Ken Aldrich, Executive Chairman of International Stem Cell Corporation [OTC:ISCO] was interviewed by OneMedRadio where he discussed the company’s regenerative medicine therapies.
Brett Johnson: Good day, this is Brett Johnson in New York City with OneMedRadio. Today, I am with Ken Aldrich. He is the co-founder and executive chairman for International Stem Cell, symbol ISCO on the bulletin board. It is a Carlsbad, California company in the stem cell business. Ken, thanks for joining us today.
Kenneth Aldrich: Thank you. I appreciate the opportunity to speak with you.
BJ: Ken, go ahead and tell us a little bit about the business of International Stem Cell and what you guys are doing that’s unique and distinctive.
KA: I’d be happy to. International Stem Cell is in the regenerative medicine business broadly speaking. We produce and develop therapies that are based on what are called pluripotent stem cells. Pluripotent stem cell simply means a stem cell that can be converted (the technical word is differentiated) into any cell in the body and theoretically treat any kind of disease that can be treated with cell therapy.
There are today basically only two ways to create a pluripotent stem cell. One is what’s been around for ten years called embryonic stem cells derived from a fertilized human embryo, and the other is parthenogenesis, which is our own creation, our own patent. Our people really developed it from the very beginning.
They function very much the same but we have two unique advantages. One, we take the ethical issue right off the table. We do not use a fertilized egg and we never damage or destroy anything that could become a human being. And second, the DNA that results when we go through that process of using only an unfertilized egg is a much simpler DNA structure. It’s complete, but simpler in its form. It enables us to use a single cell line from a single donor to match very large numbers of people. So it gives us the potential a few years down the road to have a true stem cell bank. And by that I don’t mean the banking of somebody’s own cells, but a bank much like a blood bank in which any patient who needs stem cells can come, get cells that will match their immune system and thereby eliminate or reduce the need for immunosuppressant drugs.
We think ultimately that’s going to be the single defining differentiator for our company because a cell transplant is like a miniature organ transplant. If the body rejects it, there’s no benefit, and we’re working on a way to provide cells that anyone can use at any time for any disease that any scientist is smart enough to figure out a way to treat with cells. It’s a tall order but we think we’re up to it.
BJ: Talk a little bit about how you developed this technology and also the issue of approval and at what point do you expect to be able to see this in the market?
KA: The process of development goes back to 2001. We started out because we knew that pancreatic islet cells derived from cadavers — could be used to treat diabetes and take people off of insulin for periods of up to four years. The problem was there was an insufficient supply and there was no way of getting cells that would not create immune rejection problems. So we started out to try to solve that problem. In the process, we created the way of making parthenogenetic stem cells that we hope will eliminate that immune rejection problem and also give us a way to make pluripotent stem cells that did not violate the ethical issues that concern a lot of people using embryonic stem cells.
The process of getting approval is not quick for us or for anyone else. There are only two companies in the field that are even in human trials yet and those trials have just begun with embryonic stem cells. So it could be a three-year, it could be a five-year period to ultimate FDA approval.
However, we’ve done something with International Stem Cell that I think is unique. We have designed the company from the very beginning to have alternate sources of revenue that are synergistic with stem cell development but nevertheless can be utilized more immediately because they did not require FDA approval. So we now have two operating divisions, one is a skincare products division and the other sells human cells and media for research, which ultimately can get baked into therapeutic applications and produce very substantial revenues in that way.
So we hope that within a reasonable period of time, I hate to speculate on exactly how long, we will actually be financially self-sufficient and have revenue coming from those two divisions to support all of the research. So that whether it takes three years or five years or seven years to get to the so called blockbuster application of treating diabetes or liver disease, macular degeneration, whatever it may be, we’ll have the capital to support the company and won’t be constantly begging at Wall Street’s table.
BJ: It sounds like a smart strategy to deal with the challenging capital markets that we’re in. Can you talk a little bit about how you got involved in the company and your background?
KA: My background is really as a serial entrepreneur and financer of early stage companies. I’ve been at it for 20 or 25 years. Prior to that, I was a lawyer and during that period for a while, I was in the real estate development business. But my love has always been starting companies. I got started on this one, as I said, because we were interested in trying to find a cure for diabetes–or really the cells that would enable the cure. The cure actually existed.
And from that it grew into a much larger company because we realized we didn’t have to limit ourselves to diabetes, which is a very difficult disease to treat, but we could actually provide cells that could treat any disease for which the scientists are smart enough to figure out a way to use stem cells in the process. So we went from having a very narrow focus to having a very broad focus. I like to think about what we’re trying to do as very much like the Intel Inside ™ of the therapeutic regenerative medicine business. If anybody develops a treatment, they’re going to want our stem cells ultimately, just as anybody who built a computer 10 or 15 years ago wanted the Intel chips on the inside of that. So we hope to be the universal provider of stem cells for stem cell therapy when we finally completely get to the end of the pathway. In the meantime, however, we’ve built businesses surrounding that that will generate revenue for us and build on that core expertise.
BJ: Can you talk a little bit about the stem cell industry itself? And so would you become a supplier to some of these existing stem cell companies?
KA: No, I don’t see us as a supplier to existing stem cell companies. They are all going down, in most cases, a rather narrow path that may be very profitable for them, but because they don’t own the basic platform for creating their stem cells, they have to license stem cells from someone. Normally, that’s — if it’s embryonic stem cells — from the University of Wisconsin. They could license cells from us for certain applications. Some, we keep for our own use, but others, we would license out. But they need to have a starting point and then they are trying to treat a particular disease because that’s what they’ve licensed. They’ve licensed cells to try to treat diabetes for example or heart disease or whatever it is.
In our case, what we want to do is partner with researchers who are creating the cures so that when cells are actually approved by the FDA and are then being used by hospitals and physicians, we become the supplier directly to the user and to the patient. So we might partner with a large pharma company as we go down the road because it is expensive to get all the way through the FDA, but we probably would never be selling to those who are now our competitors. They’ll remain competitors or maybe collaborators.
BJ: Can you talk a little bit about some of the current applications you’ve been able to apply this to your cell technology division and your skincare effort? I understand it got off with a great deal of success. Can you talk a little bit about the skincare stem cell application?
KA: I’d be happy to. Let me take one step back, though, to put in framework. One of our goals as I mentioned earlier was to be certain that we had the ability to generate cash flow to support the basic research in the therapy. So that’s what’s caused the development of Lifeline Skincare and Lifeline Cell Technologies, which I can talk more about if we have the time.
The skincare version was actually a serendipitous series of events followed by some very difficult and very good scientific work by one of our scientists Ruslan Semechkin. But it started with a conversation in New York while I was out trying to raise some money back in 2008, not an easy time to raise money. I was talking to a woman who had come out of the retail products division of a major pharma company and she looked at the media that we used to grow skin cells for research products and said, why can’t I buy that in Macy’s? I drew a blank. I had no idea what she was talking about. She said, “Look, every woman in America and half the men would probably sell their firstborn child if they could make their skin look younger.
Well, the light bulb finally went off, we want back to the labs. We found we couldn’t use that particular product directly, but we developed through Dr. Semechkin’s efforts and his team a way to take an extract from our own proprietary stem cells, encapsulate it through an encapsulation process so that it would be preserved and would have a long shelf life but be released on use. And created what has become our lifeline skincare line of products, which at the moment consists of a day cream and a night cream and will be followed hopefully before Christmas with two additional products for the Christmas season.
BJ: And those products, you launched with a thousand units and you sold out. Can you tell us about how the product has done so far.
KA: Yeah, the launch was very interesting. We decided to take a very different approach, which was to do a direct response marketing launch through targeted email lists and formed a joint venture, an alliance with a gentleman by the name of John Mauldin who has a very successful following in the financial and world affairs milieu, if you will, but also has a large group of devoted followers. And John fell in love with the cream, said, you know, I’d like to help you market it.
So, we went out for an initial launch to a portion of his mailing list, to his limited group and John said to us, if we sell a thousand bottles(it sells for a little over $150 a bottle), we’ll have done really well, and I agreed. Well we sold 7000 in one month. That was the good news. The bad news was it takes several months to grow the cells that make up our product. So we wiped out our inventory and fortunately we didn’t wipe it out before we were able to fill all the orders. But the net result is we then had to go out of the market for a sustained period of time and we’ll really only go back into the market in a significant way early in this September right after labor day. So I don’t expect this to do 7000 a month, at least initially, eventually I obviously hope we’ll do that and more. But we certainly expect a good re-launch of the product in September and the revenues that we hope we’ll build substantially from there on. But that was the story. We were too successful in the beginning, had to get out of the market for a while, and we’re about ready to come back in it.
BJ: It sounds like a tremendous success story in the making. What would be the issues in terms of the manufacturing capacity going forward?
KA: There really are no issues going forward. The issue is a timeline issue. It takes several months to grow the stem cells from which we take the extract. So we can manufacture them at any rate, but we need to know in advance how many we need. So we had grown enough for 7000 or 8000 units, then when we suddenly used all those up, we had to go back and grow additional ones. But now that we know that we need a larger supply, we’re growing them at a much more rapid rate using more technicians and we have more than ample supply for any future demand than I can reasonably imagine. Let’s put it this way. If we use up the supply we have now in the next launch, I’ll be the happiest guy on the planet.
BJ:Sounds like a very exciting opportunity and product. Can we talk a little bit now about just the organization itself, the management team, and who’s building this company?
KA: Sure, we can. I started out as the founder, was a CEO for a period of time and then about a year and a half ago, maybe almost two years ago, sat down with Dr. Andrey Semechkin who’s a very successful scientist from Russia, a member of the Russian Academy of Sciences who has moved here with his entire family and became one of our major investors. And I concluded with him that he was far better at managing the operations of a company than I was and that because of language issues and the fact that he was new to this country, it was better for me to remain the outside spokesman of the company.
So, he is now the CEO, runs all of the operational aspects of the company and I remain the public voice, if you will, of the company and also I’m heavily involved as executive chairman in the long range planning and strategy and where we go from there. He and I operate very much as a team in that regard. We have a full team of scientists underneath us as well as administrators and the other people we need and, in the simplest terms, I think we have the right people in the right seats on the bus and are ready to go forward to whatever the future holds for us.
BJ: Will you be looking at doing any additional capital raises in the future and sort of what’s your capital situation to continue to grow the business?
KA: We put in place last year a capital structure that I’m very happy with. We have a $25-million facility, which allows us to sell shares as we need to completely at our election into the market. It’s really a conduit almost through a group called Aspire Capital, which actually buys the shares from us and has the choice then of reselling them or keeping them. And we can draw on that as we need it at a rate of up to a hundred thousand shares a day. We don’t do that. We don’t draw down anywhere near that amount and we go months sometimes without selling any stock. But it gives a tool so that in periods of time; for example shortly after we had such a successful launch with skin cream we needed no capital for quite a while.
Then as we got later into the year, we’ve drawn down some small amounts through that facility and we’ll use that as we need it going forward. We don’t have any current plans for any major capital raise. We might go into the market if we had a particular opportunity that required more capital than we could draw down at any one time from the Aspire organization. But we have enormous flexibility, we have no debt, and we’re quite pleased quite frankly with where our capital structure is.
BJ: Sounds very exciting. Any major milestones to discuss in the coming quarters or year?
KA: In terms of milestones, I try to discourage people from looking for major milestones in the sense of single large events because what we’re doing is building a company and it’s a process rather than a series of episodic events. But we will have things. We are in animal trials for four different applications of our products, in the cornea, in the retina, for liver disease, and in neurological diseases. So we’re very likely to have some results coming out of animal trials that will lead directly, although there’s some fairly long lead time, into human trials, which could easily begin to happen next year.
So those events will be occurring. I can’t predict the time or even which of the four areas will be the most successful or the earliest success, but those things are likely to happen. Obviously, we’ll be selling more skincare products. We also are working in collaboration through our other profit making division, which is Lifeline Cell Technology with several companies who are using our cells or our media as part of products that they are taking through FDA approval processes. So I would expect sometime in the not too distant future that we’ll start being able to announce that one of our customers has gotten their own FDA approvals, which bakes us right into the revenue stream.
So if, for example, a company is using our media to grow whatever therapeutic product is and their sales suddenly go from a few sales in clinical trials to thousands of sales, we participate in that benefit. So that’s one that I can’t predict, the timing, but I can predict with a high degree of certainty that we will begin somewhere over the next year or two to start seeing those kinds of secondary benefits as well as the things that we hope for directly from our own therapeutic cells.
BJ: Well it sounds like you have some very exciting things in the works and some exciting times ahead so good luck to you on all that.
KA: Thank you very much. I appreciate the chance to have talked with you.
BJ: Our pleasure. That is Ken Aldrich who is with International Stem Cell, symbol ISCO as traded on the bulletin board. This is Brett Johnson in New York with OneMedRadio signing off. Good day.