Durham, NC:November 2006:Triangle Business Journal

Enthalpy Heating Up

DURHAM - Ericka Gowman drops tiny rat brains into long test tubes that contain a clear solvent. One after another, she drops the pink masses until she finishes a batch of 100. The liquid inside will homogenize the brains and ready them for examination by a chromatography machine.

That analysis - performed for biotech and pharma companies that are clients - will show whether the client's drug has caused a spurt in the output of some brain chemicals. The information is essential in helping a drug-development company decide whether a medicine has promise or not.

While the use of rat brains might elicit a squeamish response from non-science types, they are valuable in the work done by Enthalpy Analytical Inc., where researchers might also be using plasma, serum, blood, urine, feces and tissue to further drug discovery.

By testing molecules and compounds for drug companies that want to zero in on the most promising drug candidates, Enthalpy has grown revenue by 15 percent to 30 percent annually and currently employs about 50 people.

This year promises to be one of the best in the company's 13-year history. Revenue is expected to double to almost $6 million in 2006, says Todd Grosshandler, an Enthalpy co-founder.

Enthalpy's analytical tests ascertain how safe and effective a chemical or compound will be when delivered into animals - invaluable data for drug firms that later will test the drug on humans.

For example, one common reason for abandoning a drug candidate is its inability to enter the human bloodstream, a "very critical element" in the discovery phase, says Steven Eckard, a co-founder of the company.

Enthalpy invested early on in the machinery to perform such tests, buying five liquid chromatography and mass spectrometer machines. With each priced at about $500,000, the machines are expensive, but they give the company the ability to test about 200,000 samples in a year.

In studying what technology would best help the company, Grosshandler and Eckard spent hours examining technical specifications as well as the volume of work each machine could do - a factor that translates into sales revenue, says David Clark, a senior business banker with Wachovia Bank, which has provided Enthalpy debt capital.

"Not only are they good scientists, they are extremely competent business people," says Clark.

Grosshandler declined to identify clients, but he says Enthalpy has about a dozen sponsors, with each testing dozens of drug candidates. In a work place where flexibility is prized, one constant remains: projects must adhere to deadlines.

Enthalpy competes with giant clinical research organizations such as Quintiles Transnational and PPD and with the labs of big pharmaceutical companies. It was in the early 1990s, when Grosshandler and Eckard, who were working side by side at Raleigh-based Entropy Inc., began looking into launching their own venture.

In 1993, the two began Enthalpy in the garage of a neighbor of Eckard's in Raleigh. The company began as an environmental testing company, checking air samples. Enthalpy means "to heat." Grosshandler concedes the name does not describe the work of the company, but it is a "catchy phrase that scientists relate to."

The company's initial contracts came solely from Entropy, their previous employer, but the co-founders realized the danger of relying on a single customer and began expanding the client base. It was a fortuitous move, given that Entropy went belly up a few years later.

During the early years, both founders say they took small salaries and no share of the profit. To this day, they say the company is not their sole focus. Their families get equal attention.

"We're more of a lifestyle company," says Eckard.

Both Eckard and Grosshandler have close relatives with jobs in the pharma business, and the potential of the industry quickly dawned on them. Around 1998, the company began building a bioanalytical capacity and hired an executive with years of such experience. Grosshandler took on a sales and marketing role, while Eckard retreated to focus on quality assurance and operations.

The company since has consistently met revenue goals. "Our proactive approach has really prevented us from facing a significant challenge," says Grosshandler.

In 2000, the company's founders bought 11 acres of land that includes a small lake just off Ellis Road in Durham.

There, they built a 20,000-square-foot building and subleased about half of its space to a small biotech. Enthalpy next year plans to take back the space leased to Athenix Inc. as its own space needs increase.