ALung Technologies raises $14M

ALung Technologies raises $14M from angel investors

Pittsburgh Business Times - by Malia Spencer and Patty Tascarella

Joe Wojcik
Eagle Ventures President Mel Pirchesky, left, and ALung Technologies Chairman and CEO Pete DeComo stand with a Hemolung, an artificial lung designed to be used in an intensive care unit.
View Larger ALung Technologies Inc. has raised $14 million in its biggest capital round to date, almost all from 90 individual investors who are either active or retired entrepreneurs and chief executives.

The South Side-based respiratory support company has earmarked the money for general operations, including finalizing European clinical trials of its artificial lung, starting tests in the United States, and moving to larger space, said CEO Pete DeComo.

ALung already has added four key positions this year — a vice president of operations and manufacturing, and directors of clinical affairs, finance and manufacturing — and the company, which has outgrown its 6,000-square-foot office in the Terminal Building, is set to move to a 15,000-square-foot location at 25th and Jane streets on the South Side by year-end. The larger space will allow for the expansion of the development and manufacturing areas of the business as the company moves toward commercialization of its Hemolung System.

The Hemolung System, which consists of a console and artificial lung, is designed to treat patients with chronic obstructive pulmonary disease. Blood is removed through a catheter and fed through an artificial lung, where the carbon dioxide is exchanged with oxygen before traveling back into the body. Unlike traditional treatment with mechanical ventilators, Hemolung patients can remain alert during treatment and, in some cases, are ambulatory.

Each console costs roughly $25,000. The artificial lung, tubing and catheter run about $6,000 for a seven-day supply. The company can build four systems a week, but that is expected to increase at the new site.

ALung’s clinical trials in Germany are expected to conclude in early 2011, paving a path for the company to sell its medical device in Europe. ALung also expects to submit its paperwork with the U.S. Food and Drug Administration to begin clinical trials in the U.S. by mid-2011, DeComo said.

DeComo, who started his career as a respiratory therapist at UPMC, said ALung’s product treats conditions familiar to almost everyone.

“You can envision a friend or relative in the ICU,” he said. “That’s also helped with the funding.”

FUNDRAISING THROUGH ANGELS
To get to $14 million before clinical trials were complete, ALung took a nontraditional fundraising route that has been growing in popularity during the post-recession era.

DeComo first met with several venture capital firms — including some who staked his previous company, Renal Solutions, which sold in 2007 for $200 million to Germany-based Fresenius Medical Care — but got the same response.

“They all said, ‘Come back when you have human data,’” he said.

Since ALung was too early-stage for venture capitalists, DeComo decided instead to approach angel investors, and met with Mel Pirchesky, CEO of Oakland-based Eagle Ventures, to set up meetings between ALung and wealthy individuals.

Fundraising began in fall 2009, soon after ALung brought in $2.5 million from its existing investors, DeComo said.

Although it took 10 months, the South Side-based respiratory support company raised far more than its initial goal.

“Actually, we originally were looking for $6 million,” DeComo said. “Then we took it up to $8 million, then $10 million, and finally $14 million.”

The recession had an impact.

“Half the people I called got hurt by the stock market and had no liquidity,” Pirchesky said. “But the other half had cash and were looking to put their money in other places than the stock market.”

The price to invest was $250,000. Some angels banded together, forming limited liability partnerships, so 90 individuals translated into 50 shareholders at a total of $13.5 million. The final $500,000 came from a venture capital firm, North Side-based Birchmere Ventures. Birchmere partner Gary Glausser was not immediately available to comment.

Neither DeComo nor Pirchesky would identify the angels, except to say that they, and ALung COO Nicholas Kuhn, are among them. Pirchesky said two-thirds are Pittsburghers, and 90 percent are active or retired CEOs or entrepreneurs. Some are venture capitalists who invested their own money, DeComo said.

Large rounds by groups of independent investors is “absolutely” on the upswing across the country, said John Taylor, National Venture Capital Association research and financial affairs executive.

“The lines between traditional venture capital — from pension funds and endowment money — and angels is blurring,” Taylor said. “The trend is for angels to do larger rounds, but $14 million is fairly sizable and on the higher-end.”

Decomo said the capital should carry ALung through the end of 2011, but expects to launch another capital raise in six months. The amount has not been determined.