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JAMES R. MUSICK – VITRO DIAGNOSTICS, INC. (VODG)
CEO Interview - published 06/23/2008
JAMES R. MUSICK, President, Chief Executive Officer, Chairman of the Board of
Directors and Principal Financial Officer of Vitro Diagnostics, Inc., earned a
PhD degree in Biological Sciences with a specialty in Neuroscience from
Northwestern University. He joined Vitro in 1988 and directed all operations
involved in the establishment of a diagnostic product line targeting a niche
market. He was also responsible for the development and initial
commercialization of the fertility drug VITROPIN™ as well as the cell
immortalization program of the company. He is an inventor or co-inventor of all
issued and pending patents owned by the company. In 2000, he orchestrated the
sale of the diagnostic operating division to Aspen Biopharma, Inc., allowing the
company to focus on development of its core technology of cell line generation
while establishing and commercializing the initial cell line products for
research applications.
SECTOR – BIOTECHNOLOGY
TWST: May we start with a short history and overview of your operations?
Mr. Musick: Vitro Diagnostics operates under the name, Vitro BioPharma. We are a
biotech firm committed to "Harnessing the Power of Cells."
Our current focus is the development and commercialization of stem cell
technology for use in diabetes research and treatment. We have generated over 30
different adult human pancreatic stem cell lines based on our prior research and
development activities. We previously developed cellular immortalization
technology, which is also a property of stem cells.
Our technology is exclusively focused on adult stem cell lines and we're not
involved with embryonic stem cells. Our business plan includes an initiative to
commercialize products for use in drug development and diabetes drug discovery
where we identified a niche market. We're also interested in developing and
commercializing products to treat animal diabetes and as a longer-term goal,
we're interested in developing and commercializing and gaining regulatory
approval of stem cell-based treatment of human diabetes.
Our company's technology represents a platform with broad applications to
several medical markets. However, our present focus is on targeting a niche
market within pharmaceutical drug development that does not require FDA pre-
market approval. Our financial projections show some additional losses prior to
turnaround to profitability within the second year of product launch.
TWST: What is the main difference between adult stem lines and embryonic as they
pertain to what you are doing?
Mr. Musick: Basically, embryonic stem cells are derived from embryos,
whereas adult stem cells are derived from non-embryonic tissues. Our stem cell
lines are derived from pancreatic tissues themselves.
TWST: What are the main advantages and disadvantages that you see?
Mr. Musick: Adult stem cells are more readily differentiated into fully
differentiated cell types as opposed to embryonic stem cells that have
pluripotentiality, which is the ability to be differentiated into any cell type.
But in order to differentiate the embryonic stem cell lines into, say, human
pancreatic beta islets, the differentiation process is more complex since these
cells need to be directed to other cell types prior to differentiation into beta
islet cells.
TWST: What impediments are you encountering as far as commercialization is
concerned?
Mr. Musick: We have completed our research and development stage where we have
demonstrated self-renewal of our stem cell lines, meaning operational
immortality resulting in a potentially infinite supply of stem cells to support
our manufacturing needs. And we have also demonstrated our abilities to
differentiate our stem cell lines into terminally differentiated beta islets
that are essentially identical to native islets.
The main current objective and obstacle for us is commercial-scale
manufacturing. We have an ongoing program utilizing state of the art
manufacturing techniques to deal with this issue and we are making solid
progress here. We believe that we will achieve commercial-scale manufacturing in
the near future.
TWST: Are there recent clinical trials showing effectiveness of stem cells in
the treatment of diabetes?
Mr. Musick: Probably the largest database that we have now is from a procedure
known as the Edmonton Protocol. This protocol has been around for nearly 10
years now and over 300 patients have been treated by taking human beta islets
that are derived from pancreas glands of organ donors. Initially the islets are
purified from pancreatic tissues, characterized and subject to additional
procedures prior to transplantation into select patients with Type I diabetes.
In general the results have shown that about half of these patients no longer
require insulin injections, whereas prior to transplantation they required
anywhere from four to six insulin injections per day. There is also a reduction
of common diabetes side effects, such as cardiovascular complications. However,
there are some problems with the classic Edmonton Protocol. The procedure also
requires immunosuppressive therapy, which diminishes the function of the beta
cells within the islets and many of these patients must revert to insulin
therapy to control blood glucose. These studies do provide evidence suggesting
that transplantation of islets will be effective in ameliorating many of the
complications associated with Type I diabetes. And we now know that islets may
be derived from human stem cells.
TWST: Will the adult stem cell therapy be a stand-alone solution?
Mr.Musick: One of the quests these days within this industry is to develop other
methods of immunosupression besides the drugs that are currently in the Edmonton
Protocol that have deleterious effects on beta cell function. There's a lot of
exciting work being done selectively targeting the elimination of the immune
rejection of beta cells. And that would be a necessary treatment for our
material to be used in therapeutic applications. However, it should be noted
that our business plan basically includes predominantly a non-therapeutic target
market for initial commercialization.
The development of stem cell-derived beta islets for therapeutic treatment of
Type I diabetes is a longer-term objective of the company. The typical
development pathway is long and expensive, perhaps up to 10 years and $0.5
billion to $1 billion. Our immediate goals are to take our product into non-
therapeutic research and drug development markets to generate revenues while we
are moving in the direction of developing therapeutic products.
TWST: Would you comment on this non-therapeutic strategy of enhancing revenues?
Mr. Musick: This is a key component of our current business plan. Basically, we
have identified a target market within the pharmaceutical manufacturing sector
and in biomedical research where we will target the use of our products in acute
and chronic toxicology testing together with functional tests of beta cells,
allowing determination of the impact of new drug candidates on human pancreatic
endocrine function. We believe that our stem cell-derived beta islets will allow
determination of the possibility that a particular drug candidate may induce
diabetes or impact the endocrine function of pancreatic beta islets.
Our target market is new drugs that are going through pre-clinical trials, which
is a substantial market. We estimate that market to be on the order of $50 to
$100 million per year. Currently, toxicological testing is occurring primarily
by animal studies. We believe, as others do, that in the future the
toxicological testing will involve cellular systems and particularly stem cells
derived into terminally differentiated cell types in order to more thoroughly
investigate the safety and efficacy profile of new drugs.
As you know, there are safety problems that occur with some new pharmaceutical
agents. For example, Vioxx, has been pulled from the market because of safety
issues that were not discovered during the development process. So we think that
there's a substantial need and market for improved safety and efficacy testing
during pre-clinical development of pharmaceutical agents. Furthermore, drug
discovery is another target that we are pursuing within this sector; that is
companies developing drugs, etc, who require model human pancreatic beta cell
systems in order to test various candidate substances for efficacy. This often
involves what is called high-throughput screening wherein considerable amounts
of the model cellular system are consumed to identify lead compounds.
TWST: And you said that this will not require FDA intervention?
Mr. Musick: Right, FDA pre-market approval is not required in order to take the
product to the marketplace since these products are used for testing of new
drugs. However, we believe that in terms of replacing the use of whole-animal
toxicology studies with stem cell-derived human pancreatic beta islets, that we
will be required to submit a validation package to the FDA to more completely
penetrate this market.
Our initial target markets are in research and high-throughput screening, with
subsequent application to toxicological determination of pre-clinical drug
candidates following the submission and approval of our validation package to
the FDA. And we also plan on implementing a process whereby our products are
used in various studies that become published and that database then provides a
further validation and substantiation of the use of our products in
toxicological testing.
TWST: How far along are you in terms of commercialization?
Mr. Musick: Right now we are involved in a beta testing program whereby we have
identified a group of about a half a dozen companies that we provide product to
in exchange for them providing us with the results of their studies. And we have
just begun this process so it's somewhat in its early stages. For example, there
is a company that is involved in high-throughput screening of various compounds
and they desire to use stem cell-derived beta islets for that work. Another
group that we are targeting in our beta testing program would provide us with a
detailed biochemical analysis of the status of our stem cell-derived beta islets
and a comparison to native islets that are derived from the human pancreas
gland.
TWST: What are you estimating as far as revenues are concerned from these
programs?
Mr. Musick: Our early estimates are fairly modest in terms of our projections.
Again, we think that the market is fairly substantial. This product is not yet
available, so if we are successful in the timely development of our commercial
manufacturing process, we could be first to the market and see modest gains
initially and then a fairly strong capture of this market as we accelerate our
marketing program. Right now we have a team of marketing professionals who are
affiliated with the company as consultants who have a great deal of experience
in marketing products to the pharmaceutical industry. So we think that after the
first year we will see a very aggressive push to capture a majority of this
market.
TWST: What are your thoughts regarding strategic partnerships?
Mr. Musick: Strategic partnerships are important to us. We have a program going
right now to outsource some of the technology that the company has developed in
the past. We have other technology related to the production of a follicle-
stimulating hormone, a fertility drug. We're working to outsource that
technology through an out-license arrangement with another company who would
become a strategic partner. We would transfer our technology and provide
technical support for the manufacturing of that particular product.
Also, we're interested in potentially acquiring companies that may have
synergistic products and technology to our goals, for example, for targeting
stem cell-derived human beta islets for use in drug discovery and development.
There are many other cell types besides beta islet cells of value in drug
development including, for example, nerve cells, cardiac muscle, liver cells,
etc. So we're interested in the possibility of acquiring other stem cell
companies, building our company and its revenues through selective acquisitions.
TWST: Are there any other revenue producing opportunities of note?
Mr. Musick: We have some products on the market right now, but they're
generating low levels of income. The enhanced revenue prospects right now are
the stem cell-derived beta islets and out-licensing of our FSH technology. As we
develop further, another area we are interested in pursuing is an exciting
aspect of stem cell technology whereby adult cells may be re-programmed to
become pluripotent (meaning the capacity to be differentiated into any of the
cell types of the body). This technology may also obviate some of the ethical
controversies regarding embryonic stem cells, by essentially enabling their
generation from adult cells. And we have reason to believe that our cells may be
suitable for some of that work. And given that we're successful in converting
adult cells to pluripotency, that then increases the revenue potential for the
company substantially.
TWST: You recently raised additional financing from private placements. Would
you comment on how you intend to allocate those resources?
Mr. Musick: The primary allocation of those resources is for use in the
implementation of our business plan and the majority of those funds are being
allocated to product development. We are acquiring equipment and building a new
laboratory facility as we speak that we anticipate will be fully online and
operational by approximately the end of June. And so we are emphasizing the
improvement of our capabilities with regard to manufacturing and in-house
analytical capabilities through the acquisition of appropriate instrumentation
and build out of our facility to allow us to implement these capabilities.
TWST: Are you now in the position to manufacture adult stem cells to meet your
needs?
Mr. Musick: Yes, we have numerous adult stem cell lines that exhibit
immortality. So we can readily expand these cell lines to generate as many cells
as needed for particular uses. Right now that's not an issue for us.
TWST: What would you consider as the strengths and advantages of your management
team?
Mr. Musick: I think there is a great deal of prior experience in similar
industries that we are targeting now that is relevant to the non-therapeutic
applications that I have previously mentioned. I and another member of the Board
of Directors have both been involved in a similar venture in the 1990s with
Vitro, when we developed a diagnostic product line that targeted a niche market
and developed manufacturing, quality control procedures, regulatory operations
while also implementing a direct marketing program that also involved selected
use of distributors.
We also have other individuals who are not yet management who complement our
current business objectives. Dr. Joe Nieusma is on our Scientific Advisory Board
and he is a pharmaceutical toxicologist with many years experience in this area,
He provides a great deal of assistance to us in terms of business development
and developing our marketing and distribution plan for the initial launch of our
stem cell-derived beta islets.
Another aspect of our work is to determine the ability of our stem cell-derived
beta islets to reverse diabetes in animals. Dr. Kupfer, who recently joined our
team, was the former technical director of the beta islet transplantation
program at the Barbara Davis Center for Childhood Diabetes here in Denver. She
has considerable expertise in that area. We now have a protocol under review for
detailed studies along these lines. I think we have an exciting team with
considerable expertise in the primary areas of need with regard to the
implementation of our business plan.
TWST: Do you feel you are reasonably well understood by the financial markets
now?
Mr. Musick: I think we are reasonably well understood. In terms of the valuation
of the company, at this particular point in time our current market cap is about
twelvefold higher than its 52-week low, but it's also about twentyfold less than
its historical high. So I think that basically we are an undervalued issue,
probably due to the general economic conditions on the one hand and also, we
have been in R&D for some time and we haven't had substantial revenues for some
time. I think those are factors that affect the current valuation of the
company's stock.
We believe that revenues and earnings growth is a key element to an improved
valuation and that's our current primary operational goal. We believe that there
are limited obstacles to sharp increases in revenue and we believe that we can
achieve a turnaround within the second year following launch. We then hope to
see rapid earnings growth thereafter that would sustain profitability and also
fund development of products targeting therapeutic applications in animals. Our
initial non-therapeutic target market does not require FDA approval, as I
mentioned previously.
TWST: What is the timeline on introducing a therapeutic product for treating
diabetes in animals?
Mr. Musick: We would certainly need to have our current pre-clinical protocols
completed and then extend those studies further. I think the timeline that we
are looking at in terms of getting into trials would be approximately two years,
given availability of adequate resources.
TWST: As a small company, how do you get your message out to shareholders and
potential shareholders?
Mr. Musick: We've tried to improve our public relations program by more regular
releases of information from the company. We're also interested in trying to
promote some local interest in our company. There's a possibility that we would
seek assistance from outside professionals in the implementation of a more
widespread program to increase awareness of the company to potential investors.
TWST: What keeps you occupied on a daily basis?
Mr. Musick: I have the responsibility for all operations of the company. We're a
fully reporting public corporation. I am also the Chief Financial Officer for
the corporation so I have SEC reporting responsibilities. We actively pursue
working capital and I attempt to keep capital flowing into the company. I
coordinate the technical operations of the company on a day-to-day basis and now
I am responsible for the build-out of our new manufacturing facility in Golden,
Colorado.
TWST: When do you intend to reach out again to the capital markets for further
financing?
Mr. Musick: We have current financing through a private placement with group of
investors. We have two rounds out of four completed now and we're doing all that
we can to complete the third and the fourth rounds of that particular financing.
There are some other opportunities available to the company for capitalization
that could match the funds that the company has recently raised. As we develop
to more advanced stages, we certainly are interested in a follow-on offering
that could be of assistance in raising substantially more capital that would be
needed to support some of the therapeutic developments and acquisitions that I
have mentioned previously.
TWST: What is your current burn rate?
Mr. Musick: We've increased our spending as we accelerate the commercialization
of our stem cell-derived islets and build-out our new manufacturing facility.
Still our burn rate remains modest, about $15,000/month.
TWST: Do you have any final thoughts?
Mr. Musick: I think we have competitive advantages that are attractive to the
investment community. And one of them is that we're at an advanced stage of
product development and our R&D is complete. We have an initial target market
where pre-approval by the FDA is not necessary and we currently have available
resources that are needed to manufacture and distribute our products. We have
access to several human adult stem cell lines, and we've demonstrated the
capacity of these stem cell lines for differentiation into functional beta
cells.
We're currently developing state-of-the art manufacturing processes that are
fully scalable and capable of operation to demanding FDA standards. We're in the
final stages of construction of a modern extended facility that is suitable for
our current manufacturing operations and will also support our future expansion.
We have a seasoned management team that's experienced in prior ventures
targeting similar niche markets. The company has further opportunities to
realize growth in synergistic markets through targeted acquisitions.
TWST: Thank you (WT)
JAMES R. MUSICK
Chairman, President & CEO
Vitro Diagnostics, Inc.
4621 Technology Drive
Golden, CO 80403
(303) 999-2130
(303) 762-1240 – FAX
www.vitrodiag.com
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Certain statements contained herein and subsequent statements made by and on
behalf of the Company, whether oral or written may contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
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Factors that could cause actual results to differ materially include, among
others, acceptability of the Company's products in the market place, general
economic conditions, receipt of additional working capital, the overall state of
the biotechnology industry and other factors set forth in the Company's filings
with the Securities and Exchange Commission. Most of these factors are outside
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result of new information, future events or otherwise.
The Wall Street Transcript (TWST) interviews are published verbatim, and TWST does not in any way endorse or guarantee the accuracy of any information or opinions expressed herein and all opinions are subject to change without notice. Nothing herein constitutes a solicitation to buy or sell any securities. TWST interviews with CEOs or other senior executives may include "forward-looking statements", which are based on factors that involve risks and uncertainties. Actual results may differ materially from those expressed or implied. TWST shall have no liability whatsoever for any trading losses arising out of use of this information. Copyright 2005 Wall Street Transcript Corporation. All Rights Reserved.
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