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Departure of U of Delaware Scientist Could Spur Local Gene-Repair Spinout to Relocate

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The departure of a University of Delaware biology professor from the school may also cause the gene-repair company he co-founded to relocate — unless it can secure the funding it claims it needs to advance its technology to the clinical testing phase.
 
The UD spinout, Orphagenix, was co-founded in 2005 by Eric Kmiec, UD professor of biology and director of applied genomics at the school’s Delaware Biotechnology Institute, and Hetal Parekh-Olmedo, a research associate in Kmiec’s DBI lab, to commercialize gene-repair technology to treat rare, hereditary diseases such as sickle cell anemia and spinal muscular atrophy.
 
Last spring, Orphagenix, which had previously been housed exclusively at DBI, announced that it was opening an office in Wilmington outside of the school’s walls, and that it had named a new president and CEO, Michael Herr (see BTW, 5/7/2007).
 
The company raised an undisclosed amount of early funding from mostly friends and family, and began seeking further investments from UD, state economic-development agencies, and private venture capital firms, according to Kmiec and Herr. But so far, Orphagenix has not been able to secure funding to keep the company on its feet and advance its primary technology to the next stage.
 
Orphagenix’s struggles came to a head last week when Marshall University’s Institute for Interdisciplinary Research — a recently launched research and development program focusing on accelerating the commercialization of biotechnology, biomanufacturing, nanotechnology, and applied molecular research — announced that it had plucked Kmiec from UD, naming him its first director and lead research scientist.
 
Kmiec, who begins his duties at the MIIR in January 2009, will be responsible for assembling a team of interdisciplinary research scientists who will comprise the core of the institute and will take advantage of recently passed legislation in West Virginia that created a $50 million endowment fund to support applied research with an entrepreneurial slant at Marshall and West Virginia University.
 
This week, Kmiec told BTW that several members of his UD lab will join him at MIIR, and that Orphagenix, of which Kmiec is still a director, would also likely move at least part of its business to the state.
 
“Because of the association with the company and our lab doing the work, there will be a presence in West Virginia,” Kmiec said. “It’s now just a matter of whether it will be just 50 percent of it, 80 percent of it, or more. But it is clear that some of the company functions will move with us.”
 
Last week Herrtold BTW that he and other managers had not yet started discussions with officials in West Virginia about a possible move to the state but would likely do so soon if it cannot secure financing needed to further vet its gene-repair technology and move it toward clinical trials.
 
Herr said that Orphagenix has maintained a relationship with Kmiec in that it is entitled to license discoveries emanating from his laboratory, and that Kmiec is a “major shareholder” and director of the company. Aside from that, he said, the company and Kmiec are now independent.
 
“We congratulate him on his move,” Herr said. “We wish him the best success [at MIIR] and hope to retain a strong and positive relationship with him in the lab.”
 
Herr also verified that Orphagenix has not found appropriate funding in Delaware. “It’s absolutely true that we have struggled in Delaware to put those funds together,” he said. “If we think about ourselves as representing shareholders of the company, we need to maximize shareholder value. Whether that’s in Delaware or somewhere else, that’s our key objective.”
 
Herr said that the company is seeking $5 million to $7 million in VC funding, grants, state venture funding, or some combination thereof to move the technology into the clinical stages.
 

“If we think about ourselves as representing shareholders of the company, we need to maximize shareholder value. Whether that’s in Delaware or somewhere else, that’s our key objective.”

“There are no real VCs in the state, but we have talked with VCs out of state, and that is really where we need to get the company,” Herr said. “There has been lots of validation in the lab, cell culture, and animal models, and now the next step that everyone wants to see is the clinical stage. That’s really what we’re out pushing for.”
 
The loss of Orphagenix, one of only a handful of UD biotech spinouts, could be a significant blow to the state and UD, which in November launched a new Office of Economic Innovation and Partnership and Institute of Business and Economic Research under the leadership of newly anointed president Patrick Harker to foster closer ties with state industry and government, speed technology commercialization, and stimulate regional economic development (see BTW, 11/12/07).
 
The new programs have identified the biotechnology sector as one of its biggest targets for support, but so far Orphagenix at least has not seen follow through, Kmiec said.
 
“That seems to be the barrier here: we see a lot of folks that have a little bit of money to invest … but there is not a clear understanding of what it takes to develop biotech,” Kmiec said. “I think the frustrating part for … us was that we read and heard that all this stuff was going to change, but so far that change has come really slowly.
 
“I also want to clearly say that biotech has not been a particularly good investment, and there have only been a few victories, and maybe they feel a little more solid about some [other sector] – but then I wouldn’t sort of feature it and say that biotech is the second coming here,” Kmiec added. “Let’s stop talking about it and let us who are trying to do this search for other places to go.”
 
For instance, Kmiec said that Orphagenix twice in the past two years submitted requests for pre-venture, seed, or business plan funding to the Delaware Economic Development Office, which chose not to fund Orphagenix’s technology because it was not close enough to commercialization.
 
“These guys were looking for an 18-month turnaround for profit and product,” Kmiec said. “In biotechnology, that is very rare, even with simple diagnostic stuff. So it seems to me that they are not quite ready for biotech.”
 
In addition, Kmiec feels that UD itself could have been more supportive, either with its own investment or other types of administrative or business support. “I understand completely that the university is not a venture fund,” Kmiec said. “But they do have a research investment arm … that is supposed to nurse startups and support entrepreneurial stuff.”
 
Added Kmiec, “we’re not asking for a handout. We have brought in lots of grant money, and several license agreements that the university was able to cash in on over the years. And now I think it [is] probably time to help with some seed funding.”
 
Kmiec also said that UD’s Harker, to his credit, has made such entrepreneurial support a mantra so far in his first term, but organizations such as the Delaware Biotechnology Institute were already “supposed to do what they are now saying they’re going to do.”
 
Herr told BTW that a few individual investors have contributed to Orphagenix’s seed round. “Other than that, the University of Delaware has chosen not to put any dollars in; [and] DEDO has not put any dollars in.” Herr added that he would “absolutely” like to see a state- or UD-affiliated organization provide at least some of the support.
 
It is unclear why DEDO decided to hold off on investing in Orphagenix. A DEDO spokesperson told BTW that officials from the organization were unable to provide comment prior to the publication of this article due to their travel schedules.
 
But any hesitancy by VCs and state organizations to invest in Orphagenix may be a result particularly of past failures to bring precursors of the company’s technology to market, and skittishness surrounding the field of gene therapy in general.
 
For instance, a company called Kimeragen that Kmiec helped found in 1994 — based on gene-repair discoveries he made while a professor at Thomas Jefferson University — suffered through a tumultuous decade in which it failed to attract financing to advance its technology to clinical trials. Also, like many gene-therapy companies around that time, its efforts were clouded by the 1999 death of Jesse Gelsinger after the teenager underwent a gene-therapy trial at the University of Pennsylvania.
 
Further plaguing Orphagenix’s gene-repair technology is the fact that several laboratories had in the past said the science behind the technique is faulty by claiming they were unable to reproduce the results that Kmiec and colleagues achieved at Thomas Jefferson University and early on at UD.
 
But Kmiec maintains that the Orphagenix technology is different from what is traditionally referred to as ’gene therapy’ in that it uses a variety of non-viral methods to deliver short, synthetic DNA oligonucleotides to cells to manipulate the sequence of faulty genes. The gene-therapy technique that killed Gelsinger used viral vectors to deliver genes.
 
“We’re not a gene-therapy company, but the failure of gene therapy has certainly overshadowed things,” Kmiec said. “But it is also 10 years after all that stuff has happened. I think there is definitely a negative side to it, but we’re talking here about a Delaware-centric company that went out and raised early money, and kind of got through that, and it wouldn’t have taken a lot to keep us.”
 
Although the VC environment in West Virginia is certainly not known for being any richer than in Delaware, Kmiec said that the state has “put its money where its mouth is” by committing $50 million to support programs like MIIR, which could go a long way toward nurturing companies like Orphagenix.
 
“The difference that I’ve seen there, at least in the set up of MIIR, is that the money is banked and it is there,” Kmiec said. “This money could very well be here in Delaware, but nobody seems to know about it. I do think the state itself has a very good and interesting source of money that doesn’t seem to be particularly apparent. I’m not sure why or where that is.”

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