ISTO Technologies, Inc.

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February 17, 2014 Issue

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Regenerative Medicine Solutions for Sports and Spine Applications

About Istotech
ISTO Technologies is a regenerative medicine company focused on developing differentiated products for spinal therapy, sports medicine, and trauma.

Scott Gill - CFO

Scott Gill joined ISTO Technologies in December 2007 with 15 years of investment banking and corporate finance experience. Prior to joining the Company, Mr. Gill was a Director with the Investment Banking group of A.G. Edwards & Sons, Inc. where he worked with a number of public and private emerging growth companies on a variety of corporate finance advisory assignments with a particular emphasis on M&A transactions for clients in the healthcare sector. Before joining A.G. Edwards, Mr. Gill was a Senior Financial Analyst with Anheuser-Busch, Inc. and a commercial banker with Bank of America. Mr. Gill received his Bachelor of Arts in economics from the University of Tennessee and his Master of Business Administration from the J.L. Kellogg School of Management at Northwestern University.

"I do not think that people will accept anymore, being told that when you are sixty years old you cannot play tennis and you cannot ski. I think that we offer solutions to allow people to maintain active and healthy lifestyles, well into their later years. That is because we are addressing conditions that, up until today, have been very debilitating."- Scott Gill


ISTO Technologies, Inc.
1155 Olivette Executive Parkway
Suite 200
St. Louis, Missouri 63132

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Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – February 17, 2014


CEOCFO: Mr. Gill, what is the focus for ISTO Technologies?

Mr. Gill: ISTO Technologies is a regenerative medicine company focused on orthobiologic solutions, primarily for addressing sports medicine and spine applications. We have an innovative program that utilizes juvenile cartilage cells to develop products that are intended to regenerate and restore function, either for in the knee or in the spine or other potential applications down the road.


CEOCFO: Would you tell us a little bit about the basic science behind the program?

Mr. Gill: The company was formed out of a discovery that was done at Barnes-Jewish Hospital here in St Louis, that deals with the regenerative capacity of young cartilage cells to form new cartilage, whereas adult cells, generally do not have this capacity for regeneration as you get into your late teens and twenties and you, are not able to form new cartilage when injured. That is why when you damage your cartilage when you are an adult the current therapies, in particular in the knee, are things like microfracture, shaving and debridement, that are really procedures that are intended more to alleviate the pain, not necessarily restore the function. This discovery of the capacity for juvenile cartilage cells was in and of itself a nice scientific fact. However, fortunately for society, there is a limited amount of cadaveric juvenile tissue that is available. What the company was able to do with that initial discovery, however, was do some work about our ability to continue to grow and expand those cells that come from cadaveric tissue and grow new cartilage in our manufacturing suite. Therefore, out of a single donor today, we are able to generate three to five thousand grafts for knee applications or three to five thousand doses for our spine program. Therefore, we are able to harness that potent, strong regenerative capacity for the young cells, but in a way that has a scalable model that could be used for a number of different procedures.


CEOCFO: How do you regrow cartilage?

Mr. Gill: It is part of our patent portfolio, part of our intellectual property, that we have the ability to manipulate and expand and engineer this growth, while still retaining the same capacity for forming new cartilage. We take the initial cartilage and we go through multiple doublings. We go from a few million cells to several billion cells then that forms what we call a cell bank. Out of that cell bank, depending upon which program we are working on, we can either take the next manufacturing step and actually grow the living cartilage grafts for the knee or we keep them in the cell bank form for the spine program.


CEOCFO: Has this been tried before or is it fairly new?

Mr. Gill: We are the only people that we are aware of that is working on this kind of single cell or off-the-shelf type of cartilage solution. There are some people that are working on autologous approaches, where they are taking your own cells doing a surgical procedure. You undergo one surgery where they are going in and taking a biopsy of your cells. They take them back and manipulate them and they come and implant them later in a second surgery that requires some type of scaffold or through other means. We are the only people that we are aware of that are working on a scalable business model, where you can actually have an off the shelf cartilage solution. For example, you come down and you have a problem with your knee. The doctor is able to schedule a surgery and it is a one step procedure. We think that our approach is superior because; one, we are starting with better cells than the adult cells that are used in autologous approaches and secondly, ours is a scalable platform technology that has potential application in a number of areas. Right now, we are focused strictly on the knee and the spine. However, there are other areas such as hips, shoulders; anywhere that you have a need for cartilage or anywhere there is a need that is cartilage that either degenerates with age or with a traumatic injury. Our products could potentially be utilized. If you think about it, what we do is kind of the “Holy Grail” of orthopedics and spine, in terms of being able to regenerate and re-grow. Your cartilage is the shock absorber that is between all joints. I think that our ability to address those problems will allow people to live longer, more active, healthier lifestyles later in life.


CEOCFO: Where are you in the development and commercialization process?

Mr. Gill: With our knee program, our program called RevaFlex™, we will be starting a Phase III trial in mid 2014. What we call our NuQu® program for disc nucleus regeneration through an outpatient procedure. We just completed patient enrollment in our Phase II in early October, so we are in the patient follow up mode, right now. We will have one year of data that we finish collecting in the fourth quarter of 2014 and hope to engage in discussions with the FDA, concerning a Phase III trial, late 2014 early 2015, with the goal of starting a Phase III trial for our disc nucleus regeneration trial, sometime in 2015.


CEOCFO: You are fairly well along in what is a very lengthy process. Has the orthopedic community been paying attention? Is it still too early for them to take notice?

Mr. Gill: I think the orthopedic community is aware of us. If you think about traditional orthopedics and spine, it is always focused on either, as I mentioned before, things to alleviate the pain, such as microfracture, which is commonly used in knee procedures or replacement, such as a knee replacement or a fusion that typically involves the use of hardware. I think that the orthopedics and spine areas are migrating towards biologic regenerative. I am not sure if we are there yet, because products are still in development. Not many have been approved by the FDA or gone through the FDA approval process. However, I think the way we view the world is that, right now many of the device companies that are working in orthopedics are looking at stages later in life. They are looking at a knee replacement when you are sixty five. Our view is that if someone damages their knee, for example, playing tennis when they are forty three and right now they are going to undergo a microfracture procedure or something with the intention that later in life they are going to get that knee replacement; our view is that if you catch that patient when they are forty three and restore and repair that cartilage as it was before, then they are never going to need that knee replacement.


CEOCFO: That sounds like a no brainer to me!

Mr. Gill: Our view is that rather than fight over whether you have thirty- seven or thirty-eight percent market share of the knee replacement market, why not take two hundred thousand people out of that funnel and have them never needing to get a knee replacement.


CEOCFO: Do people, in general, believe that cartilage can regenerate?

Mr. Gill: I think once they see the data they believe. There is a statement by one of the leading doctors in Scotland back in the eighteenth century that said, basically, “Ulcerated cartilage is a terrible thing. Once it is damaged it never repairs.” That is true in your forties. Therefore, we are harnessing the capacity of those young cells, typically in children that are less than one year old, that are very active cells and are forming new cartilage. I think the difficulty that people accepting is the ability to grow it, to keep the same characteristics and to navigate the FDA approval process. I think that is the biggest thing with any of the regenerative medicine products right now. This is such a new area that the FDA is still trying to get their arms around, “How do we regulate it and how do we approve it.” For the longest time things fit into a pharma track or a device track. Those approval pathways are pretty well known and pretty well established. When you start to get into new cell therapies and regenerative medicine and things like that; I think the FDA is still trying to figure out how to get these innovative products to market safely and effectively. I think it really has to be a collaboration between the agency and industry and working together to find the best way to do this.


CEOCFO: Are you funded for the next steps?

Mr. Gill: Right now, we are exploring a variety of different options in terms of clearly doing that. If we fast forward twelve to eighteen months from now we hope to have two Phase III trials under way. That will require a significant amount of capital. We do have a commercialized program that we launched a couple of years ago, that is a synthetic bone graft material that is used in spinal fusion surgeries, that does generate some revenue and cash flow for us, but certainly not enough. Therefore, we are exploring a variety of different options to try to set the table for the capital needs that we anticipate over the near term.


CEOCFO: Recently, George Dunbar, Jr. joined the company as president and CEO. Why was this the time for a change?

Mr. Gill: I think as we explore these options our former president CEO, Mitch Seyedin, will continue to remain very actively involved with the company in his role as Executive Chairman. George and Mitch had actually worked together over twenty years ago at Metra Biosystems, so I think there is a familiarity there. As we look to explore different options, I think it was a good combination for a good opportunity for George and Mitch to leverage each others' skills in terms of helping us take the next step forward.


CEOCFO: What is your day to day focus at ISTO?

Mr. Gill: As CFO I wear a lot of different hats. As with any small company, you cannot necessarily work strictly on your functional area. Therefore, it is looking at managing the risk of the company in terms of our capital leads; whether it is agreements or whether it is HR issues. It seems like every day is new and exciting in terms of some new challenge or some new opportunity that comes in front of us. From a day to day focus, my goal is to continue to help us take steps forward and hopefully bring these promising therapies to market at some point, so that people could benefit from it and so could our shareholders.


CEOCFO: Your prior background was in investment banking. What did you learn in that industry or in that area that you are able to bring to the table and use to make a difference at ISTO?

Mr. Gill: I worked in banking for a number of years. I always enjoyed learning about companies, learning about their industries, giving them the advice and giving them options about what to potentially do. However, then I always felt as if I never got to see how it turned out. I always felt like I was someone that; you are able to give your council, but you never actually have to live with your decisions. Therefore, I think in this role, the thing I have learned and the thing that I have brought to it was that I have seen many opportunities and seen many challenges and this is a chance to take that experience from an observation stand point and apply it to my day to day activities, so that I get a change to actually both make the decision and also implement the decision and then live with the results of that decision.


CEOCFO: There are many companies to look at. Why is ISTO Technologies a company of note? Why pay attention?

Mr. Gill: We are working on the next generation of regenerative healthcare therapies that will address problems that have really existed forever. The chance is that as you look at people aging, as the demographic bubble moves through, I do not think that people will accept anymore, being told that when you are sixty years old you cannot play tennis and you cannot ski. I think that we offer solutions to allow people to maintain active and healthy lifestyles, well into their later years. That is because we are addressing conditions that, up until today, have been very debilitating. If you look at the information that is out there, two of the leading causes of disability in the US are back pain and arthritis, which are essentially joint diseases and essentially comes down to the fact that people have deteriorating or damaged cartilage. If we can help reverse or correct some of those joint conditions, then I think that all of society will benefit from having people more active and healthy later in life.


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