As many people know, investing in speculative biotech is something that really interests me. One of the most exciting fields in the sector is regenerative medicine and all its potential applications. Information is the key to a successful investment, so I often reach out to those who actually operate in the field. Imagine my surprise when Dr. Michael West, one of the founding fathers of regenerative medicine, agreed to be interviewed about his current company BioTime (BTX) and the current state of stem cell technology investments. Before just diving into the interview, let's review BTX and its current standings within the financial markets.
The Company
BioTime, a biotechnology company headquartered in the San Francisco Bay Area, which focuses is on biomedical research and product development in the relatively new world of regenerative medicine.
Unlike most small biotech companies, BTX is made up of many subsidiary companies that have a variety of disciplines. The research and development side of the house is focused on developing new therapeutics for age-related degenerative disease. Here one finds the subsidiary companies Cell Cure Neurosciences, OncoCyte, and OrthoCyte who is developing cell-based therapy for age-related macular degeneration, therapies for cancer, and arthritis. Finally in the R&D side there is ReCyte Therapeutics that is using proprietary technology to reverse the developmental aging of human cells to manufacture young vascular progenitors for the treatment of age-related vascular disease. Below is the latest SEC filing breakout of ownership for the company.
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Under the commercial product side of the house BTX uses proprietary technology to developed research- and clinical-grade human embryonic stem (HES) cell lines. These lines are marketed to researchers, scientists, universities, and companies. The subsidiary ES Cell International (ESI) has developed six HES cell lines that are among the best-characterized and documented lines available today. These cell lines have also been approved by the National Institutes of Health (NIH) and are included in the NIH Stem Cell Registry. The company also markets an FDA-approved blood plasma expander called Hextend which is currently marketed in the United States in collaboration with Hospira and in South Korea under an agreement with CJ Corporation.
Financial Statements
Even though BTX does generate revenue, its cash flow does not cover its research and development costs. Total revenues for the three months ending March 2013 were $431,724. Expenses for that same time frame were $8,811,633, which calculated the net loss to be $8,408,545 for the most recent quarter. Obviously BXT must still be classified as a speculative biotech investment as current revenues do not cover the current cash burn.
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Balance Sheet
Looking at the company's assets it shows that cash and cash equivalents come in at $9,896,335. This is a $5,546,368 increase in the balance that was reported the previous quarter. Obviously cash infusions into the company come from private placed investors or stock offerings. Total assets for the company stood at $35,297,393 as of March 2013. The total liabilities (both current and long term) totaled $1,019,429 which was a small $50,000 decrease from the previous quarter.
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Notable Events
BTX's does have a couple of events that are important to consider. First is the relatively near-term product development of Renevia which is a patented hydrogel device for cell delivery. Also there is the PanC-Dx technology which is a blood-based pan-cancer screening diagnostic.
Another notable event is the acquisition of all the intellectual stem cell property from Geron (GERN) for $10 million. It seems that GERN, once a big stem cell development company, made a decision to abandon the stem cell lines and focus on other endeavors. BTX picked up 400 patents and applications in the process.
Management
Dr. West is the Chief Executive Officer of BioTime. Prior to BTX Dr. West served as Chief Executive Officer, President, and Chief Scientific Officer of Advanced Cell Technology, Inc. (ACTC.OB). He also founded another well-known biotech company, Geron Corporation (GERN). Below is the interview that was conducted on Friday, June 28, 2013.
Interview
Michael - Unlike many speculative biotech companies that are single entities, BTX is really made up of an array of many subsidiaries that span across the globe from the US to Israel and the Far East. How difficult is it in managing such a vast biotech network on limited budgets?
Dr. West - You know, managing a company in this field is challenging, because it's a platform technology. All the way back when Geron began we always imagined that this platform technology could potentially be broader in impact than recombinant DNA. You are no doubt familiar with the Genentechs and Amgens (AMGN) of the world. They could cut and splice to make anything with DNA, but here you were looking at all of the cellular components of the human body. We always imagined the day when we would have multiple business units under one umbrella.
I left Geron in 1998 to head Advanced Cell Technology. My interest at the time, and of course you know ACT at the time, was involved animal cloning. It started as a chicken genetics company and gravitated toward animal cloning for agriculture. I wanted to turn it into a stem cell regenerative medicine company, but the focus was reprogramming or cloning. With the sale of the agricultural business to Cyagra, we really began to focus on human cell regenerative medicine. We were seeing the problems GERN was having with manufacturing, and those problems were significant. The stem cells are indeed capable of making all the cells in the human body, but making a highly identified and purified product when there are thousands of cellular contaminants is extremely challenging. So what we did at ACTC was pick a low-hanging fruit, the retinal pigment epithelial (RPE) cell itself. It turns dark and that is why they call it pigmented. They have a very unique shape, so as we say a low-hanging fruit, relatively easy to purify and manufacture compared to all the other cellular components in the body.
In 2005 when a branch of ACTC moved to California, we started what we called the "ACTCelerate" Initiative. It was an effort to solve this manufacturing problem and get the technology back to the original vision, which could deliver the product on an industrial scale. We were talking about all of the cellular components of the human body, not just RPE cells, because it isn't just the eye that needs regenerative therapy. That ACTCelerate Initiative we licensed into BioTime and that was the first foundation stone we started to build here at BTX when I came over here. We acquired that from ACTC and then built upon that. Now have over 200 scalable and purified components of the human body, which we now collectively call PureStem Technology. So we're back to the original model and vision that is building a new era in medicine.
Michael - As exciting as stem cell research is, it does have some noted failures. One event was the announcement by Geron to basically terminate their stem cell programs. I found it very interesting that BTX stepped in and secured Geron's intellectual property, cell lines, and other assets related to its stem cell programs. What did BTX see that maybe others did not in this transaction?
Dr. West - What I saw was one of the biggest ideas in the history of biotech. It's amazing to me that big ideas are not appreciated in the beginning. With Geron, you know, I struggled in the early days to find financing. Eventually I was fortunate enough to get one of the world's leading venture capitalists to be the lead funder of the company, Kleiner Perkins. Kleiner Perkins told me the story that the business plan for Genentech was in front of them which dealt with the revolution of recombinant DNA.
By the way, recombinant DNA was very controversial in the first years, you know. Kleiner made the point to me that they sent the business plan for Genentech around to every member of their scientific advisor board, and each said that no one will ever make drugs using recombinant DNA technology. You know, today recombinant DNA is one of the most powerful technologies in modern medicine. I mean, we can't even imagine what the world of medicine would be like without recombinant DNA today.
Well, what I saw in Geron is the patents and the people primarily. Patents are really important because they allow you to protect yourself from unfair competition. They allow you to do deals, help raise investment. The work we had done at Geron was the first really significant patents on manufacturing dealing with various techniques for creating products from human ES cells. We had very broad claims overarching throughout the neuroscience and cardiovascular fields; pretty broad claims. So patents were really important part of the asset I saw.
The second, of course, was people. Ultimately companies are people. People invent the patents and develop the products. People get them through the FDA and marketing. The team at Geron was widely recognized as the world's leading team. Suddenly new management came in and decided that they did not want to do this. This did not change my view of the Geron team, as they put in a heroic effort. Their trials were the largest IND filing in the history of the FDA. I mean it was an enormous effort on their part and the most experienced team in the world at regulatory issues with pluripotent stem cells. So it was a no brainer from my standpoint.
Michael - Let's turn our attention to your financial statements. During the three months ended March 31, 2013, BTX received $1,197,092 of cash from operations. The company had $9,896,335 of cash and cash equivalents on hand, and received an additional $3,000,000 during April 2013 from a private investor. Then in early June 2013 BTX closed the equity financing and received gross proceeds of $9,057,966. Also BTX reported that during the three months ended March 31, 2013, the net cash used in quarterly operating activities amounted to $7,021,682. Doing the math is seems you are financed till the end of 2013. Do this give BTX enough financial breathing room to operate in a manner you thing is acceptable?
Dr. West - Let me begin by giving you some perspective, also from my Geron days. I was privileged in that the Geron Board used to have Bob Swanson join in frequently. Bob was the founder of Genentech. Genentech was really the first biotech company most people heard of back in the field's early days. They raised about a billion dollars before profitability, and were able to do so successfully.
I am not a believer that this old model is viable today. Even at Geron we had in our board room a picture hanging on the wall to remind the board of the climate that we were in at that time. It was a picture of a desert and the concept was to remind ourselves that this is a long journey without any water. It's a long slog through the desert until we finally make it to profitability.
It is worse today because investors' patience is far less today than it was in the past. So what we're doing at BioTime is something very different. We are focusing on some near-term product applications that are strategic. These are things that we would need to build anyway for this regenerative medicine business, but they have significant revenues. We believe in the near term to build these little oases along the way across this desert. It's a different strategy, and we're trying to not unduly dilute our shareholders.
The old model I think would lead to potentially tragic dilution to shareholders if you tried to survive all those years until you have an approval and a marketed product. The question is "Can you survive all the sharks in the water?" because, you know, there are sources of capital for development-stage companies that are toxic.
If you can make it that long, you potentially could have a profitable company someday, but that's a model I don't have confidence in, so we're doing something very different. We're doing capital raises as needed. We're leveraging heavily our relationships with corporate partners. We have an RPE product in development in our subsidiary CellCure that is partnered with Teva Pharmaceuticals [the $33 Billion Israeli pharmaceutical company] (TEVA), so we're using corporate partnerships.
We're raising capital just as it's needed, and we're focusing heavily on near-term but strategic products as an oases along the way. The goal is to make it to the point where our big products can be marketed. You have to have a financial plan that can get you there, and that's what we believe we have. That is why we do things the way we do. An alternative would be to go out and raise hundreds of million dollars in the capital markets and we're trying to do the best by our shareholders. That is why we're doing what we're doing.
Michael - The clinical pipeline for BTX is large. It seems the near-term product development is focused on a couple of exciting technologies. First is your subsidiary named ReCyte Therapeutics, which is developing a therapy for the treatment of age-related vascular disease. The others are Renevia, a patented hydrogel device for cell delivery, and PanC-Dx, a blood-based pan-cancer screening diagnostic. Can you give us a little more information on these technologies and where we are in their development? Also of these technologies, which most excites you as a CEO?
Dr. West - Let me divide that into two categories. What I'm excited about from a business standpoint and, what I'm excited about from a scientific and humanitarian standpoint that I think is really going to change the world for people and for medicine.
I'll start with the commercial, because they're different things and different worlds. In no particular order, the first one that comes to my mind is our HyStem technology. We call it Renevia as the brand name. I'm not going to state where we are on that, because I haven't disclosed it, but we hope to be initiating clinical trials this year. I'm excited about this from both a scientific and commercial standpoint.
Remember, the vision of regenerative medicine is to regenerate tissue function with cells, sort of like a parts supply store for the human body. It's similar to the concept that you can keep an antique car going by replacing broken components. We want to do that with the human body; that's the vision.
The problem is if you inject cells into a tissue through a syringe in, say salt water and saline, they die, the majority of them die. The reason is human cells are genetically programmed to die if they are not in a matrix. It's just biology. They call it anoikis, "an" meaning not, and "oikos" is a Greek word for house. Without a house, homeless in other words, if they're not sitting in this matrix, their home, they will die. It's a well-known phenomenon. Cancer cells mutate that and they're fine without a matrix. You know nerve cells, heart muscle cells need this. What the field needs is a matrix that you can inject cells with and put them into the body. The problem is that lots of matrices out there are all rigid and you can't put through a syringe.
What we found was a unique piece of technology. It's like epoxy glue where you can make the two critical components of the matrix for the cells to live in, hyaluronic acid and collagen, and you can inject them through a syringe. Then they will cross-link and make something almost like fabric, a matrix that cells need to attach to in the body. It can form in the body and do the chemistry in the body safely, and no one has ever figured out how to do that.
It's got very long patent life out to I think 2027, and we're developing it as a cell delivery device in Europe. That's where we're going for CE marking [a mandatory marking for products sold in Europe], which is the appropriate regulatory approval for this product. We are going after an application where we don't need to get cells approved.
One example is the relocation of fat cells from one part of the body to another. That transplantation of fat cells from one person to themselves, they call that "autologous," and in most places in the world it does not require regulatory approval. You know, many people utilize their own fat as a result of aging, surgery, or for cosmetic purposes. So the only approval required is the device, Renevia.
We think this will be a strategic product for companies and applications of regenerative medicine. We think we can get a near-term approval relatively easily for an immediate application for fat transplantation, which is a significant market cosmetically. So we're excited about that both from a commercial standpoint and a scientific standpoint.
We have other near-term products we're focused on. One is our Database subsidiary, LifeMap Sciences, a regenerative medicine database. That's the compendium of three major databases that has over two million users. This is one of our near-term commercial strategies: to monetize that asset.
If each user pays a certain dollar amount per year for a product, that could be substantial revenue for the company. So we're working to monetizing that database just like any of these other databases like Facebook (FB) would do with its users. This is also strategic because this database of human cell types is critical in this new generation where we're entering.
We also have a cancer diagnostic and some other near-term products which we're focused on. What I'm most excited about both scientifically and from a humanitarian perspective, is based upon my career as a gerontologist. I started Geron based on telomere biology, this clock of cell aging. ReCyte, our subsidiary working with blood and vascular applications, is working on reprogramming cells. It's like resetting the clock, the telomere clock of cell aging and taking a cell from a patient back to this embryonic state. This is where you can make all cell types identical to the patient, but having rewound the clock of cell aging. That was why I went to ACTC, to work on this.
You may remember the early work we did there showing that cloning could reset that clock in animal species. This is really my passion. The number one killer of degenerative disease in the world is degenerative heart disease, coronary disease and associated heart failure. We believe that cellular aging, in particularly in the vascular system, is the trigger point for this number one killer. If we could rebuild the vascular supply to an aging heart and effectively treat that disease, it would be a huge market. I'll let you run the numbers, but you know they make a few billion dollar product look paltry.
This is an enormous application, and as a gerontologist I have set my whole life to applying our understanding of cells and DNA to the problems of aging. If we can get such a product approved, it would be my personal legacy. This is what I want to do the most.
It's probably the longest term of the products. It's not as near-term as Renevia or PanC-Dx, our cancer diagnostic, but it's something that is going to change the world. You know I lost my father with a heart attack. I think we've all seen the impact of heart disease in friends and family. This is a long-term, ultimate goal in my life, which is to make that therapy a reality.
Final Thoughts
First, I would like to once again thank Dr. West for taking the time to participate in this interview. He answered every question in a thoughtful manner and was very generous with his time. Finally, I would like to make it clear that I was not compensated by BioTime or anyone else to compose this article. I am a simple individual investor and contributor to Seeking Alpha, and nothing more. My intent here is straightforward, and that is to gather as much information as I can for myself and those interested in stem cell technology.
Disclosure: I am long ACTC.OB, BTX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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