Forever Labs Inc., an Ann Arbor stem-cell company that graduated from the prestigious Y Combinator incubator program in Silicon Valley in 2017, has started raising a Series A round of funding that it hopes to close out soon at $6 million to $8 million.
Company CEO Steven Clausnitzer said one use of funds will be to increase the sales and marketing team. Forever Labs stores something called mesenchymal stem cells, which are taken from customers' bone marrow and can be reinjected years or decades later to fight diseases or slow the aging process.
The company currently partners with 17 physicians around the country. They withdraw bone marrow from customers in a 15-minute procedure and ship it to Ann Arbor, where it is processed in a centrifuge to concentrate the stem cells, which are then grown into much larger volumes, from tens of thousands of cells to hundreds of millions. They are then shipped to an FDA-compliant biorepository in Indianapolis and cryogenically frozen and stored.
One of the doctors is Michael Banffy, the team physician for the Los Angeles Dodgers baseball team and the Los Angeles Rams football team.
Forever Labs' graduation from the three-month Y Combinator program in the summer of 2017 came with a three-minute pitch for capital before 700 would-be investors. That resulted in seed funding of $2 million, which included institutional investors — Milwaukee-based Northwestern Mutual Capital LLC; FundersClub, an online community for accredited individuals; Silicon Valley-based Babel Ventures and Silicon Badia, a VC firm based in New York and Amman, Jordan — as well as wealthy individuals, including Kevin Love, a player for the Cleveland Cavaliers of the National Basketball Association, and Li Jiang, an investor in tech startups who early in 2018 posted a video of himself getting his bone marrow extracted.
Subsequently, Forever Labs, which was founded in 2015 and had raised $750,000 from friends and family before starting at Y Combinator, raised an additional $1.5 million for its seed round.
It is hoping the new funding round will include its first investments from Michigan venture-capital companies. The company is headquartered on Main Street in downtown Ann Arbor with a laboratory on Wagner Street on the west side of the city.
The company currently has 12 full-time equivalents and hopes to be at 15 in February with the hiring of three more for its in-house sales team, which currently is two people.
"I think we're one of the coolest companies in the country, but people in our backyard don't know us," said Clausnitzer. "People were trying to recruit us to Silicon Valley after Y Combinator. There was a rich network of support there, but we're Michigan guys. We wanted to be here. And it's maybe a fourth or less to pay for office and lab space here."
Clausnitzer grew up in Brighton. Company president, chief science officer and co-founder Mark Katakowski is a native of Rochester who got his Ph.D in medical physics from Oakland University in 2005. They are the largest shareholders in the company.
There are two other co-founders — Edward Cibor, the chief management officer who also went through the Y Combinator program, and Laith Farjo, a physician and chief medical officer.
"It is a real sign of how far the startup ecosystem has come here that a company like Forever Labs can successfully get through Y Combinator, raise several million dollars, and still be under the radar in our community," said Chris Rizik, CEO and fund manager for Ann Arbor-based Renaissance Venture Capital, a fund of funds that invest in VC firms willing to do deals in Michigan.
"The team at Forever Labs has clearly identified an opportunity on the cutting edge of health care, banking on the direction of future medical breakthroughs and the role that personal stem cells will play. If the future develops in the way they envision, the work that they're doing now will be incredibly valuable."
Storing the stem cells is a bet by customers on future breakthroughs using the stem cells.
Under federal guidelines, if mesenchymal stem cells taken from patients are grown and then frozen, they can only be reinjected for therapies approved by the U.S. Food and Drug Administration. No uses have been approved yet, but there are about 1,000 trials in various stages nationwide that have been approved by the FDA, and it is generally assumed that future primary uses will focus on treating age-related diseases such as osteoarthritis, stroke and heart disease.
One Phase 2 study on regenerative treatment for heart failure is expected to finish in May at the University of Texas Health Science Center in Houston, with sponsorship by the National Heart, Lung and Blood Institute. Phase 2 studies test for efficacy, which if proven leads to larger Phase 3 studies to test whether a treatment works in a broader sample of patients.
"Establishing safety and efficacy in a clinical trial process results in the best medicine in the long run," said Katakowski. "It is difficult to say which applications are going to have the most success or be approved. However, we believe that the writing is on the wall. Stem cells are growing more clinically valuable, and your stem cells accrue damage and decline in function with age. I anticipate that one day, storing our young biology will be part of standard medical practice."
Forever Labs didn't get into Y Combinator the traditional way. The incubator hosts 100 companies at a time at two cohorts a year. About 14,000 startup apply each year. But not Forever Labs. "We didn't apply. They weren't even on our radar," Clausnitzer said.
Clausnitzer and Katakowski met at Clausnitzer's wedding in 2004 and became friends.
In 2015, the two of them were chatting on the phone. Katakowski was a research scientist at Henry Ford Health System and Clausnitzer was a manager of business development at American Express, and Katakowski told him research he was working on showed that mice who had been injected with stem cells lived longer and had fewer effects from osteoporosis.
"When we gave late-middle-age mice genetically-matched mesenchymal stem cells from young donors, we increased their life expectancy," Katakowski told Crain's.
At the time, Katakowski was about to turn 40, and he told Clausnitzer he thought it would be cool, and helpful, to bank his own stem cells for future use.
"He's telling me that, and I'm getting excited. I was 38," Clausnitzer said. "I like to joke that Forever Labs was born out of our own midlife crises."
Like kids in old black and white movies saying "Let's put on a show," Clausnitzer and Katakowski said "Let's start a company." Forever Labs was launched late that year and Clausnitzer quit his day job. Katakowski quit his in 2017.
In 2016, Katakowski was on Hacker News, a social-media site affiliated with Y Combinator that focuses on technology and entrepreneurship. Someone had posted a link to a clinical trial studying the effects of using mesenchymal stem cells to treat stroke victims. The posting claimed that patients were experiencing benefits even months after their strokes, and Katakowksi posted that because of the therapeutic value of stem cells, he had not only banked his own stem cells but had co-founded a company to do the same for others.
"We were deluged with calls," said Clausnitzer. Soon, executives at tech companies in Silicon Valley were flying to Ann Arbor to get their stem cells banked. One was Paul Bohm, an active angel investor and the creator of something called the Dropbox LANSync protocol, which syncs files on local area networks.
Clausnitzer and Katakowski were also invited to Silicon Valley, where they met with potential customers and pitched the benefits of stem cells. One presentation was before 50 techies at a big house in the valley.
"People started writing us checks," said Clausnitzer.
Sam Altman was the CEO of Y Combinator in 2017. He heard about Forever Labs through the Silicon Valley grapevine and asked Clausnitzer and Katakowski if they wanted a spot in the next class. "We moved out there for three months, even though my wife was three months pregnant," said Clausnitzer. "It's amazing. Y Combinator takes you from zero to 100 miles an hour."
(Altman is now the CEO of OpenAI, a lab co-founded with Elon Musk to conduct research into artificial intelligence.)
While at Y Combinator, Katakowski also made a one-hour presentation at Google headquarters.
There was enough interest that Forever Labs needed to find a Bay Area doctor to do the bone-marrow withdrawals and signed on Chad Roghair, who has a practice in Berkeley.
While the storage of stem cells from umbilical cords has been common since the 1990s, Forever Labs was the first company to store adult stem cells for future use, though several others have launched since. Clausnitzer says a four-year head start on the competition will continue to be an advantage, as well as three patents it has applied for and others it is working on. "We think competition is a good thing. It helps get the word out," he said.
Other companies include Vault SC Inc. of Marietta, Ga., and BioCardia Inc. of San Carlos, Calif.
One of the patents Forever Labs has applied for covers the process for exponentially growing the number of a patient's stem cells, something Katakowski calls dynamic incubation.
Clausnitzer said the company expects to pass the 1,000-customer mark early this year. One customer is John Bogdasarian, the president and CEO of the Promanas Group, a real-estate investment firm in Ann Arbor, who posted a YouTube video about banking his own stem cells and who provides stem-cell banking for all of his employees as a fringe benefit.
Forever Labs has two payment options. One is to pay $750 upfront and then $250 a year. The other is to pay a one-time payment of $5,000 with no annual fee.
Generally, customers tend to be in their 30s, but Katakowski said his 71-year-old father has had his stem cells banked. If he needs stem cells implanted when he is 80, for example, his 71-year-old cells will be more vigorous than his 80-year-old cells.
Currently, three doctors in Michigan do the procedure, in Brighton, Troy and Rochester.
Forever Labs has also started a pilot with Kirkland, Wash.-based Sono Bello, which runs a national chain of liposuction facilities. Fat also has high concentrations of stem cells. Doctors at a Portland, Ore., facility will let liposuction patients know about Forever Labs and see if they are interested in having a bone-marrow procedure as well.
If enough of them are willing to pay for it, Clausnitzer said Forever Labs will sign a contract with Sono Bello.
Contact: [email protected] (231) 499-2817; @TomHenderson2
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