The Cyclic Nature of Biotech Revolutions

We all can probably remember a time when we met someone who indelibly impacted our lives. In the mid 1990s my life was influenced by a series of meetings I had with Bob Swanson, one of the founders of Genentech. Bob was a man with extraordinary vision, a near clairvoyant ability to sense business trends. Upon being briefed on the then-confidential project to isolate human embryonic stem cells, he pulled me aside and whispered something like the following:

“So here is how it will all play out. First off, this will be a really big deal. It will be like recombinant DNA, a revolution that will change everything. And like recombinant DNA, it will be very controversial. I used to spend most of my time in Senate hearings explaining that we were not trying to play god, or create an Andromeda Strain or something like that. Then with time the technology will become part of the establishment of science, the clouds of controversy will blow over, and that is when the real business will begin. That is when big pharma will enter the field.”

During most of the history of biotechnology, small companies have been the hotbed of medical innovation. But these small firms generally lack the capital to fund the expensive clinical trials necessary for FDA approval and launch of new therapeutics. Therefore, the biotechnology industry has long depended on partnerships with large, profitable pharmaceutical companies to help them fund this work. In reward for funding the development costs, the large partner gets to sell the final product and capture the lion’s share of profits. And the smaller biotechnology company is generally rewarded with up-front monies, substantial milestone payments, and a royalty on future product sales.

The problem with this model is that many biotech companies do not have a broad technology platform; they sometimes have only one or two products, and therefore these collaborations often “give away the shop,” leaving little left for the company to develop on its own. In the case of companies in the emerging field of regenerative medicine using human embryonic stem (hES) cells, the problem is not one of giving away the shop. There are many hundreds of potential new therapeutics possible now that we have a means of manufacturing all the cell types of the human body.

The problem in the case of hES cells, as predicted by Bob Swanson back in the mid 1990s, has been in part the clouds of ethical controversy. The ethical debate has slowed the entry of large pharmaceutical companies into the field. But as Bob also predicted with hES cells, and as we saw play out in the previous controversies over recombinant DNA, these important new revolutions in medicines are progressively entering mainstream therapeutic development. The skies really began to clear with the State of California funding $3 billion to advance the technology and with President Obama’s efforts to free up federally funded research. And with those clear skies, deals are beginning to take place.

On October 10, 2010, BioTime announced a deal between BioTime’s majority-owned subsidiary Cell Cure Neurosciences Ltd. and the pharma giant Teva Pharmaceutical Industries Ltd., both based in Israel. This is the first in what we hope will become a series of strategic corporate alliances for BioTime subsidiaries that will fund the expensive development costs of a wide array of therapeutics in a manner minimizing equity financing and consequent dilution to BioTime shareholders.

In the Cell Cure/Teva agreement, Teva has an option to complete clinical development and to commercialize one cell type – retinal pigment epithelial (RPE) cells for the treatment of retinal disease. While the potential market for a treatment for macular degeneration is very large (some seven million Americans are at risk of the disease), this agreement still leaves all of our other potential therapeutic products, including the greater than 140 diverse and scalable progenitor cell types that we have isolated from hES cells, open for future possibilities, including commercialization.

Our subsidiary strategy also allows the management of each subsidiary to focus on a specific therapeutic area. In the case of Cell Cure, there is a dual focus on neurological and retinal disease. So building subsidiaries in particular disease applications facilitates the optimization of the science and commercial collaborations to improve the probability of that company becoming an industry leader.

Cell Cure’s agreement with Teva is, to the best of our knowledge, the first collaboration in the embryonic stem cell space between a large pharma company and a subsidiary of a public stem cell company. We hope, for the sake of patients, and for the future of the stem cell industry, that many more such commercial agreements will follow, speeding the delivery of new cell-based therapies to the patients who so desperately need them.