Sep 10, 2010
Regenerative medicine’s first wave was associated with massive expectations, but met with limited success. Today, a second wave is emerging.
The 1990s saw a flurry of research activity in regenerative medicine with the potential to restore, maintain, or improve tissue or organ function. It appeared as if regenerative medicine would address the world’s unmet clinical needs. Between 1990 and 2000, $3.5 billion was invested worldwide in regenerative medicine, 90% of which was private investment. By 2000, Time magazine predicted that “Tissue Engineer” would become the hottest job of the new century.
The strongest argument for regenerative medicine is its potential to revert a patient’s condition without further intervention. There are currently clinical trials using cell-based therapies for the treatment of largely unmet clinical needs, such as heart failure, diabetes type 1, Parkinson’s disease, and spinal cord injuries. These are diseases where regenerative medicine will not only treat symptoms or halt the progress of the disease, but also reverse the patient’s condition.
The expectations placed on regenerative medicine in the 1990s also influenced the venture capital (VC) community, which financed start-ups in a very early stage of technological development. However, the high hopes of that time did not come to fruition as start-ups projected. The field had few market triumphs and, therefore, limited financial success. Subsequently, regenerative medicine was no longer on the VC community’s investment radar.
When the Dogs Don’t Eat the Dog Food
The first attempts to introduce cell-based regenerative therapies focused on skin and cartilage. In 1995, Genzyme launched Carticel, an autologous chondrocyte implantation in which the patient’s own cartilage cells are grown and implanted surgically to repair cartilage defects. Although the product is clinically effective, its commercial viability and economic success have been limited. (Recent sales growth was driven by a July 2008 price increase.) The limited success of this product in the hands of Genzyme, an innovative company with experience in manufacturing and marketing biological therapeutics, might be indicative of the challenges in the cell-therapies marketplace.
Start-up companies have also unsuccessfully attempted to build profitable cell-based regenerative therapies. Organogenesis and ATS captured major investments and their peak valuations were approximately $1 billion each. Organogenesis’ Apligraftand ATS’ Dermagraft were approved in 1998 and 2001, respectively. However, both companies filed bankruptcy by 2002. Both products were used in the treatment of severe diabetic skin ulcers, but suffered from poor market uptake and offered small efficacy improvements over inexpensive standards of care7.
In addition to market risks and problematic business models, regenerative medicine faced larger contextual challenges. For example, the Bush administration instituted a policy that disrupted stem cell research, banning federal funding for research relating to cells derived from human embryos in August 2001. Another major challenge was the bursting of the dot-com bubble, which may have adversely affected the investment community’s willingness to take on risky investments in regenerative medicine. The total investment in tissue engineering reached $3.5 billion at the beginning of 2001, when there were 16 publicly listed companies with an overall market capitalization of $2.6 billion1. Between 2000 and 2002, the value of publicly traded regenerative medicine companies dropped by almost 90%1. Most of the financing for this first wave came from the private sector. However, since 2001, VCs have turned their backs on regenerative medicine.
Regenerative Medicine’s Second Wave
A second wave of interest in regenerative medicine is emerging, brought on by several factors including commercial successes such as Medtronic’s INFUSE, a treatment for bone degeneration that launched in 2002. INFUSE consists of a bone morphogenetic protein that is embedded into a collagen matrix and promotes bone growth. Although INFUSE is not a cell-based treatment, it has an active role in the molecular mechanisms that control stem cells, self-renewal, and differentiation inside the patient. INFUSE generated approximately $840M in revenues in 2009and is one of only two regenerative medicine products to exceed $100M in annual revenues by 2008.
Market successes should draw increased attention from pharmaceutical companies. In fact, GlaxoSmithKline (GSK), Pfizer, and Johnson & Johnson (J&J) have announced strategic collaborations in regenerative medicine. For example, in 2007 GSK announced a collaboration with the TCD Institute of Neuroscience and NUI Galway for Alzheimer’s disease and a commitment to contribute as much as €14.6 million. A year later, GSK also announced a major collaboration with the Harvard Stem Cell Institute, a $25 million-plus agreement to develop stem cell-based therapies in six key areas: neurological, cancer, cardiac, diabetes, musculoskeletal, and obesity. Similarly, Pfizer is investing in cell-based therapies for the treatment of retinal diseases. It invested $3 million in EyeCyte in 2008and entered into collaboration and licensing deals with University College London in 2009. The increasing interest from big pharmaceutical and medical device companies may stimulate investment in the regenerative medicine sector again.
Another important difference between the first wave of regenerative medicine products and INFUSE (and other products currently in clinical trials) are the underlying business models. Carticel requires surgically collecting a tissue sample, growing the patient’s cells in the processing facility, and implanting them back into the patient. This therapeutic process involved two surgical procedures as well as a lengthy growth period in a lab (somewhere between three days to three weeks) in which a custom “product” was prepared. By contrast, newer regenerative medicine products rely on a ready-to-apply solution in which patients receive a single customized intervention, without waiting for the overall cycle of cell growth in the lab. This is an example of how the business models are evolving by challenging the technology.
The funding structure that now supports the second wave of technological development in regenerative medicine has changed significantly from VC financing to corporate and public investment. Market interest is helping to restore interest in regenerative medicine by providing significant amounts of investment. Also, public funds supporting research and early-stage company development have increased. The California Institute for Regenerative Medicine (CIRM) has invested more than $1 billion of the $3 billion fund saved for stem cell research for a period of 10 years. New funds have appeared in other states including New Jersey, New York, Illinois, Connecticut, Maryland, and Wisconsin[i].
A second wave in regenerative medicine is emerging. The indicators we have discussed are likely to attract more investment. The big questions include: Who will invest? Governments? Big companies? Will the venture community come back for the second wave? What business models will emerge? The contributions of governments, companies, and VCs will determine how successful regenerative medicine’s second wave will be.
This article was edited by Carlos Dedesma
Rawe, J, What will be the 10 hottest jobs?, May, 2000. http://www.time.com/time/magazine/article/0,9171,997028,00.html, accessed online on Friday 21, 2000.
According to Medtronic Annual Report of 2009., http://www.medtronic.com/investors/annual-reports/ accessed online in May 2, 2010.
Further information in http://harvardscience.harvard.edu/foundations/articles/glaxosmithkline-and-harvard-stem-cell-institute-announce-major-collaboration-ag, accessed online in May 7th, 2010.