looking at old articles and news at the time
what could possibly go wrong!January 15, 2014
Tissue Therapies And The Regulatory Maze
By Richard Campbell | More Articles by Richard Campbell
TaggedTISCall it an unknown unknown, or maybe a known unknown but either way Tissue Therapies (TIS) suffered a serious set-back in mid 2013 when a EU regulatory committee decided that its wound healing product ‘VitroGro’ was a “medicine” not a “device”.
As medicines require more extensive trials than devices, this unexpected decision – beyond the power of a manufacturing process review committee – might have completely derailed TIS as it prepared to market its wound healing gel to the European market for lower leg ulcers. After protests and threats of litigation the committee relented but didn’t offer a fast-track process as recompense. It set another 210 day review period and so by the time EU approval finally comes through by April or May TIS will have foregone what might have been 12 months of sales.
This is an object lesson for biotech investors: even the experienced product team at TIS had not anticipated a rogue decision, especially as they had already been notified that all the other approvals aspects had been granted. There was no question that VitroGro worked quickly or that it offered national health budgets tens of millions in savings or that it was safe and well supported by wound-healing specialists. Some suspicious types even wondered whether there were other forces at play. Or was this simply par for the course in EU’s labyrinthine medical bureaucracy?
TIS pressed on. It was able to convince its corner-stone investor, the high conviction fund manager Allan Gray Australia, to underwrite a rights issue. Allan Gray responded and now sits at 16%. The price has firmed and some who sold out in disgust are coming back on to the registry as they weigh up the size of this large unmet need and VitroGro’s robust margins.
Still, the obvious question is whether this degree of uncertainty is worth the risk. As on-line discount broking kills off the margins of the traditional full-service brokers, detailed market and product analysis is getting thinner and thinner. Typically the companies themselves offer little guidance beyond emphasising the merits of their own product. Mentioning the competition even to provide context is a no-no.
To be fair TIS does mention competing products in presentations, but a naïve investor might easily assume that the large market for venous leg, diabetic foot ulcers and pressure ulcers is an open field. This is far from the case. Physicians find that one in three or four venous ulcer cases are very difficult to heal, but there are many companies in the field offering all sorts of variations on pressure bandages and other remedies like vitamin supplements and honey.
Behind the technicalities of treatment there is a much wider story about demographics, diet and life-style. Venous ulcers are in part age related as the pressure build up damages vein valves but smoking, weight, lack of exercise and a dozen other factors may be involved. In the UK in the UK about 130,000 people suffer from venous leg ulcers while diabetic ulcers are usually smaller and have a different causation. Both, however, absorb $500- $600m a year of the NHS budget but other estimate puts the full cost at up to $2 billion when costs like visiting nursing aids, taxis, meal services and amputations are included.
Tissue’s sources put the US cost of treating the leg ulcers of 1.5% of the population at $25 billion a year. In Europe the numbers are about .8% of 740m. Since the usual clinical experience is that one third of venous ulcer cases prove difficult to heal with pressure bandages the global market is of the order of $5-6m, but more if the traditional treatments are phased out and more again if China is included.
Already 11-12% of the Chinese population has mild or advanced diabetes and about 45% have high glucose levels – the first stage of diabetes. In the UK about a third of diabetic ulcers also fail to respond to surgery. This leads to over 6000 lower leg or toe amputations a year.
Tissue’s solution relies on the body’s natural healing by supporting sequential cascade of normal skin cells. A synthetic protein acts like a trellis but dissolves as the upper, middle and lower cells move into place “dynamically.” The ulcer cavity fills plump rather than being merely covered by fragile surface skin which may rupture when the patient next bumps into the bed or the furniture. Other markets include trauma wounds, surgical scars and acute sun-burn.
With a large number of clinical trials behind it and the regulatory phase more or less sorted in Europe, the next issue for TIS is the competition – known or below the horizon. One obvious challenger is Avita which holds rights to the “self-skin” multiplication technology applied to the Bali bomb victims in 2002. This technology first went to the market as Clinical Cell Cultures in 1999, but despite the association with the Professor Fiona Woods it struggled. It turned out that burns units were disinclined to pay CCC for something they could to do themselves.
CCC was relisted as Avita in 2008 with a bedside skin harvesting kit called ReCell which cultures the patient’s own skin in a medium. A small amount of skin of the right colour is removed which is enough to capture all the cell types required for the wound to re-assemble and heal once “skin seeds” are sprayed on the open wound. Large sheets of skin are not needed. As with VitroGro relatively few intractable cases fail to respond. Healing speed and coverage is comparable, if not marginally better than VitroGro but as no two studies start with precisely similar cases, it may be line ball. ReCell may also have wider applications like Vitiligo, a skin pigmentation defect. About two million Americans suffer from these disfiguring white patches. Removal of surgical scars, burns, scalds, wrinkle treatment and more are on Avita’s target list.
This is clever technology, but Avita still struggles. It has spent almost $100m so far on salaries, trials, approvals and R&D and while it had secured European approval for ReCell, the kit is relatively expensive and CE Marking is only the first step to commercialisation. If various national health schemes fail to put ReCell on their reimbursement list it will be confined to the private market and specialised uses. But it gets worse. If CE Mark is granted on a broad descriptor, not a specific use, each application requires further trials to qualify for reimbursement.
The US approval process may be more predictable than CE Mark, but it is also rigorous and blind to the EU system. CE Mark might as well not exist in US eyes. Avita’s current FDA trials for burn treatment are supported by US Defence Department sponsorship, but recruitment is slow and some issues have risen around stability of healing. Pending high volume sales Avita’s income is largely from cosmetic applications but has stalled at around $4m pa. Major shareholders recently had had enough of slow progress citing an over-generous CEO’s salary and too much focus on science at the expense of marketing. Both the CEO and Chairman resigned in December.
In the UK the AIM listed Tissue Regenix has been working on a protein scaffold approach similar to VitroGro. It takes donor skin, vein or valve tissue from humans and animals, extracts the DNA to prevent rejection while leaving the cellular scaffolding. It won CE Mark approval for a “decellurised” pig’s valve product in 2010 and is preparing launch of an ulcer product using donor sourced skin. Marketing agreements have been signed in a number of US states. This is clever science too, but fairly complex and perhaps over-kill compared to the simplicity of a once a week gel application.
Other competing products need mention. Dermagraft and Apligraf take donated newborn foreskin tissue and spray them on to dissolving mesh again akin to the VitroGro scaffold, but the processes are relatively complex and have associated rejection and maintenance issues. The skin has to collected, treated and delivered in deep frozen form making them expensive for use on large burns and scalds and ten to 15 times more expensive than Tissue’s gel.
This raises a big underlying question. Can science run ahead of the capacity of patients and health systems to pay?
In all these examples there are years of research behind the synthetic or semi-synthetic product, but what will count is not necessarily the depth of the science, how versatile each product is or one to two week’s improvement in healing time over the other, but the benefit health economists believe each offers for the public outlay. For example, VitroGro is not being marketed for burns, wrinkle reduction or Vetiligo, but at roughly 10% of the retail cost of ReCell and a manufacturing cost of described by the CEO as “quite modest” it has flexibility when it comes to reimbursement. It should be a lot easier to get approval for a gel costing $80-100 a pack than a more versatile procedure costing $1000-1500.
Needless to say, this is just a flying visit to the intricate world of wound healing, but it suggest that biotech investing is often as much about regulatory risks and the politics of health budgets as the science itself.
About Richard Campbell
Richard Campbell has more than 40 years of corporate and equity market experience. He worked with Bell Potter and UBS Warburg for almost 30 years before launching his own business Peninsula Capital Management.
