Cleveland's health care industry attracted $201 million in funding from investors in 2015, with medical device makers and pharmaceutical companies leading the city's efforts to stand out as a major player in the biotechnology sector, according to a new report.
The report by BioEnterprise, a business group that supports Cleveland health care companies, found that the city finished third in the Midwest in the amount of funding it generated. Minneapolis ($418 million) and Chicago ($217 million) both generated more funding in 2015.
The numbers indicate Cleveland fell off the pace a bit last year, slipping behind Chicago for the first time and failing to keep up with Minneapolis, which cemented its status as the leader in the region.
However, Cleveland companies were also acquired by IBM and other technology giants and continued to command interest from a broad pool of venture investors.
"Hitting $200 million again this year is kind of a confirmation that we're continuing to see consistent and meaningful investment," said Aram Nerpouni, chief executive of BioEnterprise.
The 2015 total was only about half of the $398 million Cleveland area companies attracted in 2014. But that year was something of an outlier, as investors poured large amounts of money into the biotechnology sector nationwide.
- BioEnterprise found that 34 Cleveland companies attracted investments last year, including pharmaceutical companies, device makers and information technology firms. Among the most significant deals were:
- ViewRay, an Oakwood Village-based developer of advanced radiation technology to treat cancer, generated more than $60 million from an array of investors.
- Juventas Therapeutics, a Cleveland-based developer of regenerative medicine technologies for the treatment of cardiovascular disease, received $13.5 million from Green Cross Holdings, POSCO Capital and Oxford Finance.
- Surgical Theater, a Cleveland company whose software allows surgeons to simulate an operation before conducting it, attracted $9 million from HTC Corp., a Shanghai-based investment firm.
"The good news is that, although the numbers are down, you're still seeing investors supporting the growth of early-stage medical companies," said Michael Goldberg, assistant professor of design and innovation at Case Western's Weatherhead School of Management.
Because of its focus on equity investment, the BioEnterprise report does not account for nearly $2.5 billion in acquisition activity in the local health care industry, including Rite Aid's $2 billion acquisition of the Twinsburg pharmacy benefit manager EnvisionRx. Rite Aid itself was later acquired by Walgreens for $17.2 billion.
In addition, the medical device company CardioInsight, which makes technology that maps electrical disorders of the heart, was acquired by Medtronic for about $93 million. And the health information technology company Explorys was acquired by IBM for an undisclosed sum.
Goldberg said there are plenty of headwinds facing the biotech sector, including a persistently slow market for initial public offerings as well as a cautious approach to acquisitions. He said Cleveland remains in a good position within the industry, but the investment dollars won't flow into local companies automatically.
"The question is, will there be capital to fund the next pipeline of companies," he said. "And is there enough capital to continue to fund companies that are here and growing," but have not yet capitalized on their innovations through an acquisition or initial public offering.
To be sure, Cleveland is a far cry from the type of investment activity being attracted by more established biotechnology meccas such as Boston and San Francisco. Those markets are consistently pulling in more than $800 million a year.
But Nerpouni, chief executive of BioEnterprise, said Cleveland's biotech community has experienced strong growth since the early 2000s, when a handful of companies were attracting about $30 million a year. Back then, he said, the goal was to get Cleveland over the $150 million mark and to start to compete with Minneapolis, the established leader in the Midwest.
"Now we're having this steady run of 30 to 50 companies raising $200 to $400 a million a year," Nerpouni said. "When you look at the benchmark we set for ourselves, it's a very exciting time right now."