Interview by JIM STOMMEN,

BB&T Contributing Editor



CEO of ProChon Biotech

Patrick O'Donnell is the CEO of ProChon Biotech (Woburn, Massachusetts), bringing 18 years of medical device commercial experience to the company, which is developing cartilage regeneration products. Prior to ProChon, O'Donnell led the marketing organization for biomaterial start-up Confluent Surgical. While at Confluent, he led the global launch of the organization's flagship hydrogel technology, DuraSeal, into the neurosurgical market through an independent global sales network, as well as built the technology's value in the spine, thoracic, and vascular markets.

In 2007, O'Donnell played a participatory role in the $245 million acquisition and subsequent integration of Confluent Surgical into Tyco Healthcare, now Covidien Healthcare.

Before joining Confluent Surgical, he spent 13 years at Johnson & Johnson's DePuy Spine in sales, sales management, marketing and management.

BB&T: ProChon's business model and origins both are quite interesting. Could you tell me about how the company started and how its organization differs from the norm?

O'Donnell: ProChon is an Israeli company whose technology was founded out of the Weizmann Institute in Rehovot, Israel, and founded by Professor Avner Yayon, MD, PhD, who was doing research in achondroplasia, or dwarfism. That's where the company's origins come from. The primary investors when the company was started in 1996 have a genetic disorder in their family called achondroplasia, and they set out to put their family money to work to try to find a cure. They searched the world over for people who were doing research in this area, and Professor Yayon was doing such work and that was the genesis of ProChon.

About four or five years into the research into achondroplasia, while they didn't find a cure for it, by virtue of doing research around the growth plates, they did establish intellectual property for the use of fibroblast growth factor variant that was very effective in cell culture at expanding cells. So the company shifted its focus at that point in time to focus on use of the fibroblast growth factor variant for cell expansion in cartilage regeneration procedures. Then they also worked on the development of a proprietary scaffold to deliver the expanded cartilage cells to the cartilage defect site.

In 2005, the company added a strategic partner and investor, the Muskuloskeletal Transplant Foundation, and MTF has been a very good partner to us over the past few years. In 2009, the board decided that it was time to evolve the company from an R&D-focused entity, now that it was entering a Phase II IND study, to a commercially minded entity. That required a management team that had a track record of driving technologies through the clinic, the FDA and bringing them to market, and finding an opportunity to put the company into the hands of a large company with global reach. So they asked me to come on board and build a team, to do that here in the U.S. So we embarked upon that in 2009.

The first thing you have to do with any company with a platform-type technology is to focus the organization to make sure that it is focused on achieving an obtainable goal and not try to develop a lot of different types of technology but to really hone the organization's efforts. So we did that. Since then, close to $12 million has come into the company to try to drive the BioCart cartilage regeneration system through a Phase II study. We'll be submitting our Phase II interim data to the FDA at the beginning of 2011, in fact.

We also have added some business development activity in terms of licensing arrangements, leveraging our core fibroblast growth variant competency for use not only as a reagent for cell expansion, but also as a therapeutic. So it can either be used to expand cells as a production system or can be used on the implant. We have been seeking opportunities to do that, along with our CartiMate matrix-assisted microfracture system – that product is in development as well.

BB&T: Cartilage regeneration has been a subject of considerable research activity for quite some time, going on 20 years now. What is the state of the art today, and what are some of the development steps that have brought it to this point, including your BioCart System. How does it differ from other cartilage regeneration technologies already are on the market in the U.S. and elsewhere?

O'Donnell: There are a couple ways to look at it. There is what's considered standard, the microfracture procedure where they drill holes in the subchondrial plate and a patient's own marrow is used in the healing process. But you get a kind of a cartilaginous tissue healing, so you don't get a healed tissue that can withstand the biomechanical requirements of the patients who suffer cartilage defects. These tend to usually be young and active patients who want to go back to doing the things that got them the cartilage defect in the first place. So microfracture procedures have inconsistent long-term results. That's the most common solution these days.

In terms of new technologies that are state of the art, the only product that is on the market in the U.S. to date is Genzyme's Carticel technology, which is an autologous chondrocyte implantation technology similar to ours, although we think it's two or three generations behind ours. It has been on the market for quite a long time, but hasn't really been adopted widely by orthopedic surgeons because it also appears to have met with some issues in terms of longer-terms results. Just the process of preparing the implant and getting it back to the patient is something of an arduous process. So it really has left the opportunity for us to eventually provide the market with a better mousetrap, a better next-generation technology that is a more cost-effective process.

Really, that is one of the distinctions between our BioCart technology and the other technologies that are out there. A lot of that comes from how we run a very capital-efficient organization, but also the cost of goods for our technology by virtue of using the growth factor in effect as our bioreactor. Other companies use capital-intensive production facilities that use bioreactors to expand patients' own cells and then affix them to a scaffold and re-implant them in the patient. That cost of goods is very high, and the products tend to be a little higher priced. That's a problem not only in the U.S., understanding the direction where reimbursement is going in the next several years, but it's near-impossible to be competitive in Europe.

Our production process is much more capital-efficient, and we think it's more effective too, because it allows us to expand cells in a shorter period of time and as a result the patient receives the implant in a very predictable three weeks as opposed to eight to 12 weeks with other technologies. As a result of that and in combination with our proprietary scaffold technology, the patient is weight-bearing earlier, and as a result of that the surgeon can be more aggressive with the post-operative rehabilitation process. We think we're seeing better clinical outcomes. We're saying that not as a result of our clinical study data, which we haven't had the opportunity to take a look at yet but will by the end of this month [December], but by the 85 patients or so that we have implanted commercially in Israel over the last three or four years.

The other thing we do is a very good job of maintaining the phenotype of the patient's own cartilage cells. You don't get a blend or mixture of fibroblast and chondrocytes, but a very homogenous population of chondrocytes. We believe that does a much better job of generating native hyaline cartilage, which leads to a better long-term result.

There are other companies that are working with stem cells, and I think what some of them have found is that while you might have autologous stem cells, what you might be missing is one of the legs of the stool, and that's the growth factor. We in fact did conduct research using our growth factor in connection with stem cells, and that won us the Genzyme award for cartilage research two years ago. It showed that adding the growth factor to the stem cells was more effective than the stem cells alone in regenerating cartilage.

We think that our technology in and of itself is going to be a much more effective and efficient way to regenerate cartilage, but we also think the opportunity to combine it with stem-cell technologies is going to make for even better third- or fourth-generation technologies.

BB&T: I have seen fairly frequent references to microfracture surgery, particularly involving professional basketball players, it seems, where the outcomes don't seem to be particularly great. Your company's CartiMate System is aimed at “augmenting“ microfracture surgeries. How does that work?

O'Donnell: Well, we don't know how effective it is, because it is in development and is just entering animal studies, but here's what I can tell you: we're modifying the same scaffold that we use for BioCart, which is very effective. We're modifying it so it is more conducive to a microfracture procedure, essentially so the pore sizes are more conducive to allowing the cells to infiltrate the scaffold. At the International Cartilage Research Society meeting in Barcelona a few months ago, there were a lot of papers on technologies for augmenting microfracture procedures. The idea is that if you can leverage the patient's own resources with an efficient technology, then you can probably address a lot of the smaller defects. So that would be the positioning of CartiMate, for patients with one, two, three, some multiple of small defects, and then BioCart would be for patients a little further down the path of larger defects. The two products would together serve a larger market and address a larger pool of patients suffering from cartilage defects.

I think a lot of surgeons have been using the microfracture procedure knowing that the longer-term results may not be all that good in all their patients – it works in some, but if there were a way to improve upon the procedure, especially for those with smaller defects, then they wouldn't have to be quite as invasive. That's the purpose for CartiMate from a product-positioning standpoint. What it theoretically will do is that it will serve to contain the cells at the point of injury, at the defect, and as a result we will see a better wound-healing response and a better environment for healing. We suspect that the regulatory threshold for CartiMate will be a PMA, but we don't necessarily think that the indication we would be pursuing would be cartilage regeneration as much as it might be a wound-healing indication. That has yet to be determined.

BB&T: The orthopedic marketplace seems to be driven by two distinct groups – older, increasingly active seniors who need knee and hip replacements, and younger, highly active patients who suffer knee and other joint injuries but who definitely don't want invasive procedures or metal implants if they can avoid them. Is your focus primarily the latter group?

O'Donnell: In our clinical study, the ages ranged from 16 to 60, I believe – 60 or 65. What's interesting about the fibroblast growth factor is that it levels the playing field, meaning that it doesn't matter how young or old the patient is; its ability to expand viable cells is consistent no matter the age of the patient. And that's unique, because other technologies have a problem expanding enough viable cells from older patients for re-implantation using a bioreactor system. We like to use the fibroblast growth factor because it seems to give the same opportunity to patients of all ages.

In terms of our market focus, when I look at our clinical work and our commercial work, the mean age of the patients is 34.5 years old. We have patients in their mid-40s and some a little bit younger, and of those patients, some are elite athletes. On the commercial side, we have several soldiers, soccer players, football players – professional or Olympic. And then we have your weekend warriors, who really don't want to lose these years in their life of being involved in an active life because they want to get these good years in before they get too much older. Or they simply want to be able to be active with their children; there are all sorts of different reasons. Our focus isn't a particular age as it is on defects. We're not looking at elite athletes vs. weekend warriors; otherwise we would be pursuing it a little differently. We want to help everyone that we can help.

BB&T: Could you quantify the addressable market as you see it today and into the foreseeable future?

O'Donnell: In general, the set of numbers that we work off of sees CartiMate addressing the 500,000-plus microfracture procedures that are done annually in the U.S. and Europe. And BioCart addresses a potential market opportunity of about 225,000 procedures annually.

BB&T: The BioCart technology is available commercially so far in Israel. How many procedures have been done to date, and what is the extent of your follow-up data on those patients? Has the process held up well?

O'Donnell: We have a study that was done and presented as a poster exhibit at the ICRS meeting on 31 commercial patients who came in with a host of problems. With cartilage patients, they often come in with meniscus or the ACL as well, so that's a more real-world application. These 31 patients, some of whom are now four years out, showed a very strong correlation between their MRI scores and their clinical functional scores, so that was very promising information for us.

And then I mentioned our phase II study, which is a 40-patient study randomized to microfracture – 20 and 20 – and we will have completed the interim data within a few weeks and completed enrollment in that study within a few weeks also.

BB&T: How many study sites are in place thus far, and what are the expected numbers of sites and procedures under the trial?

O'Donnell: Nine sites, a third of them in Israel.

BB&T: When do you anticipate U.S. clearance, and where will that put you in terms of your competition, both those technologies already commercialized and others in the R&D pipeline?

O'Donnell: Well, you have to follow these patients one year out, so we'll need to follow the last patient one year before filing. We hope to have regulatory approval for our phase III study and an SPA, or Special Protocol Approval, by the second quarter of 2012 to begin the phase III study. When you have an SPA, the FDA says that we approve your protocol, and when you're done with the study, you're done – we won't be asking for additional patients. So often it is the case that when you finish your phase III study, the FDA will say OK, this is good, but we're not quite sure about this, that or the other, so could you give us an additional 50 patients? When you have an SPA, you have eliminated that risk.

BB&T: Speaking of the FDA, what has been your experience in dealing with the agency on your product development?

O'Donnell: They have been very responsive. Our product is a biologic, and ProChon is a biologic company. Our technology is considered a biologic, so it goes through the Center for Biologics Evaluation & Research. It's an Investigational New Drug study to receive a BLA [Biologic License Application]. The responsiveness to any questions that we've had, even randomly picking up the phone or sending an e-mail with little questions that are important to us in terms of planning and timing and raising money to ensure that we're properly capitalized to execute on our clinical studies, they have been very responsive. It has been a good relationship. We don't always get the answer that we want to get, but we get an answer, and that helps us plan and provides a certainty to investors as to our timing and our direction.

BB&T: That whole question of certainty or clarity is really a key one.

O'Donnell: That's exactly right. It's most important to get clarity as early as possible – that's really important with investors these days, it's critical.

BB&T: Is there a question I haven't asked, but you wish I had?

O'Donnell: A lot happens on a daily basis, but the type of activity that moves the dial for the company happens more on a quarterly basis. The most important thing right now is to complete the enrollment in the phase II study; we have the interim data now. We're going to be presenting at the OneMedForum in San Francisco that runs during the JPMorgan meeting in January, where we're going to be meeting with investors on our Series B round. That's going to be kind of the launch for our Series B round.

I'm not sure a lot of people in the market appreciate the benefits of running a very capital-efficient company. It stems from 1) outsourcing a lot of activity, 2) we have employees in Israel, which is a very cost-efficient market, and 3) our fibroblast growth factor technology allows us to effectively and efficiently expand cells without having to use capital-intensive production facilities. There are some real economic distinctions in our company versus others in our space as a result of our core technology. I'm not sure that element always registers with people. We're kind of “in-betweeners“ – we're not early stage and not late-stage. We may not be the next company in the marketplace, but we'll be the next company after that, and we'll be in quite a position, based on our cost of goods, to come in with very aggressive pricing at a time – we're talking about 2014, 2015 – where healthcare and reimbursement will look different.

The future of FDA and the Centers for Medicare & Medicaid Services and how they work together is really going to reward innovation. Not only will we be innovative in terms of technology, but we're also being innovative in terms of our production process, and I think that will be rewarded. I like the situation we're in, because you have to think in terms of your technology when it comes to market – not today, but when it gets to the market. I think we're in a very good situation in that regard.