In a previous post, I discussed the potential risk to the “quackery” end of Australia’s stem cell medicine industry if the TGA ever had a change of heart about how autologous (“from self”) cell therapies are regulated. At one end of the spectrum we have proven cell therapies that have been saving lives for a long time. At the other end of the spectrum we have the kind of unproven therapeutics being touted by many clinics and a few sub-standard biotech companies, involving procedures such as a adipose-derived (fat) stem cells that are injected into knees for sports injuries. These procedures are, on the whole, not about making patients better – but about making serious money.
Orthocell (ASX: OCC) is a tough one for me. It lies somewhere in the middle between useful and quackery – and may also succeed in flying under the radar with the TGA to a large extent (more on this in a minute). Orthocell technology involves harvesting certain types of cells from tissue – for example certain types of fibroblasts called tenocytes, which form connective tissue and are part of our normal tissue function / repair process. By taking small numbers of these cells from a tissue sample, separating them and then expanding their numbers (“culturing” them) and then injecting them back into the damaged tissue site, it may be possible to improve the extent or quality of tissue repair. Particularly when used in conjunction with surgery.
These treatments are different than stem cell treatments because (theoretically) the type of cell harvested from the patient is the same as that administered to the patient, just greater numbers. Therefore the treatment intrinsically involves the use of cells that are (theoretically) “minimally manipulated” and therefore more convincingly fall under certain TGA practice of medicine exemptions when administered by a physician (again, for more extensive discussion about this concept, see my prior article).
Some people are impressed with Orthocell’s claims for injuries such as tennis elbow, a form of repetitive strain injury. As someone who suffers from this condition, I am acutely aware of how painful it can be. However tennis elbow is is a condition that is usually able to be managed with physiotherapy and strengthening exercises, and in extreme cases – surgery (of which ~90% of cases are successful). One of the problems with the use of cell therapies in these kind of injury repair situations is the fact that surgery is 7-10x cheaper and has good efficacy. In a relevant analysis conducted by MSAC on the use of chondrocyte implantations for cartilage injuries (i.e. knees), the economics and clinical utility were found to be highly questionable and, in general, no reimbursement case has been yet found in for these kinds of treatments (I believe that the Orthogen – not to be confused with Orthocell – microfracture product was briefly reimbursed but following MSAC assessment, had reimbursement discontinued – if anyone can confirm this, I would be grateful).
Historically, sports medicine clinics have used a patchwork of reimbursement codes for different procedures to try and partially recover costs. But as a business case, it would be inaccurate for a company like Orthocell to claim that there is a clear pathway to reimbursement-driven revenue and currently its financial prospects are all based on private pay in the ballpark of $10-15,000 / treatment. It’s not that the reimbursement case could never be proven, but rather in order for the case to be made, Orthocell would need to conduct far more extensive and statistically significant clinical trials – especially when pain is a patient outcome. Such studies would cost significant dollars and, to date, such studies have not really been undertaken.
Last year’s public announcement that Orthocell’s level of capitalisation at $8m (from IPO) will be sufficient for “at least two years” of runway also suggests that there are no plans to conduct such studies anytime in the future either, which is disappointing. Frankly, to date, Orthocell’s formal clinical development has been weak with a limited number of studies involving very small numbers of patients that are probably not statistically significant or properly controlled for patient variability. In my opinion, it would be hard to claim any real clinical utility on the basis of the research published to date. Additionally, these studies have not, in general, been conducted independently and although the relationship between clinical investigators and the company has been correctly disclosed, the lack of independence of the research needs to be considered. I am not making any negative implications here, I’m just saying that there does not seem to have been any truly independent evaluation of the technology published … yet.
As for the technology itself, I am mostly ambivalent. I don’t think it would be possible to really protect the technology of tenocyte or chondrocyte expansion – many people are doing it. However, I do accept that developing novel scaffolds and tissue engineering strategies may improve the clinical efficacy of a transplant and that there is potentially intellectual property to be gained in doing so. The company has made some claims about this, but I remain somewhat skeptical given the body of literature in this space. Again, the technology differentiation needs to be clinically proven and such an activity is pretty much out of Orthocell’s league, at least as it is currently capitalised.
The really interesting question from a shareholder risk perspective is whether, if the TGA cracks down on autologous cell therapies, Orthocell might end up in strife. Two brief and poorly written 2014-vintage analyst reports (available from the Orthocell web site) inform that Orthocell has TGA approval for its products, but in fact this is not the case. It has a TGA license to manufacture autologous cell expansions. This is very far away from an “approved therapy”. I don’t believe that the Orthocell technology is at the high-end of the risk spectrum, unlike MSC implants. However it is my opinion that the process of tightening up the clinical use of stem cell therapies could have knock-on effects that would propagate to other commercial therapeutic offerings. This could include:
- Requiring more robust product release assays.
- Maintaining samples of all administered product for quality assurance purposes, which could increase the cost of goods.
- Stronger process expectations around patient material handling, evidence of effective measures to avoid error, contamination, etc.
- Evidence that the final injected cell preparation is, indeed, uniform and expected. This could prove quite tough to achieve and might require some significant technological improvements that could be expensive to develop.
- Formal patient registries to track safety, including long-term patient follow-up (also expensive).
- More onerous consent language (as an non-approved therapy) that would need to be given to the patient, possibly deterring individuals from taking the treatment.
(As an aside note, an excellent and highly informed summary of the ethical and manufacturing issues around unproven cell therapies can be found here, giving you a sense of what the TGA might end up looking for in this kind of a product.)
All of these product-related demands could substantially impact Orthocell’s revenue streams, especially if the business is predicated on the success of a private pay model because COGS could be considerably pushed out, further shrinking market potential and/or margins. Based on what we have seen for other tissue repair cell therapies, I am also highly skeptical that Orthocell technology will succeed in being included in the ARTG to facilitate reimbursement in Australia. I should note that the aforementioned analyst reports imply a straightforward expansion into US/EU markets but this will be far from the case. The EU landscape is incredibly complex (the European regulators are already extremely fastidious about many of the above bullet points, particularly product characterisation) and Orthocell’s business model is completely incompatible with the realities of the FDA, especially with the definition of “minimally manipulated” under close scrutiny. There is absolutely no contention that a truly proprietary and added value product that is differentiated from a mere cell transplant (i.e. a scaffold technology) will need to be formally developed to receive marketing approval in the US.
In summary, I am very lukewarm about this company. I don’t think the technology is a fundamentally stupid idea but there is very little evidence that the cost-benefit is really there either. When I see a company that is simply not equipped or financed to do proper clinical development, and is making claims about commercial readiness without the data to justify it, I am basically turned off. Given some of the leadership and corporate governance overlap with Cynata, I am inclined to include Orthocell in the league of Australian biotech that is mostly about a good story, rather than substance. Especially when I consider the marketing claims and the purported market potential (2% of the world has tennis elbow, yay!) for a product that doesn’t really reflect current clinical practice or healthcare economics.
Awesome Photo Credit: Ryan McGuire. http://www.gratisography.com/