Tech com­pany gets boost in Baltimore

City hopes fed­er­ally des­ig­nated ‘op­por­tu­nity zones’ at­tract busi­nesses

Baltimore Sun - - FRONT PAGE - BY MERED­ITH COHN

The robot looks like a stout, lit­tle fil­ing cabi­net with one long arm, a sim­ple-look­ing con­trap­tion that be­lies the pre­ci­sion of the brain, ear and throat mi­cro­surg­eries it is de­signed to im­prove.

The com­pany formed to de­velop and mar­ket the ma­chine, Galen Robotics, re­cently moved to Baltimore from Sil­i­con Val­ley and might rep­re­sent the fu­ture of safer, less-in­va­sive pro­ce­dures.

“I like to say it will give the sur­geons the ef­fect of power steer­ing,” said David Saun­ders, a com­pany co-founder and chief tech­nol­ogy of­fi­cer.

Galen’s move to Pig­town, just west of down­town, also kicks off the city’s quest to at­tract sig­nif­i­cant pri­vate in­vest­ment to busi­nesses in its many fed­er­ally des­ig­nated “op­por­tu­nity zones,” dis­tressed ar­eas that come with a fed­eral tax in­cen­tive. Baltimore of­fi­cials are poised to an­nounce that Galen se­cured the first such in­vest­ment in a city busi­ness af­ter it moved here and some be­lieve the tax ben­e­fit could be a big­ger boon to busi­nesses than real es­tate devel­op­ment that has got­ten most of the ini­tial at­ten­tion.

A Col­lege Park-based ven­ture cap­i­tal fund re­cently cre­ated to in­vest in op­por­tu­nity zone busi­nesses gave an undis­closed sum to Galen, part of about $7 mil­lion the com­pany has raised so far from in­vest­ments, sub­si­dies and tax breaks for job cre­ation.

Galen aims to raise $25 mil­lion as it ramps up devel­op­ment of the sur­gi­cal robot, based on tech­nol­ogy de­vel­oped at Johns Hop­kins Uni­ver­sity, and hire more than 100 en­gi­neers and other pro­fes­sion­als as it seeks fed­eral ap­proval for its use.

Op­por­tu­nity zones, es­tab­lished by the mas­sive 2017 tax law pushed by Pres­i­dent Don­ald Trump, al­low in­vestors to de­fer or avoid taxes by rolling

over in­vest­ment in­come into prop­er­ties or busi­nesses in des­ig­nated dis­tressed ar­eas.

Ben Seigel, the op­por­tu­nity zone co­or­di­na­tor at the Baltimore Devel­op­ment Corp., the city’s eco­nomic devel­op­ment arm, and oth­ers ex­pect more money will flow into busi­nesses in the zones than into real es­tate.

“I do think there is a feel­ing within the in­dus­try and the op­por­tu­nity zone field over time, if op­por­tu­nity zones re­ally take off the way we hope they do,” Siegel said, “we’ll see a lot of in­vest­ing in op­er­at­ing busi­nesses be­cause gen­er­ally it’s where in­vestors can get big­ger re­turns from growth busi­nesses.”

Seigel called Galen “a very pos­i­tive ex­am­ple and case study.”

Galen is the se­cond op­por­tu­nity zone in­vest­ment for the Verte Op­por­tu­nity Fund. The other was on an In­dian reser­va­tion. The fund’s on­line de­scrip­tion says it will look for “high-growth, dis­rup­tive busi­nesses with in­no­va­tive prod­ucts and ser­vices.”

Verte CEO Leonard Mills said the just-formed fund looked to Seigel to iden­tify good bets and Galen fit the fi­nan­cial cri­te­ria. The link to Hop­kins was a plus.

“We be­lieve the up­side is enor­mous,” Mills said of Galen.

The tech­nol­ogy was de­vel­oped at Hop­kins’ Lab­o­ra­tory of Com­pu­ta­tional Sens­ing and Robotics six years ago and li­censed to Galen three years ago.

The de­vice es­sen­tially of­fers sur­geons a steady third hand, pre­vent­ing a tiny move­ment of the sur­geon’s hand from be­com­ing am­pli­fied through the long, skinny tools used in surg­eries in­side some­one’s head.

“Even rock solid-seem­ing hands can cause a fleck at the end of the equip­ment,” Saun­ders said. “And even among the rock solid doc­tors, no one keeps gifted hands for­ever.”

With the robot, sur­geons could more eas­ily and re­peat­edly snip a cyst on a vo­cal cord, re­move a brain tu­mor or im­plant hear­ing equip­ment in an ear. It also could al­low more doc­tors to per­form cer­tain del­i­cate pro­ce­dures with­out jeop­ar­diz­ing pa­tient safety.

Galen hopes to gain ap­proval from the U.S. Food and Drug Ad­min­is­tra­tion for the robot next year or in early 2021. Of­fi­cials say 42 hos­pi­tals have ex­pressed in­ter­est in the ma­chine so far. And more tools, and pro­ce­dures, could be added over time, po­ten­tially driv­ing up de­mand for the robots.

Bruce Li­chorowic, Galen’s pres­i­dent and CEO and an­other co-founder, said com­pany of­fi­cials were sure of the need for the tech­nol­ogy, based on dis­cus­sions with sur­geons. Robotics are grow­ing part of surgery, but most such equip­ment is de­signed for big­ger spa­ces in the body than the head and neck.

Verte’s in­vest­ment is not make or break for the com­pany, Li­chorowic said, but the pack­age of in­cen­tives the city and state put to­gether for com­pa­nies mov­ing to op­por­tu­nity zones was key to Galen’s de­ci­sion to re­lo­cate from Cal­i­for­nia.

Many cities and states, in­clud­ing Baltimore and Mary­land, have added ex­tra pub­lic sub­si­dies to bet­ter com­pete for long sought in­vest­ment in dis­ad­van­taged ar­eas now des­ig­nated as op­por­tu­nity zones.

While all of Verte’s in­vestors want a re­turn on their money, many also are in­ter­ested in the so­cial im­pact of op­por­tu­nity zones, Mills said.

The state cre­ated an ex­tra ben­e­fit for in­vest­ing in Mary­land biotech and cy­ber­se­cu­rity com­pa­nies in op­por­tu­nity zones to com­pete with other states. In­vestors can get a tax break of up to $250,000 on their in­vest­ment, which “sub­stan­tially changes the risk pro­file,” Mills said.

If the in­vestors don’t owe that much in taxes in Mary­land, they can get a re­bate for the re­main­der.

Still, there isn’t a clamor yet for op­por­tu­nity funds fo­cused on busi­ness in­vest­ments rather than some real es­tate in op­por­tu­nity zones. A big rea­son is that the fed­eral reg­u­la­tions were slow to come out, said John Let­tieri, pres­i­dent and CEO of the Eco­nomic In­no­va­tion Group, a think tank that helps craft the op­por­tu­nity zone tax pol­icy.

Op­por­tu­nity zones aim to move in­vestors as a herd to the neigh­bor­hoods, he ex­plained. But it takes time to move a herd.

Let­tieri believes op­por­tu­nity zone busi­nesses will end up at­tract­ing the most at­ten­tion from in­vestors, and in­ter­est will in­crease in the next year or two.

“That win­dow is when we re­ally will be able to make a clearer judg­ment of the scale and scope of the mar­ket­place and what is work­ing,” Let­tieri said.

For now, Let­tieri noted that such in­vest­ing has been slow to catch on. In Baltimore, the only other op­por­tu­nity zone in­vest­ment has been in a mixed-use project called Yard 56. The in­sur­ance and in­vest­ment man­age­ment firm Pru­den­tial Fi­nan­cial said it would in­vest $150 mil­lion in the project across from Johns Hop­kins Bayview Med­i­cal Cen­ter in East Baltimore.

Let­tieri said pres­ti­gious an­chors such as Hop­kins likely will help at­tract in­vest­ment in re­lated busi­nesses or nearby real es­tate.

Still, he said, the in­vest­ment is not go­ing to just show up. Cities like Baltimore will have to pur­sue it.

“This is an ex­per­i­ment,” Lit­tieri said. “We’re try­ing to do some­thing new and very hard. … The sta­tus quo is not work­ing for these com­mu­ni­ties.”

KIM HAIRSTON/BALTIMORE SUN

David Saun­ders, chief tech­nol­ogy of­fi­cer and co-founder of Galen Robotics, demon­strates the Galen Robot us­ing a model of a mas­toid bone.

KIM HAIRSTON/BALTIMORE SUN

Bruce Li­chorowic, left, pres­i­dent and CEO, and David Saun­ders, chief tech­nol­ogy of­fi­cer, lead Galen Robotics.

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