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Spinouts Blossom In Shadow Of Northeast Ohio’s Healthcare Giants

Wednesday, November 27, 2013 at 6:45 AM

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The word spinout has long been associated with road hazards – you spin out in a snowstorm, or if you cut a corner too tight on wet pavement. And if you’re lucky, you come out whole. But mention the word “spinout” to a technology buff in healthcare-rich Northeast Ohio, and he – or she – might be thinking more along the lines of investment… and payoff. ideastream’s Brian Bull has more.

Photo Gallery

ImageIQ CEO Tim Kulbago with brain image (photo by Brian Bull, image from ImageIQ) Explorys President Charlie Lougheed and programmers (photo by Brian Bull) Aram Nerpouni, President of BioEnterprise (photo by Brian Bull) Gary Fingerhut, Executive Director of Innovations for the Cleveland Clinic (photo by Brian Bull) Steven Behm, Dir of Technology Management for the University Hospitals Case Medical Ctr. (photo by Brian Bull)

Walk into the offices of Explorys and you’ll see a hive of activity inside an immense, open space once home to the Cleveland Museum of Contemporary Art. 

Company president Charlie Lougheed – an unassuming guy wearing argyle socks and a pullover sweater – walks me through a colorful hallway, buzzing with programmers.

“Throughout the day you’ll see groups just doing these daily huddles or these impromptu huddles,” Lougheed explains, as we pass a particularly animated group of workers. “And they stand around a wheelable whiteboard and basically invent together.”

Or wage the occasional NERF gun war, judging by the foam darts riddling the walls.

Explorys is a typical successful spinout company.  Lougheed and two other partners founded it in 2009 at the Global Cardiovascular Innovation Center in Cleveland.  That’s a business incubator created by the state of Ohio and the Cleveland Clinic. The company uses supercomputers to analyze massive tracts of patient data.

“We knew that data in the health care space was piling up at a massive rate.  We knew that the existing systems that were out there, the technology that was out there wasn’t going to be able to handle it.  Either at the scale or the cost.”

Explorys eventually left the incubator and has moved two more times since.  It has 126 employees, and has signed on an impressive roster of clients beyond the Cleveland Clinic.

“The second organization that came aboard was University Hospitals.  Then Metro Health came aboard, then Summa.  Akron General is now within our network,” Lougheed summarizes. “And across the network there are now about 300 hospitals, about 200 thousand providers, whose data is accumulated across the network.  And it accounts for about 35 million patients, so it’s arguably the largest clinical data set in the world.”

Gary Fingerhut is Executive Director of Innovations for the Cleveland Clinic.  He says in the past 13 years, his staff has helped nearly 70 spinouts launch in northeast Ohio.  He says like many others, Explorys started modestly inside the cubicles of the Global Cardiovascular Innovation Center.

“Y’know, Explorys started upstairs with a few folks, and grew up and moved out with over 100 employees.  And that’s exactly what we’re looking for, is to create jobs,” says Fingerhut. “We’ve created over 1100 jobs in northeast Ohio.  And it’s a very important part of what we do.”

Another successful spinout is ImageIQ.  It helps clients interpret medical images, like brain scans.  CEO Tim Kulbago, says being a spinout of the Cleveland Clinic has been a huge draw for both investors and customers.

“When we go to approach somebody and they say, “Oh, where’d you come from?” You know, instead of saying, “Oh we’re four guys in a garage and we started writing some software!” we can say, “Look…we have proven our mettle, inside of the Cleveland Clinic.  We have this lineage of being a Clinic organization that has now spun out and is operating on our own.” So that provides an immense amount of credibility in the market.”

Northeast Ohio has seen a significant surge in investor activity, much of it focused on health care.  Cleveland’s healthcare startups attracted more investment capital than those of any other Midwestern city in the first half of 2013 – in all, nearly $80 million. 

BioEnterprise president Aram Nerpouni calls it “an embarrassment of riches.”

“We’ve gone from a place that used to have no more than 10 national investors with money at any given time, going to work in Cleveland, Northeast Ohio companies.  There’s currently 80 national investors that have money in companies here.”

But there are outliers.

“We struggle to find investors,” says Jim Evans.  He’s CEO of Socrates Analytics, a year-old spinout from University Hospitals.  It aims to help health care providers analyze and improve patient care and costs. 

Evans says most investors prefer products with established track records, while his company’s product is still being refined.

“Our best case would be somebody who wants to take a little bit of risk, but also wants to be an advisor,” says Evans. “Better if they actually had some health care experience and health care connections where they could help us open up these markets.”

Steve Behm directs technology management for the University Hospital’s Case Medical Center.  He says another investor trend is the shifting away from biotech firms and medical devices.

“If you look back all years ago to the dot-com era, there was a lot of private money flowing into biotech,” explains Behm. “A lot of that then moved over to medical devices, diagnostics, and then to a lesser degree, software…but now we’re seeing that trend further move into the health care software related field, and now some of the device companies are having challenges raising money from the private equity markets.”

Another issue is spinouts so successful they move on, taking their economic clout with them.

Joe Jaknowski, Chief Innovation Officer for Case Western, says this is because a spinout gets acquired by a larger corporation, or wants to be closer to investors.

“We want them to stay close, we want to create jobs, we want to create tax base.  At the same time, if the best thing for the technology and ultimately the patients or even for the commercial return is to be part of an organization that doesn’t exist in northeast Ohio, we realize that they’ll have to do what is best for those stakeholders.”

But most do stick around, given the region’s heavy health care presence.  And with the Global Center for Health Innovation opening this summer, that presence is only expected to generate more investment and marketing prospects for spinouts and startups all across northeast Ohio.

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Economy, Regional Economy/Business - News, Health, Science, Technology

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