Los Angeles Business Journal • November 3, 2014 • Special Report
Biotech sector slow to take root as businesses leave seeking seed money
By OMAR SHAMOUT
While much of the attention paid to the region’s startup economy has focused on tech of the app and Internet variety, a small but significant core of biotech and biomedical firms are leveraging a strong technical workforce.
The base of that evolving community comes from a large number of ongoing clinical trials at companies such as Amgen in Thousand Oaks, combined with the region’s strong pool of engineering talent – a strength dating back to the glory days of the aerospace industry.
The problem is that many of L.A.’s brightest minds coming out of schools like UCLA and USC wind up starting their companies in such cities as San Diego, San Francisco and Boston because that’s where the venture capital dollars are located.
“I do think L.A. would be recognized even more on its strengths but for the fact that so much escapes,” said Mitch Horowitz, a consultant at Battelle Memorial Institute in Columbus, Ohio.
Horowitz is the author of a report commissioned by the Los Angeles County Board of Supervisors that found the bioscience industry in Los Angeles is relatively small and lags behind the national average in terms of industry concentration and venture funding.
However, the August study identified a few key areas of “core competency” in Los Angeles that are primed for growth.
First and foremost on the list is the market for novel therapeutics and diagnostics.
“There’s a lot of depth in the actual development of new biologics,” he said.
However, many companies have yet to generate much revenue as their diagnostic tests await regulatory approval from the Food and Drug Administration.
This field includes the growing sector of molecular diagnostics, a subset of the more than $50 billion in-vitro diagnostics industry.
These biotech businesses are developing genetic analytical tools to aid in the prevention, detection, diagnosis and treatment of a wide variety of health conditions.
A high-profile example of this trend occurred last year when Angelina Jolie underwent a preventive double mastectomy upon learning she carried a much higher risk of contracting breast and ovarian cancer due to a gene mutation.
An October forecast published by Dallas market research firm ReportsnReports found that the global molecular diagnostics market will reach $7.9 billion by 2018, with a compound annual growth rate of nearly 10 percent between 2013 and 2018.
“It’s such a rapidly moving field,” said Scott Fraser, a provost professor of biology and bioengineering at USC. “It’s possible to imagine matching a treatment to a person’s body chemistry or genetic makeup. This enables a degree of much more precise treatment where you can treat disease before there’s noticeable symptoms.”
And for people undergoing treatment, genomic and genetic testing can inform doctors whether a specific drug will work on certain individuals who might not have the proper gene receptors. That type of innovation could save both patients and insurance companies a lot of money down the line as they eliminate ineffective treatments.
“When you’re testing a medication on 100 people, if you can tell who the 10 people are in advance who it will help, then it’s great,” said Dr. Gary Michelson, a retired spinal surgeon and medical device inventor who ranked No. 29 on the Business Journal’s list of Wealthiest Angelenos this year.
Michelson gave USC $50 million in January toward construction of the USC Michelson Center for Convergent Bioscience, which will house about 30 bioscience research labs.
While national leaders in the molecular diagnostics field include Quest Diagnostics Inc. in Madison, N.J., and Genomic Health Inc. in Redwood City, local companies include Response Genetics Inc. in East Los Angeles.
Response Genetics focuses on the development and sale of molecular diagnostic tests that help determine a patient’s response to various cancer therapies including lung, colon, gastric and melanoma. The company’s stock was trading at 63 cents a share on the Nasdaq Stock Exchange last week.
Nesher Technologies Inc. near downtown Los Angeles uses nanobiotechnology licensed from UCLA as a tool for its molecular diagnostic tests relating to cancer, Alzheimer’s disease and arthritis. It has received $3.2 million in grant funding from the National Institutes of Health.
Another is DxTerity Diagnostics Inc. in Rancho Dominguez, currently in clinical trials on two tests related to rheumatoid arthritis and radiation exposure using only a tiny pinprick of blood. The company also manufactures diagnostic kits that collect and transport samples, which have already been commercialized.
DxTerity founder and Chief Executive Bob Terbrueggen said he expects the company to generate about $6 million in revenue this year.
Eventually, DxTerity hopes to make its kits and tests available to the general public as well as health care providers, should the tests receive FDA approval. As the company scales
its offerings in the years to come, it hopes to bring the cost of genomic testing down from about $3,000 at the high end to as little as $30.
“We believe that one day running a genetic test would be like taking your blood pressure,” Terbrueggen said.
One problem facing the molecular diagnostics industry is the issue of Medicare and Medicaid reimbursement to contractors.
Companies used to be reimbursed for all diagnostic tests performed, but the government decided to overhaul its repayment system early last year, resulting in drastically lower reimbursement rates for many tests. Others have still not received a payment rate at all until further clinical testing is completed.
“They’re saying you need to prove the clinical validity of that test,” Terbrueggen said, which means spending a lot more money on big trials.
“Truthfully, it was an ‘Oh, shit’ moment for many companies,” he added, and many around the country were forced to shutter.
Horowitz agreed that increased regulation makes it more difficult for companies to commercialize their innovations, but he said the payoff could be even sweeter for investors and entrepreneurs willing to see things through.
“For sure there are hurdles,” he said, “but the markets are tremendous.”