Biotech, An American Success Story

BioTime Inc. (AMEX: BTIM) announced a breakthrough agreement with Big Pharma. Israeli pharma giant Teva Pharmaceutical Industries Ltd. and BioTime’s majority-owned Israeli subsidiary Cell Cure Neurosciences Ltd. have entered into an exclusive license option agreement. Together, they will develop and commercialize Cell Cure’s Regen for the treatment of age-related macular degeneration.

As far as I can tell, this is the first Big Pharma deal with a subsidiary of a public stem cell company. Obviously, it is great news for BioTime. It is also, however, an important milestone in the maturation of regenerative medicine. I expect the entire industry to benefit from this agreement.

BioTime stock performance

Big Pharma, as you know, is famously risk averse. Typically, established pharmaceuticals shy away from early-stage technologies, preferring to pay more later for less risky therapeutics. In the past, pharma firms have waited for one of their own to act first. Then, fearing that they would be frozen out of an emerging technology, the herd followed. I’m not saying this was the beginning of the regenerative medicine spike, because the economy is still hurting. It is, however, a necessary precursor.

In this case, the actual arrangements of the deal are particularly interesting. Teva, while one of the 15 biggest international pharma companies, is also one of the least bureaucratic and most innovative. 2009 revenues were almost $14 billion, with more than 35,000 employees in 50 countries. Teva has major facilities in Israel, North America, Europe and Latin America. It has grown itself largely by providing high-quality generic drugs and is one of the largest generics manufacturers. Now it is expanding cutting-edge patentable therapies.

Israel is the logical place for this to happen. Israeli biotech is the most aggressive in the world. Israel has more startups per capita then any other country. BioTime’s minority stakeholder, incidentally, is Hadasit Bio-Holdings Ltd. Hadasit was “founded and floated” on the Tel Aviv Stock Exchange so the public could invest in IP generated by Israel’s leading medical research center – the Hadassah University Hospital. Hadassah has produced the majority of Israel’s hospital-based translational research.

Israel’s economy is more than able to spearhead this technology. Few Israeli banks were hit by the toxic debt that brought down so many countries. Moreover, the Israeli government didn’t make the Keynesian mistakes made by the US in response to the financial crisis. Israel’s stimulus package consisted mostly of tax cuts. The economy responded, as a result, in only two quarters. Growth this year was projected in August at 4.7% annualized.

I can’t help but editorialize a bit here, by the way. Twenty years ago, Israel seemed mired in socialism, much like Canada. Israelis, like Canadians, learned there are limits to utopian political visions and instituted market reforms. This should comfort the chronically depressed who believe America is sliding inevitably into permanent decline. Nothing is further from the truth.

The technology at the heart of this agreement, OpRegen, is a proprietary formulation of embryonic stem cell-derived retinal pigment epithelial cells. The press release says it was, “designed by Cell Cure to help save the sight of the baby boomer generation.” AMD is, in fact, the leading cause of blindness in the aging.

“The US Centers for Disease Control and Prevention estimate that about 1.8 million people in the United States have advanced-stage AMD and another 7.3 million have an earlier stage and are at risk of vision impairment from the disease. Most people are afflicted with the dry form of the disease, for which there is currently no effective treatment.”

This is also from the press release: “The ongoing development of OpRegen by Cell Cure is funded through equity investments by BioTime, Teva and Hadasit Bio-Holdings, made simultaneously with this agreement. Additional nondilutive funding for the development of OpRegen has been provided by the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of the State of Israel.

“Subject to the terms of the agreement, if Teva exercises its option to obtain an exclusive license to OpRegen, Teva will have responsibility for funding clinical trials from that point on, obtaining regulatory approvals and marketing the product.

“Cell Cure will be entitled to receive milestone payments and royalties if certain development, regulatory and commercial milestones are achieved. A portion of the milestone payments and royalties received by Cell Cure would be shared with BioTime’s subsidiary ES Cell International Pte Ltd. and with HBL’s affiliate Hadasit Medical Research Services and Development Ltd., the technology transfer arm of the Hadassah Medical Organization (‘HMO’), which have licensed to Cell Cure certain patents and technology used in the development of OpRegen invented by professor Benjamin Reubinoff and professor Eyal Banin.”

Now, I’d like to quote from BioTime CEO Michael West’s blog, where he puts the deal in perspective. I recommend reading the entire post. West is unusual among scientist-CEOs in that he really can write. Rather than paraphrase his words, let me go to the source.

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 upfront 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…

On Oct. 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 7 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.

This deal may be the first of its kind…but it won’t be the last!

Patrick Cox
for The Daily Reckoning

The Daily Reckoning