While the impact of Leo Linbeck III’s family business on the Houston region has long been symbolized by multistory cranes and multiton earthmovers, it’s a heart pump the size of a slightly used crayon that may be more representative of the Houston native’s object of attention.
Named for the street that runs through Texas Medical Center, his Fannin Innovation Studio is a research and development firm that specializes in taking medical devices and therapies from the proverbial drawing board to the doctor’s office by either helping found companies for those products or negotiating licensing agreements.
Seeded in part by Linbeck Construction, founded by Linbeck’s grandfather in 1938, Fannin and its group of 20-odd doctors, MBAs and engineers (Linbeck being both an engineer and MBA) specializes in working with inventors, building out their ideas into prototypes and finding financiers and entrepreneurs to create the companies that will get the products through clinical trials and beyond.
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By filling a void somewhere between doctors, venture capitalists and biotech giants, Fannin grew out of Linbeck’s love of tinkering, his exposure to Silicon Valley (he’s holds an MBA from Stanford University’s Graduate School of Business, and has taught there for 15 years) and his first-hand knowledge of Houston’s medical industry via his family’s construction and real-estate development entities.
Believing that Houston lacked the tech-startup infrastructure that’s fueled other regional economies, Linbeck, through his family’s companies, began funding Fannin’s predecessor company in 2005.
Fannin has generated revenue from a combination of licensing fees and equity slices from its companies’ funding rounds, though Linbeck indicated that larger returns may be realized once its companies’ products go to market.
He views Fannin as a cross between a real estate developer and a movie studio, shepherding ideas, reducing the risk of failure and spinning off companies to get the products to market and often retaining a majority stake in those companies. He estimated that Fannin has raised about $150 million through funding rounds and grants, and is currently involved in about a dozen projects in various stages.
“Houston’s got this huge health care infrastructure, so it just seemed like there was an opportunity. I would fly out (to Silicon Valley) to see what was going on, and I thought, ‘Why couldn’t it happen here?’” he said.
Case in point is Procyrion, maker of the tiny heart pump. About seven years ago, Dr. Reynolds Delgado, a cardiologist affiliated with the Texas Heart Institute and Baylor College of Medicine, approached Linbeck with the idea of a miniature heart pump that could be inserted via catheter instead of requiring open-heart surgery. Fannin’s team designed and engineered the product – called Aortix System – before bringing in upper management and helping to secure financing.
The company has had four funding rounds totaling more than $59 million and Aortix received “breakthrough device” designation by the U.S. Food and Drug Administration last year. The product may go to market as early as first-quarter 2021, according to Delgado.
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“I went to (Linbeck) with the idea, and not much more, and they took it from there,” Delgado said. “The VC guys usually cut you out of the deal, but I still have my founder’s ownership stake, which is substantial.”
Meanwhile, Fannin’s relatively small size has allowed it to ramp up its efforts this year to address the coronavirus pandemic. The most notable example is Pulmotect, which received its first funding round in 2016 and which has accelerated its development of a COVID-19 treatment this year. The company in May received FDA approval to start two COVID-19 Phase-2 clinical trials. The U.S. Small Business Administration’s Houston chapter recenbtly awarded Linbeck, Fannin Managing Partner Atul Varadhachary and Chief Financial Officer Mark Worschehits Small Business Innovation Research/Small Business Technology Transfer Recipient of the Year award.
Linbeck, who declined to disclose Fannin’s annual revenue, allows that most medical-advancement ideas result in failure, estimated that Fannin turns down about 95 percent of the ideas it’s pitched.
Still, he recognized his unique position to be able to invest in these medical efforts without expecting an immediate return, and remains philosophical about Fannin’s mission.
“Most things that are really important take about a decade to get done,” he said. “In three more years, we’ll be an overnight success.”