entrepreneurs put cincy on the map for health care innovation

When serial entrepreneur Mike Hooven founded the medical device startup AtriCure in November 2000, Cincinnati was considered to be a swerve of the wheel for venture capitalists located on the coasts. In fact, some would say it was hardly even on the map.

Today, AtriCure is one of the region's success stories. The company has over 200 employees and more than $50 million in annual revenues, having benefited from first-mover advantage on its FDA-approved Synergy Ablation System. The device treats atrial fibrillation, a problem that affects two million people in the U.S. and can lead to congestive heart failure and stroke.

In many ways, AtriCure is a success story that emerged from Cincinnati's diverse, teeming health care ecosystem. When Hooven left a job at Johnson and Johnson in 1994 to create his own company, Enable Medical Corporation, he was able to tap the expertise of people he'd worked with at Ethicon. He received support from Cincinnati Children's Hospital, Ohio Third Frontier and the Cleveland Clinic.

"I have seen an incredible change over the last 10 years in the environment here," says Hooven, who has since gone on to found other startup companies in Cincinnati. "There's nothing better to motivate entrepreneurs than to see somebody else become successful. At this point, Boston, Minneapolis and Cincinnati are the top three U.S. cities for developing medical devices."

AtriCure isn't the only one. In the fertile soil nourished by Cincinnati's health care ecosystem, companies like AssureRxHealth, Blue Ash Therapeutics and Akebia Therapeutics have taken root. Each of these startups has a uniquely Cincinnati story of a homegrown entrepreneur who takes a chance on an innovative idea. Cincinnati's depth of health care talent and innovation propels them forward.

"There's a tremendous network here of the types of organizations that startup companies need to launch health care businesses," says Dorothy Air, Associate Senior Vice President of Entrepreneurial Affairs at the University of Cincinnati and Director of Grants and University Outreach at Cincytech. She cites a rich tapestry of clinical research organizations, regulatory consultants, consumer products companies and research organizations in Cincinnati as examples.

Cincinnati's health care ecosystem fueled the success of Blue Ash Therapeutics, a startup company that was formed to lead the anti-arrhythmic drug Azilimide to market. Co-founder Kevin Malloy is a former P&G executive who worked on the drug for two decades only to see it get stymied by FDA regulations. When P&G decided to divest of their pharma operation, the drug was in danger of being filed away in a drawer somewhere. Malloy saw his chance and joined with pharma veteran Greg Flexter, whom he met through Cincytech, to create Blue Ash.

"I went to the senior management of Procter and Gamble and said, 'Listen, you've got Azilimide just sitting there and it has no advocates in the company. P&G is doing a strategic exit and we'd love to take this drug out,'" says Malloy. "P&G said, 'That's great, if anybody can do it,  you can do it. When you have the financial wherewithal, come back and seek a license and we’ll make it happen.'"

Although drug development is an incredibly risky, expensive venture and many never get approved, Azilimide was special. "It was so bloody close to the finish line," says Malloy. "This was a once in a lifetime opportunity because it was late stage. If we hadn't done this, then it would be sitting in a drawer somewhere."

It didn't hurt that P&G had 10 metric tons of the pure drug sitting in quarantine. "P&G was so close to approval that they did a major manufacturing run in the early 2000s that cost a lot of money," says Malloy. "Such was the optimism then. They were crack sure that they were going to get it. Everyone was very sure."

Malloy and Flexter negotiated a deal in which they paid almost nothing up front, yet agreed to buy the inventory if the drug got approved. "I can tell you venture capitalists would not be interested in paying $6 million for inventory of the drug when there's still another trial to do," says Malloy, citing trial costs of $25 to $50 million. "Why would you want 10 metric tons of a drug if no one's approved it?"

Blue Ash raised $2 million in operating funds and pulled together a virtual team of former P&Gers. "We had an extended network of Ph.D's, statisticians, R&D people and drug development guys who were all gone from P&G but still in Cincinnati," says Malloy. "We had a century and a half of experience in our 10 people."

Although Malloy and Flexter prepared themselves for raising venture capital, they ultimately sold Azilimide to Forest Pharmaceuticals out of New York City. Forest liked that it was late stage and had a concentration of local expertise. "There are a lot of P&G people working on this drug, wearing a different hat now," says Malloy.

As for Blue Ash, the firm was able to negotiate a handsome royalty and remain involved as a consultants. The partners are now looking for their next opportunity. They credit the health care ecosystem in Cincinnati and Ohio for their success.

"Ohio has been very supportive," says Flexter, citing funding from Ohio Third Frontier, Cleveland Clinic, CincyTech, Queen City Angel fund and individuals.

In addition to state and local support, Hooven says that one of the critical factors in spurring innovation within Cincinnati has been, ironically enough, downsizing. "Someone asked me 15 years ago what I thought was the single most important factor in creating an entrepreneurial environment, and I said 'massive white collar layoffs,'" Hooven says. "It's not very pleasant but it's true. You get a bunch of highly qualified, capable people that don’t have jobs and they get very creative."

While large companies are typically better at marketing than being innovative, given the braintrust of talent that exists at a company like P&G, there's often a quid pro quo between corporate talent and entrepreneurial startups, he adds.

Another critical factor in the success of Cincinnati's health care ecosystem is big institutions like Children's Hospital that are willing to place bets on research. In 2011, Children's spent $314 million in research expenditures and was ranked second place in the U.S. in funding from the National Institutes of Health (NIH). Currently, the hospital is building a new, 450,000 square foot building on its campus, one third of which will be devoted to pure research. The facility will be the largest pediatric research facility in the U.S. when it opens in a few years.

"It will be used for clinical trials that need to happen to get basic science back to our kids to improve health outcomes," says Niki Robinson, Assistant Vice President with the Center for Technology Commercialization at Children's Hospital. "We recognize that commercialization can have a huge impact."

Children's Hospital has also invested in two multimillion dollar funds to help commercialize new scientific discoveries and get startups off of the ground.

AssureRx is a seven-year-old company that was created to commercialize the unique personalized medicine technology developed at Children's Hospital and the Mayo Clinic in Minneapolis. The firm, which uses genetic tests and mathematical algorithms to provide doctors with reports on how patients will respond to medicines, has grown from four to 120 employees in the past few years.

"The big challenge for a company like us was getting funded -- every West Coast investor wanted us to move as a condition of their term sheet, but that didn't make sense because the technology we needed was here," says Don Wright, Chief Operating Officer of AssureRx. "CincyTech and Childrens Hospital kept the company alive, in addition to our own credit cards. There weren’t 10 venture capital firms up and down the highway ready to put 10 million dollars in."

However, after more than 100 meetings with venture capital firms in Silicon Valley, AssureRx secured an investment from Sequoia Capital -- the VC firm's first ever in the State of Ohio. Today, AssureRx is in the process of moving into a new lab in Mason that is 10 times bigger than the one they were in a year ago.

"The idea was, 'Why destroy the opportunity to make something successful in Cincinnati that was developed here? There's a lot of great technology in the Midwest, why not keep it here?'" says Wright. "I grew up here and don't want to move to the West Coast  -- I want to make Cincinnati and Mason successful places. We were a four person company CincyTech was trying to keep alive, and now we're a 120-person company trying to mentor other four person companies."

Fortunately, success stories like AssureRx, Blue Ash Therapeutics and AtriCure are becoming increasingly common in Cincinnati's health care ecosystem. And their growth parallels the growth of entrepreneurial activity in the region.

Jan Rosenbaum, Director of Life Sciences with CincyTech, says that Cincinnati's bench-to-bedside health care ecosystem is critical to growing the city's startup community, creating jobs and fostering the success of the region. "Innovation is derived from crossing disciplines," she says. "That's when you get new things."