ISTO Technologies CFO: No Other Company Can Grow Living Cartilage in a Lab Setting

ISTO Chief Financial Officer Says Proprietary Growth Expansion Technology Yields 5,000 Cartilage Grafts from Just One Donor

ISTO Technologies grows living cartilage in the lab, and can use it to heal a damaged knee and a weakened spine. Chronic pain once considered a permanence may now be neutralized with a minimally-invasive regenerative procedure — and that therapy may reach consumers far sooner than expected.

Further, the company’s unique pipeline that has demonstrated both clinical progress and market success. The privately-held orthobiologics company is focused on developing differentiated products for spinal therapy, sports medicine, and trauma.

With one commercialized product — a bone graft extender and substitute — and two late-stage clinical programs focusing in engineering cartilage tissue for knee and back, respectively, the company is poised to capture an opportunistic yet untapped market.

According to the company, ISTO’s InQu bone graft product brought in $13M in 2012, and the company projects $18M in 2013. ISTO relies largely on this cash-flow to drive clinical development for the company’s cartilage regeneration programs — DeNovo ET (Phase III), engineered cartilage tissue for knee injuries — and NuQu (Phase II), minimally invasive treatment for chronic lower back pain.

CFO Scott Gill points to two major unique factors for optimism in a a market in which several companies have struggled to reach the finish line. The company has demonstrated success in growing living cartilage in a lab setting — something Gill believes ISTO is alone in producing — through juvenile cartilage cells. The company’s proprietary expansion process allows for growth of just a single donor tissue into  3000 to 5000 cartilage grafts.

There currently exists just one major regenerative cartilage graft product available, and no therapies for regeneration of disk nucleus. With the company already recording profits with one commercialized product, investors have a reason to be optimistic about ISTO’s next milestones.

Still, in a notoriously unfriendly space, with many case studies serving as pessimistic precedent, questions remain. OneMedRadio spoke with ISTO Technologies CFO Scott Gill about the company’s unique technology, market opportunity, and next steps.


Click to listen to the interview, and view the transcript below.


Brett Johnson:             Welcome. This is Brett Johnson with OneMedRadio in New York City. Today, I am with Scott Gill. Scott is the Chief Financial Officer of ISTO Technologies, a St. Louis based firm that develops innovative products around cartilage repair and regeneration. Thanks for joining us today, Scott.

Scott Gill:             Well thank you, Brett, for having us. It’s a pleasure to speak with you.

Brett Johnson:             So Scott, can you give us just a general overview? What is ISTO? What do you guys do?

Scott Gill:             We are an advanced stage regenerative medicine company that has really – we have two programs that are cell based cartilage regeneration programs that are in clinical trials and one biologic product that’s commercialized that focuses on bone regeneration primarily for use in spinal effusions. The cartilage technology was a technology that came out of Barnes-Jewish Hospital here in St. Louis and we’ve spent the last ten to fifteen years really focusing on expanding, growing, developing those cells that we work with.

To our knowledge, we’re the only company in the world that can grow living cartilage in a lab setting. The two programs that we have under that are, a program called DeNovo ET. It’s an engineered cartilage tissue for knee injuries. And the second is a program called NuQU. That’s a minimally invasive treatment for people with chronic low back pain. The DeNovo ET program it’s currently in phase III human clinical trials and the NuQu program is in the phase II human clinical trials. So we’re very pleased with the progress that both of these programs have shown on the clinical front.

Now, what makes us different from a cartilage standpoint is that we work with juvenile cartilage cells with cadaveric tissue that we procure from tissue procurement organizations around the US. The work that was done at Barnes-Jewish showed that these cells were much more active in terms of forming and growing new cartilage, up to a hundredfold more potent than the cells of an adult. Also, what we’ve done with our research is shown that cartilage is an immune privileged tissue, so it’s something that can be transferred from one person to another.

What’s unique about us, however, is not just this discovery in the fact that we work with juvenile cartilage cells. It’s the proprietary expansion process that we’ve developed over the last several years in terms of being able to take the donor tissue, grow that, expand it, and out of a single donor come up with 3000 to 5000 either knee grafts that we use for the DeNovo ET program or 3000 to 5000 doses for the NuQu program.

I mean that expansion technology really offers us a scalable technology that makes it for a great business model. It also creates a platform technology that could be used anywhere you have a need for cartilage whether it’s the hip, the knee, the shoulder, the ankle. Fundamentally, we’re able to address any type of joint disease that involves cartilage deterioration over the time, over the age, aging process.

To our knowledge, we’re the only company that has this ability to grow this cartilage and develop these as an off-the-shelf solution. Everybody we know that’s working on knee programs uses an autologous approach that requires two procedures. Ours is a one-step solution for the knee but also for the back as well. Like I said before, clinical results we’ve seen in our initial human clinical trials for both products has been fantastic. So that’s the cartilage side of our business.

The other side of our business that we feel kind of distinguishes us in this community is the fact that we have a successful bone graft extender and substitute that we launched back in 2008. It’s a unique biomaterial. It’s a synthetic that is used to promote bone growth where there’s a need for bone grafting materials primarily in spinal effusion opportunities. We feel that this mix of a commercialized product with our high growth opportunity clinical stage programs really makes us unique in the orthobiologics space, in the regenerative medicine space, but the fact that we have revenues to go along with the high opportunities that we see in the cartilage side.

BJ:             Can you talk a little bit about what your revenues have been and where they’re going?

SG:             With our bone product, we did about $13M last year and we’re projecting to do around $18M this year. One of the things that we’ve had to do in light of the economic conditions over the last couple of years is really focus on driving the value of our business with both sides. We couldn’t afford to be a bone growth extender company only, and go out and higher 50, 60 direct reps and really try to grow that revenue. We’ve tried to manage this on a profitability basis, so that it pays for itself. It’s something that we could have grown a lot more, but we’re very pleased with our 30%-40% growth because it’s given us the cash to drive our clinical programs on this well without diluting our shareholders by trying to raise capitals during difficult economic conditions.

BJ:             Interesting. Now you talked about 3000 to 5000 doses. How many doses does a typical patient need?

SG:             Typically, for the knee program, once. For the NuQu program, if you’re doing a single level deteriorated disc, the protocol right now is treatment of one level, so that’s what we’re focusing on. Ultimately, could you be treating multiple levels, but typically it’s one to two doses of the NuQu I would imagine would satisfy those patients. On the knee side, the graft that we actually grow is about is about 6 cm2 so we’re really focused on large defect sizes for the knee.

BJ:             Now your expansion technology really is going to give you plenty of product. You’re not going to have a supply issue for these products?

SG:             No. I mean unfortunately, the donor tissue it comes from tragic situations with the death of a child in terms of what we’re working with, but our expansion technology really alleviates that need for multiple donors. I think that’s something that is really the secret to our kind of growth opportunity that our company is the fact that we can grow this cartilage but have it still maintain those characteristics of regeneration that get lost as we age.

BJ:             So what is the size of the market for let’s just say the knee product? Do you have a sense of how big that market is?

SG:             Just in the US our estimate is there are probably about at least a half million arthroscopic procedures each year for treatment of knee problems. No, we’re not saying that there’s necessarily a half million people that would fit in, but I think that somewhere probably in the 300,000 to 500,000 patients per year could benefit from our therapy just in the US. Outside the US, it’s probably just as big, but we focus strictly on the US markets at this point in time with all our products.

BJ:             And what is the economics? What’s your expected economics on the cost of the treatment?

SG:             Right now we still have to go through the reimbursement process. If you look at the only approved knee therapy that’s out there right now, it’s really Genzyme’s ACI or Carticel product and our understanding is that that product for the product alone is costing $25,000-$35,000 per procedure. We think that we can provide this graft in the $5000-$10,000 range and still have very attractive margins.

On the NuQu side, you know, there is no therapy right for regeneration of disk nucleus. The therapies right now people are doing like I said along the continuum of care being passed along. The next step, if they’re not working for under the conservative therapy, is a surgical option. So we look at this as kind of the last step of conservative care a doctor can present and say you know, here’s one more alternative before you proceed down this surgical option. Let’s try this MIS approach.  Basically, it’s a very simple procedure. Somebody comes in, just treat it through an MIS approach and then goes home a couple of hours later.

So I think that especially in this environment that we’re seeing today, where insurance payers are reluctant to approve spinal fusion surgeries, we think this fits in nicely with this current payer environment in terms of being able to potentially solve and regenerate a disk nucleus, without having to go through that surgical option, at a much lower cost for the patient and much safer for the patient as well.

BJ:             And what is sort of the typical cost now for a surgical procedure?

SG:             For a fusion, I mean it depends upon how many levels, the type of how complex but I think you’re looking from what I understand anywhere between $25,000, $75,000.

BJL:             And what’s your guess on what your service or your treatment may cost?

SG:             You know, again we’ll need to go through the reimbursement process but I think that based on our cost of manufacturing the doses, I think we could be very successful with something under $10,000 per dose.

BJ:             So there’s a lot of savings you think you can bring. I’ve talked to [some of our readers] about the cartilage and regeneration and knee treatment. They’ve indicated that [a number of technologies] have tried that, and everything has failed. What’s the response to those guys?

SG:             I guess we have solution: we got the clinical data. If we look at what we see from our phase I results from the ET program, first of all I guess you go back, you look at the cells that we’re working with. The cartilage approach is the people, everybody else is working with typically are autologous approaches. So they’re starting with cells that are inferior to the cells that we’re working with.

Secondly, what we’re seeing right now because of the nature of our phase I, we’re out over I guess almost five years with our phase I patients and we’re seeing significant improvements in our two scores, and also our IKDC scores which with the pain scores.

Then I guess the other thing that we would use is that if you look at the prevailing treatment right now in microfracture, when we look at our MR results for the patients that have been treated, we’re seeing superior cell rates. Which means we’re not only growing better cartilage, because we’re growing true hyaline cartilage rather than the fibrocartilage the microfracture generates, we’re putting more of it into where the defect does.

On NuQu side, the results that we’re seeing out there, we’re two years now with our phase I patients and we’re seeing significant declines in both their pain scores but also their activities, their improvements in their activities of daily living. We had people that before were on extended disability that are now back to work. We got people that before couldn’t do things like pick up their child, play games with their children that are now able to participate in activities that before they couldn’t do because of the chronic pain that they felt in their back. I think at the end of the day, our answers to those critics would be that look at our data and see what you think. We feel very strongly that our data supports the efficacy of these programs.

BJ:             Well it sounds very impressive. Congratulations on your success and progress.

SG:             We’re very proud of where we are today and we realize that there’s a lot more work that we have to do. I think our philosophy is let’s keep our head down and continue to make progress and hopefully bring these promising therapies to the market so people can benefit from it very soon.

BJ:             That was Scott Gill. Scott is the CFO for ISTO Technologies based in St. Louis, Missouri. Thank you for joining us today. This is Brett Johnson, OneMedRadio signing off. Good day.

The comments are closed.