A biotech 'milks' cows for medical implants

(FSB Magazine) -- In a northern California valley carpeted orange with poppies, thousands of cows munch so happily on grass that they hardly ever moo. The herd is organic - never given animal-derived protein or growth hormones - and has been "closed" since 1964, meaning that no new cows have been introduced in more than 40 years. Every aspect of their lives, from conception to death, is precisely controlled by Prather Ranch in Fall River Mills, Calif., which owns the cattle and sells their dry-aged beef to some of San Francisco's top chefs.

Lately, though Prather has begun selling its cows to a new customer, one that wants more than steaks and shanks. A biotech company called Regeneration Technologies Inc. (RTI) is buying up Prather's cattle - more specifically, their bones, tendons, ligaments and other body parts - for a new and promising segment of the medical-device industry.

More from FSB Help wanted for HR firm A CEO and rodeo queen King of the mountain bike Current Issue

10 big ideas for 2007 More

Based in Alachua, Fla., RTI is one of a handful of U.S. companies that produce precision screws, spinal wedges and hundreds of other surgical implants from biologic tissue instead of synthetic materials or metal. As the company's name implies, the implants have regenerative properties, leading to faster healing, less pain and greater range of motion than patients experience from metal or plastic parts.

Until now RTI has manufactured allografts, parts made from donated cadavers. But recently RTI unveiled a line of xenografts, or animal-derived implants, from cow tissue. The company's first xenografts were implanted into patients in December 2005. In 2007 the eyes of the medical community will be on RTI as it ramps up distribution of its line of a dozen xenografts and completes its first-year clinical studies. If the results are good, these bovine bits could represent the future of medical implants.

To see why RTI is taking a gamble on xenografts, head to the company's headquarters in the Florida countryside north of Gainesville. There, in a glass-walled lab, a technician dressed in blue scrubs and protective headgear stands at a seven-foot-tall machine called a Fadal, loading small white chunks of human bone into cube-shaped stainless-steel molds. He taps a code into a computer keyboard as he watches a monitor. The Fadal's drill spins. It chooses the bit needed to pierce a sugar-cube-sized spinal implant with holes for tiny pins that will secure it to a patient's spine.

Fadals were designed to mill and manufacture parts for the auto and aerospace industries - or any industry requiring intricate, precise designs cut from chunks of metal. Turns out that they can work wonders on a piece of bone too.

RTI (Charts) mills human tissue into everything from dental implants to bone-graft substitutes. The company's tiniest products, chips that look like newfallen snow, fill bone voids - for example, gaps left by the removal of tumors.

Its largest, wedges that resemble hunks of Parmesan cheese, are used to repair large skeletal defects such as fractures. Surgeons use the products as a sort of biologic scaffold; over time they are absorbed into the patient's own bone so seamlessly that even X-rays can't distinguish where bone ends and graft begins.

RTI founder Jamie Grooms was one of the first biologists to discover that human tissue could be machine-cut with the same dependability and speed as synthetic implants. Grooms started what would become RTI while working at a small tissue bank in the University of Florida's Department of Orthopedics and Rehabilitation. The university spun off RTI in 1998 after demand for his allografts began to take off, and the company went public in 2000.

Now RTI is hoping to make a similar leap with its cow-derived xenografts. The company unveiled its xenograft line at the American Association of Orthopedic Surgeons' annual meeting in March.

The line includes five xenograft products for which RTI has received FDA approval - chips, cubes, wedges and screws. (A xenograft lumbar spinal implant is under review) RTI has also received regulatory approval to distribute those and several other xenograft products in Europe.

Benefits

For RTI, cow-derived xenografts boast considerable advantages over human-derived allografts. The animals are much easier - and cheaper - to procure than cadavers, and while the average human donor yields 20 to 30 grafts, RTI's technicians can manufacture more than 300 from a single cow.

So far, the company's studies show that such grafts are just as biocompatible and safe as those from donated human tissue. They are also stronger and stiffer - although still much more flexible than the top synthetic equivalents made from plastics or metal.

RTI officials hope that the results of its first-year clinical studies, which will be completed throughout 2007, will boost acceptance of xenografts, particularly among orthopedic surgeons who have never worked with bovine tissue.

Perhaps most important, xenografts could decrease RTI's exposure to the taint of scandal that clings to human-based products. In 2001 a healthy 23-year-old college student died from an infection caused by a contaminated knee implant sold by one of RTI's competitors. The case was an anomaly - the cartilage came from a corpse that had sat unrefrigerated for 19 hours - but the ensuing press coverage tarnished the reputation of the entire allograft industry.

In 2005, RTI was implicated in a scandal involving one of its 300 suppliers, BioMedical Tissue Services (BTS), based in Fort Lee, N.J. Police arrested BTS's two principals - an oral surgeon whose license had been revoked and a Staten Island funeral home director - and two other men for stealing tissue from cadavers. Authorities say the four men secretly carved bones and other parts from hundreds of bodies and, to mask the crime, replaced the bones with PVC pipes.

They also are charged with forging family-consent forms and paperwork required to ensure that transplant donors are disease-free. FDA officials fear some of the stolen parts were diseased and call the risk of infection "unknown."

One of the bodies allegedly plundered was that of Alistair Cooke, the legendary journalist and host of PBS's "Masterpiece Theater," who died of cancer at 95. Cooke's advanced age and the spread of the disease to his bones, would have made him ineligible as a donor.

RTI voluntarily recalled products linked to that supplier, but not before some 8,000 of its products made from BTS tissue were implanted. By June 2006, 50 federal lawsuits had been filed against RTI and two other companies in the industry.

RTI, which posted revenues of $75 million in 2005, took a $4 million hit on legal fees related to the lawsuits and lost $3.5 million on the allograft implants it recalled. Its stock, which was trading at about $10 the month before the news broke in October 2005, lately has been struggling to stay above $6.

The man charged with improving RTI's fortunes looks like the sort of middle-aged fitness hound who might someday need the company's orthopedic implants. Brian Hutchison is 47, with the strong jaw and broad shoulders you'd expect from someone who worked his way through college - Grand Valley State University, near his hometown of Muskegon, Mich. - hauling two-by-fours for a lumber yard.

He spent 12 years working for medical-products giant Stryker (Charts) before joining RTI in December 2001. Since then Hutchison has done what he can to reassure RTI's varied customers - distributors, doctors, hospitals and patients - that its products are safe. He wrote letters and launched a public-information campaign promising that RTI's proprietary sterilization process, called BioCleanse, eliminates any risk of disease transmission, including HIV, hepatitis and syphilis.

Since it began using BioCleanse in 2000, the company has distributed more than 700,000 allograft implants with no incident of infection, according to the FDA. (Nevertheless, Miami lawyer David Jagolinzer says that even if his clients who received the allografts in question don't test positive for disease, "you cannot deny that these recipients are suffering pretty severe emotional distress.")

RTI now spends about 70 percent of its R&D budget on xenografts - essentially a bet on the future. So far just 16 U.S. hospitals and clinics have placed orders, and the company posted second-quarter sales in that division of about $100,000.

The biggest question is whether the new products will work as well in the long run as they have so far. Raymond Myers, medical technology analyst at Emerging Growth Equities, a brokerage firm in King of Prussia, Pa., Says that physicians will want two to three more years of clinical studies to make sure that the implants are durable and don't trigger an immune reaction. (Doctors have been implanting heart valves from cows and pigs in human patients for decades, but several other types of xenografts have been rejected by recipients.)

Hutchison insists that the company's sterilization expertise reduces that risk, but time will prove whether he's right. "It's hard to be a market leader, because the practice of medicine changes slowly," Myers says. "Over several years, not six months."

Please send feedback or column ideas to fsb_mail@timeinc.com.

--------------------------

10 big ideas coming from small businesses in 2007

Lunch-hour liposuction

Coming in 2007: removable tattoos

Your new bankers: hedge funds