Investment in Islet Encapsulation Ventures
The Evolution of Islet Encapsulation Ventures by Scott R King
Yesterday I met with a prominent leader of San Francisco’s Investment Community, and a longtime supporter of T1D research. We were talking about our work to solve diabetes with the Islet Sheet, and naturally the conversation turned to the multiple ventures that have been formed to cure diabetes with encapsulated islets and had attracted speculative investment (including one he and I had been involved with). I said that a big reason no one would invest in our company was the failure of all these companies; and that I have recently added up the total invested and lost, and it was about a third of a billion dollars. He stared at me for a time and finally said, “that’s a number I’m going to write down.”
Thirty years of work; thirty companies; at least seven clinical trials; and a rogue’s gallery of entrepreneurs, investors and inventors have strutted the stage. On the old Cerco Medical site I maintained a competition section devoted to these companies and their careers. Since so many of them were spin outs of earlier efforts I presented their relations in the style of an evolutionary cladogram, showing how one species evolves out of another. This was popular especially among scientists who had migrated from one company to another. I abandoned this effort when we shelved the Islet Sheet project in late 2001.
But last December, for the launch of our international collaborations on the Islet Sheet, I updated it for my presentation.
Evolution of Encapsulation Ventures
The colors indicate the sort of encapsulation device. The width of each band shows the approximate effort and resources at a given time. A pointing hand shows a name change. A yellow arrow shows migrations of intellectual property including mergers (Damon acquired by TransCell) and license or sale of IP (Patrick Soon-Shiong leaving TransCell to found VivoRx; surprisingly they granted him a license so he could compete!). Finally a block of color shows a cross-license (Baxter and Cytotherapeutics licensed to Neocrin).
Both pioneers started before 1980. Academic studies in the 1970’s (led by Lacy’s group in St. Louis) had demonstrated that islet transplants cured diabetes in rats and mice. So scientists at Amicon, the W. R. Grace subsidiary that manufactured hollow fibers for kidney dialysis machines began experiments to see if these same hollow fibers could protect islets from the immune system. At about the same time Frank Lim at University of Virginia invented a way of making capsules of alginate gelled with calcium and coated with polylysine. He originally envisioned using them as bioreactors to make biologics such as antibodies. In collaboration with Tony Sun in Toronto, they transplanted islets encapsulated in alginate/polylysine into mice, curing them for weeks, the first microencapsulation study. Damon built the first encapsulation business around that concept. By 2000 the hollow fiber approach had been abandoned. But microcapsules have emerged as one of the promising approaches. The capsules made by LCT today are surprisingly similar to the very first made by Lim.
The mid-90’s were perhaps the golden age; the established companies were well funded and many companies were founded. Neocrin and Amcyte were the biggest, each spending in excess of $100 million (and neither progressing beyond a small clinical trial). They represent the high water of professional venture capitalist and corporate investment. Amcyte was focused on islets encapsulated by the usual alginate droplets. They made grand claims from a single patient, Steven Craig, treated in 1993 with their capsules; it turned out that he was only off insulin a month. On the other hand, TransCell/Neocrin/Novocell tried everything they could get their hands on. (At one point they were discussing the Islet Sheet with us.) They first tried alginate microcapsules, then the Baxter device; they finally settled on a conforming coating developed by Jeff Hubbell. They too reached a clinical trial with their coating, placing the coated islets under the skin, but they were not successful.
The table below shows my estimates for the total spending of these efforts. (Anyone with more accurate numbers please e-mail me.) In general, the majority of these companies failed because they did not understand the complexity of the problem. They usually focused on one facet and did not realize they had to do several things at one, some of which are very difficult.
Encapsulation Expenses
My own path was as founder of TransTech, later renamed Metabolex. It is there that I worked closely with Randy Dorian for the first time, and where he in collaboration with researchers at the University of California Davis demonstrated that the UC microcapsules permit islet function to last years. These are the first capsules fundamentally different from the old Lim capsules. The managers of the company decided they no longer needed us, so we were asked to leave Metabolex in 1994. We considered competing with them by making better microcapsules, but ultimately decided to found Islet Sheet Medical, a whole new approach; renamed Cerco Medical it remains our encapsulation home. We have the only fundamentally new design since 1983, which is proven by our patents.
Returning to this history of encapsulation companies, Microislet went bankrupt last in 2008 and has been liquidated, so only a few companies remain. Living Cell Technologies is the dominant company in microcapsules and Cerco Medical is the leader in macro capsules. Beta-O2, an Israeli company, has a method of generating oxygen within a device, which is a novel approach to the oxygen diffusion problem.
The pendulum is swinging again and academic interest in encapsulation is growing. A group in Belgium independently invented the alginate sheet. Even the JDRF is putting a small amount of funds in (0.5% of their budget).
Encapsulation’s time is here.