Editor’s note: Our New Bull City series expands its focus in Day Eight today with a three-part report about biotech and life science firms playing a major role in the rebirth of Durham. Yes, Durham’s saga is much more than high tech. The “City of Medicine” brand is well deserved, especially in recent years. In 1988, Durham had just four total life science companies. Now the city has 92 firms and counting. Read how the life sciences took root in the “City of Medicine” as WRALTechWire’s report about the rebirth of Durham continues.

Frank Vinluan, WRALTechWire’s Insider who focuses on biotech and life sciences, is the author of today’s report.

DURHAM, N.C. – When Hugh Crenshaw needs a break from the pressures of running his medical device startup he steps out on the balcony.

Physcient’s offices are on the edge of Durham’s Brightleaf Square and from the company’s second story perch Crenshaw routinely sees a mix of workers, residents and students visiting shops and restaurants. With baseball season underway, he now sees crowds converging on the Durham Bulls Athletic Park for games. Some afternoons, Physcient’s staff joins them.

Crenshaw cherishes his balcony view so much because all of his years working in the heart of Research Triangle Park offered nothing like it.

“It’s an amazingly engaging environment and it helps keep you creative,” Crenshaw said of downtown Durham. “I worked in a box in The Park when I was at GlaxoSmithKline. I don’t do my best work in boxes. I don’t think most people do their best work working in a box.”

Physcient, which is developing surgical devices based on technology licensed from N.C. State University, has been in downtown Durham since 2009. Moving downtown was a deliberate choice, Crenshaw said. Increasingly, other companies in technology and life sciences are making the same choice.

Durham is regarded by many as a “tech town” but the city has been called the “City of Medicine” for years. The “Durham re-branding has continued – and, indeed, had been successful – in the last decade,” says N.C. State University professor and economist Michael Walden, citing N.C. Department of Commerce statistics showing the city and county’s evolution from a tobacco economy to one with a focus on science and medicine.

In 2001, the scientific and medicine sectors together accounted for 21 percent of private earnings, Walden said. In 2011, the latest data available, both sectors produced 32 percent  of all private sector earnings in the city/county. Stated another way, total private earnings in Durham County increased 47 percent between 2001 and 2011, but private earnings in the science and medicine sectors jumped 171 percent in the 10-year period.

“In contrast, for the nation the scientific and medicine share of private earnings increased only by 4 percentage points – from 21 percent to 25 percent – during the decade,” he said. (Similar data is not available for telecommunications and other technology, Walden said.)

The City of Medicine

The reference to Durham as the “City of Medicine” is a nod to the aura of Duke University, said Jimmy Rosen, a partner at venture capital firm Intersouth Partners and a Duke alum. Duke stands as both a provider of health care and an innovator in new health care technology and medical research. But a quarter century ago, Durham was a blip on the life sciences radar.

In 1988, Durham had just four total life science companies, according to N.C. Biotechnology Center records. Research Triangle Park was the Triangle’s clear leader with 17 total life science firms. But other Triangle cities also had Durham beat. Raleigh had 13 life science companies and Chapel Hill-Carrboro had seven, including Quintiles – a soon to be but not yet Durham company – employing 70 in Chapel Hill.

Drug giant GlaxoSmithKline, which operates its North American headquarters in nearby RTP, has been a major downtown player in the past, becoming one of the first major tenants for the Diamond View One office building overlooking Durham Bulls Athletic Park, which opened in 1994. The DBAP and Diamond View were key pillars that helped ignite Durham’s rebirth.

One of those early Durham radar blips was Sphinx Pharmaceuticals, a spinout from Duke that initially incubated in the offices of Intersouth Partners, its largest investor. When Sphinx established its own Durham office in 1989, it listed just nine employees. Three years later, the company went public raising $75 million. The Sphinx IPO was the first for a North Carolina life sciences company and the largest of any North Carolina company up to that point. When Eli Lilly acquired Sphinx in 1994, the company’s headcount topped 100.

The city of Durham showed a steady growth of life science companies through the 1990s, according to Biotech Center records. By 2000, Durham had 26 companies – the same number as RTP. But then, as now, The Park dominates life sciences in the region by having the region’s largest life sciences companies. While the life sciences industry now extends beyond RTP’s borders, many companies continue to choose locations close to The Park to identify themselves as being located in RTP.

A key obstacle to attracting biotech companies to Durham’s core is the lack of wet laboratories. While tech companies can easily set up computers and workstations in a renovated tobacco warehouse, it’s harder for biotech companies to do the same. Scientific Properties, a developer, moved to address the dearth of Durham wet lab space in a way that also preserves the city’s heritage.

The developer’s first property, the Triangle Biotechnology Center, was developed from the Clark & Sorrell Garage. The property, listed on the National Registry of Historic Places, was the oldest repair garage in Durham when it closed in 2000. Scientific Properties developed the site into 20,000 square feet of office and lab space. The Triangle Biotechnology Center’s first tenant was cancer drug developer Serenex, which had raised $81 million in venture capital financing before being acquired by pharmaceutical giant Pfizer in 2008. Duke now occupies most of the space that Serenex left.

The Venable Center is another historic property that Scientific Properties has refurbished with wet labs. What was once a warehouse for the Venable Tobacco Co. now offers 90,000 square feet, including 10,000 square feet of wet lab space. The building’s life sciences tenants are Precision BioSciences and Grassroots Biotechnology.

While the availability of Durham wet lab space is improving, right now such space is more easily found closer to RTP and on Durham’s periphery and that’s where bigger operations can be found. For example, Treyburn Corporate Park in Durham County north of the city, is home to the U.S. headquarters of French medical diagnostics firm bioMerieux as well as a vaccine manufacturing plant for drug giant Merck.

“There are lots of things going on, we are seeing activity,” said Dhruv Patel, program director for the Council for Entrepreneurial Development. “But life science companies are different than tech companies because of their needs for infrastructure.”

Investing in the future

Allen Cato, co-founder and CEO of Cato Research, a CRO, can readily talk about how far Durham’s life sciences community has come because he has been part of it since its early days. Cato Research launched in Chapel Hill in 1988 (leasing space from Quintiles) and moved to Durham a year later. Cato said he moved the company to its South Alston Avenue site because he found a building he liked and the location was easily accessible to Cato employees commuting from elsewhere in the Triangle.

In the late 1980s, Durham’s life sciences industry was just sprouting while biotech hubs around the country were already in the growth stage, Cato said. Boston, San Diego and San Francisco became life science hubs because they had ample amounts of something Durham still needed – investment to fuel life science startups.

Cato has done its part to try to fill that gap. Along with helping pharmaceutical companies take experimental drugs through clinical trials, Cato Research also has an investment unit – Cato Bioventures. Investment arms of CROs have had an uneven history. They weren’t part of the original business for most CROs and some added them on later only to spin them off into separate companies. Cato’s investment unit has been part of the company’s business model from the beginning.

Cato Bioventures has made investments throughout the country and while the firm has invested in Triangle life science companies, Cato’s earliest days saw few Triangle investment opportunities. The tide turned, Cato said, in part because more money became available to support promising drug candidates and medical technologies that emerge from the Triangle’s research institutions.

“What’s been lacking here, 25 years ago, there was very little funding available,” Cato said. “Now there are venture capital groups that are based here that have played an important role.”

VC Money Nearby 

Physcient’s location puts it within walking distance of both Intersouth Partners and Hatteras Venture Partners. Pappas Ventures, also based in Durham, is a short drive away. The presence of Triangle venture capital firms with a regional focus on the the Southeast should help local startups attract investment from out-of-state VC firms, Intersouth’s Rosen said. The limited partners who invest in VC funds want geographic diversification in their portfolios. In seed and early stage investing, out of town VC firms prefer joining a local lead investor, someone on the ground to work with a portfolio company. Intersouth, Hatteras and Pappas can fill that role.

Physcient hasn’t attracted local VC investment yet. Crenshaw said he’s actually seen more investor interest from the Northeast and the West Coast, though he notes it has come from investors who have a North Carolina link.

But money is being put to work to grow the Durham life sciences community in other ways and Crenshaw sees it from Physcient’s balcony. Across the street construction is ongoing at the former research building for the Liggett & Myers Tobacco Co. While the property has a tobacco legacy, it also has a notable life sciences history. Among the site’s more recent tenants was Sphinx Pharmaceuticals. That property and another former Liggett site on Duke Street, are now owned by Longfellow Real Estate Partners. Longfellow will help address the need for more wet lab space in Durham with redevelopment of the two properties into Class A laboratory and office space. When complete, it’s a safe bet that some of the future tenants will be startups spun out of Duke University.

Downtown’s buzz isn’t just for the tech crowd, Crenshaw said. Life science workers also appreciate the opportunity to walk from home to work and from work to restaurants, shops and shows.

“The Park is recognizing this,” Crenshaw said, referring to the RTP master plan integrating residential and retail options with business space. “One day, it will be out there in The Park to some degree. But it’s already here in Durham.”