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Biotech Diaries: Sernova Cuts Through 'Valley of Death' at JPM

By Jennifer Boggs

Managing Editor

SAN FRANCISCO – On the periphery of the 30th annual J.P. Morgan Healthcare Conference, with its 8,000 registered attendees and crowded hallways at the Westin St. Francis hotel, another tier of activity reigns: the small and medium-sized life sciences companies hoping to gain an audience with the right investor or partner to bolster shrinking cash balances and propel R&D work to the next levels.

One such firm is Sernova Corp., a regenerative medicine cell therapy firm based in London, Ontario. The small Canadian company, which re-invented itself in 2006 with a listing on the Toronto Venture Exchange and an approach for improving the islet transplantation space, has remained largely under the radar. But, in June 2009, Sernova appointed new CEO Philip Toleikis, and in the last 2.5 years, his team has completed the preclinical package needed to launch the first clinical study in Canada later this year.

"We have money in the bank to get the clinical study up and running," Toleikis told BioWorld Today. Over the last 2.5 years, he has gone to the firm's retail investors and obtained government grants, pulling in about $4.5 million in funding altogether. As the company looked ahead past the planned 20-patient Phase I/II trial, however, it was clear more money would be needed. "We're crossing that valley of death between a preclinical- and clinical-stage company," he said, adding that Sernova is looking for around $5 million to $10 million.

So Toleikis arrived in San Francisco Sunday, armed with a three-day schedule of one-on-one meetings with prospective investors, partners and consultants. And on Monday, he let BioWorld Today tag along.

9 a.m. I met with Toleikis in the lobby of Hotel Nikko, just a few blocks from the Parc 55 Wyndham hotel, which is hosting the simultaneous Biotech Showcase. An earlier meeting with a prospective investor was rescheduled. We had a couple of hours before Toleikis was slated to give a 30-minute presentation at the Showcase, so I took that opportunity to get a little background on the company – and on Toleikis.

The Sernova CEO started as a scientist and eventually worked his way up into senior management at Angiotech Pharmaceuticals Inc., the Vancouver, British Columbia-based firm that helped pave the way for drug-device combos with its drug-eluting coronary stents. By figuring out a way to add drugs to the bare metal stents, Angiotech grew the stent market "from $500 million to a $4 billion to $5 billion market," Toleikis said. "That's the kind of thing I'd like to do here" with the islet transplantation space.

Using islet transplantation to get diabetics off the daily insulin injections is not a new idea: For the past few years, a process called the "Edmonton protocol" has been available, a treatment method that involves the use of donor islet cells infused into the portal vein – usually from two to four pancreata – transplanted into diabetic patients. It works – at least to some degree and lasts for a few years.

The problem is that the majority of islet cells end up dying in the process – they don't like being bathed in blood, Toleikis said. There also is a limited number of donor islet cells. Plus, patients receiving islet transplant must stay on anti-rejection pills for the rest of their lives.

Sernova's approach involves the transplantation of islet cells via the Cell Pouch System, a scalable polymer medical device about the size of a business card that can be implanted in an outpatient procedure under the skin. At implantation, the device would hold removable plugs, around which tissue and micro-vessels would form to create a natural environment. After a few weeks, the plugs would be replaced with the donor islet cells – and eventually with Sernova's cell-based technology Sertolin to provide immune protection, Toleikis said.

Those cells would then be capable of reading insulin levels in the blood and releasing insulin as needed, eliminating the need for insulin injections. Animal data have been strong, he added. If Sernova can confirm those results in humans, the Cell Pouch could mark a potentially disruptive treatment in the diabetes space.

10:15 a.m. We headed over to the Parc 55 hotel – after making a quick Starbucks run – and made our way to the fourth floor meeting rooms. We caught the tail end of another firm's presentation before Toleikis takes the podium. During his presentation, he stressed the benefits of the Cell Pouch System, such as the fact that it requires only 10 percent to 25 percent of the islet cells required under the Edmonton protocol.

Toleikis also noted that the product already captured the attention of James Shapiro, the physician from the University of Alberta, Edmonton, who developed the Edmonton protocol. Shapiro has since signed on as the lead investigator for the upcoming Phase I/II trial, expected to start in the first half of this year.

As Sernova CEO, Toleikis does hundreds of these types of presentations a year. But he tries to never let it seem by rote. He takes a similar approach to dealing with existing and potential investors. "I always take their calls," he said. "You never know if they're going to invest $1 million or $2."

At the end of the presentation, a few prospective investors wanted to chat, so we headed to the breakout room down the hall. After a brief conversation, during which one of the investors advised Toleikis to emphasize the lack of available donor islet cells as a major selling point for the Cell Pouch System, the Sernova CEO agreed to a follow-up phone call and meeting after the conference to start the due diligence process.

2 p.m. Following a lunch break, Toleikis and I ended up back in the meeting rooms at Parc 55, where Toleikis spent a few minutes talking to a contract research organization (CRO) that also made equity placements. The CRO seemed interested in the technology's potential, and they agreed to talk later about potential regulatory strategies and possible funding opportunities.

Sernova has decided to launch the upcoming trial in Canada first, where the regulatory path is clearer. Canadian authorities accepted the firm's suggestion to seek clearance of the Cell Pouch System as a medical device – the therapeutic cells are approved separately. That means development of the Cell Pouch should move rapidly. Sernova anticipates, pending positive data from the Phase I/II study, to go straight into pivotal testing pending regulatory approval.

Getting the program through the FDA as a medical device rather than drug-device combo might prove trickier. Sernova plans to wait until there is interim data from the Phase I/II trial before approaching the agency to expand testing in the U.S.

3 p.m. We left the Parc 55 and headed down the street to another Union Square hotel to meet with a consultant who was interested in hearing about Sernova's plans for reaching U.S. investors.

The company has returned to its retail investor base in Canada to raise money in small bursts over the past few years, but Toleikis said the firm had been considering a move to a larger exchange as it moves further into the clinic. "We've been thinking about the OTCQX right now," he said.

5 p.m. We returned to the Parc 55 meeting rooms to meet with an investment banker, who was most interested in applications of Sernova's technology beyond islet cells.

Toleikis said the Cell Pouch System could be used with any protein or hormone, including parathyroid hormone, Factor X for hemophilia and could even be a way to transplant stem cells. Those possibilities make the firm ripe for a potential partnership, which also could help shore up its cash position, and Toleikis said he's eager to discuss collaboration opportunities this week as well.

That meeting marked the end of the day for me. For Toleikis, Tuesday and Wednesday would be much the same, with back-to-back meetings with potential investors, though he said he tried to aim for quality rather than quantity. The connections made at J.P. Morgan might not immediately translate into a financing round or partnership, but each one increases the firm's chances of striking a deal.

That makes pounding the pavement in Union Square during J.P. Morgan well worth it, Toleikis said. "We only need one good meeting to lay the groundwork for future financing that could launch the company to the next stage."