Abstract
Bioscience ventures in Central and Eastern Europe are becoming a presence in world healthcare markets despite a perennially short supply of venture funding and other support mechanisms relative to other world economic regions. Here are three up-and-coming CEE stories worth keeping an eye on.
Innovations in bioscience happen every day all over the world—in laboratories, on university campuses, in rich and poor nations alike—coming to life somewhere in the minds of inspired scientists who think they just might have a breakthrough solution to some daunting healthcare problem. The vast majority of these innovations, unfortunately, never make it to commercial markets, where they could be applied to solve actual medical challenges. This is true for a variety of reasons: intellectual property stuck in the recesses of academia; lack of practical know-how in running a business on the part of the innovators; but perhaps most of all because of the absence, in most parts of the world, of a supporting ecosystem of institutions and individuals that encourage and invest in highly risky early stage opportunities. There are very few localities that can replicate the intellectual know-how and financial resources on tap in places like Silicon Valley, and for all that the world economy has globalized over the last twenty years, venture capital is still very much a local backyard business.
That being said, there are stories out there demonstrating that you don't have to live in Palo Alto and sign a major venture capital backer to bring a worthwhile idea into fruition, establish a solid commercial value proposition and position yourself on a potentially robust growth trajectory. This article is about three such stories. The common thread between them is that they all took root in Central and Eastern Europe. This is a region with a relatively short history of modern free market economics and plenty of bumps in the road since the Berlin Wall came down in 1989 but at the same time one that retains a longstanding tradition of commitment to research and scientific excellence. Now the knowledge and expertise resident in what was once the bleak landscape stuck behind the Iron Curtain has the potential to help solve important healthcare challenges the world over. The founders of these three companies—an eclectic group of individuals from different backgrounds who perceived opportunities and accepted the daunting risks involved in choosing to pursue them—have brought themselves into a position where they may yet reap significant rewards for their labors.
Budapest, Hungary: Would-be Veterinarian Takes a Different Road
Imre Kacskovics planned to be a veterinarian and enrolled for study at the University of Veterinary Sciences in Budapest, Hungary. However, the course of events took a different turn for him. Rather than healing the broken bones and medical ailments of family pets, Dr. Kacskovics applied his insights and knowledge of animal science to something else entirely—the $30 billion-plus global market for antibodies-related therapies. ImmunoGenes Kft, the Budapest-based company Kacskovics co-founded in 2007 as an academic spin-off, supplies world-leading pharmaceutical manufacturers with an innovative technology for the production of antibodies. The intellectual property owned by ImmunoGenes, with patents either granted or pending in the EU, US, Japan and other world markets, uses transgenic animals to improve both the quantity and quality of antibodies production, resulting in not just a measurably favorable cost structure, but also the much sought-after ability to attain the hard-to-reach targets of weakly immunogenic antigens.
ImmunoGenes, though, is more than just a group of highly capable scientists with academic connections and a promising technology, which by itself is a not at all an uncommon sight on university campuses. With an experienced, professional management team and board of renowned expert advisors from life sciences centers of excellence around the world, ImmunoGenes would not be out of place in Silicon Valley, Tel Aviv or other hotbeds of entrepreneurial activity. Listening to Imre Kacskovics explain the distinctive characteristics of the FcRn receptor that make it ideal for high-quality antibody production with low degeneracy rates, you quickly understand that he has honed his skills in the elusive art of translating highly complex scientific concepts into the practical, efficient language of business and finance. Imagining him in front of a group of venture capitalists or securities analysts seems quite natural.
Warsaw, Poland: Audiophile Tunes Into Heart Murmurs
In 2003 in Warsaw, Poland, Marek Dziubinski, a young Ph.D. candidate specializing in digital signal processing (DSP) technology, was shopping around an algorithm for arrhythmia analysis he had developed, but he was not certain about where or how that algorithm might be developed into a commercial technology. Dziubinski did not have a bioscience background—his interest in DSP came from a love of music as much as anything else—but he did have a strong drive to start his own company, having recently been part of a venture that had fallen victim to the technology bubble collapse. As he sorted out the various markets for signal processing-based technologies he became more familiar with the audiocentric world of heart diagnostics. In 2004, by the time he crossed paths with a group of early stage technology incubation and commercialization specialists affiliated with the University of Texas, Austin, Marek Dziubinski had formulated the intellectual property and a prototype for a mobile heart monitoring system and had set up a company called MedicAlgorithmics to develop its potential.
The initial prospect of getting off the ground through the development program the Austin technology incubator was supporting did not work out as planned, but Dziubinski was able to parlay this beginning into a $500,000 start-up investment in 2005 by New Europe Ventures, an early stage venture capital fund managed by Polish Americans. Fast forward to the present: after having received FDA approval in 2009 for commercialization in the US of its Pocket ECG service, MedicAlgorithmics is reaching about 1,200 patients each month through partnering with US monitoring centers that provide services for patients with arrhythmic conditions. After a long and bumpy road of finding and securing enough funding to make it through the next month, MedicAlgorithmics is now planning a securities listing and initial public offering (IPO) with the goal of raising $4–5 million.
Ljubljana, Slovenia: New Star on the Liquid Chromatography Map
It would probably be reasonable to say that not too many Americans could point out the location of the city of Ljubljana on a map or the country of which it is the capital city, Slovenia. For that matter, it is a fairly safe bet that an even smaller subset of the population knows anything about liquid chromatography technology. Over the past twelve years, though, a fast-growing company in this picturesque land of tall mountains and charming villages in the north of what used to be Yugoslavia has grown to global prominence in the field of liquid separation biochromatology. This is an important part of the operations around therapeutic biomolecule purification—separating compounds and then analyzing and purifying the individual quantities.
Dr. Ales Strancar, CEO of BIA Separations, and a team of scientists and venture capitalists have put Slovenia on the map for their development of unique short monolithic columns. In 2010, the firm was recognized by the European Union as one the most successful research-intensive and high-tech small-medium sized businesses on the continent. Downstream processing is a critically important area in the rapidly growing market for new therapeutics, and the proprietary Convective Interaction Media (CIM) monolithic column platform technology offered by BIA provides pharmaceutical companies with significant efficiencies and improvements in the biomolecule purification process.
The Challenge of Early Stage Bioscience Investing
Most people who are not in the medical and healthcare professions themselves do not appreciate how deeply complex the industry is. In the land of the layperson, we think in broad terms like finding a cure for cancer or a medicine for removing the pain from arthritis. At best, we may be familiar with a small number of remedies for common ailments and perhaps (if we actually pay attention to those incessant commercials on cable TV) the drug companies that make them. What we don't know, however, are all the incredibly specialized activities that go into creating these remedies, many of which have to take place years before a new treatment may ever make it to market. We know that drugs have to go through an approval process before they may be commercially distributed, but we may not know that all those processes and technologies that play a supporting role have to go through the same regulatory hoops in several stages over many years. Scientists with intellectual property they hope to commercialize go into this game knowing that the risks against success are daunting. Investors willing to put their own capital into backing these technologies tend to be few and far between, for they are well aware of the high likelihood that their investments will end up as a total loss.
Ron Landes, a bioscience journal publisher and angel investor based in Austin, Texas looks at three things when considering an investment in an early stage biosciences company. First, is the science good? Second, are the people good? Third, can it potentially solve a big problem? Finding all three of these ingredients in one place is a tall order. Add to that challenge yet another wrinkle: finding the wherewithal to co-locate business management skills with leading-edge intellectual property. Most scientists are not trained in the disciplines of business administration, such as finance, operations and marketing. Yet those skills are crucial to the ability to bring a new technology to market. Otherwise, even the most compelling intellectual property is likely fated for that large global pool of so-called “stranded technology.”
Biotechnology for Improved Antibodies Production
Imre Kacskovics was mindful of avoiding the fate of stranded technology as he and another Hungarian scientist, Zsuzsanna Bosze, set up ImmunoGenes in 2007 as a spin-off from their respective academic affiliations. The motivation to set up this company came from a concept they had developed the year before that itself had been the result of years of study about the receptor (FcRn), believed to play a critical role in the production of IgG antibodies, the smallest and most common antibodies found in all bodily fluids and important elements in the fighting of bacterial and viral infections. Kacskovics, the would-be veterinarian, had studied the immunoglobulin-rich milk that cows produce to nurture their calves. He had identified this particular receptor in the bovine mammary gland as the key to efficiently regulate the flow of immunoglobulins from the blood to milk and wanted to see if this natural process could somehow be developed into an improved mechanism to produce antibodies for human treatments.
Antibody production is a big business—the global market is estimated to be worth some $33–34 billion, some $30 billion of which is for monoclonal antibodies (mAb), while the remainder is for polyclonal antibodies (pAb). The science for monoclonal antibody production is generally attributed to Cesar Milstein and Georges Köhler, whose pioneering work in 1975 won them the Nobel Prize for Medicine and Physiology in 1984. The traditional method of antibody production involved immunizing mammals (most often mice) with a specific antigen and fusing the spleen cells (B cells) from the mouse with myeloma cells (called hybridoma technology). Although the technology for accomplishing this has improved over the past 20-odd years, the production process has tended to suffer from both quality and quantity problems. In monoclonal antibody production, one of the main goals is to produce a large pool of antigen-specific B cells against weakly immunogenic proteins and peptides—what Imre Kacskovics calls “hard-to-reach” targets. Producing antibodies with the right qualities to work against these “hard targets” is difficult and expensive, and poor antigen presentation results in low yields of B-cell pools.
Drs. Kacskovics and Bosze focused on the possibilities afforded by a biotechnological process called Bacterial Artificial Chromosome (BAC) transgenesis, in which the relevant bovine chromosome is incorporated into the genome of the recipient animal (e.g., mice, but also possibly rabbits or sheep) to study gene regulation of the FcRn. Kacskovics's hunch, based on his studies of these transgenic mice, was that this transgenic process would cause the FcRn receptor to overexpress and boost antigen presentation, the result of which would likely be an increased number of antigen-specific B cells in the spleen—addressing both the quantity and the quality challenge—from which to select for hybridoma production. If so, this would, in turn, be attractive to pharmaceutical manufacturers with substantial investments in developing solutions for the immunotherapeutic areas antibodies address, including different types of cancer, rheumatoid arthritis and multiple sclerosis.
Unless, that is, the technology were to be stranded and never make it out of the laboratory. At the beginning of 2008 that was a concern nagging at Dr. Kacskovics and calling for an answer. How was he going to set up and fund an organization capable of delivering these insights as a viable commercial proposition?
A Unified Platform for Arrhythmic Diagnostics
In Warsaw, Marek Dziubinski was able to establish MedicAlgorithmics as a viable concern with the early stage investment from New Europe Ventures and to leverage that with some sporadic funding and support from European Union development organizations that had technology promotion programs operating in Poland. But in the life of an early stage technology company, there is no such thing as a day spent not thinking about cash and whether the next round of funding will come before the current round is burnt through. Over the period from 2006 to 2010, MedicAlgorithms managed to come up with around $4 million to fund its technology development. At one point, the company was contemplating a merger with a US biosciences company, but those talks and much else got caught up in the downdraft of the 2008 global financial market crash. MedicAlgorithmics had a compelling technology in the Pocket ECG but still had to develop a successful sales strategy and keep tapping into the Polish investors and EU programs that were its means of survival in the meantime.
What was that compelling technology? In a similar way to how ImmunoGenes looked at the antibody production market and came up with a way to do it measurably better than existing methods, MedicAlgorithmics had an approach for arrhythmia diagnosis that was a step up from existing practices. Ambulatory monitoring was developed in the late 1940s by Norman Holter. His name lives on in the form of Holter monitoring systems, one of the principal diagnostic systems in which an entire ECG signal is recorded, stored and downloaded onto a computer for detailed quantitative analysis of heart sounds over a specified period of time. A patient will wear the device (which thankfully is considerably smaller and less cumbersome today than the clunky contraptions of Norman Holter's day) for a day, several days or as much as two weeks and then return the device to the monitoring center, at which point trained professionals can download and analyze the data.
What Holter systems cannot do is provide data for analysis in real time. That is a significant drawback, limiting the ability to respond to potentially serious conditions on a timely basis. A more recent innovation does offer real-time capabilities. This is Mobile Cardiac Telemetry (MCT), a system that uses the same mobile telephony to transmit information as that through which all our chats and texts and tweets course every day. MCT works wherever mobile coverage works and thus is an advantage for patients who can freely move around while transmitting signals back to the monitoring center in real time. The drawback of MCT is that it makes available only a fraction of the ECG signal that Holter systems analyze. MCT technology works by something called “trending strips.” Each trending strip is a 30 second ECG snapshot, repeated at intervals of 10 minutes. So essentially what you are doing is taking a sample of the ECG and then applying statistical methods to infer from the sample what the ECG is telling you (as opposed to the Holter system where you have the ability to analyze the whole ECG). That has the potential to provide seriously misleading information, with the possibility for misdiagnosis by the experts on the other end of the transmission.
Dziubinski applied his knowledge of digital signal processing to create an algorithm that can self-learn, i.e., “hear” the heart patterns (which, for this purpose, behave in a similar manner to audio waves) and create a template to monitor and analyze in real time. In effect, the Pocket ECG combines the quantitative firepower of the Holter systems with the real-time advantages of MCT, and provides it on a simple portable device that is smaller than a typical smartphone. The technology also identifies and reports symptomatic events in the manner of another commonly used diagnostic method called Event Monitoring.
MedicAlgorithms had a smart technology and a smart product. Now they had to find a market and figure out how to sell it. In 2009, the company set its sights on the United States—the world's largest healthcare market. To get into this market would require many things, not least among which was approval by the Food and Drug Administration (FDA).
Slovenia Goes Global
While Imre Kacskovics was trying to make sure ImmunoGenes did not become home to another in the long line of stranded technologies and Marek Dziubinski was trying to turn his innovative arrhythmic diagnostic system into a cash flow-positive business, Ales Strancar and his team were bringing Slovenia onto the world stage. In May 2008, BIA Separations announced the formation of a cooperative marketing agreement with global measurement and life sciences giant Agilent Technologies (NYSE: A). The agreement called for the joint marketing (under different brand names) of BIA's bio-monolithic analytical columns, which have uses in the analytical separation of virus particles, plasmid DNA, antibodies and other macro biomolecules at very high flow rates appropriate for industrial-scale uses. In fact, one of the columns—marketed by Agilent as Bio-Monolith Protein A affinity column—would be likely to show up downstream (in the separation and purification process) in the same monoclonal antibodies production value chain that might employ Immunogenes' transgenic mice for enhanced hybridoma production. The Protein A column facilitates rapid analytical separation of those same human and mouse IgG antibodies.
Whereas ImmunoGenes and MedicAlgorithmics were still trying to come into their own as viable corporate entities, though, the Slovenians had a head start (having commenced operations in 1998) and were at a different stage of the growth trajectory. Deals like the Agilent marketing agreement would open doors to world markets for liquid separation biochromatography and secure a viable independent revenue stream. BIA was acquiring a more corporate look as a company. It moved its headquarters across the border to neighboring Austria, setting up in the town of Villach just over the border along the main autobahn that runs from Vienna into northern Italy (R&D and production remained in Ljubljana). It had several successful rounds of venture capital investment. But successful growth creates its own new set of challenges—competing on a much larger stage and figuring out how to sustain competitive advantage amidst a tumultuous and ever-changing set of market dynamics.
Yet Another Challenge: 2008 and the Market Crash
In 2007, Business Week magazine had published an article titled “Where the VCs are Flocking Now,” and the flock apparently was alighting on Central and Eastern Europe and Russia. If true, that was certainly a change from the normal way of things in emerging market VC, which was predominantly concentrated in China and India. Israel, it is true, had laid claim to a smaller but quite profitable niche in the life science and biotechnology space, but the money flow in the lands east of the Rhine was more often than not sporadic and skittish. In any event, proclamations made in the year 2007 had the unfortunate fate of segueing into 2008, the most notorious year in financial markets since 1933. In the US at least, one private equity group that had been eying a possible new round of investment into BIA Separations backed away as asset prices plummeted in September and October. In Poland, the Warsaw Stock Exchange, seen by many as the most robust share trading system in Central and Eastern Europe, took the same body blows as other markets around the world. Hungary, like Poland, one of the first nations from the continent's East to join the EU, had its own macroeconomic headaches, including solvency questions regarding its sovereign debt—an early presage of the troubles now affecting a handful of EU nations, including Greece, Portugal and Ireland.
In Budapest, ImmunoGenes had succeeded before autumn 2008 in attracting a professional management team led by Dr. Wolfgang Oster, a serial entrepreneur and angel investor who took on the position of Executive Chairman, helped set up an investor-friendly corporate presence in Zug, Switzerland and spearheaded a round of early stage investment. That investment was enough to enable Kacskovics and his team to attain their key milestones in establishing proof of concept for the transgenic process (including its applicability to rabbits and sheep in addition to mice) and to leverage their position to obtain additional support from the same types of EU programs that MedicAlgorithmics had been able to tap into. In addition to the monoclonal antibodies market discussed earlier, ImmunoGenes was now focusing on the polyclonal market as well, where the transgenic rabbits or sheep were able to produce anywhere from 3–10 times as many polyclonal antibodies as existing methods could. This, in turn, implied a significant potential cost savings, since antibody production typically accounts for about 25% of the total cost structure for the companies that manufacture and market antibody treatments. The EU issued a patent for the company's intellectual property, and patents are currently pending in the US, Japan and elsewhere. ImmunoGenes is working with a small number of pharmaceutical companies that have run production tests using the transgenic mice, validated the results and begun negotiations for provision of commercial services.
The ills of 2008 likewise did not deter Marek Dziubinski and his team from moving ahead with plans to enter the US market. They were able to initiate and successfully complete the FDA approval process within three months—an impressive feat, particularly since they dealt with the certification and related processes themselves without assistance from professional (and expensive) consultants. For a US entry strategy, they logically targeted the monitoring centers that provide cardio diagnostic services for healthcare organizations. As Dziubinski notes, these companies number in the hundreds, not the thousands, so identifying the target market and making the approach was not as daunting as it might have been in other industries. Ultimately, success would depend not on the attitudes of these monitoring centers as much as it would from the prescribing physicians who want to know that they have the best options available for their patients suffering from heart irregularities. If the physicians are happy the monitoring centers will be happy, the insurance companies will reimburse, and everyone wins.
That response has been generally positive to date. In one case, Intermountain Healthcare, a Utah-based network of 23 hospitals and a full range of services and clinics, has adopted a full-fledged marketing campaign around the Pocket ECG (“We take care of heart patients before they are actually patients.” goes one of the tag lines). MedicAlgorithmics is in active discussions with some of the leading cardio-related clinics and research facilities in the US, and in some cases, the expression of interest came from the US to Poland, not the other way around. With all this success and a cash flow-positive business, Dziubinski is preparing his company for an autumn 2011 listing on New Connect, an equities listing and trading platform regulated and operated by the Warsaw Stock Exchange. He hopes to raise $4–5 million through the listing to help fund the company's next expansion phase.
The Road Ahead
These three companies, ImmunoGenes, MedicAlgorithmics and BIA Separations, have all come a long way from humble beginnings. But they all know that long-term success is anything but guaranteed. ImmunoGenes will have to stay ahead of the curve for applying transgenic technology to improving the effectiveness of antibody production. MedicAlgorithmics is a small Polish company trying to gain acceptance for its innovative arrhythmia diagnostic solutions in the world's largest, most competitive healthcare market. And BIA Separations, which is further down the road in terms of building market share in its core competency of liquid chromatography, still has to convince its large global partners that it is the provider of choice and a stable ongoing concern.
But the odds against any of these Central and Eastern European opportunities getting as far as they have were pretty great. Any one of them may still trip up for one reason or another, but they all have every reason to believe that success is achievable and the wherewithal is in their hands.
Conflict of Interest
Landes Bioscience owns equity in MedicAlgorithmics and ImmunoGenes.