Hayden Blackburn works next door to what some consider the most valuable office space in Fort Worth.
Suite 118 is where Encore Vision got its start before selling to Swiss pharmaceutical giant Novartis for $465 million in 2016. Just down the hall in Suite 111 is the former home of ZS Pharma, which was acquired for $2.7 billion in 2015 by U.K.-based corporation AstraZeneca.
“It is the in-demand office,” says Blackburn, executive director of TechFW, a startup accelerator and business incubator dedicated to helping early-stage companies get off the ground.
The offices spawning multibillion-dollar deals are a telling sign of the rapid growth of the North Texas life sciences industry, where a string of successes is attracting investors on the hunt for opportunities outside the traditional coastal hubs of Boston and Silicon Valley.
Venture capital investment in the U.S. life sciences industry is on track to blow past last year’s record of $33 billion. Nearly $27 billion flowed to companies in the first six months of this year, according to real estate advisory firm Newmark.
Newmark considers Dallas-Fort Worth to be a “potential future cluster.” Dallas-based CBRE, a commercial real estate services firm, identifies it as an “emerging hub attracting significant capital” in its midyear report this year. North Texas boasts more than 60 companies and 27,000 jobs in biotechnology and life sciences, according to estimates by the Dallas Regional Chamber.
North Texas companies attracted $310 million in investments from January to March, a 376% increase from the same period in 2020. Two months later, Irving-based Caris Life Sciences hauled in $830 million in private equity backing — launching it into unicorn land with a nearly $8 billion valuation.
Industry leaders hope the influx of capital is only the beginning. Pegasus Park, a redevelopment of a former Mobil Corp. office campus near the Dallas Medical District, hopes to bring research, business and networking together under one roof to create a biotech campus that feels more like San Diego than Stemmons Freeway.
Led by a major investment from Dallas philanthropic heavyweight Lyda Hill and her foundation, leaders like Marc Nivet, executive vice president for institutional advancement at the University of Texas Southwestern Medical Center, envision the campus answering the questions they’ve been asking for years.
“Could we create a place where we can encourage and support those entrepreneurial faculty members who have great ideas, who have fantastic technologies, who plan to stay here in Dallas but want to grow their business? Can we create a place for them?” Nivet wondered.
Where it began
The seeds of much of what’s happening now were planted decades ago by institutions like UT Southwestern in Dallas and companies like Alcon and Galderma in Fort Worth.
Stella Robertson worked as a vice president of research and development at Alcon for 14 years, leading pharmaceutical development teams for the eye care giant. When she retired in 2009, a friend approached her about joining Cowtown Angels, an angel investor group forming in Fort Worth.
The group had seen early-stage biotech companies come through its networks, seeking small seed investments. Most Cowtown Angels members had financial or business backgrounds, not scientific ones, which made it difficult for the group to evaluate company proposals.
Robertson joined the group, using her technical knowledge to assist with due diligence and investment potential. One of the first companies presented was Encore Vision, a startup led by former Alcon executive Bill Burns. Encore wanted to develop eyedrops to treat presbyopia, an age-related loss of elasticity in the eye that makes it difficult to focus on nearby objects. It’s usually treated with glasses, not a topical treatment. The angels invested, but the millions Encore needed to launch was more than the individual donors could pool together.
Les Kreis, a Fort Worth private equity manager and one of Cowtown Angels’ founding members, saw potential in Encore but knew he needed someone on the science side to complement his financial expertise. Robertson agreed to help Kreis raise more money to augment what Cowtown Angels invested and she soon realized the pair’s combination of financial and scientific expertise could be beneficial.
“There’s this big gap between what an angel group can help with in funding a company and what a company, especially one in biotech, needs to get going,” Robertson said.
Kreis also brought on Dr. Aaron Fletcher, a biochemistry and bioethics professor at Dallas Baptist University who had experience conducting market research. The group invested in Encore in late 2013 and again in 2014.
“It was really through that investment that we realized there was an opportunity to invest in private biotech companies that were not on the coasts,” Fletcher said.
Armed with a new mission to focus on investment in what they affectionately term “the flyover states,” the group next invested in Lung Therapeutics, an Austin company working to develop treatments for rare pulmonary conditions based on research first conducted at the University of Texas Health Science Center at Tyler. The promise they saw in the company told them they may have been pioneering a new approach to investment in the industry.
“Who’s looking for the next biotech company in Tyler, Texas?” Fletcher said.
The trio decided to formalize their partnership, founding their venture capital firm Bios Partners in 2015 to not only invest in companies but to help them develop as they scaled from preclinical startups to publicly traded companies.
In late 2016, the group’s initial investment paid off in a big way: Encore Vision sold to Novartis for $465 million. Bios Partners had originally invested $3.7 million, making it Encore’s single largest shareholder before the sale. The sale allowed Bios Partners to return capital to its investors — and to prove its bets could pay off in a big way.
Since then, the firm has been on a roll, investing $250 million in 14 companies. In addition to the Encore exit, it has helped two other portfolio companies go public and hopes to help two more do the same before the end of the year. Now on their third fund, the partners are looking to invest an additional $60 million over the next few years.
As Bios Partners has grown, it has remained committed to investing in companies and talent from the South and the Midwest, rejecting a more elitist mindset that Fletcher said permeates the biotech community on the East and West coasts.
“It’s created a ‘we invest in Ivy League [founders]’ and ‘we invest locally’ mindset,” he says of the industry in traditional hubs. Bios Partners is also committed to investing in local talent: Most of its analysts and associates were educated in Texas.
The rise of Pegasus Park
Fletcher, Kreis and Robertson may have been some of the only ones looking a few years ago, but the homegrown biotech industry is commanding more attention.
Since 2011, UT Southwestern’s Office for Technology Development, which helps with the formation of companies based on technologies developed through university-sponsored research, has filed 817 patent applications and has generated almost $103 million in revenue from licensed technology.
For decades, UT Southwestern has been one of the area’s most powerful engines contributing to both the development of the talent pool and to continued research and commercialization. Despite a history of innovation, Nivet said the research hospital has seen successful technology depart for the coasts time and time again.
Peloton Therapeutics was originally born out of UT Southwestern research that identified genetic mutations of a protein that made patients more likely to develop kidney cancer. Peloton, then based in Dallas, was preparing to go public when it was purchased for $2.2 billion by pharma giant Merck in 2019, becoming a wholly-owned subsidiary of the Summit, N.J.-based company.
Just a month after the sale of Peloton, Exonics Therapeutics, a firm co-founded by UT Southwestern professor and researcher Dr. Eric Olson, was acquired by Boston-based Vertex Pharmaceuticals for about $1 billion.
“We had to ask ourselves why — as successful as Dallas and North Texas have been in attracting all kinds of industries and being successful in other areas — why has that not translated to the biotech space?” Nivet recounted.
Two main challenges stood out: Although the area’s talent pool was generally strong, it wasn’t as experienced and connected as in other biotech hubs, and investor knowledge about the industry was lacking.
Fortunately, UT Southwestern knew of an investor willing to make a major contribution to turn the tide. Dallas philanthropist Lyda Hill had a long history of significant life science investments, including a $25 million gift to the university in 2015 to establish a bioinformatics department named for her.
Hill was working on a partnership with real estate firm J. Small Investments, which had purchased Pegasus Place. The site was originally constructed as the headquarters for jewelry retailer Zale Corp. and was later occupied by Mobil, whose signature red Pegasus logo gave the site its name. The site sat vacant near the intersection of Stemmons Freeway and State Highway 183 for over a decade when J. Small Investments bought it, interested in the site’s potential due to its proximity to the city’s medical district.
“It’s a gateway to town, and the prominence of that building, specifically the tower, we viewed as a great opportunity to revitalize that gateway,” said Steve Davis, J. Small’s president and chief operating officer. “We viewed that as a really prominent, visible site that could have some identification not just for the site itself but for Dallas as a whole.”
Hill had long envisioned bringing a biotech campus to Dallas, and the existing setup of the complex offered a much quicker route than selecting, designing and building a new one. Investor, institution and opportunity collided at the same time.
Pegasus Park has 550,000 square feet of buildings spread across 23 acres, with room to potentially expand the campus in the future. Apart from offices and lab space, the site will also include a conference center, cafeteria, brewery and gym, aiming to replicate the luxe campuses that tech companies on the coasts are known for.
The project is nearing completion, with construction wrapping up and tenants beginning to occupy their spaces. One of the anchor tenants will be BioLabs, a national network of coworking lab spaces designed to help companies launch and grow in both established and emerging locations.
“They have a vision for the campus that is analogous to what you’d see on the coasts and extremely unusual for what you’d see in Texas,” said Adam Milne, BioLabs’ chief operating officer.
As BioLabs was researching a potential expansion into Dallas, Milne kept hearing from founders that they struggled to grow their companies if they kept them in Dallas. They felt pressure to move to hubs like Boston or San Francisco but didn’t want to move away from the institutions where they had built research careers.
The BioLabs space at Pegasus Park will be the company’s 10th site. Milne said a region’s foundation of academic research is often what determines a location’s success and Dallas has that in abundance with institutions like UT Southwestern and UT-Dallas.
“They’ve got a rich history of doing impactful science and fostering and translating that into actual human interventions,” Milne said. “VC dollars will follow once we’ve started this thing up.”
Once the 37,000-square-foot space opens in December, it will be home to 35 companies renting labs and offices from BioLabs. Potential members must complete an application and present to the site’s scientific advisory board, which reviews business plans and the science behind research.
Part of BioLabs’ business model is based on the idea that companies should outgrow the space and no longer need to rely on its resources — the average stay of a BioLabs tenant is about 18 months.
Pegasus Park also might attract larger biotech companies based on the coasts, Davis said. “Having those companies have a presence in Dallas, whether it be in Pegasus Park or elsewhere, helps us answer the question, ‘How do we monetize this science and how do we create an ongoing company?’”
Nivet is confident UT Southwestern’s presence at the campus will help provide an answer. The university will occupy five floors in the new development, anchored by its Office of Technology Development.
“We hope that people will see an institution like UT Southwestern there with significant space, and in some ways, that’s de-risking for them,” Nivet said.
What’s next
Biotech leaders see Pegasus Park creating the piece of the industry that’s been missing thus far in Dallas.
“In order for biotech to be successful, it has to have technology, investors and a network,” Dallas Baptist’s Fletcher said. “The technology obviously has been building, the investors have been coming, and now it’s a matter of developing the network.”
Early successes like Reata Pharmaceuticals, which got initial investments from Dallas-area family offices, helped coastal players in the industry realize that Dallas investors were willing to fund biotech companies.
Reata, now based in Plano, is developing a drug that can reverse the decline of kidney function in patients with chronic kidney disease. It raised $60.5 million in a 2016 initial public offering and received an additional $350 million investment from Blackstone Life Sciences in 2020.
“As we have more success and as companies stay, like Reata has done or like Taysha [Gene Therapies] is doing, that will help to build that network,” Fletcher said. “That is the next and last stage for truly making a successful biotech hub.”
As the industry shifts to embrace more data-driven solutions, others are hopeful the area’s large pool of skilled technology workers will bolster Dallas biotech even further.
Panna Sharma is CEO of Lantern Pharma, a Plano biotech company that works to speed the cancer drug approval process using artificial intelligence to identify therapies likely to benefit patients based on their genomic makeup.
A Texas headquarters helps Lantern stand out, he said. “For a lot of investors, it’s a little bit refreshing for them to see a company that doesn’t have an address that’s in San Francisco or Boston or Cambridge.”
As for Blackburn, it could only be a matter of time before the next billion-dollar company walks through TechFW’s door. Currently occupying both of the incubator’s billion-dollar offices is Ampcare, a company that recently gained Food and Drug Administration certification for its technology and treatment protocols for patients with difficulty swallowing, including patients who have been intubated to fight critical illnesses like COVID-19.
“It shows when you place those long bets and you have that intention and you get people connected, you can really start to see those wins,” Blackburn said. “They’re not going to happen overnight. A lot of what we’re doing [is planting] some more seeds that then will show those big returns in 15 to 20 years.”
