthcare (NYSE: GE), Hospira and Lakeland Community College.

University of Cincinnati: $3 million for its project, The Ohio Center for Microfluidic Innovation — New Products and Competitive Manufacturing of Emerging Biomedical Applications. The project wants to study, make and commercialize microfluidics technology, which could generate more valuable test results from a much smaller fluid sample than current technology. National Academies reviewers suggested the project be scaled back to just its biomedical applications. Collaborators: Siloam Biosciences, Gamma Dynamics, Sun Chemical and EnMonT.

Third Frontier advisers and commissioners spent a lot of time Wednesday debating “continuity” issues among entrepreneurial support and pre-seed investment funds that already have received grants. Facing state budget challenges, the program limited awards to only organizations that have received past money:

Cleveland Clinic was awarded $2 million for its Ohio BioValidation Fund III, which will invest in promising early stage biomedical companies.

JumpStart Inc., the venture development organization in Cleveland that has invested in several biomedical  and healthcare companies, will receive $4 million for operations and investments. JumpStart gets an additional $1.8 million for its bioscience and entrepreneurial network, which will provide entrepreneurial services to bioscience startups in the Northeast Ohio region. Collaborators: BioEnterprise, Great Lakes Innovation and Development Enterprise and the Akron Global Business Accelerator.

North Coast Angel Fund II in Mayfield Heights is getting $2 million to invest in high-potential, early stage technology companies.

Ohio TechAngel Fund III in Columbus was awarded $825,000 to invest in early stage, Ohio-based technology companies, with a strong emphasis on healthcare innovations and information technology.

TechColumbus is getting $500,000 to continue investing in early-to-late-stage technologystart-ups in Central Ohio. Focus areas of the fund are bioscience, information technology and advanced materials.

Third Frontier commissioners put off votes on three more entrepreneurial support and pre-seed fund grant proposals, asking for more information with plans to vote on those proposals in June.

As for next year’s fiscal budget, the commissioners plan to award $20 million to entrepreneurial support and pre-seed funds, as well as $7 million to both biomedical and medical imaging grant-seekers. The commissioners also budgeted $8 million for a new Wright Center Success Fund, which will invest operating dollars in existing centers of innovation.

It was the first meeting of the program’s advisers and commissioners since Ohio voters approved Issue 1 by a margin of 2-to-1 on May 4. Issue 1 extended and expanded the 10-year, $1.35 billion Third Frontier program.

“This experiment in bipartisan campaigning worked,” said David Wilhelm, co-chairman of the Issue 1 campaign who was tapped for his success running Bill Clinton’s 1992 presidential campaign. Wilhelm, now an Athens, Ohio venture capitalist, is a former chairman of the Democratic National Committee.

From the other side of the political aisle, Jo Ann Davidson, the first woman speaker of the Ohio House in the mid-1990s and c0-chair of the National Republican Committee, also was co-chair.

At Wednesday’s meeting, Mark Collar, chairman of the Third Frontier Advisory Board, took off his jacket and rolled back his shirt sleeves as a symbol of getting to work on the program’s strategy for the next six years.

Collar threw out a challenge: A bigger budget — $175 million in fiscal 2012 through 2015 — means more public scrutiny and higher expectations, as well as greater accountability for the board, he said. By comparison, voters approved a $500 million bond issue in 2005, which with general fund money has given Third Frontier an annual budget of about $160 million.

A wide-ranging discussion followed, punctuated by phrases like the “innovation ecosystem” the Third Frontier is helping to foster in Ohio, creating a “sustainable competitive advantage” with industry and job growth in the state, and the “continuity” of existing programs, which need continued investments.

Dr. Lloyd Jacobs, president of the University of Toledo, summarized the advisory board’s need for future discussion:

• A more formalized search for “emerging peaks” in research and industry that might merit future Third Frontier investment
• How to spread “a more entrepreneurial, innovative culture throughout the state”
• Increasing academic productivity, in terms of transferring technology to industry and spinning off companies
• Partnering with neighboring states on technology economic development
• Increasing grants to institutions that need money to match a growing volume of federal grant opportunities

The advisory board also talked about job creation within Third Frontier. “The ultimate achievement should be full employment and widespread prosperity for every Ohioan,” Jacobs said. “I believe that is the voter mandate.”

The advisory board ended its meeting by recommending to the Third Frontier Commission a tentative program plan worth between $124 million and $143 million for fiscal 2011.

Third Frontier is the $1.35 billion, 10-year program to energize Ohio’s economy by investing in technologies in five industry clusters, including biomedical. The current generation of the program ends in mid-2012. With the approval of Issue 1, Third Frontier will be extended four years — through mid-2016 — with the proceeds of a $700 million bond issue.

So far, the program has 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.

Job creation is important. But the “leverage effect”  — attracting $9 in investments and federal grants for every $1 granted by the Ohio program — is more important. These additional investments are creating technologies, supply chains and industries in Ohio that will sustain its residents with jobs and prosperity long after Third Frontier is gone.

So what does voter approval of Issue 1 mean to the Ohio biomedical community? It means new technologies and emerging companies in the industry will receive some part of the $175 million in grants per year that Third Frontier will make between 2012 and 2016.

So far, Third Frontier has granted $365 million, or about 36 percent of its grant dollars, to research, development and commercialization projects in the industry. Remember that leverage effect? Those grants are pulling in about $3.3 billion in investments and additional grants that probably would have gone elsewhere.

Third Frontier grants have gone a long way to put Ohio biomedical companies on the national venture capital map, according to Baiju Shah, president and chief executive of BioEnterprise, the bioscience company developer in Northeast Ohio. They’ve also created collaborations among researchers, institutions, companies and even industries that could generate the next best medical device or therapy.

Is there a cost to approving Issue 1? Of course. The state will sell $700 million-worth of bonds to raise the money required to extend — and slightly expand — the program. Third Frontier had about $160 million a  year to grant in its first decade. It will have about $175 million a year to grant in its extra four years.

That money will be repaid by taxpayers in future years. Some say that’s too high a price for a state — like so many others — that’s struggling with high unemployment and budget deficits.

Here’s one consolation: Because Third Frontier’s extension comes solely from bond money, it won’t be subject to the vagaries of the state budgeting process. That means politicians won’t be able to earmark it to plug holes in the state budget.

Here’s another consolation: The business case for Third Frontier — made by a group led by Rick Fearon, chief financial and planning officer, and vice chairman of Cleveland’s Eaton Corp., and a Third Frontier commissioner — estimated the first generation of the program would pay for itself by 2014 with additional taxes from the companies and jobs it creates.

I would rather invest my tax dollars in economic growth than in maintenance. What about you?