Date: Dec 01, 2012 Source: InBusiness (
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If you ever want to be humbled, truly humbled, attend a lecture by Dr. James Thomson, the UW-Madison cell biologist who cultivated the first line of human embryonic stem cells. Not only will you be introduced to what seems like a foreign language, you will gain a keener understanding of the sophisticated science being developed in Madison's biotechnology business community, an industry that Thomson is part of as one of the scientific founders of Cellular Dynamics International.
In our annual feature on Madison's biotechnology sector, IB's intent is not to blind you with science, but present a plain-English look at how local companies are developing both science and industry, and hopefully take some of the mystery out of what biotech companies do.
According to Russell Smestad, president of Stratatech, a Madison-based company that is developing therapeutic skin substitutes to treat severe burns and diabetic ulcers, the local biotechnology industry is comprised of about 160 companies, and one-fourth of them are engaged in developing new medicines or drugs.
In shining a light on their emerging contributions to medicine and health care, IB looks at a local company that's bio-marking its territory in the fight against autism and cancer, another that is developing hard-nosed proteins that can help researchers in extreme conditions, and a research tool company operating in a community where, thanks to a comparative lack of venture capital funding, such toolmakers are more prevalent.
We also delve into the innovative and expanding product-development efforts of the aforementioned Stratatech, profile a biotech start up that's doing battle with tuberculosis in the animal health market, and speak to a couple of accountants who are sounding an alarm for biotech companies that might be unaware that a new medical device tax also applies to certain biomedical products.
Stemming disease
You might say Stemina Biomarker Discovery is the very definition of a disease-fighting company. When CEO Beth Donley explains her mission, she includes definitions for metabolomics, the study of metabolism, and biomarkers, the small molecules in blood and urine that help measure the severity of a disease state.
Then come her product explanations. Stemina's cell-based platforms include the devTOX assay, a diagnostic used to prevent drug-induced birth defects, and the cardioTOX assay, a tool that predicts the cardiotoxicity of drug therapies. Both reside on the drug screening and toxicology side of Stemina, where the business receives new compounds from drug companies, large agri-chemical companies, or the federal government, and doses either human embryonic stem cells in the case of devTOX, or cardiomyocytes (cardiac muscle cells) in the case of cardioTOX, to determine whether a compound is likely to cause birth defects or cardiotoxicity.
Another side of the business focuses on biomarker discovery. Stemina is attempting to build a test for diagnosing autism using blood samples, which would be a welcome alternative to the existing diagnostic process, a behavioral scoring system in which most children are not diagnosed until age 4-1/2. Stemina is working to diagnose autism earlier so that therapies can be applied earlier, and also to determine whether different interventions make sense for different patients.
"The goal is to identify new targets for potential therapies, so we may have classes of compounds that could help ameliorate symptoms that we're not aware of because we don't understand the biochemistry of the disease very well," Donley said.
Stemina is involved in its first clinical study of blood from autistic patients at the Mind Institute at the University of California-Davis. If that study produces the desired results, the next step will be to establish a Clinical Laboratory Improvement Amendment, or CLIA lab, at Stemina. Under this regulatory exception, a test developed within a company, and delivered by the company, does not have to go through the usual regulatory approval process.
"We would get a CLIA lab certified at Stemina," Donley explained, "and we'd enroll patients to validate the biomarkers we discover in early clinical work so that a practitioner at the [UW] Waisman Center or the Mind Institute would conclude the test is definitive enough and be willing to request it."
Stemina would gather additional clinical data from patients at the CLIA lab to make an FDA submission and eventually place a diagnostic test on the market. The strategy is to get the buy-in of thought leaders in the Mind Institute and the Waisman Center, build a database of clinical results, and move to pediatricians and other first-line providers who would prefer a test they can deliver in the clinic.
Stemina has raised $3.25 million in state and federal grants, $4.6 million in angel funding, and is in the process of raising another $1 million while it waits to hear from the Environmental Protection Agency, which is soliciting proposals for its ToxCast program. Under ToxCast, the EPA is trying to build a computer model of human developmental toxicity, and Stemina is vying for a contract of between $5 million and $50 million.
"The proposal is to screen the ToxCast library of compounds using our devTox assay, and provide those biomarkers to their ‘virtual embryo' program," Donley said. "Right now, there are roughly 1,800 compounds enrolled in that program, and there may be as many as 10,000 over the five-year length of the contract."
Cancer is another disease in Stemina's crosshairs. The company has a $1 million contract with the National Cancer Institute to examine the biomarkers of cancer stem cells. In cancer research, cancer stem cells are thought to be the seeds of recurrence and metastases, so while existing treatments reduce overall tumor size, "we're not as good at killing the cancer stem cell, so it sort of just smolders there," Donley said. "The idea is to identify whether or not we are being effective at killing the cancer stem cell with therapy, and to monitor biomarkers in blood or urine to see if the cancer stem cell is still lurking somewhere."
This study is being conducted in collaboration with the UW's McCardle Cancer Center and with Drs. John Kuo of the UW and Jann Sarkaria of the Mayo Clinic, and the eventual goal is to create a personalized medicine approach to treatment. Donley said researchers might find effective therapies in drugs that didn't reduce tumors as rapidly as chemotherapy but could be more effective in killing cancer stem cells.
Rugged defense
Harry Rossiter Horn uses the term "ruggedized antibodies" in reference to proteins that have been engineered to be stable and work in elevated temperatures and other harsh conditions. Since they are being used for bio-threat detection in support of the Department of Defense's Advanced Research Projects Agency, they better be tough.
Horn, CEO and COO of StableBody Technologies, or SBT, a privately held protein engineering company, noted that SBT's products will be counted on to uncover bio-threats in very small amounts in the environment -- soil, water, and air -- and in the human body. What SBT hopes to become is an industry leader for the stabilization and optimization of proteins referred to as next-generation stable proteins (NGSP).
Whether they are next-generation or old-school, they must provide an added dimension over antibodies, which are proteins produced by the body's immune system. Antibodies generally are found in the blood, and they detect and destroy bacteria and viruses, but while they probably are the best detection systems, they have not been stable enough to use in extreme conditions.
SBT's proteins have shown protein stability at temperatures of over 80 degrees Celsius for many days; at room temperature, this protein stability has been calculated to more than three years. This provides the business case for SBT's product platform, which combines science and bioinformatics in the design stable reagents (chemical substances used to create a reaction in combination with another substance).
"We are working to reduce the amount of cold or cool chain storage and distribution costs for protein reagents," Horn stated. "These costs are in the hundreds of millions of dollars for the biotech, pharma, and diagnostic industries."
In addition to licensing its products to major pharmaceutical companies and the Department of Defense, which provide revenue and long-term royalty streams, SBT has a broad enough platform to branch out. The company is subcontracting on a grant from the National Institutes of Health that will add to its environmental detection capability by providing what Horn called a unique activity in the bioremediation field. "Our reagents cannot only detect environmental toxins, they can be used to capture those toxins and get rid of them," he stated.
SBT also has the opportunity to generate revenue through corporate partnerships. As part of these relationships, the company would provide its core technology for the creation of new compositions of matter. In addition to bio-threat detection and bio-threat countermeasure programs with defense contractors, its target markets include the health care industry.
In health care, it would sell directly to the developers of therapeutics, diagnostic, and detection firms. "We have a number of collaborations underway with revenue expected in the next 12 months," Horn indicated.
In addition, SBT has applied its technology to protein reagents in the cancer field. The program is focused on the development of diagnostic, therapeutic, and prognostic reagents for use in fighting aggressive solid tumor growth. Among its high-value proteins are ones that potentially can be used for the detection and treatment of vascularized tumors, a market that is approaching $50 billion.
As a result, the company is seeking private equity via angel investors. "We have been in business for three years now, and we're totally self-sufficient through contracts," Horn noted. "We now have a major cancer treatment and detection program that we want to accelerate and get to market quicker for the benefit of the cancer field."
The products will have to go through clinical trials for the health care market, but the company will not provide for that. That's where partnering is important.
"We believe our first cancer diagnostic reagent will be available within 12 to 16 months -- available for acquisition or licensing to a diagnostic company," Horn stated. "We will not have to go through the Food and Drug Administration approval process. We just develop the reagent, prove that it works, and then the company [partner] will take it through regulatory clinical testing."
Stem cell technology plays a role in product development. The cancer program is based on embryo-genic protein biomarkers (small molecules) produced in human embryonic stem cells -- the "Nodal" protein is a potent inducer of blood vessel growth -- and there also is potential for induced pluripotent stem cells, derived from adults, to aid the development of SBT's products.
"We're working on many targets and reagents at this time with various clients in the health care market, bio-threat defense, as well as environmental testing," Horn summarized. "We tend to refer to the old BASF slogan: We don't make the product [reagent], we make the product better."
Biotech toolbox
The mission of BellBrook Labs is to accelerate drug discovery, and in assembling a portfolio of proprietary tools for that purpose, the business has commercialized two technology platforms and found other ways to build value for the angel investors who have placed a total of $3.7 million of good faith in the organization.
President and CEO Robert Lowery has a good deal to show for his 10 years at the helm of BellBrook. It starts with the two technology platforms: Transcreener for biochemical high-throughput screening, or HTS, which enables researchers to screen thousands of different enzymes with just a few assays; and the iuvo micro-conduit array, another HTS device that uses special micro-channel geometries instead of wells to enable more realistic cellular models.
Transcreener is focused on specific protein drug targets because, in many diseases, researchers are able to identify a specific protein that acts aberrantly. To intervene in that disease, they want to develop a drug molecule that disrupts the function of that protein. "When the pharmaceutical companies or academic labs are screening these huge compound libraries, our assays tell them when they are getting a hit when one of those compounds is interacting with the target of interest," Lowery explained. "The main advantage of our platform is that it streamlines screening kits. They have four different assays, and between those four different assays they can screen thousands of different protein targets."
Whereas Transcreener provides screening for defined biochemical targets, iuvo is used to screen whole cells. The idea behind iuvo is to advance cellular assays' high-throughput screening by enabling people to develop cell models that are representative of the tissues in your body. Nearly all assays, or tests, are run with cells growing flat on a single layer of plastic, but that's not how cells grow in the human body. "What we're doing with iuvo is giving people a flexible platform that they can use to produce cell models that are much more physiologically relevant," Lowery stated.
Providing validation, BellBrook has entered into a deal with Thermo Fisher, one of the world's largest life science companies, to distribute iuvo.
Lowery believes research tool companies are more prevalent here because of Madison's unfortunate position as part of "fly-over" country. "It reflects the history of what's gone on in the area," he recounted. "One of the first companies in town on this was Promega. That's where they were focused.
"It also has something to do with the fact there isn't really the venture capital funding needed, like there is on the coasts, and that affects the scale of the things that you can do as a biotech company. A tools company doesn't take nearly the kind of investment that a drug-discovery company does."
Lowery's career path includes stints at Promega and Pan Vera, where the focus was on developing products specifically for high-throughput screening. At Pan Vera, he learned a great deal about drug discovery, especially some of the gaps and deficiencies associated with it. He started BellBrook Labs specifically to address "some real unmet needs in the market," and its assays were developed and launched with those shortcomings in mind.
In pharmaceutical circles, HTS tools are falling out of favor, but virtually all technologies are being questioned by pharma because companies are not getting drugs into the clinic at the desired rate. Drug companies also are trying to limit their risk in early discovery, shifting work to academic screening centers; in many cases, pharmaceutical firms are partnering with the academic centers and sending over their entire drug libraries.
With academic researchers picking up the slack, "that's where we are shifting our attention," Lowery noted. "We still sell the majority of our products to pharma, but the academic centers are catching up."
BellBrook also is concentrating on the Asian markets, especially China, and already has an established distribution partner, the St. Louis-based Sigma-Aldrich. "They have their foot in every door," Lowery noted, "and they are distributing our products there."
Lowery, who has written and reviewed applications for federal grants, capturing $8 million through the years, said differentiated stem cells would be used in the iuvo device. He recently submitted a grant for using cells differentiated into neurons in collaboration with Su-Chung Zhang of the Waisman Center. The objective is to develop better models for neuro information related to Alzheimer's disease. "Starting with stem cells, you can differentiate them into any cell type," he said, "and that forms the basis of more representative disease models."
It's not 100% accurate to say that Stratatech is on trial, but the fate of the business, and the lives of burn victims and people with diabetes, could be shaped by clinical studies now taking place. The company's lead product, StrataGraft, is the subject of those trials, which therapeutics must pass to determine safety and efficacy before entering the market.
StrataGraft, a full-thickness skin substitute, is a potential treatment for severe burns. Like most new therapeutics, it was developed to address an unmet need. "The current state of the art for treating such patients is an autograft, or skin transplant from a healthy part of one's body to the burn site," explained Russell Smestad, president of Stratatech. "What we are developing is a product that will be applied off the shelf onto that trauma site, eliminating the need to do an autograft."
Thus far, StrataGraft's performance in clinical trials has exceeded the company's expectations. A StrataGraft tissue is placed on a wound site on each patient in order to compare healing to an autograft on an equivalent wound site of the same patient. According to Smestad, all of the StrataGraft-treated sites have progressed to complete wound closure; typically, the closed wound at the StrataGraft site looks comparable to or better than a transplant of the patient's own skin. "That is just unprecedented," he asserted, "and it shows great therapeutic promise."
Next year, the company will progress into the clinic a therapy called ExpressGraft, a genetically enhanced product with antimicrobial properties for the treatment of non-healing diabetic foot ulcers, a common problem in diabetic patients; 80,000 patients per year have fingers or a limb amputated.
Lynn Allen-Hoffmann, Stratatech's CEO and chief scientific officer, said the trial for ExpressGraft is noteworthy for Madison and Wisconsin. "The ExpressGraft trial will be the first time that a genetically enhanced human tissue will be tested in the clinic," she noted.
Down the road, Stratatech also hopes to target venous leg ulcers, which are unrelated to diabetes but have many of the same issues involving disease progression and severity. That will require more capital or a corporate sponsor.
In the mind of Shawn Guse, tuberculosis is public enemy number one, at least for his new company, Intuitive Biosciences.
Earlier this year, Intuitive bought the assets of Gentel Biosciences, and is focused on commercializing serological (blood serum) tests it acquired from GenTel. The new company also makes research tools to serve the animal health market, but its innovation and proprietary work is centered on tuberculosis detection for the pharmaceutical, CRO, and academic research markets.
Tuberculosis is a contagious bacterial infection that starts in the lungs but can spread to other organs. To detect it earlier in animals, Intuitive has launched a serological test for tuberculosis in monkeys. "While we do a suite of animal tests, generating a novel test for tuberculosis is where we've staked our ground," said Guse, Intuitive's president and CEO.
It could prove to be more solid ground than other options. The animal health field is not quite as sophisticated as the field of human health, but that represents opportunity. "In cattle, really all species except humans, a positive tuberculosis test is usually a death sentence for the animal, whether that animal is used in laboratory work or food production," Guse noted.
Intuitive has released a TB test for service work, and is accepting customer samples for tests run in its own lab. The actual kits, which will enable customers to run tests in their own labs, will be released in early 2013.
To support the commercial ramp-up for the tuberculosis product, Intuitive is in the process of raising money, mostly from small venture funds.
Someday, the TB platform could have a human application, but for the immediate future, the company has chosen to focus on the animal market because it's a leaner, quicker path to profitability. Later on, if its board and investors want to develop a test for the human market, that would require additional financing.
"I had no clue before I got into this, but about one-third of the world's population consists of TB carriers," Guse said. "It's the number one preventable infectious disease in the world, and about 5,000 people die from it each day."
When the medical device tax was approved to help finance the Affordable Care Act, most industry observers thought the levy had a very specific target. As it turns out, there is some collateral damage because the tax also applies to certain biomedical products, including reagents or diagnostic kits.
The tax, which goes into effect Jan. 1, is a 2.3% levy on the gross receipts from the sale of an applicable product. Some biomedical companies might not be aware that they will be subject to the tax, which is part of the financing package for the Affordable Care Act, and they don't have much time to register with the government in order to sell such products.
According to Ed Maginot, Wisconsin tax practice leader for Grant Thornton, various biomedical products got caught in the net during the regulatory ramp-up. "The way this rule was enacted, the Internal Revenue Service did not want to monitor or define what a medical device was," he said. "They wanted to use a pre-existing definition, so they looked to the Food & Drug Administration, which has a database for everyone that's registered. They are using that as the bright-line test as to whether you are subject to this tax."
Maginot said affected companies must figure out the process by which they will invoice customers, collect the tax, and remit it to the government.
Denise Miley, a director in the Minneapolis tax practice for Grant Thornton, said there is no exemption for sales to universities or exempt organizations; the only allowable exemption is for products used exclusively in research. "Even then, the definition is very narrow and the product is granted that exception because research-only products are not required to be FDA-registered," she added. "If the product was FDA-registered, it would be subject to the tax even if it was exclusively used for research."
Failure to register carries a hefty fine of $10,000 for the initial failure and an additional $1,000 per day, Miley indicated. To be in full compliance, not only do companies have to be registered with the IRS (Form 637), the registration has to be approved by the IRS before they sell the products.
For more information on applicable products, visit:
www.fda.gov/MedicalDevices and click on "Device Registration and Listing" under Tools & Resources.
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