The payoff of patenting your research: Aldagen as a case study

Author: Paul Krzyzanowski, 03/27/12

Without a doubt, scientific research has the potential to discover new knowledge that can be used to improve human life. New tools and new ways of doing things are constantly being developed or invented, but arguably need to be commercialized before their benefits become widespread. With commercialization can come profit, and from the perspective of a researcher seeing through rose coloured glasses, the path to profit may appear guaranteed once the patent is filed.

The truth is, the supposedly clear path from academic invention to return on investments is more like an overgrown trail through a jungle.


A few weeks ago, a company called Aldagen was purchased by Cytomedix (a small public company) for $16 million plus up to 20.3 million Cytomedix shares if clinical milestones are hit. These transactions where companies with a handful of products are sold to larger ones are not widely noticed in mainstream business media where the usual headline makers are large multi-billion dollar transactions. In fact, in early 2008 Aldagen filed for an IPOasking for approximately $80 million, but the offering was withdrawn by October of the same year, presumably due to the coinciding 2008 financial crisis.

Aldagen developed an interesting business model developed around sorting stem cells from patient bone marrow using fluorescence activated cell sorting, or FACS. To those currently involved in biomedical research, cell sorting is a technology routinely encountered, as any graduate students can sort cells using the same kind of equipment that Aldagen’s business is based around, though usually with the assistance of skilled technicians. Hence, the concept of cell sorting is nothing special (anymore).

The cellular characteristic Aldagen sorts cells by is their ability to catalyze a substrate to a fluorescent form using an enzyme called aldehyde dehydrogenase (ALDH); if the enzyme is at high enough levels, denoted by the company as ALDHbr, the cells glow green and can be identified by the optics of a cell sorter.

The ALDHbr technology might be familiar to researchers in the stem cell field, as the Canadian company, STEMCELL Technologies sells products called ALDEFLUOR and ALDECOUNT, which are based on the same technology being developed by Aldagen for clinical purposes. In fact, sales of these two STEMCELL Technologies products composed most, if not all of Aldagen’s revenue for the past few years.

Production of these products was by far secondary to running clinical trials for a number of potential products based on the aldehyde dehydrogenase sorting technology. For example, Aldagen is developing ALD-201 (a population of ALDH-expressing stem cells) intended for the treatment of ischemic (restriction of blood flow) heart failure. This product was in Phase 1 clinical trials as early as 2008 and the results were released in November 2009 at an American Heart Association Meeting. In comparison, the development of ALD-301, the use of stem cells to treat limb ischemia followed a similarly long arc spanning from 2006 to December 2008.

Despite an abundance of information regarding their clinical trials, I was left asking myself what in the Aldagen story could speak to a hypothetical run-of-the-mill academic researcher who might have a knack for commercialization and an interest in inventing new technology? In other words, when was the academic genesis of Aldagen’s aldehyde dehydrogenase cell sorting technology? And how long did it take to become a successfully commercialized technology?

To answer this, we have to go back up to 17 years (Yes, seventeen).

One of the earliest patents that Aldagen relied upon was filed in 1995, describing the ALDH catalyzed conversion of densylaminoacetaldehyde (DAAA) to generate fluorescence. The inventors on this patent also published this work in Blood in that same year and again in 1996. The patent was granted in 1999, and Aldagen was incorporated in March 2000 as StemCo Biomedical with at least one of the inventors as a co-founder.  StemCo renamed itself to Aldagen in November 2005.

Continued research found that the use of DAAA on preparations of human hematopoietic cells was detrimental due to high signal intensity, rendering DAAA unusable for clinical use. However, another key patent was filed in 2003 to protect the use of a different ALDH substrate: BAAA, previously described in PNAS. It’s from this point that Aldagen shifted towards clinical trials.

What does Aldagen’s success mean for the researchers that enabled the company with their patented inventions?

According to the company, the ALDHbr technology is comprised of several patents (including the two described above) licenced from Duke and John Hopkins University for minimum annual royalties ranging from $5,000 to $25,000, plus additional royalties on net sales if the intellectually property ever became commercialized.

In all, $219,000 was paid to Duke, Johns Hopkins, and the inventors on the licensed patents for all years up to 2009. It’s also important to remember that patenting costs were likely paid from this sum and several of the inventors went on to either found or work for the company.

Judging from Aldagen’s story, an outsider might view the sale of a company for $16 million as a wild success. However, weigh that against the $48 million deficit the company accumulated at the time of the attempted $80 million 2008 IPO, derived mostly from early stage investor funding. At least 42 per cent of the company was owned by a venture capital fund at the time, and the percentage owned by non-founders is probably much higher. If the company had gone public in 2008, investors would have made a healthy return.

In 2012, it’s difficult to judge the sale’s success without having inside knowledge of Aldagen’s clinical pipeline. Remember, in addition to the original $16 million purchase price, Aldagen stakeholders can still recieve up to 20.3 million Cytomedix shares connected to clinical trial goals, worth $26 million today. This value may eventually rise as Aldagen (now Cytomedix) further moves ALDHbr technology into clinical products, and in fact, positive results from an ALD-201 clinical trial were just published this month, moving Cytomedix shares up 14 per cent. The final price paid for Aldagen is therefore uncertain but will likely end up higher than $16 million. For the researchers and inventors, the continued development of ALDHbr products by Cytomedix still keeps the possibility for licensing payments and royalties open.

In the end, Aldagen’s products are still of value and may yet become products used in the clinic, but until then each of the parties involved will view the experience differently. Do you see Aldagen’s story through the eyes of a researcher, inventor, or investor?

 

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Paul Krzyzanowski

Paul is a computational biologist and writer living in Toronto. He's been a contributor to Signals for three years, writing articles for the general public about how biotechnology and biomedical research can be used to solve pressing medical problems. Alongside Paul's experience in computational biology,
 bioinformatics, and molecular genetics, he's interested in how academic research develops into real world, commercial technology, and what's needed for the Canadian biotech industry needs to grow. Paul is currently a Post-doctoral Fellow at the Ontario Institute of Cancer Research. Prior to joining the OICR, he worked at the Ottawa Hospital Research 
Institute and earned a Ph.D. from the University of Ottawa, specializing in computational biology. And finally, Paul earned an H.B.Sc. from the University of Toronto a long time ago. Paul's blog can be read at www.checkmatescientist.net
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