We believe the U.S. pharmaceutical industry is facing a drug discovery and development crisis. In 2012, the U.S. pharmaceutical industry invested over $48 billion in research and development and the Center for Drug Evaluation and Research (CDER) of the U.S. Food and Drug Administration (FDA) approved a total of 39 novel drugs, known as New Molecular Entities (NMEs). In 2013, the FDA approved 27 NMEs.  Despite massive investment by the pharmaceutical industry, since 2003, the FDA has approved an average of 26 NMEs per year. We believe the high cost of drug development and relatively low annual number of FDA-approved NMEs are attributable in large part to the cost of failure associated with unexpected heart and liver safety issues. In turn, we believe unexpected heart and liver safety issues often result from limitations of the major toxicological testing systems used in the pharmaceutical industry, namely animals and cellular assays based on transformed cell and immortalized cell lines and explanted primary cells, including human cadaver cells. We believe using human heart and liver cells can make better toxicological testing systems and better drug candidates. And we believe the human heart and liver cells we make, and the toxicological testing systems in which we use them, can transform drug development in the pharmaceutical industry.

After spending millions of dollars over nearly a decade to discover, optimize and validate the potential efficacy of a promising new drug candidate and advance it into preclinical development, a biotechnology or pharmaceutical company can see their drug candidate fail to progress due to unexpected heart or liver safety issues. The company then often discontinues the development program for their once-promising drug candidate and simply “puts it on the shelf” despite the positive data indicating potential therapeutic and commercial benefits. As a result, the company’s significant prior investment in discovery and development may be lost.

It is estimated that about one-third of all potential new drugs candidates fail in preclinical or clinical development due to unexpected safety concerns.

Late-stage safety failures are just the tip of the iceberg

We are focused on breaking down a fundamental barrier to more efficient development of new drug candidates. By meeting the significant need for human heart and liver cell-based predictive toxicology and metabolism screening systems that more closely approximate human biology early in the development cost curve – at the front end of the drug development process – we believe we can recapture substantial value from the prior investment by biotechnology and pharmaceutical companies in once promising drug candidates that have been put on the shelf due to heart or liver safety concerns.

Our goal is to use our hPSC technology, together with modern medicinal chemistry, to generate a diverse drug pipeline consisting of new, proprietary, small molecule variants (Drug Rescue Variants) of once-promising drug candidates. These are drug candidates discontinued by biotechnology and pharmaceutical companies, the NIH or academic laboratories after substantial investment and development due to heart or liver safety issues. We believe focusing on discontinued drug candidates with positive efficacy data may give us a valuable “head start” in our efforts to identify and develop new, proprietary Drug Rescue Variants faster and less expensively than drug candidates discovered and developed using only conventional animal and in vitro cell culture testing. We believe each lead Drug Rescue Variant will have the potential to be a FDA-approved NME in which we can have economic participation rights, including up front and development milestone payments and royalties on commercial sales.

The initial goal of each drug rescue program will be to design and generate, with our medicinal chemistry collaborator, a portfolio of Drug Rescue Variants of the once-promising but discontinued drug candidate. We will then use our CardioSafe 3D™ and, when developed, our LiverSafe 3D™, biological assay systems to identify the lead Drug Rescue Variant in the portfolio that demonstrates an improved therapeutic index compared to the original drug candidate (that is, equal or improved efficacy with reduced toxicity or metabolism issues). We will then validate that the lead Drug Rescue Variant demonstrates reduced toxicity and/or metabolism issues in both our proprietary biological assay systems and in the same in vitro testing model(s) that the biotechnology or pharmaceutical company used to determine efficacy and toxicity or metabolism issues for its original drug candidate.

Drug Rescue Business Model

We believe the results of confirmatory in vitro and in vivo safety studies to be valuable drug rescue collaboration milestones demonstrating to a biotechnology or pharmaceutical company the improvement of our lead Drug Rescue Variant compared to its once-promising original, discontinued drug candidate.