Market Report: Dane County's Biotech Industry

From the pages of In Business magazine.

Biotechnology executives must feel like the Rodney Dangerfield of industry — getting no respect, or at least not enough appreciation. Yet that attitude is unwarranted for an industry driving advances in science and medicine, improving the quality of life, and prolonging the duration of life.  

The lack of support is reflected in state and federal budget cuts, exclusion from the state’s new Badger Fund of Funds venture investment program, and a general lack of national vision. So despite the sophisticated science in evidence here and elsewhere, the industry isn’t all it can be, according to executives and researchers.

While economic measures need updating, the 2014 Batelle/BIO report pegged Wisconsin’s bioscience industry at 32,000 jobs spanning 1,391 businesses. In Dane County, the biotech cluster alone (not including scientific R&D or medical device firms) featured 88 businesses that employed 6,450 people and reported $1.65 billion in annual revenues, according to Madison Gas & Electric’s 2013 Directory of High Tech Companies.

From ABS Global’s bovine genetics to United Vaccines’ veterinary biologics, local biotechs continue to add jobs and tax base despite state and national headwinds. In this Market Report, we examine the state of biotechnology.

Would UW System budget cuts harm biotech?

When Gov. Scott Walker earlier this year proposed cutting $300 million from the UW System, many of the governor’s most ardent critics queued up to criticize the measure. But for leaders in the state’s promising biotech industry, the proposed cut has been more of a bottom-line issue than a partisan one.

Already prohibited from taking advantage of the Badger Fund of Funds venture capital program, the state’s biotech industry could be dealt another blow if Walker’s proposal survives the budget process. In February, Exact Sciences CEO Kevin Conroy co-authored an op-ed for the Milwaukee Journal Sentinel in which he derided the proposed cut as a likely “blow to a key source of potential economic growth” in the state.

On Feb. 11 at the In Business Executive of the Year Awards, he echoed those sentiments. “Fifty percent of all our lab employees and R&D employees come from UW-Madison,” said Conroy, who was named 2015 Executive of the Year at the awards program. “Without the city of Madison and the strong University of Wisconsin that’s steeped in the life sciences, [COO] Maneesh [Arora] and I would not have been able to bring Exact to Madison in 2009.”

Others are concerned about the effect the cut could have on retention and recruitment of faculty — and by extension, the ability to attract federal dollars for biotech research. According to the UW-Madison, UW faculty and staff brought in more than $500 million in federal research awards in 2012-13.

Carl Gulbrandsen, managing director of the Wisconsin Alumni Research Foundation, the technology-transfer arm of the UW, cited the “nasty rhetoric” that’s been directed at academia. Gulbrandsen notes that the UW could become a target for highly funded private universities looking to poach researchers and their grants.

Stem cell marching orders

In March 2009, President Obama signed an executive order that repealed the Bush-era restrictions on federal funding for embryonic stem cell research. What have the research impacts of that executive order been? Predictably, many more stem cell lines have been approved for use by the National Institutes of Health, but the overall impact has been somewhat muted by a 1990s law known as the Dickey-Wicker Amendment, which restricts the use of federal funds when the destruction of embryos is involved.

The previous policy restricted federal funding to the 60 stem cell lines that existed at the time of President Bush’s 2001 executive order. As of April 10 of this year, six years after President Obama repealed that policy, 303 stem cell lines had been approved by the National Institutes of Health, including 18 lines submitted by the Madison-based WiCell Institute.

Perhaps the most important early advance is that embryonic stem cells have been used to generate a variety of different adult cell types that have been tested in various clinical trials. In one public-private collaborative clinical trial, researchers developed a way to make pancreatic cells from embryonic stem cells in testing for Type 1 diabetes. “There are so many different lines, and they have been used for different things,” noted Larry Goldstein of the UC-San Diego Stem Cell Program. “If you look across the board, you see rapid progress being made in a variety of disease areas, some with one line and some with another.”

Ayla Annac of InvivoSciences believes the 2009 executive order has been transformative for regenerative medicine by encouraging the development of new therapies for tissue regeneration and repair, and restoring the proper functioning of damaged tissues.

While the Obama policy has opened the door wider, there are still strict ethical rules that limit the use of some cell lines. “The Obama executive order opened up a much larger number of lines, no doubt,” said Dr. George Daley of Boston Children’s Hospital and the Harvard Stem Cell Institute, “but it also established ongoing constraints around certain lines because it introduced a very rigorous set of informed-consent standards.”

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Promega: Ode to 'ome'

Wisconsin may not have played a role in the sequencing of the human genome, but business and academia are active in several “omic” endeavors, especially genomics. One such company, Promega Corp., might not be running tests or studying stem cells, but it is providing tools to the scientists who are.

Promega makes many tools used by scientists.

In the genetics category, its specialties include amplification and purification tools, and its genetic identity products serve crime labs around the world. They have been used to identify human remains in tragic events like the 9/11 terrorist attacks and Hurricane Katrina.

The company was founded in 1978 to make molecular biology reagents. Its first customers were mainly academics such as scientists at UW-Madison and other universities who were studying topics of interest to them. “Many years ago, somebody may have spent their entire life studying one or two genes in an organism,” noted Doug Storts, head of research for Promega. “Where the science has evolved over the years is the transition away from researchers spending their lifetimes studying one or two genes to studying a genome — i.e., all of the genes in an organism.”

After work on sequencing the first human genome was completed, the scientific community quickly realized that creating a blueprint of the human genome was not enough because they still didn’t understand what the blueprint meant. Now scientists are trying to interpret that blueprint; in many instances, that means going back to individual genes and studying their function. That’s where Promega’s cell biology reagents come into play. “In studying a particular gene, we can perform PCR (polymerase chain reaction) amplification and make copies of that particular gene,” Storts explained. “In the old days, it would’ve taken us months to do that. With PCR today, we can do that in about an hour or an hour and a half.”
Promega might be the biotech industry’s largest area employer, but it’s not the only firm reporting business progress. Here’s a brief look at three biotech up-and-comers:

Cellectar Biosciences: A clinical-stage biopharmaceutical business, Cellectar is developing both imaging and therapeutic agents for the detection, treatment, and monitoring of a broad range of cancers. In 2014, the Venture Investors portfolio company built a new management team led by Dr. Simon Pedder, secured a Nasdaq listing, raised $13.5 million in a public offering, and obtained FDA approval to start new clinical trials. Cellectar reported a net loss of $8.1 million last year, but it continues to attract new investors.

Cellular Dynamics: Fujifilm’s recent acquisition of CDI has been challenged by shareholders, but the $307 million price tag tells you how much value is building in the cell manufacturer founded by UW-Madison stem cell research pioneer Jamie Thomson. CDI manufactures human cells that are used in drug screening and to evaluate the safety and effectiveness of drug candidates. While reporting a net loss of $30.6 million in 2014, CDI generated $16.7 million in revenue, and its future looks bright after the company secured a broad U.S. patent covering the automated production of human pluripotent stem cells.

Exact Sciences: Since Exact Sciences won federal clearance for Cologuard, a non-invasive colorectal cancer test, its business momentum has been relentless. In February, the Wisconsin Economic Development Corp. announced it would provide up to $9 million in tax credits to foster the company’s ongoing growth. That begs a question: If the state can provide tax credits to biotech leaders, why cut them out of the Badger Fund of Funds?

Why badger biotech?

When the Wisconsin Legislature enacted the $30 million Badger Fund of Funds venture capital investment program, it limited investments to firms operating in agriculture, information technology, engineered products, advanced manufacturing, medical devices, and medical imaging. The glaring omission in the minds of many is biotech, so we present four reasons why biotech firms should be included in this fledgling program.

1. The existing dearth of capital: One frustration of Beth Donley, CEO of Stemina Biomarker Discovery, is that venture capital is already scarce in Wisconsin, so biotech’s exclusion from the Badger Fund of Funds further handicaps biotech firms. “We have no ability to grow companies after the seed funding that’s available through the angel investors [runs out],” Donley stated. “We have one small venture fund run by John Neis at Venture Investors. If John decides he’s not going to fund you, it brings down the entire funding structure of the Midwest. So WARF won’t invest. SWIB [the State of Wisconsin Investment Board] won’t invest. Baird won’t invest. It’s almost as though they are one organization, so we have an extraordinary dearth of venture capital to begin with.”

2. It’s the economy, stupid: Wisconsin has a growing number of biotech gems that could drive future economic development if they were included in the state venture capital program, according to Ayla Annac, president and CEO of InvivoSciences. The state venture program would benefit from “opening its doors to the companies establishing innovative product portfolios in health care industries,” she stated. “Health care innovations, including precision medicine — an emerging approach for disease treatment and prevention that takes into account individual variability in genes, environment, and lifestyle — should help drive earnings growth and present attractive investment opportunities.”

3. Biotech jobs are high-paying jobs: One reason critics consider the state’s lack of support so shortsighted, especially from the standpoint of maximizing state tax collections, is that biotech jobs pay well, creating more tax base. While the average private-sector wage in Wisconsin is about $42,000, the average wage in the biotech sector is $72,604, according to the 2014 Battelle/BIO report.

4. Biotech isn’t all about stem cells: The main reason biotechnology investments were excluded is that Republican lawmakers did not want state investment dollars directed toward companies that use human embryonic stem cells. However, Exact Sciences CEO Kevin Conroy has noted that 95% of life-sciences companies’ investments are made outside the stem cell space. Donley says very few Wisconsin companies use human embryonic stem cells in their work, which means the state has “legislated out every biotechnology-based company” in an effort to exclude a handful of businesses.

Myriad reasons for messy patent system

Thanks in part to a lawsuit that became known as the Myriad case, the U.S. patent system “is really messed up,” charges Beth Donley of Stemina Biomarker Discovery.

“They feel the PTO is overreaching in terms of its interpretation, which has really caused a serious and detrimental effect to the pharmaceutical and biotech industries.” — Attorney Michael Cronin, shareholder, Whyte Hirschboeck Dudek

Myriad Genetics, the U.S. Patent and Trademark Office, and other defendants were taken to court by a group of plaintiffs led by the American Civil Liberties Union and the Public Patent Foundation. The suit argued that patents that had been granted to Myriad on two human genes associated with breast and ovarian cancer (essentially claims to natural gene sequences) were not patent eligible, and those patents were struck down. In response, the federal Patent and Trademark Office broadened that interpretation by proposing guidelines that extend the ruling to include all natural products. When those guidelines are finalized, the PTO’s patent examiners will have to follow them.

That’s a real issue for the biotech and pharmaceutical industries because they feel the Myriad case pertained to gene sequences and “nothing beyond that,” stated attorney Michael Cronin, a shareholder with Whyte Hirschboeck Dudek. “They feel the PTO is overreaching in terms of its interpretation, which has really caused a serious and detrimental effect to the pharmaceutical and biotech industries.”

Many drugs, Cronin explained, are isolated from natural bacteria or different types of plants. Based on the guidelines put forth by the PTO, those compounds would no longer be eligible for patent protection.
 

Donley noted the idea of patenting is to create a mini-monopoly to incent innovation and to induce people to invest in that innovation and reap the rewards in the marketplace. The Myriad result, Donley notes, is creating uncertainty with funders about whether you can protect inventions.  

Cronin expects the PTO’s proposed guidelines to be challenged in court if they are finalized in their current form and a future patent application is denied as a result.

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2 reasons not to shed cells

The advent of induced pluripotent stem cells, or adult stem cells that have been reprogrammed to act like human embryonic stem cells, has been hailed as the greatest scientific advance of the past decade. At the time the iPSC discovery was announced, some believed these cells could eliminate the need to destroy early-stage embryos to isolate stem cells and produce the more controversial human embryonic stem cells, but that has not materialized. Here are two reasons why iPSCs have not made hESCs irrelevant.

1. Take a walk on the wild side: While iPSCs have many uses, people still want to use the “wild type of cell” — those that came from an early-stage embryo and require no genetic engineering and no reprogramming. “It’s still a frontier for understanding the earliest stages of life, those fundamental things that cause cells to be programmed to be certain things,” said Beth Donley of Stemina Biomarker Discovery.

2. We still don’t know enough: As scientists continue to work with both kinds of cells, they are still learning what each cell type can do. So it’s too early to tell whether adult stem cells function precisely as hESCs do in all situations. “Clinical trials using adult stem cell-based products have just begun,” notes InvivoSciences’ Ayla Annac. “It needs more time.”

“The answer completely revolves around our current inadequate knowledge of the complete properties of both,” added Professor Lawrence Goldstein, director of the UC-San Diego Stem Cell Program.

Goldstein used the analogy of working on an automobile engine, where a mechanic has a toolbox and is not entirely sure what each tool can do. “That’s sort of where we are with the induced pluripotent stem cells versus the embryonic stem cells,” Goldstein said. “We can see they have some important differences in the genetic control circuit, and we truly are in the process of testing both to see which is best for different applications.”

Capital scores

The biotechnology sector has been frozen out of the new Badger Fund of Funds program in part because some legislators feared the money could be funneled toward embryonic stem cell initiatives that run contrary to their conservative beliefs. Whether that line of thinking is right or wrong, the question remains: Where is a biotech to go?

Alternative options do exist. Beyond angel and venture funding, companies can apply for federal small business innovation research grants, or they might seek out strategic corporate partnerships with a drug development company, suggests Tom Still, president of Wisconsin Technology Council.  

“It’s tougher for biotechs to find [funding] sources,” he admits.

Tougher, perhaps, but not at all impossible. The following chart includes some examples of recent biotechnology windfalls.

The Morgridge mission

The Morgridge Institute for Research was established as the private entity of the Wisconsin Institutes for Discovery, but a revision in mission has redirected its focus from discovery and commercialization of UW research to concentrating on fundamental science. Although that change has disappointed some in the local biotech community who were hoping to collaborate with Morgridge on the development of products, the institute’s CEO, Brad Schwartz, believes the transition to more of a discovery-based organization will be a plus in the long run.

Researchers at Morgridge Institute are sticking to the fundamentals of science.

Schwartz says the institute’s board decided to concentrate on fundamental discoveries because they have had the deepest and longest-lasting impact on Wisconsin and the economy.

Schwartz cited the work of famed UW researcher Howard Temin, who won a Nobel Prize for research that revealed an enzyme known as reverse transcriptase. Temin’s research debunked established dogma that biological information flows in one direction and that viruses did not cause cancer in humans.

Temin’s work was a matter of fundamental scientific inquiry: What does a specific virus do when it gets inside a cell? He discovered that some viruses, later to become known as retroviruses, contain a reverse transcriptase, an enzyme that translates viral RNA “backwards” into cellular DNA. In so doing, he not only helped future researchers more quickly find the cause of AIDS — that cause being a retrovirus that came to be known as HIV — he also established the basis of the molecular biology revolution. That revolution has led to the technology that underpins the development of cancer therapies like Herceptin, which kills breast cancer cells.

“None of that would have been possible without the understanding of reverse transcriptase that came about as a result of Howard Temin’s work,” Schwartz noted. “It wasn’t even on the radar screen, and yet the benefit to humanity and the economic impact of that fundamental discovery is beyond calculation.”

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