Amber:  Hi I’m Amber Ambrose here at the Alpha Conference in Napa, California.  My guest is Dr. Erik Halvorsen of the TMC Innovation Institute.  Welcome to the show.

Erik:  Thank you for having me.

Amber:  So tell us about TMC Innovation Institute.

Erik:  So the TMC Innovation Institute was started about 3 years ago out of the Texas Medical Center, the biggest medical center in the country, and it came from some strategic planning from the TMC and a bunch of the CEOs from the 21 hospitals that make up the Texas Medical Center.  And innovation was the top area that they wanted to really collaborate on to support innovations that were coming out of the over $2 billion of research that goes on yearly across the Texas Medical Center and also bringing external innovations in that could go into the hospitals and really benefit the patients that were there.

Amber:  How do you do that?  What is the process?

Erik:  We have a number of programs underneath the Innovation Institute.  The one that we’re probably most well-known for is TMCX – X is our accelerator.

Amber:  I see what you did there.

Erik:  Yeah, you see that right?  So we have two accelerator programs we run a year, it’s about a 4½ month program.  Companies can apply from all over the world to come into the program.  We do get a lot of local out of the TMC, out of Houston, out of Austin, Dallas, San Antonio companies.

Amber:  Which is part of the point, right?

Erik:  Part of the mission, absolutely, but we also increasingly are getting international applications.  20% of our last applicant pool were international, 25% of them were from Silicon Valley, so we’re really drawing companies in digital health and medical device from all over the world and we take the best ones we can find that we think are going to really transform healthcare.

Amber:  So what are some of the most exciting successes that have come out of the program?

Erik:  So we’ve run 5 classes, or 5 cohorts, alternating between digital health and medical device.

Amber:  And you focus on those two areas alone, is that correct?

Erik:  We do as part of the accelerator.  Now in our co-working space and then in collaboration with Johnson & Johnson who has JLABS, we do have a number of therapeutics companies that are sort of co-located there.  But for the accelerator we really focus the curriculum and the mentorship and really the whole program on med device and on digital health.

Amber:  Okay.

Erik:  So we’ve seen some amazing technologies.  We’ve seen the super sexy stuff around virtual reality and augmented reality kinds of technology that are doing some amazing stuff.

Amber:  The PR friendly stuff.

Erik:  Yeah.  And then the less cool things that are expediting the pre-authorization process or just increasing operational efficiency between hospitals.

Amber:  I don’t know the doctor people might be really excited about the pre-authorization; it might be sexy to doctors.

Erik:  That’s’ what I’m saying; investors like the stuff, the companies are doing really well and so we’re really just sort of seeing the gamut.  We’ve seen lots of wearable devices, lots of tele-medicine technology, lots of remote monitoring; areas like mental health and chronic disease management.  These are just such big areas that are increasing in cost and really were under delivering in terms of the care that the patients need, and so the great thing is we’re seeing a lot of new technology, a lot of new companies that are trying to address those things.

And again we’re picking the best ones, we bring them into the program, really support those companies to get them to that next level.  Connecting them with doctors and other subject matter experts within the medical center, setting them up with pilots and all of those kinds of things and really I think accelerating them – it’s kind of the point – accelerating them  towards their end goal which is getting an approved product on the market on the market that can benefit patients.

Amber:  Can you give me one specific company that has been part of the cohort and then graduated onto the next level?  Maybe an exit.

Erik:  Yes.  We’ve had now about 90 companies come through our accelerator program and we’ve had 3 exits in 2 years and that’s a pretty short window to already have had 3 company’s exits.  One of those companies is a company called Adhesys which had a surgical glue or surgical adhesive glue.  They’re a really interesting story because they won the Rice Business Plan Competition one year.  As you would know it’s the biggest business plan competition in the country and they won that, they received a lot of local investment in Houston from GOOSE Society and others.  They came through our accelerator program, they went into JLABS which is also part of our innovation ecosystem at the TMC and then ultimately it just got bought in 2017 by a German pharmaceutical company and did really well.

Amber:  So very recently.

Erik:  Very recently.  Actually all of the exits have been recent.

Amber:  Well you said in the last 2 years.

Erik:  Yeah, all of them really coming last year.  Last year there was two other ones, a company called Vios which was a company with remote monitoring and wearable devices.  They partnered with a Japanese company and ultimately that Japanese manufacturer of the sensors bought them and so they did an exit I think for $105 million and raised about $7 million or $8 million.

Amber:  Pretty good return.

Erik:  More than a 10X return on that.  And then another thing, which was really interesting and we’re seeing more of these kinds of technologies, a digital health company that was using Blockchain technology to sort of address the Type II Diabetes and obesity problem, so finding ways to incentivize patients to reduce their biomarkers of diabetes by creating different coin incentives for them with other commercial partners.  So we’re seeing a lot of that kind of stuff and shockingly that company got bought very quickly out of the gate.  They got bought while they were in our cohort, they hadn’t even finished our program so I can’t take credit for it.

Amber:  Was it just because they used Blockchain?

Erik:  Yeah, I think so.

Amber:  Obviously they used it successfully and there was something to it.

Erik:  They did, absolutely.

Amber:  So you have the accelerator, you have the co-working space and some other things going on but something big just happened that y’all just announced recently about a fund.

Erik:  Yeah, the TMC Venture Fund.  So we publically announced that in November 2017, we’d been working on it for a while.  It’s one of the things that Houston’s not Silicon Valley and it’s not even Boston necessarily from a venture capital standpoint and we knew that, but there’s really active angel investors going on in that area.  But we knew they needed something else and we also knew that we were in a very unique positon in that we’re seeing 200, 250 applications to our program every 6 months, so 500 a year.

We’ll select 20 companies to come in, we’ll work with them and really get to know the Founders, get to know their technologies, see the traction; we’re in a very unique position that as an investor we can make really good bets because we see where the good technologies are, what the traction is, whose got a great team or whose got a terrible team.  And again, all of these companies are looking for money, right?  So they’re looking for money so we knew that this was a key thing.  So it took us a while to pull it together; yeah we just announced it in November but we announced it with the first 5 investments that we made so we had already been doing due diligence on it.  And it’s kind of a unique setup in the sense that we’re the sole limited partner in our own fund, so we used our own money.

Amber:  But you’re putting it to work, that’s good.

Erik:  We are, absolutely.  It’s exiting; it’s great.  We think it’s going to be a real benefit to the companies that are coming through; not that they weren’t hustling already, but now they know that they’re kind of being watched under the investor eye as well.  And we’ve already seen, even from the first 5 investments that we made just in November, we’re seeing that it’s catalyzing follow on investment very quickly because again, VCs and other investors are saying you guys saw 250 companies, you picked 25 and then you invested in 5, that’s a pretty intense funnel and so they want to kind of focus on those too.  And it’s not to say that the companies we didn’t invest in we won’t yet.  We’re still going to constantly be looking at them, following them and considering them for investment down the road.

Amber:  So even when you graduate there may be some money down the road.

Erik:  Absolutely.  In fact, of the 5 companies we invested in 4 of them had graduated and had gone back to San Francisco or Boston or wherever they were from – although a number of them choose to stay in Houston and stay with us even after graduation, not all of them do – but in order to be considered for investment from our fund you have to have at least come through our ecosystem.

Amber:  That makes sense.

Erik:  But you don’t have to stay there.

Amber:  You can go off.  Well thanks for joining us today Erik, appreciate it.

Erik:  No problem, thanks for having me.

Amber:  Once again this is Alpha Conference, I’m Amber Ambrose and Dr. Erik Halvorsen.