BioMatters - Fall 2008

BioMatters FA L L 2 0 0 8

A MichBio Publication Showcasing Michigan’s Biosciences Industry

Pfizer’s Downsizing Opens New Doors

Also Featured: State Manufacturers Exploring Opportunities in Medical Devices Clinical Trials Industry Deep, Broad and People-Centered

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BioMatters | Fall 2008

Working For A Healthier World In Michigan > Portage and Kalamazoo Pfizer’s largest manufacturing site in the world

> Downtown Kalamazoo Pfizer’s global headquarters for Veterinary Medicine Research and Development

> Richland Township Pfizer’s premier Animal Health research farm

More than 3,000 colleagues in Michigan work to address human and animal diseases, advancing the proud history of pharmaceutical research, development and manufacturing in our state.

BioMatters | Fall 2008

BioMatters TA B L E O F C O N T E N T S

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MichBio Corporate Sponsors, Officers, Directors and Committees

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Feature Story: Pfizer’s Downsizing Opens New Doors

Feature Story: ADMETRx: Technologies Unique

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Manufacturing: State Manufacturers Exploring Opportunities in Medical Devices

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Manufacturing: Marquette’s “Pioneer” Blazing New Paths Overseas

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Research: Clinical Trials Industry

Research: Quest Trials Benefit Participants

Entrepreneurs: Newcomers Find Michigan Has Much to Offer

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Technology: Tech Transfer on the Rise as Faculty Buy Into Discovery

Financial Matters: Show Me the Money: Venture Capital Beginning to Flow.

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Guest Opinion: Federal Funding One Key to Michigan’s New Economy

Feature stories and sidebars by Steve Raphael.

Thanks to Mike DeGraaf.

The following MichBio members are featured in this issue of BioMatters: Accuri Cytometers, ADMETRx, Ann Arbor SPARK, Arboretum Ventures, Ardesta LLC, Beaumont Hospitals, Delphi Medical Systems, GlaxoSmithKline, International Discovery Sourcing Consultants Co. (IDSC), Jasper Clinical Research & Development Inc., Kalexsyn, Inc., Michigan Economic Development Corporation (MEDC), Michigan Institute for Clinical & Health Research (MICHR), Michigan State University, Miller Canfield, Oakland University, PharmOptima, Proteos, Inc., Quest Research Institute, Southwest Michigan First, Southwest Michigan Innovation Center, University of Michigan – Tech Transfer Office, Velcura Therapeutics, Velesco Pharmaceutical Services, Wayne State University, West Michigan Science & Technology Initiative

Subscribe to BioMatters: Visit www.michbio.org and click “Subscribe” or call 734.527.9150.

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BioMatters | Fall 2008

GOVERNOR’S MESSAGE

With a top-notch workforce, world-class universities and a legacy of innovative entrepreneurship, Michigan

stands at the center of a vibrant life sciences industry. This vital technology sector is key to our aggressive strategy to grow and diversify Michigan’s economy through strong partnerships between private enterprise and our top universities and research centers. Our commercialization funding, venture capital, and other opportunities created by the 21st Century Jobs Fund, mean Michigan will be an increasingly important life sciences center well into the future.

Michigan leads the nation as one of the fastest growing life sciences states with more than $2 billion invested

in research and development each year and more than 150 new companies since 2000. Michigan’s economic base now includes 580 life sciences companies with $4.8 billion in sales and nearly 32,000 employees.

Our growth in the life sciences industry has exceeded that of the U.S. with a 27 percent increase in employ-

ment, 32 percent increase in the number of companies, and 165 percent increase in sales. Michigan is the No. 2 state for overall R&D expenditures, has the No. 3 university for R&D, and is the second most business-friendly state in the nation, according to Site Selection magazine. Michigan also has invested $178 million over the past four years to foster growth in the state’s life sciences sector and has the fourth-largest high-tech workforce in the nation.

In April, I announced a $330 million expansion in Mattawan and Kalamazoo by MPI Research Inc., a leading

provider of comprehensive preclinical research and development services. The project is expected to create 3,300 new jobs at the company and an additional 3,300 indirect Michigan jobs over the next 15 years. Pfizer plans to donate buildings to the city of Kalamazoo to facilitate the expansion. This project wouldn’t have happened without assistance provided by the Michigan Economic Development Corporation which helped convince the company to choose Michigan for its expansion over competing sites in the U.S. and China.

Every day, companies like MPI Research are discovering that Michigan is better situated than any other state

to attract and retain high-tech companies. I will continue to go anywhere and do anything to ensure that Michigan is a major player in the high-tech global economy and a recognized leader in the biosciences.

Sincerely,

Jennifer Granholm Governor of Michigan

MichBio Members Value Community

Legislative and Business Advocacy

MichBio brings community to its members. When there

is community, there is more for everyone to share — more

ideas, more opportunity, more collaboration. Our commu-

community, representing members’ interests on critical issues at

nity draws together individuals representing all facets

the local, state and federal levels. MichBio was instrumental in

of biosciences to ensure that Michigan is a state where

forming the State Biosciences Legislative Caucus to educate state

biosciences companies can succeed.

legislators on biosciences issues. In addition, through its affilia-

tion with the Biotechnology Industry Organization (BIO), MichBio

Our goal is to drive the growth of Michigan’s biosciences

industry by providing high-value opportunities for:

regularly attends BIO-organized efforts to positively impact key congressional votes on biotechnology-related legislation.

Education and Networking

MichBio leads advocacy efforts on behalf of the biosciences

Communications

MichBio hosts or sponsors a variety of programs where people

can learn from experts and connect with peers and potential

business partners. These include the MichBio Expo, the state’s

keeps MichBio members apprised of industry news, events and

largest annual gathering of biosciences professionals, the popular

issues. BioMatters Magazine will be followed by a second edition

MichBio Annual Meeting, regularly scheduled education and net-

in May that includes the 2009 Michigan Biosciences Directory and

working events such as BioArbor, Kalamazoo BioTuesday, Sprouts

Resources Guide. In the meantime, MichBio’s monthly Michigan

and other single-topic workshops. Events are open to members

Biosciences LINK e-newsletter and BioBytes updates continue.

and non-members, with members afforded reduced rates.

BioMatters | Fall 2008

A prolific communications program and website (www.michbio.org)

C O N T I N U E D O N PA G E 3 0

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PRESIDENT’S MESSAGE

P R O F E S S I O N A L S TA F F

Welcome to BioMatters!

It is with great pleasure and excitement that I welcome you to the inaugural

Stephen T. Rapundalo

issue of BioMatters, a semi-annual magazine dedicated to showcasing the notable

President and CEO

biosciences industry in Michigan. BioMatters is an up-front, inside look at our state’s

srapundalo@michbio.org

biosciences community today... and a glimpse at what will be in store for us tomorrow.

734.527.9144

In this first issue of BioMatters, you’ll find that Michigan is home to a myriad

of bioscience companies involved in R&D, manufacturing, and contract research/

Stephen Field

support services. In addition, the state has world-class academic and clinical research

Director,

centers, including the University Research Corridor institutions, a number of private

Operations and Controller

institutes, and innovative healthcare systems. A strong and expert biomedical

steve@michbio.org

talent pool supports them all. Every industry sub-sector is represented — from drugs

734.527.9145

and therapeutics, medical devices and equipment, diagnostics and research tools, information technology systems and software, clinical research and medical testing, to industrial biotechnology, bio-agriculture, bio-fuels, bio-defense, and bio-environmental. We are proud of our accomplishments and growth, working hard to nurture today’s enterprises, and eager to take advantage of the opportunities that lie ahead.

Michigan is a great place to do business in the biosciences. As the many stories

in BioMatters attest, our Midwestern can-do spirit and unsurpassed quality of life as the “Great Lakes State” is producing tangible results in new research discoveries, technology transfer and commercialization activities. The integration of resources, collaborative partnerships, entrepreneurial support, technology innovation, and investment capital is the reason for the consistent growth of Michigan’s bioscience community.

Jayne Berkaw Director, Marketing and Communications jayne@michbio.org 734.527.9147 Heather Kusiak Administrative Specialist heather@michbio.org 734.527.9150

MichBio (Michigan Biosciences Industry Association), a statewide, non-profit

trade group devoted to promoting the growth of the bioscience industry in Michigan, is pleased to present BioMatters for your review. On behalf of the state’s over 550 bioscience companies and organizations, we invite you to enjoy this glimpse of who we are and the exciting successes being realized.

C O N TA C T I N F O R M AT I O N Physical Address 3520 Green Court, Suite 450 Ann Arbor, Michigan 48105-1579

Welcome to Michigan’s biosciences — and BioMatters!

Mailing Address P.O. Box 130199 Ann Arbor, Michigan 48113-0199 Stephen Rapundalo, Ph.D. President & CEO, MichBio

Phone 734.527.9150

BioMatters Next Issue: May 2009

Fax 734.302.4933

Featuring l The Brave New World of Nanomedicine l Michigan’s Leading Edge Research in Bio-Ag l And more stories chronicling the news, trends and issues affecting the state’s biosciences industry

Website www.michbio.org

PLUS the 2009-2010 Michigan Biosciences Directory and Resources Guide Is your company working in biosciences? Now is the time to update your company information for the directory. Visit www.michbio.org and click My Account.

Not listed? Add your company information now. Visit www.michbio.org, click Create an Account and fill in your company information.

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BioMatters | Fall 2008

C O R P O R AT E S P O N S O R S

P L AT I N U M

GOLD

O F F I C E R S , D I R E C TO R S A N D C O M M I T T E E S

Executive Officers hairman C Michael Kurek, Ph.D. Biotechnology Business Consultants Partner/President Vice Chairman Stephen Munk, Ph.D. Ash Stevens President and CEO President and CEO Stephen T. Rapundalo, Ph.D. MichBio Secretary Christina DeHayes Asterand, Inc. General Counsel

S I LV E R

Treasurer Matthew L. McColl Ernst & Young LLP Partner

Directors Gregory Aronin Johnson & Johnson Director of State Government Affairs

Linda Chamberlain, Ph.D. West Michigan Science and Technology Initiative Executive Director

BioMatters | Fall 2008

Mark Kielb Altarum Institute Chief Financial Officer Michael Kurek, Ph.D. Biotechnology Business Consultants Partner/President

Stephen Munk, Ph.D. Ash Stevens President and CEO

Dan Calvo Assay Designs, Inc. President and CEO

PATRON Altarum, Ash Stevens, Harness Dickey, Lumigen FRIEND Wayne State University Advantage Capital SUPPORTER sanofi-aventis U.S. BBC

Teri Grieb U of M Medical School, Office of Research Director of Administration for Research Office of Research and Graduate Studies

Paul Morris Lumigen, Inc. Director of Operations

ssistant Treasurer A Ryan Noel Division Administrator, Metabolism, Endocrinology and Diabetes, University of Michigan

BRONZE

Ricardo (Richard) Fuentes Jr. Dow Corporate Venture Capital Global Life Science Investment Director

David Felten, M.D., Ph.D. Beaumont Hospitals VP, Research and Medical Director Research Institute James Freeman, Ph.D. Pfizer Animal Health Vice President, Laboratory Sciences

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Stephen T. Rapundalo, Ph.D. MichBio President and CEO John J.H. Schwarz, M.D. Family Health Center Physician, Former U.S. Representative Eric Stief Delphi Licensing Manager Commercialization and Licensing Karen Studer-Rabeler Coy Manufacturing/ Coy Laboratory Products General Manager VP of Business Development David Zimmermann Kalexsyn, Inc. Chief Executive Officer

Committees Facilities Intellectual Properties and Legislation Marketing and Communications Membership and Services Programs Public Policy

IN A SERIES OF THOUSANDS

MichiganAdvantage.org 5

BioMatters | Fall 2008

The state of Michigan is home to more than 500 bioscience enterprises running the gamut of the industry from pharmaceutical companies and medical devices, to diagnostics, bio-agriculture and nutraceuticals.

Most of the companies are clustered near universities, industry, research organizations and government agencies with Washtenaw and Oakland counties leading in southeast Michigan, Kalamazoo and Kent counties in Southwest Michigan, and Ingham county in mid-Michigan.

In 1999, the Michigan Economic Development Corporation (MEDC) established a program to identify SmartZonesSM — distinct geographical areas where technology-based businesses locate in close proximity to community assets that assist them in their endeavors.

SmartZoneSM technology clusters help promote resource collaborations between universities, industry, research organizations, government agencies and other community institutions, which translates to an increase in the number of technology-based businesses and jobs.

There are currently 12 distinct SmartZonesSM in the state of Michigan and three more will be designated in the fourth quarter of 2008.

Within those 12 SmartZonesSM are 10 business incubators, including the Southwest Michigan Innovation Center in Kalamazoo, the Spark Business Accelerator in Ann Arbor and the New Venture Center, part of the West Michigan Science and Technology Initiative in Grand Rapids. Eight of the SmartZonesSM offer wet-laboratory services that life science companies need to perform their daily business operations. Some of the benefits to locating a business within a SmartZoneSM include: business planning, grant writing, networking events, shared incubator and wet lab space, SBIR and STTR assistance, and venture capital preparation and introductions. Michigan SmartZoneSM member companies can also apply for funding from the Michigan Pre-Seed Fund, established to provide early stage capital to high-tech start up companies for purposes of accelerating their growth and development.

Since 2000,

112 new companies have been created, making Michigan’s biosciences industry one of the fastest growing in the nation.

BioMatters | Fall 2008

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5

Michigan SmartZones

1 2

Ann Arbor SPARK

3 4

Detroit: TechTown

SM

Battle Creek Aviation and e-Learning Grand Rapids: West Michigan Science and Technology Initiative

5 Houghton:

Michigan Technology Enterprise SmartZoneSM

6 7 8

Kalamazoo: Southwest Michigan Business Technology and Research Park Lansing Regional SmartZoneSM Mt. Pleasant: Center for Applied Research and Technology at CMU

8a Mt. Pleasant:

8

MidMichigan Innovation Center

9 Muskegon Lakeshore 10 Rochester Hills:

OU Incubator

Pinnacle Aeropark

11 Troy: Automation Alley 12 Wayne County:

8a

9 4

11

Number of Biosciences Companies

10

7

0 1-10 11-20

6

2

1

3 12

21-50 51-90 91-150 over 150

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BioMatters | Fall 2008

F E AT U F IRNEA N S TO C I ARY L M AT T E R S

Pfizer’s Downsizing Opens New Doors 16 CROs Spawned, Placing State on National Stage

BioMatters | Fall 2008

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David Zimmermann was in Israel last May on an ambassadorial/ business mission to learn more about Israel’s booming biosciences industry and to introduce Israel to Michigan’s companies. One Israeli company with formulation and solubility issues turned to Zimmermann, CEO of Kalamazoo-based Kalexsyn Inc., for help. Zimmermann, in turn, suggested contacting a more fitting company, Velesco Pharmaceutical Services in Ann Arbor.

The companies couldn’t strike a deal, but Velesco President Gerry Cox wasn’t complaining. “David was great, he was awesome,” he says.

Ultimately nine-month-old Velesco, a contract research organization (CRO) like Kalexsyn, got something better – the red carpet treatment from CROs operating on the west side of the state. The companies, led by Proteos Inc., invited Cox to Kalamazoo, provided him with support, lessons, ideas and client’s contacts to help ensure Velesco got off on the right foot.

“They’ve gone through a lot and learned a lot of lessons,” Cox says. “Part of our success has resulted from western Michigan’s willingness to help out.”

Velesco provides drug formulation and analytical chemistry services, specializing in the support of early-stage product development work for small- and mediumsized drug companies. Kalexsyn works with smaller drug and biotech companies, providing chemistry services at the start of drug discovery.

If Michigan’s diverse biosciences industry is going to make it with its many fledgling companies, it will be because of a “one-for-all, all-for-one” spirit.

“Those are the kinds of things that all of us must look for... to build opportunities for our companies, to build a stronger biosciences community in Michigan,” Zimmermann says.

Kalexsyn CEO, David Zimmermann, (left) and Bob Gadwood, formed Kalexsyn in 2003.

Medical research outsourcing has increased in recent years as big pharma’s profits and pipelines have slowed. According to industry analysts cited recently in Investor’s Business Daily, between 25 and 30 percent of R&D is now outsourced and it could go higher.

If Michigan’s diverse biosciences industry with its many fledgling companies is going to make it, it will be because of a “one-for-all, all-for-one” spirit.

Pfizer Unleashes Entrepreneurial Spirit To some degree Pfizer’s downsizing has been a plus for the state’s biosciences industry.

It freed many of its scientists to discover their entrepreneurial spirit by creating CROs. Each scientist brought years of experience to his or her new company and each was acutely attuned to what the market

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needs. In 2003, 16 CROs were spun out from Pfizer, boosting the total to more than 50.

“There are a lot of niches,” Cox says.

The drug discovery timeline is long and requires numerous and tedious steps along the way to completing Phase III clinical trials.

For every step along the way there is a CRO able to lend the biotech company, drug company or scientist a professional hand. A drug or biotech company anywhere in the world, choosing to outsource its work, can find every thing it needs from a Michigan CRO. Kalexsyn, Velesco, Proteos, ADMETRx in Kalamazoo and Chelsea-based International Discovery Sourcing Consultants Co. (IDSC) are just five companies that rushed to fill a niche and are generating profits as a result.

Mark Creswell left Pfizer in March 2007 to start IDSC. As a medicinal chemist, he took with him eight scientists from Pfizer with an average of 24 years experience working for pharma companies. He is president and CEO. IDSC is a virtual, fully integrated drug discovery partner, providing drug discovery, development and outsourcing expertise from discovery to pre-clinical development to help clients deliver their medicines to the clinic faster. The company specializes in small molecules. At Pfizer Creswell gained his experience for IDSC by building Pfizer’s discovery chemistry outsourcing program.

BioMatters | Fall 2008

F E AT U R E S TO RY

Michigan CRO Companies Cross All Phases of the Pharmaceutical R&D Life Cycle Target and Model Validation

Chemistry Selection and Characterization

Outsourcing Boosts Business IDSC outsources its laboratory work to other CROs, many of which are in Michigan.

It has 27 clients, four in Michigan and 23 out of state. Major clients run the gamut from academia to biotech companies; large, small, as well as virtual. They include Lycera, Novel Chemical Solutions, Affinium Pharmaceuticals and Velcura Therapeutics. IDSC will be profitable this year and will generate estimated revenues of $1.2 million in 2009.

Creswell is also a matchmaker, connecting Michigan companies to IDSC’s out-of-state companies for business.

IDSC has developed relationships with at least six companies in Michigan, including Velesco, MIR Preclinical Services in Ann

Preclinical Pharmacology and Toxicology

Development Pharmacology and Safety

Clinical Development and Medical Affairs

Arbor, TransPharm Preclinical Solutions and PharmOptima in Kalamazoo.

Though Michigan biosciences companies are beginning to make inroads with companies in other states, “We have a ways to go,” Creswell says. “A variety of things need to come together, and despite a nice pool of venture capital here we need to lure more venture capital into the state.”

Proteos in the Middle of Things Early When scientists enter the very first steps of discovery, Proteos Inc. is right there with them serving as an extension of its clients’ laboratories, says Clark Smith, president and CEO of the five-year-old Kalamazoo company.

Cr In Th ea t in ive sur ki an ce Cl ng ie nt Fo cu s

Patient Use and Post-Market Activities

Proteos is the Greek word meaning “of the highest importance” and is the root word for protein, so it’s not surprising that the company’s emphasis is on proteins as drugs and drug targets.

It provides custom services in protein expression (tricking cells into producing the desired protein) and production, protein products and translational research for commercialization. Protein products include recombinant human renin, which is a blood enzyme, and prorenin that could be involved in obesity. “People are just figuring out how important it is,” Smith says.

The company produced a protein for acute coronary systems for Ann Arbor-based AlphaCore Pharma, a biotech company that

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BioMatters | Fall 2008

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ADMETRx Technologies Unique

Kalamazoo-based ADMETRx has developed

advanced techniques, technologies and more effective predictive tools to help its drug company clients determine in discovery and pre-clinical trials the efficacy of its clients’ compounds.

The company focuses on ADME properties

(absorption, distribution, metabolism and elimination), focusing on drug deliverability.

ADMETRx wants to determine what the drug does to the human body.

Pfizer’s

downsizing allowed many of its scientists to discover their entrepreneurial spirit by creating

CROs.

“Our commitment is to ensure that the

potential of each of our client’s compounds is crystal clear,” says ADMETRx CEO and CSO,

Proteos boasts 120 clients, including drug companies and universities. Despite the fact that the overwhelming majority of its clients are located out of state, Smith is extremely bullish about the state’s biosciences industry thriving in the future despite a shortage of venture capital.

work, from discovery through at least Phase II clinical trials.”

Smith hinted that his company has developed an intellectual property product that, “If it works, it will bring a lot of money into Michigan. It could change the course of this company.”

Kalexsyn’s Zimmermann is a medicinal chemist who worked for the state’s largest drug makers for 23 years, including supervising the outsourcing of medicinal chemistry for the company.

The job led him to understand the client’s needs in the client-company relationship, valuable information he took to heart when he and Robert Gadwood, also a medicinal chemist started Kalexyn in 2003. Experience, service and communications became Kalexsyn’s philosophical business foundation.

Company research capabilities include medicinal chemistry, molecular modeling, scale up and process improvement. That expertise draws companies to us that “need a certain compound made,” Zimmermann says, noting that “true medicinal chemistry experience is more than a synthetic chemist who has made a biologically active molecule.”

State CROs Can Do Everything

Kalexsyn Grows and Grows

“Any number of companies are here that represent the entire line of drug discovery work,” he says. Out of state companies “can create their own virtual company by coming to Michigan and contracting out all of their

It took only four years for Kalexsyn to outgrow its space at the Southwest Michigan Innovation Center. Last year the company opened a $5 million, 20,000-square-foot facility in Western

needed the protein for research purposes.

A synthetic organic chemist and director of protein sciences for 20 years at Upjohn, Smith started Proteos in 2003 with seven founding members, all pharma alums.

Today the company employs 18 people. “I hired my current staff when I was at Upjohn and then hired them again for Proteos,” he says. The company recorded more than $3 million in sales last year and was growing at 20 percent annually until this year, when the general economy suffocated growth.

A drug or biotech company anywhere in the world, choosing to outsource its work can find everything it needs from a Michigan CRO.

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Jay Goodwin

and

Phil Burton.

Phil Burton. “Our findings allow our clients to make informed decisions about their drugs.”

Burton says it’s the way ADMETRx interprets

the data back to the clients, with attention to detail, combined with its ADME expertise that has resulted in a more effective means of problem-solving in drug discovery.

Burton and co-founder Jay Goodwin are

former Pfizer scientists who, following their layoffs five-years ago, founded ADMETRx.

The company, which had a profitable 2007,

employs seven full-time and 10 part-time lab and clerical workers, with drug industry experience totaling 150 years. Of the company’s 35-40 clients, five or six are in Michigan, with the remainder based on the West and East coasts and the Research Triangle Park in North Carolina.

“Clients tell us it would be easier (for us)

to get more business if we had a local office,” Burton says. Despite the greener pastures of the coasts Burton says that by stressing consistent communications with clients his company has no need to go anywhere. “Proximity isn’t that big a deal anymore.”

BioMatters | Fall 2008

F E AT U R E S TO RY

Michigan University’s Business Technology Research Park. The building currently has capacity for 32 scientists with enough lab space to accommodate 24 more. Kalexsyn employs 30 people, including 22 bench scientists. Revenues will hit $5 million this year, and the company has been profitable the last three years, Zimmermann says.

Michigan CROs pharmaceutical

“A variety of things need to come together, and despite a nice pool of venture capital here we need to lure more venture capital into the state.”

“If at first you don’t succeed, try, try again” has not always been the mantra of drug companies along the drug discovery continuum. It’s often the opposite. A compound that flies right through Phase I clinical trials but fails in succeeding trials often winds up in the garbage bin, despite the promise that it could have been a future blockbuster.

“The failure rate of compounds and drugs at biotech and pharma companies is huge,” he adds. The service side of biosciences, the CROs, “have recorded strong, sustainable double-digit growth” in recent

span the spectrum of the

R&D

pipeline.

years with the forecast equally as sunny in the foreseeable future. “Let the pharma companies take the risk and roll the dice.

We get to play with everyone,” he adds.

Velesco assists its clients in its preclinical work as its clients head into first human trials. The company was formed in early 2008 by Cox, COO, and former senior finance director for Pfizer’s Michigan operations, and David Barnes, CEO, and a former Pfizer scientist. At Pfizer Barnes, moved compounds through the drug development process.

“We didn’t get our labs up and running until spring,” Cox says, noting his company also won a $450,000 Michigan Economic Development Corp. grant. Velesco has built up a strong base of five or six in-state clients and hired six people. Cox and Barnes are busy courting new business on the East and West coasts. “We have to build our business outside of Michigan,” Cox says.

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Michigan Office: 1000 Town Center, Twenty-Second Floor, Southfield, MI, 48075-1238 Phone: 248-358-4400 California Office: 6100 Center Drive, Suite 630, Los Angeles, CA, 90045 Phone: 310-348-8200 BioMatters | Fall 2008 22

M A N U FA C T U R I N G

State Manufacturers Exploring

Opportunities in Medical Devices

Robert Nesky has been there and done that so he’s the perfect man to answer the burning question: Can Michigan’s financially struggling manufacturing companies convert some of their human resources and plant capacity into medical device production and do it successfully?

“I retrained myself,” says Nesky, medical account manager of Kentwood-based Autocam Medical, a contract manufacturer for OEMs that assembles high-precision components, instruments, implants and hand pieces for a wide variety of medical applications. Preaching caution, he adds it would be difficult for companies “doing other things to transition themselves into medical devices.”

Difficult, but not impossible.

“We see (medical devices) as an opportunity for growth and expansion,” says Al Hoffmann, director of sales and marketing for Delphi Medical Systems, a Delphi Corp. subsidiary in Troy. “We have a mix of automotive people and people from the medical industry to bring it all together.”

The “it” is contract manufacturing for 20 clients and its own three medical device product lines.

West Side Companies Banding Together There’s no doubt in the mind of Linda Chamberlain that medical devices represent a bright future for those companies taking the plunge. Nor is there doubt in the minds of the 22 medical device-related companies that joined the West Michigan Medical Device Consortium that began last December. The consortium represents companies on the west side of the state.

It was created to focus on product innovation, business collaboration, advancement of lean manufacturing technologies, business attraction, marketing, public relations and networking. Leading the effort is the West Michigan Science & Technology Initiative.

Chamberlain is executive director of WMSTI and coordinates the consortium.

Michigan’s giant device manufacturer, Kalamazoo-based Stryker Corp. is not a

15

consortium member but is “graciously participating with us,” Chamberlain says.

The 22 members have expertise in stamping plastic parts, packaging and molding. Others make cardiac surgical disposal products and handheld dose calculators.

“manufacturers are interested in learning more about medical devices, from design engineering to regulatory and manufacturing excellence.

Some members distribute walkers and beds and some are in the early product development stage. The majority of members have manufacturing bases all of which must generate revenues in the medical devices industry.

BioMatters | Fall 2008

M A N U FA C T U R I N G

Creative Technology Services was contracted by Independence Technology, a Johnson & Johnson company, to manufacture the INDEPENDENCE® iBOT® 4000 Mobility System, the world’s most advanced and sophisticated multi-functional mobility device.

In early September the consortium hosted a half-day conference “absolutely geared to manufacturers” interested in learning more about opportunities in medical device manufacturing, Chamberlain says. More than 150 attended the event.

Manufacturers Want to Get in the Game She adds that “manufacturers are interested in learning more about medical devices, from design engineering to regulatory and manufacturing excellence. Companies call, wanting to understand what they need to learn.”

Creative Technology Services (CTS) in Canton is a contract assembly and supply chain manager company for its clients. It is particularly skilled in the assembly of sophisticated electro mechanical devices.

The company might be best known for helping build the iBOT®, a mobility device for the disabled, developed by Independence Technology, a Johnson & Johnson company,

BioMatters | Fall 2008

and DEKA, founded by Dean Kamen, inventor of the Segway.

Though it boasts non-medical, as well as medical clients, Jim Smyth, CTS’s vice president of sales calls the company’s medical device capability “our sweet spot.”

In the last two years CTS has more than doubled in size in the medical device arena alone.

Though it boasts non-medical, as well as medical clients, Jim Smyth, CTS’ vice president of sales calls the company’s medical device capability “our sweet spot.”

It is building new product lines, medical and non-medical, and adding sub-assemblies for several new clients it has won in the past two years.

The company employs 80 people, plans to hire more and is profitable, though Smyth declined to reveal net income or sales figures.

16

Many Roads into Medical Device Manufacturing As A Provider of End Products (OEM): l Re-position existing product l Acquire products l Enter into joint venture l License technology l Conduct internal R&D

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l Assembler l Component supplier l Process supplier l Engineering services

As a distributor: l Repackaging l Logistics

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BioMatters | Fall 2008

M A N U FA C T U R I N G

Marquette’s “Pioneer” Blazing New Paths Overseas

Tucked away in the spectacular beauty of Michigan’s Upper

A courtesy extended by a Northern

Peninsula in Marquette sits one of the most successful medical

Michigan University professor to Pioneer

device companies in Michigan, if not the nation, and soon

in 1992 has blossomed into an invaluable

enough, the world. Its name is Pioneer Surgical Technology Inc.

collaborative relationship for the company,

the university and its students.

Just 16 years old, Pioneer has built a worldwide empire

on high-quality spinal products and owns three divisions —

orthopedic, spinal and biologic.

they didn’t have sophisticated equipment

for testing,” says Thomas Meravis, a now retired professor of

The company was started in 1992 by Dr. Matthew Songer,

“They were a fledgling company…

an orthopedic surgeon and his father, Robert, a retired

manufacturing at Northern Michigan University. “So we opened

engineer, now deceased. The pair sought innovative ways to

our material testing lab and allowed them to test their initial

improve operating room times and patient outcomes and today

cable system.”

is considered national leaders in the design and manufacture

of spinal and orthopedic implants and instruments.

program to supply Pioneer with skilled employees. Perhaps as

many 50 students “have gone through the program,” he says.

Vertically integrated, Pioneer can take an idea from the

Meravis started a one-year numerical controls certificate

drawing board to the marketplace. It has been awarded more

than 50 American and foreign patents, and its programs and

mechanic engineering program. It provides scholarships and

processes are ISO certified.

internships for students, as well as equipment to the manufac-

“We focus on the next generation of technology,” Songer says.

turing department.

In September the FDA gave Pioneer approval to market

FortrOss, a bone graft substitute, produced using nanotechnology.

Pioneer also hires students from NMU’s four-year technology

The job opportunities at Pioneer go a long way to ensuring

that the region’s brightest youth

The Chinese equivalent of the FDA has

can stay in the community after

given Pioneer the green light to begin

college and hold meaningful

distributing its products.

employment, a result of the

Already operating in the global

alliance that Songer calls

marketplace, Songer says, “We

“very rewarding.”

want to spread more globally.”

Pioneer’s Netherlands subsidiary

is distributing throughout Europe the NuBac, a nucleus replacement device for the spine that restores height and preserves motion without having to fuse the spine, formerly an invasive procedure. NuBac is available only in Europe while the equivalent of Phase 3 clinical trials

Dr. Matthew Songer

are underway in America.

The company is expanding domestically, as well. Last

year it enlarged its Marquette manufacturing plant to more than 110,000 square-feet, from about 70,000 square-feet.

It employs 275 people, including 250 in Marquette, and is always hiring, Songer says.

Songer says he recently dreamt that Pioneer would some-

day rack up $100 million in sales, a dream that will come true in 2010 when the company returns to profitability. Investing, expanding and hiring have cut into profits in recent years.

BioMatters | Fall 2008

18

M A N U FA C T U R I N G

Focused Effort Paying Off for CTS A focused team enabled CTS to build its business. It won FDA approval and holds ISO 13485 certification, the international quality standard for medical device manufacturing. To win approval and certification the company had to make huge investments in infrastructure, such as developing customer service, document control department capabilities and complaint handling.

“Medical manufacturing is different than automotive,” says CTS President and CEO Don Leith. “Because you are dealing with people’s health, the potential is there for someone to be injured” and that means government oversight. “It took us a long time and a lot of effort to make” approval and certification happen.

“We understand compliance for the medical device marketplace,” he adds.“I make companies aware of our infrastructure because

Being an auto supplier helps Delphi Medical Systems pitch clients, as the “standards for reliability and durability in automotive are really high and this plays well.”

it is a differentiator. Potential clients recognize the stringent nature of our quality process.”

The company has talked to manufacturers about the feasibility of entering the medical device field.

Delphi Automotive’s New Paradigm — Medical Devices Nine years ago Delphi Corp. management commissioned a study, looking for areas to diversify into that offered growth potential, Hoffmann says.

Delphi Medical Systems was created and

is now involved in four different business segments: contract manufacturing, infusion equipment, portable oxygen concentrators and remote patient monitoring. In 2004, it won a major contract to assemble systems and components for Sunrise Medical Corp. in Carlsbad, CA. The lions’ share of product development is conducted in Troy by 50 engineers devoting themselves to nothing else but marketing. All sales and marketing are done in Michigan, though Delphi does not manufacture its products in Michigan.

Though the jury is still out about revenues and profitability, they’ll know better in two years. “The goal is to bring Delphi (Medical) products to market and that is what we are doing now,” Hoffman says.

“We are expanding into global markets,” he added. “We just invested about three years developing products to sell in late 2008 and 2009, and we firmly believe

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BioMatters | Fall 2008

M A N U FA C T U R I N G

(Delphi Medical) will grow and prosper.”

Being an auto supplier helps Delphi Medical Systems pitch clients as the “standards for reliability and durability in automotive are really high and this plays well with its potential clients,” Hoffmann says. So does the auto industry’s intense focus on technology, engineering and design that are cornerstones of medical device manufacturing, he adds.

Medical device manufacturing “represents an interesting opportunity for any of the Michigan automotive companies,” Hoffman says. “There is a learning curve and the degree is related to where that company wants

“We are machinists leveraging our technology for medical devices”

BioMatters | Fall 2008

to position itself in the medical industry.”

“A component supplier could translate its skill sets quickly but a product supplier will have to learn new skill sets,” Hoffman says.

Autocam Group Moves into Medical Devices Autocam Medical makes products for three health sectors, cardiovascular, ophthalmology and orthopedic, and is getting more involved in spine and extremities, Nesky says. It employs 150 people and is registering growth, compounded annually at 20 percent.

Autocam Group of companies began operations 20 years ago and has built a reputation on the quality of its precision metal components solutions. Autocam Medical relies on its parent’s reputation in its pursuit of clients. “We are machinists

20

leveraging our technology for medical devices,” Nesky says.

In 1993, Autocam bought a medical device facility in Hayward, CA, and created Autocam Medical. It also owns plants in a Plymouth, MA and Kentwood, MI. The medical device manufacturing industry requires different equipment, volumes, technology and quality standards than what the auto suppliers are held to Nesky says.

Despite that, he notes there are great opportunities in medical devices – which run the gamut of products – from hospital beds to needles and syringes – because devices can be brought to market quickly and more inexpensively than pharmaceutical compounds. “Michigan understands manufacturing,” he adds.

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BioMatters Tells Michigan’s Biosciences Story Tell us what you’d like to see

l Issues you’d like probed l Companies that are on

the leading edge l Collaborations that work l People making a difference l How-to Information l Guest opinion topics

Next Issue: May 5, 2009 Content Deadline: February 20, 2009 Send ideas to: Jayne Berkaw jayne@michbio.org

21

BioMatters | Fall 2008

RESEARCH

Clinical Trials Industry Deep, Broad and People-Centered

Beaumont

doctors are using

CT scanning

of

the coronary arteries in patients with chest pain to diagnose serious coronary problems and initiate urgent interventions in those who need it.

Michigan’s clinical research trials industry is as deep as it is broad. The state boasts private companies, hospitals and medical centers conducting trials in different ways on different populations, healthy and sick, with impressive results.

The presence of the clinical trials industry under the biosciences umbrella is good news business-wise for those biosciences companies that can market their services and products to the R&D industry.

“Any time we do a study sponsored by another state or (company), it brings in dollars that could have easily gone somewhere else,” says Dean Knuth, president and CEO of Jasper Clinical Research & Development Inc. in Kalamazoo. “And forget competing with Florida, now we’re competing with China and India.”

“Our doctors are not engaged in theoretical research; they are engaged in taking care of patients,” Felten says. “Our doctors are thinking clinical, clinical, clinical...that’s what they do.”

BioMatters | Fall 2008

Privately owned Jasper specializes in Phase I and IIa clinical studies, involving primarily healthy people and a small number of patients.

Other major players in clinical trials are: l William Beaumont Hospital in Royal Oak emphasizes translational research where hospital doctors move their research findings to the patient’s bedside. l The Michigan Institute for Clinical and Health Research (MICHR) at the University of Michigan specializes in translational research, clinical trials and compound development, among other scientific trials-related ventures. l Privately owned Quest Research Institute in Bingham Farms collaborates with local physicians, national pharmaceutical and biotech companies, and occasionally the National Institutes of Health to conduct Clinical Phase Ib-IV Trials on patients with medical conditions.

22

All four are generating huge revenues, and Jasper and Quest are profitable.

No Place Like Home at Beaumont When it comes to performing clinical trials at William Beaumont Hospital, there’s “no place like home,” says Dr. David Felten, Beaumont’s vice president for research and medical director of the hospital’s research institute.

“Our doctors are not engaged in theoretical research; they are engaged in taking care of patients,” Felten says. “Our doctors are thinking clinical, clinical, clinical...that’s what they do.”

The research numbers at Beaumont Hospital are impressive. Currently more than 300 investigators in more than 35 departments are conducting at least 900 active research studies. Nearly 50,000 registered Beaumont patients participate in ongoing clinical trials. The hospital receives $30

million annually in research grants from a combination of sources – the NIH, foundations and commercial sources. “We have never attempted to be a grant-getting machine,” Felten says. “It is not a means to an end. We think of NIH funding in the same vein as commercial funding,” to support patient-related research.

“The research program grows directly out of our commitment to high-quality patient care.”

Beaumont’s past research success has resulted in the following medical improvements: l Advanced, precision radiation technology, significantly reducing the time and expense of treating breast cancer; l CT heart scanning that is more accurate, less intrusive, faster and less costly than the standard diagnostic testing for emer gency room chest pain patients, and l Novel methods to treat painful conditions of incontinence with high-tech implanted devices.

In addition to being a clinical trials site, Beaumont is the lead investigative entity conducting one clinical trial nationally at 51 centers in Michigan and nationwide.

Beaumont doctors are using CT scanning of the coronary arteries in patients with chest pain to diagnose serious coronary problems and initiate urgent interventions in those who need it, Felten says.

The scan provides “quick and accurate information to determine which patients need intervention” and which do not, he adds. The procedure is cost effective and Felten believes that it is likely to become the national standard of care for evaluating chest pain.

Dolly Niles (right) and Kara Bardram

Quest Trials Benefit Participants Dolly Niles bought 12-year-old Quest Research Institute from its original owner two years ago. She has maintained the company’s niche, conducting Phase 1 through Phase IV patient studies of existing compounds, primarily on volunteers with a medical condition. Company clients include Merck, Pfizer and QuatRx Pharmaceuticals in Ann Arbor. “We have participated in investigator-initiated research, but our current docket only includes clinical trials sponsored by drug companies,” she says.

The company’s areas of expertise are internal medicine, neurology and the growing

area of women’s health.

Some early phase studies “last only a few days and will not provide long-term

relief for a patient, but later-phase studies certainly can,” Niles says. The duration of a research study can span days, weeks or even months. Quest Research did a study of an Essential Tremor drug that ran for two weeks and a three-year study on a treatment for obesity.

Niles employs eight people full time, including five clinical coordinators and

contracts with seven local doctors. Company revenue runs $1-2 million annually.

The company has 15-20 studies ongoing at any given time.

Some of Quest’s participants come from the underserved population with few or no

health insurance benefits. Those participants get a modest stipend for participating in a Quest clinical trial, a physical exam and some direction in dealing with their illness.

Others are exploring their options. “We like to market that we are providing access to new treatments, such as Parkinson’s disease,” Niles says. “A lot of people are looking to try something different if other drugs aren’t working.”

Niles makes it a point to reach this population through community education

programs, broadcast and print advertising. “Sponsors like to hear that we have local ties to the community,” she says. “We need to do a better job educating the community on the opportunities in research, particularly in a state where we hear about people losing medical coverage every day.”

Accessibility to small companies such as Quest Research Institute and Jasper Clinical

R&D (see next page) “allow small biotech companies to explore a compound at the early stage and then involve a big player when there is proven promise in the compound,” she says.

Further, Quest and Jasper are tailor-made for Michigan’s smaller biotech companies

so both are close to their clients, making for convenient monitoring and partnership, “not to mention that the (biotech) companies’ money stays in state,” she says. “One of our corporate strategies this year is to ensure Michigan companies doing clinical research know about our site and our offerings to keep the business in the state.”

CT heart scanning that is more accurate, less intrusive, faster and less costly than standard diagnostic tests for chest pain patients in the ER.

23

BioMatters | Fall 2008

research

Beaumont and Oakland University to Seek Cancer Designation As Beaumont and Oakland University establish their medical school they plan to secure a Comprehensive Cancer Center designation from the National Cancer Institute. “We intend to establish a Phase I oncology drug development program to enhance the Beaumont-initiated pipeline of potential chemotherapeutic agents for treating cancers,” he says.

Felten joined Beaumont three years ago following a distinguished academic and clinical career that included serving as the lead investigator on a University of Rochester medical team breakthrough research program that spanned the late 1980s into the early 1990s.

The findings unequivocally established the connection between the brain and the immune system. For his work Felten won the prestigious MacArthur Foundation Award, often referred to as the “genius award.”

“I’ve been in academics for more than three decades and this is the most satisfying experience I’ve had; being able to see the strong impact on patient health,” he says.

Most of Jasper’s studies involve inpatient stays ranging from a couple of days to as long as 25 consecutive days. The company conducts more than 25 studies each year, typically involving from 10 to 50 healthy volunteers.

Sponsors include the largest pharmaceutical companies, start-up biotechs with two employees, diagnostic and device companies.

The company has done “relatively little grantfunded work,” Knuth says.

Jasper Trials Use State-of-the Art Science Jasper’s success is based on a new clinical trials model based on modern scientific tools, such as biomarkers and genetics that, when applied in novel ways, allows Jasper to move faster and generate better quality clinical information for making decisions as to whether the development of a new drug should continue.

The specific makeup of each volunteer’s biology makes him react differently to drugs, and these differences can now be quantified, as well, Knuth says.

Jasper was founded in 2003 by Pfizer scientists surprised by the company’s

BioMatters | Fall 2008

Nearly 50,000

registered

Beaumont

patients participate in ongoing clinical trials.

decision to exit drug discovery and clinical development in Kalamazoo.

Most of Jasper’s revenues come from out-of-state companies, including a number of international clients, Knuth says. The company employs 100 people and saw revenues grow by 20 percent last year.

Knuth dismisses the notion that Michigan needs large biotech drug discovery companies to propel the state’s biosciences industry into national prominence.

“Once these companies make a discovery it gets expensive for them to maintain the jobs, especially if a large national company buys them,” he says.“The kinds of jobs that (biosciences) service companies provide remain here.”

As Beaumont and Oakland University establish their medical school they plan to secure a Comprehensive Cancer Center designation from the National Cancer Institute.

State’s Biosciences Industry Can Do It All Knuth envisions a state biosciences industry interconnected with one another, to offer the complete range of services needed for a vibrant industry.

“We can grow as niche industries but there is a tremendous opportunity to link across related industries,” he says,“such as those that perform pre-clinical and clinical testing, statistics,” analytical chemistry, outsourcing and program management.“It can all be done in Michigan. The whole clinical research and development process – access to patients and 24

specialists with the right clinical study staff, the right facilities, and the right technology at the right price – is here.”

A lot of state companies are looking for alternatives to big (national) contract research organizations. There is no set script and everyone is trying to figure it out, he adds.

Knuth believes it is time to involve major insurers in designing, funding and conducting clinical studies that have the potential to provide the insurers with considerable near-term cost savings while significantly improving patient outcomes.

The University of Michigan is the center of the research world in Michigan. At the medical school alone 1,100 doctors and scientists are involved in clinical and translational research, supported by more than $340 million in research funds, including NIH grants that totaled $280 million last year.

And that’s just the medical school. Research is a way of life at the university’s engineering, nursing public health, dentistry and pharmacy schools, as well as the Biosciences Institute.

But clinical research is only the tip of the research-oriented iceberg.

EVEN More to Clinical Trials at U-M The university has “an entire continuum of research... much broader” than clinical research and clinical trials, says Dorene Markel, director of clinical translation research at the Michigan Institute for Clinical and Health Research (MICHR). “We will take on clinical research if it gives our patient access to drugs or therapy; it allows researchers have access to a company to develop a relationship and fund our stuff. They want our brand.

“Scientists are as likely to study the disease process and how drugs metabolize in

the body,” Markel says, research that eventually could lead to discovery of a compound.

In an “academic institution you broaden things,” Markel says.“There are so many other things to study to actually change and improve healthcare.We have people who do everything.”

Perhaps Michigan’s most famous clinical trial occurred 55 years ago when the School of Public Health announced that its trials confirmed that Jonas Salk’s dead virus polio vaccine could stop polio.

To support its physicians and scientists the university created MICHR in 2006.

MICHR functions as a contract research organization. Its 100 employees are skilled in a variety of research-related support services, such as biostatistics, informatics and data coordinating centers so as to run multi-site clinical trials.

“We can help researchers develop their own ideas, write proposals for funding and then do the pre-clinical and clinical leg work for clinical trials,” Markel says. In the past a scientist with an idea created his own small

“The whole clinical research and development process — access to patients and specialists with the right clinical study staff, the right facilities, and the right technology at the right price — is here.” staff, most likely unskilled or inexperienced in the nuances of the grant business to do the same thing, she adds.

NIH Grant Recognizes U-M Role in Research Changes And things should only get better, not just for the university but the state’s biosciences community. In September 2007 NIH, acknowledging the role MICHR was playing in strengthening university research, awarded MICHR a $55 million Clinical and Translational Science Award (CTSA) spread over five years. The award was the thirdlargest in the university’s history and the

largest NIH award ever to a medical school.

The award symbolizes NIH’s paradigm shift regarding research support and acknowledges Michigan’s role in that shift. For years NIH put its money behind basic research, neglecting those scientists who could take their bench knowledge to the hospital bed, Markel says. Michigan created its research infrastructure through MICHR, and CTSA money allows MICHR to strengthen the infrastructure even more.

With its CTSA award Michigan joined 33 other elite medical centers as part of a national initiative to transform how clinical and translational research is conducted.

CTSA membership translates into prestige, respect and business for biosciences, Markel says.“There will be have and have-not (universities),” she adds “If you were a company wanting to engage a university in clinical trials or research where would you go? Having CTSA is critical for the image of biosciences in the state and will help our faculty bring in their own grants from more sources.”

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BioMatters | Fall 2008

ENTREPRENEURS

Newcomers Find Michigan Has Much to Offer Emiliem president & CEO, Dale Johnson, met with University of Michigan graduate students following a seminar he conducted at the College of Pharmacy, a benefit to both teacher and students of Johnson residing in the state.

Once a mainstay in the biosciences hotbed of northern California, Emiliem, Inc. is now headquartered in the west Michigan community of Kalamazoo. Created by Grand Rapids native and highly respected scientist Dale Johnson, Emiliem is a developmental stage biotechnology company, focusing on the discovery and development of molecularly targeted oncology drugs and other proliferate and inflammatory diseases.

It recently signed an exclusive licensing agreement with the National Institutes of Health for the world-wide rights to develop and commercialize a series of compounds that modulate key biological pathways that are important in the progression of cancer and inflammatory diseases.

Emiliem was doing just fine in Emeryville, CA, says President and CEO, Johnson, who realized his company could do even better in Kalamazoo, after talking to David Zimmermann, CEO of Kalamazoo’s own start-up, Kalexsyn. Johnson also is president of ddplatform LLC, a biotechnology incubator and technology generator that played a major role in Emiliem’s formation.

BioMatters | Fall 2008

“We assessed all innovation centers that we felt were appropriate and in operation at that time,” eliminating the San Francisco Bay area, India and China’s east coast…”

“David came out to California and showed us what (Kalamazoo) was doing,” says Johnson who then did his due diligence and moved Emiliem’s headquarters to Kalamazoo nearly three years ago.

26

“We were convinced that we could create a ‘virtual’ approach to discover and develop new molecular targeted therapeutics,” he says.

“Other companies were using this approach for drug development, and we wanted to be the first group that combined both discovery and development in this mode.”

Emiliem operates a business hub in San Francisco that provides it with business law, intellectual property and financial support. It also owns a commuter IT hub in Emeryville, across the Bay Bridge from San Francisco, that serves as the company’s direct link into Bay area universities, particularly offices of technology transfer, and other biotechnology companies with whom it discusses collaborative initiatives.

Johnson says he was looking for an “onthe-ground” R&D hub, allowing Emiliem to expand as it approached clinical trials with its lead compounds.

“We assessed all innovation centers that we felt were appropriate and in operation at that time,” he says, eliminating the San Francisco Bay area, India and China’s east coast. “Since a great deal of our collaborative and service work was being done in the Midwest (Michigan collaborators include Kalexsyn, MIR Preclinical Services and Van Andel Research Institute), we searched for a convenient location that also had experienced people in pharmaceutical R&D. Southwest Michigan turned out to fit the requirements very nicely.”

State money helped Emiliem, which received a Pfizer retention loan, as well as pre-seed investment money from Ann Arbor SPARK. The company hired two former Pfizer/Pharmacia/Upjohn employees, Diane Beuving and Donna Romero. “Finding two new members of this caliber for our management team says it all,” Johnson adds.

Paul Neeb from Southwest Michigan First spearheaded the state loan and Sandra Cochrane, then the COO of the Southwest Michigan Innovation Center, and Skip Simms of Ann Arbor SPARK spearheaded the pre-seed investment.

What “really had the most influence on our decision,” Johnson says, was the continuing contact he had with Cochrane.

It didn’t hurt Michigan’s chances that Johnson is from Michigan and holds three degrees from U-M, including a PhD in toxicology where he was an AFPE Fellow.

He received a Bachelor of Science degree and Pharm.D degree, completing a clinical pharmacy residency and receiving the Roche national research award and the Squibb National Resident of the Year Award.

Johnson advises start-up companies to get sufficient capital to ensure a realistic exit strategy and make sure there’s an understanding of how to estimate company valuation at exit.

Johnson has 30 years of experience in biotechnology and pharmaceutical research and development activities, all while working for a who’s who of American science companies. He has led and managed groups ranging from small units in start-up companies to multi-national units in large corporations. He’s participated in the research and development of more than 100 compounds, of which 15 have become marketed healthcare medicinal products and vaccines in the United States, Japan and Europe.

Johnson was vice president of drug assessment and development at Chiron Corp., also in Emeryville, when he decided in 2005 to leave Chiron to start Emiliem. He was joined by colleagues Sucha Sudarsanam and Edwin Ching. They incubated Emiliem, using ddplatform, creating intellectual property and proprietary software.

Despite being happily ensconced in Kalamazoo, Johnson clearly sees that money will determine the future of biomedical research in Michigan.

Start-up life science companies that discover and develop drugs do not fit the standard business model of the state, he says. That’s because unlike manufacturers, “life sciences companies are long-haul companies that generate no short term revenues, manufacturing or commercialization.”

Factor in lengthy and costly clinical drug trials that could lead nowhere and it’s obvious why investors shy away from putting their money into start-up companies, he says.

Johnson advises start-up companies to get sufficient capital to ensure a realistic exit strategy and make sure there’s an understanding of how to estimate company valuation at exit.

Johnson

has

30

years of experience in biotechnology and

pharmaceutical research and development activities, all while working for a who’s who of

American

science companies.

“We searched for a convenient location that also had experienced people in pharmaceutical R&D.” “Southwest Michigan turned out to fit the requirements very nicely.”

27

BioMatters | Fall 2008

TECHNOLOGY

Tech Transfer on the Rise as Faculty Buy Into Discovery

BioMatters | Fall 2008

28

Jeff LaBine has been busier than ever lately; and so have Ken Nisbet, Mike Poterala and Fred Reinhart.

The four work in the futuristic scientific world of technology transfer and intellectual property and are responsible for shepherding the newest and most dazzling technologies from the laboratory to the marketplace.

LaBine is a transactional attorney and principal in the Ann Arbor law office of Miller Canfield. Nisbet is executive director of tech transfer at the University of Michigan, Poterala is assistant vice president and executive director of MSU Technologies at Michigan State and Reinhart associate vice president of research at Wayne State.

“I’m seeing an appreciable increase in venture capital activity, and patent filings are increasing as well,” LaBine says. “Relative to our peers we’re coming on pretty strong.”

The U-M, Michigan State and Wayne State are the research gems in Michigan’s higher educational system. Sharing a common research agenda, the three created the University Research Corridor (URC) to advance their mutual interests.

Their inventors are busy applying for patents, developing compounds and medical devices – the first stage in tech transfer – that could lead to life-saving and innovative medical treatments. (See charts)

Signed Agreements, Disclosures Signs of Tech Transfer Health

University Research Corridor 2007 Results

The category that serves as the best barometer of a strong tech transfer program is signed agreements “because our goal is to get technology deployed,” Nisbet says.

“We would rather achieve that, and the revenue will follow.”

Another key benchmark is invention disclosure, when scientists approach tech transfer with ideas they think are valuable.

“Disclosure is the fuel by which we operate,” he adds. “It is important because if you want to commercialize something you need quality and quantity of things to work with.”

The three universities were on the receiving end of approximately $1.4 billion in total research dollars last year, money that supports research, including more than $800 million to U-M, an all-time university record. U-M consistently ranks among the nation’s top four research universities, based on R&D expenditure statistics compiled by the National Science Foundation.

But the universities’ contributions to furthering tech transfer are more subtle and just as vital to the future. They educate undergraduate and graduate students, pique their interest in discovery and provide them with role models, Reinhart says. “It’s all about advancing the collective knowledge of science,” he adds.

University of Michigan

329

91

87

Michigan State University

161

28

35

Wayne State University

16

45

22

The best barometer of a strong tech transfer program is signed agreements “because our goal is to get technology deployed,” Nisbet says. “We would rather achieve that, and the revenue will follow.”

World Is a Healthier Place Thanks to State’s Big Three The universities can lay claim to some significant medical discoveries that could, and have, led to commercial products and high national recognition. For example: l U-M scientists gave the world the anti flu nasal spray and discovered the gene

IP Disclosures Signed License Agreements

Patents Issued

University Research Corridor 2002-2005 Results

Patents Received

Start-up Companies

Revenue Generated

University of Michigan

353

43

$63.6M

Michigan State University

184

28

$105.6M

Wayne State University

95

8

$22.9M

for cystic fibrosis. In 2003, they were the first to identify stem cells in solid tumors in breast cancer and the first to find pancreatic and head-and-neck stem cells. l Wayne State’s most famous gift to the world was a failed anti-viral cancer drug that became the most effective drug used to combat AIDs. The compound, AZT, was developed about 25 years ago by inventor Jerome Horwitz. The drug slid into oblivion after failing to make it through Phase II clinical trials. Some years later the National Institutes of Health and the predecessor company to GlaxoSmithKline “toyed around with the drug and tested it as an anti-viral medicine” for AIDs, Reinhart says. l Michigan State scientists discovered that leptin, a hormone produced by fat cells, supports white blood cell production in the body, enhancing immune function.

A new nanotechnology material developed at Michigan State enabled XG Sciences Inc. in East Lansing to begin operations.

“Stanford and MIT remain the gold standard in tech transfer and we definitely have closed the gap,” Nisbet says. “We can actually overcome it, but it will require some enormous resources and take time.”

The university ranks “well within the top 10” of the survey of universities performing tech transfer as compiled by the Association of University Technology Managers.

29

Nisbet’s office works with its inventors every step along the way of discovery, providing any support the inventor may need to ensure his or her discovery is technically and commercially feasible. “This makes it more likely that outside business partners would find the technology attractive,” he says.

U-M Tech Transfer created a 13-member national advisory board of local and national executives from private industry and the public sector to provide input, resources and strategies to its whole program.

The University spun out 49 companies in the past five years (13 last year), and its licensing revenues increased to $12.8 million last year.

Michigan State Beefs Up Tech Transfer Office To “energize” its tech transfer operations, last year Michigan State created MSU Technologies, a streamlined and focused approach to more efficiently get ideas out of the lab and into the marketplace, Poterala says. “It’s a new point of emphasis, to better identify those needs for innovations.”

To stress its commitment to tech transfer, Michigan State increased its tech transfer staff to 20 from nine and nearly doubled the office’s budget. “We are in an emerging marketplace for technology,” Poterala says.

“Everyone is trying to ramp (tech transfer) up.” The office will keep its eyes on discoveries emerging from the labs to ensure they can be commercialized.

BioMatters | Fall 2008

TECHNOLOGY

MichBio Members Value Community C ontinued from page 2

Miller Canfield has a team of six transactional lawyers, focusing on biosciences, medical devices and venture capital, and people working exclusively on the intellectual property side in Kalamazoo, Chicago and Cambridge.

His firm does a lot of work with academic institutions and companies all over the United States, including Michigan.

“Companies, including those in Michigan, want to commercialize university discoveries. The recent cost cutting on the R&D side of many companies has only increased interest,” LaBine says.

Two Michigan Companies, Two University Discoveries In the past six months Miller Canfield has worked with two Michigan companies interested in two technology spinouts from Michigan public universities. Confidentiality agreements prohibit him from revealing too much about the players.

BioMatters | Fall 2008

One company is eyeing technology for treating osteoporosis based on a piece of DNA from a bone, while the other company is looking at a cancer diagnostic technology.

LaBine says both companies are locally funded and staying put once they get possession of the technology.

Inventors are focusing on tech transfer for additional revenues for their institutions while tech transfer people “are becoming more entrepreneurial and realizing that revenue can be generated by selling to companies rather than relying on alumni donations,” LaBine says. “These developments foster a culture where companies are launched, funded, go down the path of commercialization and then are acquired.”

Ann Arbor, Kalamazoo and Grand Rapids have an opportunity to become key players in international drug development and medical devices, he adds.

Resources and Contacts MichBio strives to be the go-to resource for all things bioscience. The following programs lend a helping hand: l Preferred Providers – MichBio partners with product and service providers that offer members discounted laboratory products, business insurance, access to scien tific journals, professional services, office supplies and furniture. l The Michigan Innovation Equipment Depot (MIED) – Provides Michigan biosciences start-up companies with repurposed equipment that can be critical to their R&D operations. l BioConnections™– An exclusive online service that helps MichBio members recruit a dynamic workforce, a critical need of growing companies.

Join us and become part of Michigan’s biosciences community, the power of one. www.michbio.org • 734.527.9150

30

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BioMatters | Fall 2008

F I N A N C I A L M AT T E R S

Show Me the Money: Venture Capital Beginning to Flow

BioMatters | Fall 2008

32 22

The people are there, the ideas are there, the determination is there. All that’s been missing is the money. And now that’s getting there. More and more venture capital companies are finding their way into Michigan to help finance start-up and later-stage biosciences companies. Venture capital is the vehicle to transfer ideas from the laboratory into commercialization. Key investors are stepping up to the plate — the state, public universities, private sector and venture capital companies inside and outside of Michigan.

“I think the environment for venture capital is improving dramatically,” says Michael Psarouthakis, senior portfolio manager of the Michigan Economic Development Corp.’s (MEDC) 21st Century Jobs Fund. The Jobs Fund is the conduit for the state to loan money to deserving biosciences companies.

Some of the nation’s top venture capital companies that normally invest in hot companies on the two coasts are finding fewer opportunities because competition is so tight, he adds. Now they are looking elsewhere for deals and they are beginning to clearly see Michigan’s once overlooked advantages.

“It is cheaper to do business in Michigan than on the coasts,” Psarouthakis says. “We have advantages in medical devices because of our manufacturing capabilities and our state universities are more aggressively” spinning out new companies through tech transfer.

Money

can come from investors large and small,

with deep pockets or modest sums.

l

As of December 2007, venture firms based in Michigan had approximately $900 million in capital under management and $100 million available for new investments.

Venture capital companies are looking elsewhere for deals and they are beginning to clearly see Michigan’s once overlooked advantages.

All Trends Moving Up The Michigan Venture Capital Association (MCVA) released a survey in July that revealed Michigan’s place among 50 states in the national venture capital market in 2007. l Of the $30 billion invested nationwide Michigan received 4 percent out of that money, or $120 million, to rank 25th among the 50 states. l The amount of venture capital under management in Michigan has increased by almost 75 percent since 2001.

Mary Campbell, managing director of EDF Ventures in Ann Arbor and chair of MVCA told Xology magazine in its fall issue that there are now “40 dedicated investment professionals” living in Michigan, compared to just a handful seven years ago. “I think the (environment) is much stronger now than it was six years ago and will be even stronger six years from now,” she said. EDF is a 19-year-old Ann Arbor venture capital

33

company investing in early-stage health care companies. It manages $175 million of investments and invests one third of its money in Michigan companies.

Perhaps the poster child for a successful biosciences company is QuatRx Pharmaceuticals, an eight-year-old Ann Arbor company run by highly regarded scientists, developing promising compounds to fight endocrine, metabolic and cardiovascular diseases.

The company has raised nearly $120 million from venture capital companies, all of whom are based out of state. QuatRx President and CEO Robert Zerbe has been on the ground floor of some of the most significant drug discoveries of the late 20th Century. While at Eli Lilly he helped develop Prozac and Zyprexa. When he moved over to Parke-Davis/Warner-Lambert in Ann Arbor he worked on Lipitor and Neurontin.

While working at Parke Davis in 1998 Zerbe was approached by a representative from Seattle-based Fraser Healthcare, the largest healthcare venture fund in America, who “asked me if I would be interested in starting a company.” Two years later Zerbe left Parke Davis to start QuatRx. “We were fortunate...we had a venture group willing to invest in the team,” he says.

QuatRx has four very promising compounds in various clinical trials, drawing the eagle eye of investors, notably Ophena for post menopausal vaginal syndrome, now in the second phase III clinical trials.

BioMatters | Fall 2008

F I N A N C I A L M AT T E R S

Despite the large outside investments, the money never came easy, Zerbe says.

To be successful, company management “should plan well, choose compounds well, make commitments, fulfill those commitments and communicate well to your investors in what you have done.”

“Quite frankly, it’s easier to get an investor interested in Ann Arbor if they’re already coming here anyway,” Campbell told Crain’s Detroit Business. “I can’t tell you how important QuatRx is as a lightning rod.”

of Grand Angels LLC, a nearly five-year-old company in Holland.

Grand Angels helps its 38 members decide which companies to back. It serves primarily the western part of Michigan and supports industries other than just biosciences. It is one of seven angel groups in Michigan. Since it began operations Grand Angels has invested in 12 companies with investments approaching $5 million.

Smaller Companies Now Attracting the Big Bucks Smaller companies have had their own successful stories to crow about. Ann Arbor-based Accuri Cytometers raised $13 million for the commercialization of its C6 Flow Cytometer System. The technology provides cell analysis at a fraction of the size and cost of current cytometer technology.

The financing was led by Cambridge, MA, investors Fidelity Biosciences and Flagship Ventures. Current investors include Milwaukee-based Baird Venture Partners and Arboretum Ventures in Ann Arbor.

Grand Angels in Grand Rapids provided seed money and remains involved.

Earlier this year HandyLab Inc. in Ann Arbor raised $19 million from a number of venture capital funds, including three in Ann Arbor: Arboretum Ventures, Ardesta LLC and EDF Ventures. Mark Powelson, vice president of sales and marketing, declined to give specific figures. The company was founded by two University of Michigan engineering students and makes instruments to detect infectious diseases.

Money can come from investors large and small, with deep pockets or modest sums.

Angel groups are the antithesis of the large venture capital companies, providing fairly small amounts of money, from $250,000 to $1 million to kick-start new companies

Angels Among Us in Holland Family and friends are the first investors of start ups, quips Jody Vanderwel, president

BioMatters | Fall 2008

“Angel investing is the farm system of venture capital,” Vanderwel says. “Without a robust angel network to bring these businesses along there are less investment opportunities for the venture capital groups.”

To be successful, company management “should plan well, choose compounds well, make commitments, fulfill those commitments and communicate well to your investors in what you have done.”

Angel money is patient money, she adds, noting Grand Angels will wait for five to seven years for an exit. The company’s yield rate from application to investment is somewhere around three percent and all the companies in its portfolio “are doing well,” Vanderwel says. Grand Angels typically takes two seats on the board of the company it invests in.

“As a state we have not really invested at the angel level,” she adds.“I would like to encour-

34

age the state to leverage angel band money and support the operations of angel bands.”

Grand Angels was founded by former Grand Bank founder and CEO Charles Stoddard and entrepreneur Craig Hall. It is funded through membership fees, corporate and collegiate sponsorships and a grant from the MEDC. It is a member of the Angel Capital Alliance, an organization sponsored by the Ewing Marion Kauffman Foundation in Kansas City, MO, that provides leadership and resources for angel investors across the country.

Detroit Renaissance is midway through its $100 million fundraising campaign to invest in Michigan-based venture funds. The money will come from pension funds of the state’s major corpora-

tions. It expects to raise about $50 million this fall and will continue to raise funds to achieve the $100 million goal over the next year.

State Universities Getting Aggressive The state’s 15 public colleges and universities have banded together to create the Michigan Initiative for Innovation and Entrepreneurship (MIIE) to fund the commercialization of their research, retain local talent, become more collaborative with industry and encourage entrepreneurship among students.

MIIE will raise money primarily from state foundations and perhaps even its own university members to fund the pot.

“They are committed to keep this going for seven years… raising a total of $75 million,” says Tina Bissell, MIIE business manager.

The highest single award MIIE will loan is $150,000 for a single commercialization

project. As part of the grant requirement the grantee must line up $75,000, or 50 percent, in a matching grant to be eligible.

MIIE finished a pilot program in July when it announced its first winners. The C.S. Mott Foundation in Flint put up $2 million to support the project.

Six-year-old Arboretum Ventures in Ann Arbor is an early stage venture capital firm focusing on medical devices and healthcare services, says company founder and managing director Jan Garfinkle. In July 2007 Entrepreneur magazine named Arboretum one of the top 100 venture funds in America.

Garfinkle started Arboretum in 2002 with $24 million from institutional and private investors. Today it manages $85 million and has 16 companies in its portfolio, including six in Michigan.

Ten years ago the state committed a total of $1 billion spread out over 20 years from its tobacco money settlement to support

biosciences companies. Over the years the program remains in place, though the state has added homeland security, advanced manufacturing and alternative energy sector companies to compete. The state’s shrunken economy also has reduced the amount of money awarded.

State Jobs Fund Plays Many Roles The 21st Century Jobs Fund runs the program, distributing the money and more, says Psarouthakis, one of five employees managing portfolios. All came to the Jobs Fund from the private sector.

“We manage the portfolio, we take board seats, we negotiate contracts and we try to find executives for companies and additional funding,” he says. “We help companies resolve issues they may have with state government.”

The office tries to match its portfolio of companies to venture capital companies in Michigan and outside of Michigan. These

Michigan-Based Funding Sources Michigan Venture Capital Firms

Apjohn Ventures Arbor Partners Arboretum Ventures Ardesta BioStar Ventures EDF Ventures Endurance Ventures MacBeedon Partners Michigan Venture Capital Association North Coast Technology Investors Plymouth Venture Partners RPM Ventures TGap Ventures Seneca Partners SWMF Life Science Fund White Pines Ventures Wolverine Venture Fund

Corporate Venture Capital Firms

Delphi Corporation The Dow Chemical Company DTE Energy Ventures Stryker Corporation

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companies are at different stages of fundraising, Psarouthakis says. The only caveat is that all companies receiving Jobs Funds loans must do a significant part of their business in Michigan and maintain an office here.

In the 2006 competition (there was no competition in 2007) more than 500 companies and universities and nonprofits in the four sectors bid for $130 million in loans. Ultimately the Jobs Funds approved 84 companies. Of those, 31 were in biosciences and received a total of $50.1 million in loans.

In 2005 the Jobs Fund committed a total of $400 million to continue the program through 2015. It also has set aside $12 million for the retention of Pfizer Inc. assets following the company’s closure of its Ann Arbor research center. Of that amount $8.3 million was earmarked to companies created by former Pfizer employees and existing companies that hired former Pfizer people.

Corporation (MEDC) Michigan State Government Michigan Legislature

35

Information/Reservations Contact Jayne Berkaw 734.529.9147 jayne@michbio.org

BioMatters | Fall 2008

My Opinion

G uest O pinion

BioMatters | Fall 2008

Federal Funding One Key to Michigan’s New Economy By Lisa Kurek, Managing Partner Biotechnology Business Consultants, LLC

Encouraging and supporting Michigan’s most innovative companies and entrepreneurs is key to achieving diversity across the state’s industrial base in the rapidly changing new economy. While it has worked to increase the availability of venture capital to fund new technology companies, the State has also recognized the importance of other significant sources of capital, specifically the federal Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. Through these competitive programs, 11 federal agencies award a combined $2.5 billion to U.S. technology companies every year.

A company that can compete successfully in the SBIR arena can attract national and international attention from potential investors and larger companies interested in partnering.

Unlike most sources of capital, SBIR/STTR funding is available to even the earliest stage companies — those that are most often overlooked by professional investors. It is also nondilutive funding that doesn’t require repayment or the entrepreneur giving up a portion of the company. In fact, it’s the best source of initial funding for those high-risk, high-reward technology-based business ideas that can result in fast-growing, job-producing companies.

SBIR/STTR funds R&D projects that are critical for a company trying to demonstrate the commercial potential of its technology. The largest agencies with SBIR/STTR programs are the Department of Defense, National Institutes of Health, Department of Energy, and National Science Foundation. R&D awards from these agencies, which average between $500,000 and $1 million per Phase I/II SBIR/STTR project, already support hundreds of high-tech jobs in small companies throughout Michigan, and they also provide that first, critical step toward commercialization. A company that can compete successfully in the SBIR arena can attract national and international attention from potential investors and larger companies interested in partnering. Michigan’s most innovative companies need and deserve this type of exposure.

With funding from the former Michigan Technology Tri-Corridor Fund and current 21st Century Jobs Fund, firms like Biotechnology Business Consultants and BBCetc, as well as the Michigan Small Business Technology Development Center, have assisted Michigan companies in becoming more competitive. Intensive training workshops are offered throughout the State, with one-on-one proposal preparation assistance and commercialization consulting provided to qualified companies. This assistance has not only helped increase the number of SBIR proposals submitted and funded from Michigan companies, but it has increased the overall percentage funded. In 2005, 675 more Phase I SBIR proposals were submitted and 42 percent more were funded than in 2001, placing Michigan 10th among all states.

Building successful companies is a process that requires dedication, perseverance, patience and passion. We can build on that success by maintaining a commitment to providing the tools and support needed by Michigan’s cutting edge technology.

36

OAKLAND UNIVERSITY INNOVATION OPPORTUNITY Where

and

Meet

APPLIED RESEARCH Oakland is a known leader in many applied research disciplines including biomedical research, manufacturing, information technology, alternative energy/power train and homeland defense.To foster emerging discoveries, the university features several noted research centers, including:

• • • • • •

Fastening and Joining Research Institute Automotive Antenna Measurement Instrumentation Lab Center for Robotics and Advanced Automation Eye Research Institute Center for Biomedical Research OU’s SmartZone Business Incubator (OU INC)

Office of Grants, Contracts and Sponsored Research 544 O’Dowd Hall 2200 North Squirrel Road Rochester, MI 48309-4401 research@oakland.edu www.oakland.edu/research

For further information, contact: T.C.Yih,Vice Provost for Research • (248) 370-2552

22

BioMatters |AAF-2413/9.08 Fall 2008

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