UPMC investment gives new hope for startup economy in Pittsburgh
Pittsburgh Life Sciences Greenhouse was flush with $103 million in local foundation and state tobacco cash when it opened its doors in 2002 with dreams of building an industry based on lifesaving new drugs and medical devices.
Eighteen years later, the dream is still mostly a dream. What happened?
Veteran life science startup entrepreneur Frank Demmler summed up the stumbling block this way: unrealistic expectations. Pittsburgh’s charitable foundations, the university officials and the economic development folks in Harrisburg — all of whom helped create Pittsburgh BioVenture, the predecessor to the Pittsburgh Greenhouse — badly misjudged the amount of time and investment money needed for such an undertaking.
“Between time and money and technology, there are so many compounding risk factors that getting through that maze successfully weeds out what might be good technology, which can’t get funded to the next level,” said Mr. Demmler, a consultant to startup companies since 1984 who teaches at Carnegie Mellon University.
“Life sciences is a whole different animal from other types of investments.”
The advice may be worth repeating now that an arm of Pittsburghbased hospital and health insurance giant UPMC plans to inject $1 billion into life science investments over the next four years. Investments in new drug development, medical diagnostics and devices is risky, but UPMC has the advantage of heft and a different approach to the task.
UPMC will use its own money, plus investments from partners, to fund promising medical innovations in Pittsburgh and elsewhere. Early stage investment makes translating scientific discoveries into therapies possible, paving the way from laboratory bench to patient bedside.
The National Institutes of Health and other federal agencies pour tens of billions of dollars annually into basic research that identifies possible cures for cancer, diabetes and other diseases.
The University of Pittsburgh, UPMC’s academic partner, ranks fourth nationwide in NIH funding. So UPMC Enterprises may not have to look far for startups that have found the right molecule, the most effective new surgical tool.
Early stage investors gamble that their money will increase the value of the project before the next round of funding. Identifying the right startups will be up to the translational science team at UPMC Enterprises.
But the heavy lift begins only when the search is over: Life science projects typically take 10 to 15
years to mature while burning through a lot of money.
“Life science startups have great promise, but the path to commercialization for any life sciences company is significantly longer and takes significantly more capital investment than the typical company,” said Don Morrison, chairman of deal flow at Wexford-based Blue Tree Allied Angels and executive in residence at Pitt’s Innovation Institute. “It’s a steeper and more expensive climb.”
Getting a new medical product to market can cost $50 million to $100 million, Mr. Demmler said, and the slog can turn grueling in overcoming federal regulatory hurdles.
For that reason, Blue Tree limits its life sciences holdings to just one-third of its portfolio, Mr. Morrison said, and the seed funding outfit invests in few pure pharma startup companies.
Impressive record
UPMC’s investment track record in entrepreneurial efforts has been impressive, yielding about $2 for every dollar invested — a return of more than $1.5 billion on an investment of $800 million, according to UPMC.
Most of those investments have been in digital products, so realizing the same returns from translational science may be more difficult.
What sets UPMC Enterprises’ strategy apart are plans to invest in every phase of a startup’s life — from early seed funding rounds through exit in an initial public offering or acquisition by a larger company.
The approach will spare startups from having to pause work on a new product for fund raising, while also helping fledgling companies avoid early flame out caused by cash-flow problems, said James Jordan, president and CEO of South Side-based Pittsburgh Life Sciences Greenhouse.
UPMC “commits all the way to the end, or partners with other investors, so the companies don’t have to waste a lot of time raising money,” Mr. Jordan said. “It takes the risk out.”
The $1 billion commitment over four years could also help fill a void in life science investment capital in Pittsburgh: State support for Pittsburgh’s Life Sciences Greenhouse from tobacco settlement money is $1 million, but what’s needed for pre-seed phase startup funding is $4 million to $5 million, Mr. Jordan said. “UPMC could fill the gap.”
Carrying the flag for UPMC’s new investment strategy is BlueSphere Bio, a 3-year-old biotech startup that was UPMC Enterprises’ first translational science spinout. The company has developed a way to quickly identify and multiply naturally occurring cells in the body to dramatically amplify an attack on cancer cells, said BlueSphere co-founder Warren Shlomchik, a physician who directs Hematopoietic Stem Cell Transplant & Cell Therapy at the University of Pittsburgh.
“To most people, this is kind of an imaginary thing,” Dr. Shlomchik said, “but it’s actually operationally possible. And it can be done faster, in a few days rather than a few months.”
The result will be a personalized “medicine” for each patient, said Dr. Shlomchik’s brother and company cofounder Mark Shlomchik, chair of the department of immunology at Pitt.
“It hugely augments the natural response,” he said.
The startup — which has attracted $10 million in Series A funding plus another tranche of $5 million in funding, both from UPMC Enterprises — won’t have a permanent address until midyear after signing a lease, but is already planning a second funding round.
BlueSphere CEO David Apelian, a physician and biotech industry veteran, couldn’t say when the company’s first product would make it to market, but clinical trials are anticipated in 2022. In the meantime, UPMC Enterprises’ promise may finally give lift to the dream of a life sciences economy in the city, he said.
“I just think it’s going to have a domino effect on Pittsburgh,” Dr. Apelian said about UPMC’s investment. “This could be a really nice catalyst for longterm growth.”