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JAMES H. KELLY - STEM CELL INNOVATIONS, INC. (SCLL)
CEO Interview - published 10/30/2006
JAMES H. KELLY is the President and Chief Executive Officer of Stem Cell
Innovations, Inc. He was a co-Founder of Amphioxus Cell Technologies, one of
the predecessor companies to SCI. Prior to founding Amphioxus, Dr. Kelly was co-
Founder and Vice President of Research and Development for Hepatix, Inc., a
developer of artificial liver devices. From 1990 to 1995 he was responsible for
the overall progress of non-clinical programs in both the US and Europe,
directing a team of over 30 scientists and technicians. Prior to founding
Hepatix, Dr. Kelly spent eight years on the faculty of Baylor College of
Medicine. His postdoctoral training was obtained at Baylor and the Wistar
Institute of the University of Pennsylvania. He holds a BA in Chemistry and a
PhD in Biochemistry from Temple University in Philadelphia. Dr. Kelly has
numerous publications in cell biology, particularly liver biology, and holds
several patents and applications in the fields of liver and stem cell biology.
SECTOR BIOTECHNOLOGY
TWST: What is Stem Cell Innovations?
Dr. Kelly: We're a cell biology company. We were formed in February of this year
from three smaller companies - my previous company Amphioxus Cell Technologies,
another company called Plurion, and a public shell called Interferon Sciences.
We merged those three in February of this year to form Stem Cell Innovations
with the idea of using cell biology to address a variety of areas that we feel
are emerging fields in both the pharmaceutical industry and in medicine. Cells
are the basic structure of life. Cells are the things that live and die and so
pharmaceuticals and medicines operate at the level of cell.
Amphioxus Cell Technologies was based on doing human liver cell biology, using
human liver cells to support drug development. The liver is one the main
metabolic organs of the body, so it is one of the first things that drugs see
when they are absorbed through the intestine, so the liver has a significant
effect on whether a drug has a very short life, whether it builds up in the
blood stream, whether it kills off the cells, etc. The liver is central to drug
metabolism.
Two years ago we decided to expand with the idea that, by using stem cells, we
could generate other cell types that we could plug in - such as heart, lung,
liver, and kidney - in the same infrastructure of assays, robotics, and so on,
that we had developed for the liver and really do extensive in vitro testing of
drugs before they go on the market. This way, things like the Vioxx recall and
so on, where unknown, unforeseen toxicities show up after drugs get out on to
the market, could be understood and eliminated beforehand by doing extensive
testing of cells in a dish rather than in a person.
So that was really the emphasis for acquiring Plurion and forming Stem Cell
Innovations - to develop stem cells. Stem cells can become any cell type in the
body. Stem cells by their nature can become heart, lung, liver, kidney, etc. We
are now using those stem cells to generate those different types of cells, as I
mentioned, and using them to test new drugs.
TWST: What's the agenda at this point? What are your priorities? What would make
Stem Cell Innovations a successful stem company?
Dr. Kelly: We've spent the last couple of years developing the stem cells
themselves. In the embryonic stem cell field, most of the intellectual property
is controlled by the University of Wisconsin. That, coupled with the
presidential ban on funding certain types of stem cell activities, has put a
damper on how stem cell research has moved forward in the US. Part of what we
were doing was to develop a different set of embryonic cells, and especially a
set of intellectual property, that was completely independent of the University
of Wisconsin. Our cells are also outside the presidential ban. What we have now
are stem cells that can become any type of cell type in the body but can be used
in regular academic labs. Our cells don't have some of the problems that other
embryonic stem cells have.
Over the next year, now that we have those cells, our objectives are threefold.
We are trying to get the cells out into academic research labs. We recently had
a series of announcements that we signed material transfer agreements with
several universities. Now, people who are working on stem cells in NIH-funded
laboratories can use the cells to advance the science. There's a lot of
information that we still don't know about stem cells that will be figured out
in university laboratories. In return for supplying the cells, Stem Cell
Innovations gets a non-exclusive license to any patent that comes out of the
work and the right to negotiate an exclusive license, so it's a way for us to
bring new technology into company, while at the same time advancing the science
and creating new business opportunities. That's really our first objective.
The second objective is to talk to patient organizations that are working on
various kinds of intractable sorts of diseases - Lou Gehrig's disease,
Huntington's disease, and so on. Those patient organizations are very interested
in stem cell therapy for these kinds of diseases. We're trying to work out
agreements with some of those organizations for using the cells to move research
forward, both on a drug discovery level and on a cell therapy level. One of the
interesting things about the patient organizations is that they are extremely
aggressive and they are very open to using new technology. We think that working
with the patient organizations is an excellent path for generating agreements
for drug discovery, and so on. And then thirdly, of course, we are also talking
to some of the major pharmaceutical companies.
Those three things really are our objectives over the next year - get the cells
to the universities, sign agreements with patient organizations, and, of course,
get a couple of agreements with biotechnology or pharmaceutical companies.
TWST: What has been the funding and financing history? Are any of those items on
the agenda?
Dr. Kelly: Small biotech companies are always looking for great funding sources.
We have a number of large and small investors and have about six months worth of
money at the moment. We're also in the process of doing a small round of
financing to move some of these ideas that I outlined to maturity with the
intention of doing a larger financing sometime next year.
TWST: Introduce us to your top-level management team, two or three of your key
individuals.
Dr. Kelly: I am the CEO. Larry Gordon, who is the former CEO of Interferon
Sciences, stayed on after the merger to help me with various aspects of running
a public company. Mark Germain is Chairman of the Board and has been in biotech
for quite a long time and has founded a number of successful companies.
David Perryman is our patent counsel and was one of the Founders of Plurion. He
is with Needle and Rosenberg, in Atlanta. Helmuth van Es is our Chief Scientific
Officer in our European Laboratory, and Ivo Piest is our Director of Business
Development. Helmuth and Ivo are veterans of Galapagos, a spinoff of Crucell, a
very successful biotech in the Netherlands.
And then we also have been able to recruit really quite an outstanding group of
outside Board members: Tony Coehlo, who is President of the Epilepsy Foundation
of America and formerly in the US House of Representative; Lou Noto, who was
formerly Chairman of Mobil Oil; John Macomber, former CEO of Celanese Corp; and
Norman Sussman, a liver transplant physician at the Baylor College of Medicine.
These men are all actively involved and are helping us both with advice and
introductions.
TWST: What historically has been the shareholder base with Stem Cell
Innovations? Has that base changed?
Dr. Kelly: It has not changed so much, and mostly the shareholders at the moment
are former Interferon Sciences' shareholders. As I said, we only formed the
company in February, and really only now are beginning to come more into the
public eye. We're at a position now where our technology has developed to a
point where we're out doing interviews and things like this to raise the
awareness of our company and, with that idea, to broaden our shareholder base.
TWST: In your discussions with the investment community, are there any
misperceptions or recurring questions? Do they understand the story?
Dr. Kelly: I think so. Naturally there is always the question about stem cells
and the presidential ban on NIH funding, etc. There are always those kinds of
questions. We have a very practical outlook and are concentrated on the
application of stem cells in drug and cell therapy. As I said, our cells are
outside the presidential ban, so that doesn't affect our work, and I think the
controversy will subside as people see real advances coming from stem cell
research.
TWST: What should investors be focused on? Are there any metrics or any events
that investors should focus on as they track your performance?
Dr. Kelly: Yes, I think that those three things that I mentioned earlier, the
licensing with the universities, the agreements with patient organizations,
agreements with large and small biotech companies, those will certainly be
metrics. Look at other companies in this area, companies like Geron, like
Osiris, like Stem Cells, Inc. Geron is valued at around $500 million, Osiris in
the $200 million ballpark, Stem Cells is kind of that number as well. With our
company, we have the ability to spin off multiples of those kinds of companies.
So, for example, because our cells can become any cell type - they can become
heart cells, they can become brain cells, and so on - it's our plan that as the
technology develops, we will spin off separate companies that have the
appropriate management and so on to drive those projects forward. A company that
is doing clinical trials in Parkinson's disease, for example, is really
different from a company that's doing drug development in cardiology, for
example. Trying to keep those projects under one roof is counterproductive in
that the company doesn't get valued on its entire portfolio, but it is
counterproductive in a management sense. It's very difficult to assemble a team
that has good skills in all of those areas. So it's our intention that as each
of these various technologies matures, we'll spin them off into specific
companies. We have the ability to spin off literally 10 companies that can have
a $200 million dollar kind of valuation. We think, of course, that Stem Cell
Innovations at the moment is something that is going to take a bit of time to
fully develop, but we think that over the next couple of years we will be able
to dramatically improve the valuation.
TWST: What would compel investors to include Stem Cell Innovations not only as
part of their current portfolios but also as part of their longer-term
investment strategies?
Dr. Kelly: This is something of a cliché, but biotech companies that have been
the second and third movers in their field have in fact done very well. If you
look at Amgen as a sort of example, $4 a share in 1984 would be worth almost
$4,000 a share today. Over the first 15 years of Amgen's business, their
valuation went up by tenfold every five years, and we think we have the
wherewithal to become that kind of company over the years. We are the second or
third mover into a brand new field that has the ability to completely change the
way we go about pharmaceutical development and think about some really
intractable diseases, things like Parkinson's and ALS and so on. So I think that
investors should add Stem Cell Innovations to their portfolio now with the idea
of holding it as the valuation rises.
TWST: Thank you. (DWA)
JAMES H. KELLY
President & CEO
Stem Cell Innovations, Inc.
1812 Front Street
Scotch Plains, NJ 07076
(908) 663-2150
www.stemcellinnovations.com
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