Start-up firm finds way to new drugs: rats

Genetically engineered rodents are professors' secret of success

By JASON GERTZEN
of the Journal Sentinel staff
September 1, 2002

Rats in a Milwaukee laboratory could hold the secret to tapping the human genome for new wonder drugs.

The genetically engineered rodents are the innovation of Medical College of Wisconsin professors who say the rats eventually could make their biotechnology start-up a major force in drug discovery and pharmaceutical research.

Researchers can test drugs on the rats, which have been bred with genes that contribute to such common diseases as diabetes or high blood pressure.

PhysioGenix Inc. now may be a fledgling firm pursuing promise and potential but, not long ago, it was no more than a trio of frustrated scientists.

"We started the company in 1997, but it is just getting going now," said Howard Jacob, a genetics expert at the Medical College and the current chief executive officer of PhysioGenix. "The timing was wrong in 1997. We had these ideas, but we didn't have a business partner who could help roll this out."

Business plan a problem

Jacob and fellow founders Richard Roman and Ty Shockley found words of support in plentiful supply but little of the practical help they needed to start a business.

Ask them to crack genetic codes? No problem. Ask them to write a business plan? That was a problem.

The scientists struggled to provide the in-depth business research and financial projections needed to convince potential investors that the discoveries from their academic laboratories would be a sure-fire hit in the commercial marketplace.

Rather than providing them with financial backing or help in refining the company's business model, potential investors peppered the PhysioGenix founders with questions for which they did not have ready answers.

How are you going to make money? What products are you going to sell? Why should we invest in a dream?

Renowned leaders in their academic careers, the three were not used to being on the receiving end of such blunt treatment.

They regrouped.

"OK, so we won't be a company," said Roman, recalling his reaction to the sessions with business advisers and financiers a few years ago. "We will go back where we belong. They just pushed us back into the laboratory."

Strengthened the foundation

The strategy proved to be far from a setback, as the additional research eventually would provide a stronger foundation for the company's products and services, said Roman, a physiology professor and vice president of research for PhysioGenix.

Work done in labs such as the Medical College's Human Molecular Genetics Center has attracted millions of dollars in federal grants. This has paid for dozens of researchers to learn more about what genes do.

Much of this research will provide a jump-start in the commercial world for PhysioGenix, which has a lab in the Milwaukee County Research Park. It works with another Milwaukee lab to house many of its animals.

The delay also provided time for another key development: the creation of TechStar, an agency that intends to help technology start-ups, especially those spinning out of Milwaukee-area colleges and universities.

TechStar began working with a handful of firms earlier this year. The agency eventually plans to make venture capital investments in area companies, but for now it is offering a commodity that could be even more valuable: advice and hands-on management.

Mary Beth Pieprzyca, a special limited partner with TechStar, is serving as an acting chief operating officer for PhysioGenix. She has 15 years of experience in medical device and pharmaceutical industries, including a stint as a senior vice president of Bristol-Myers Squibb Co.

PhysioGenix could be a model for how the region capitalizes on the research taking place at the Medical College and other area universities, said Lane Brostrom, TechStar's managing partner.

"They have taken the science to a point where it is on the precipice of commercialization," said Brostrom, who is doing corporate development work for PhysioGenix.

PhysioGenix's science uses specially bred rats to gain a better understanding of how genes cause diseases or otherwise make the body work.

The Human Genome Project was hailed with great fanfare two years ago when scientists said they had detailed the bulk of man's genetic code. But determining the sequence of genes that make a human a human proved to be only an initial step.

An era of personalized medicine in which drugs are tailored for an individual based on his genetic makeup must wait until doctors have a greater understanding of how drugs and genes interact, Roman said.

Animal testing is key to how this understanding eventually will be achieved, but many of the techniques on which researchers have been relying are relatively rudimentary considering the complex questions being asked, Roman said.

A method of breeding mice in a way that eliminates or "knocks out" one gene at a time has been widely used in studies. Researchers are able to learn what the gene is supposed to do by observing a mouse that no longer has it.

Companies such as Deltagen of Redwood City, Calif., and Lexicon Genetics of The Woodlands, Texas, are building their biotechnology businesses on a foundation of these genetically altered mice.

PhysioGenix says rats represent a major improvement over the knockout mice.

Jacob likened the use of knockout mice to studying how to improve a car's performance by taking it apart one piece at a time.

PhysioGenix breeds its rats in a way that isolates individual chromosomes, which are made up of long strands of DNA containing a creature's genes.

The result is a living test tube that researchers can use to understand how certain diseases are caused by the interaction of multiple genes. The PhysioGenix rats, the company said, also allow for more rapid identification of genes than can be done with other techniques.

This is so much better, the PhysioGenix founders say, because now researchers can study animal models that more closely simulate how a disease acts in a person.

PhysioGenix can provide researchers with rats that have a series of conditions. An example might be diabetes, high blood pressure and high cholesterol, a combination of maladies that affects many people.

Testing of potential drugs could be done much more effectively and quickly on these rats, Roman said. The value that PhysioGenix offers goes far beyond the rats.

The PhysioGenix rats and expertise could overcome what has been a limited source of information about any genetic links to the bad side effects, and who has the genetic makeup leaving them vulnerable, Jacob said.

"We want to help the company identify who should not be taking the drug based on their genetic profile," Jacob said.

PhysioGenix has obtained $850,000 in federal grants to develop its products and expects backing of $1 million to $2 million to come soon from wealthy individuals known as angel investors. Within six months or so, the company expects to be ready for an injection of venture capital of about $10 million.

The founders say that kind of money will be available considering the potential growth of the company. Its rats and services could be in high demand from a drug discovery market for gene-based medicine that is expected to reach $6 billion by 2005.

Why wouldn't a pharmaceutical maker jump at the chance to improve on efforts that now involve screening as many as 10,000 compounds before finding one effective new drug? Roman asked.

"That is more than a 99% failure rate," Roman said.

This hit-and-mostly-miss process is costly, both in terms of time and money.

The average drug arriving on the market has been on a journey lasting 10 to 15 years that cost $500 million, analysts for Credit Suisse First Boston wrote in a research report.

This is why pharmaceutical companies are so hungry for information about a possible drug target before they decide to move forward.

A drug maker would have a huge advantage if its researchers started their quest with more detailed information about the genetic basis of a disease or other details that would direct them to the targets within the body most likely to respond to a new drug.

About 40 new drugs make it to market each year, Roman said.

If PhysioGenix is able to improve the efficiency of the process, the pharmaceutical industry could easily increase the total number of new drugs it offers each year.

Considering that the more successful drugs can generate $500 million or more in sales each year, PhysioGenix expects to find many eager customers and potential partners.

"The accuracy is pretty poor right now," Jacob said. "It doesn't take very much to have a big impact."