NovaSterilis Inc.

When thwarted by the lack of a suitable method to sterilize biomaterials for use in humans, Robert Langer's lab at the Massachusetts Institute of Technology simply invented supercritical carbon dioxide sterilization technology to solve the problem, forming start-up NovaSterilis.

Sterilizing biological materials with supercritical CO2

3109 North Triphammer Road

Lansing, NY 14882

Phone: [phone]

Fax: [phone]

Web Site: www.novasterilis.com

Contact: David C. Burns, President & CEO

Industry Segment: Biotechnology

Business: Supercritical CO2-mediated sterilization of biomaterials

Founded: 2000

Founders: Tony R. Eisenhut (KensaGroup LLC); Bruce Ganem, PhD (Cornell University, KensaGroup)

Employees: 6

Financing to Date: $500,000 plus $2 million federal grants

Investors: KensaGroup; Individual angel investors; BR Ventures

Board of Directors: Tony R. Eisenhut; David C. Burns; Bonnie Howell (formerly Cayuga Medical Center); James Whitbourne (formerly STS duoTEK Inc.)

Scientific Advisory Board: Bruce Ganem; Robert S. Langer, PhD (Massachusetts Institute of Technology); Geoffrey W. Coates, PhD (Cornell University); S. Richard Turner, PhD (Virginia Tech University)

As the Kenneth J. Germeshausen professor of chemical and biomedical engineering at the Massachusetts Institute of Technology, Robert Langer, PhD, runs the largest biomedical engineering laboratory in the world. Langer's research focuses on the development of new drug-delivery technologies such as biodegradable polymeric delivery systems that allow medicines to be better absorbed by the body. When thwarted by the lack of a suitable method to sterilize the polymers for use in humans, Langer's lab simply invented supercritical carbon dioxide sterilization technology (SCDS) to solve the problem.

Although it has an imposing connotation, "supercritical" simply refers to one of carbon dioxide's states of matter, or phases. At and above certain critical points of pressure and temperature, roughly corresponding to 1,100 psi and 88 degrees Fahrenheit, carbon dioxide is a dense liquid gas with unique properties that make it an extremely efficient solvent. Supercritical carbon dioxide (CO2) is known to inactivate yeast cells, and the food industry uses it to process meats. But Langer's team, which included Angela Dillow, PhD, Neil Foster, PhD, and Jeffrey S. Hrkach, PhD, devised a new way to get supercritical CO2 to inactivate bacterial spores by using pressure cycling. The ability to kill spores was novel and made it feasible to use supercritical CO2 as a sterilizer.

Langer believed the SCDS technology had commercial potential, so he presented the platform to his colleagues at KensaGroup LLC, where he serves as a scientific advisory board (SAB) member. KensaGroup is an Ithaca, NY-based incubator that seeks to commercialize promising discoveries emerging from academia.

Tony R. Eisenhut is KensaGroup's president and CEO, and Bruce Ganem its CSO. Eisenhut has co-founded six companies, including Myconyx, Alimentrix, and MedHesives. Ganem serves as the Franz and Elisabeth Roessler professor of chemistry and chemical biology at Cornell University, and as the J. Thomas Clark professor of entrepreneurship at Cornell's Johnson School of Management. In addition to Langer and Ganem, KensaGroup's SAB includes Geoffrey W. Coates, PhD, Cornell University, and S. Richard Turner, PhD, Virginia Tech University, Blacksburg, Virginia.

To pursue commercialization of Langer's SCDS technology for the sterilization of thermally and hydrolytically sensitive biomaterials, KensaGroup formed NovaSterilis Inc. in 2000. In 2001, NovaSterilis negotiated the right of first refusal to license Langer's 1999 patent from MIT, "Supercritical Fluid Sterilization Methods," and in April 2002, the company secured the official license. David C. Burns had joined the company as president and CEO three months earlier, in January 2002. He previously served as president and CEO of Ithaco Space Systems and as VP of business development at Loral.

Early on, NovaSterilis was focused on the application of SCDS technology for the sterilization of biopolymers that incorporate biologically active compounds because there was a need "for a sterilization technology that would be non-degrading to the biologic and non-altering to the polymeric material," explains Eisenhut, who serves as NovaSterilis' chairman. But NovaSterilis recognized other potential market opportunities for SCDS, including sterilization of transplanted bone and soft tissue (allograft material), medical devices, instruments, and small-molecule drugs and vaccines.

The tissue bank market opportunity emerged as NovaSterilis' top priority because it provided the quickest route to market: the FDA does not require sterilization processes for allograft material to undergo an approval process, in contrast with higher regulatory hurdles for sterilization of drugs, biopolymers, medical instruments and devices.

There is a large need for transplanted bone and soft tissue. According to the Centers for Disease Control's web site, the American Association of Tissue Banks (AATB) estimates that about 1.5 million bone and tissue allografts are distributed each year by AATB-accredited tissue banks in the United States. NovaSterilis estimates that about $400 million is spent in the US annually for tissue bank sterilization procedures.

Concerns about sterilization of bone and soft tissue transplants were heightened in 2001 when a 23-year-old student died after receiving a contaminated ligament in a knee replacement surgery. Despite national attention to the issue, NovaSterilis had difficulty securing venture capital during the post-dot.com drought a few years ago. Says Burns, "We decided to go it alone and finance the company through our own efforts."

He's not kidding. Since 2000, NovaSterilis has raised only a little over half a million dollars, in a single first round that closed in August 2005. This round included 15 angel investors, described by Burns as local friends and family, as well as a $40,000 investment by BR Ventures, a fund managed by students at Cornell's Johnson School.

So how has NovaSterilis, which currently has six employees (Burns, two PhD-level scientists, two microbiologists, and a sales and marketing specialist), been able to survive with only $500,000 in cash?

For one thing, it has been successful at securing government-sponsored small business grants from the National Institutes of Health (NIH) and the National Science Foundation (NSF). Most of the grants have been relatively small (the company received four grants for about $100,000 each between 2002 and 2005), but NovaSterilis obtained a $933,000 Phase II SBIR grant from the NIH in August 2006.

In-kind contributions have also been extremely important for the company. Some employees and directors, including Burns and Eisenhut, have worked for stock in lieu of cash compensation. And certain outside groups and consultants have been paid with stock as well. Burns stresses that the value of the in-kind contributions merited the dilution: "Some of the contributions in-kind were worth more than cash itself—if we had an equivalent amount of cash, we probably wouldn't have gotten what we got."

Eisenhut also points to significant in-kind contributions from industrial partners, particularly those who have a keen interest in having access to a reliable, terminal sterilization process for allograft tissue. Tissue banks, biotechs, medical device, and pharmaceutical companies have provided "tissue, expertise, manpower, analysis, animal models," as well as funding for studies and tests, he says. Although Eisenhut can't share much information because of confidentiality agreements, he names LifeCell, Community Tissue Services, US Tissue & Cell, and LifeNet as collaborators because the "tissue banks generally don't mind" public disclosure.

Though the company has raised less than one million dollars, it doesn't have plans to seek additional rounds of financing anytime soon. "Financing wise, we're fine," says Burns. "We decided to go to a sales mode—to generate our own internal financing by sales."

NovaSterilis just delivered its first sterilization product directed toward the tissue bank industry, a five gallon capacity chamber automated sterilizer, to Community Tissue Services in April 2006.

Each Nova 2200 has a list price of $140,000. Burns says that NovaSterilis employees are currently building four more sterilizers to fill orders. The goal is to sell 11 machines by the end of the year, which Burns believes is within reach.

Since licensing the SCDS technology, NovaSterilis researchers have optimized the Langer procedure, improving the speed so that sterilization can be achieved in less than 60 minutes. A new patent on these improvements was issued in September 2006.

According to Burns, NovaSterilis' next goal will be to seek FDA approval as a medical device sterilizer, which could be a one-to-three year process. After that, it will pursue the use of SCDS technology in vaccine development, an area where NovaSterilis has another patent application pending. They have found that the SCDS technology can produce chemical-free whole-cell vaccine preparations with high antigenicity. To commercialize the vaccine applications, Burns sees the company working with a partner.

Competition for NovaSterilis' sterilization technology depends on the end market. Eisenhut describes the competition in the tissue bank market as very fragmented with two primary existing platforms, aseptic donor harvest and gamma radiation.

Aseptic procedures refer to clean room handling techniques and chemical washes that contribute to a reduction of bioburden in tissue samples. LifeNet introduced its Allowash process in 1995, and Regeneration Technologies Inc. markets its BioCleanse tissue sterilization process. In contrast to aseptic procedures, NovaSterilis' technology is a terminal sterilization process, meaning that sterilization takes place after the tissue is in its final packaging material. This provides a higher sterility assurance, Eisenhut says.

Gamma radiation, another alternative for sterilization of allograft material, is also a terminal sterilization process. There is considerable debate about whether gamma radiation has a significant detrimental impact on tissue, Eisenhut admits. But he says that NovaSterilis' tests have shown that "in bone tissue, the degradation of gamma radiation was significant in relation to the supercritical carbon dioxide sterilized–bone tissue and untreated bone tissue."

Tissue banks use gamma radiation to treat allograft material in-house, but another competitor in this category is Clearant Inc., a company that soaks tissue in a radioprotectant solution to protect it from the damaging effects of radiation. When comparing NovaSterilis' sterilization to Clearant's, Burns stresses that the SCDS technology reproducibly achieves a SAL6, a medical device level of sterility, without using radiation. He also adds that the SCDS technology has some added benefits, such as its ability to extract lipids from the tissue.

Gamma radiation is also used for sterilization of certain medical devices, such as cardiovascular stents that are coated with drug-impregnated polymers. Burns says radiation is used to sterilize these products, but the method causes both the drug and the polymer to degrade. Companies in this area are interested in the SCDS technology, he says, because of its potential to maintain drug and polymer integrity.

Eisenhut says ethylene oxide is the main competitor for applications within the small-molecule drug sterilization market. Again, NovaSterilis believes SCDS technology has advantages. Ethylene oxide is a mutagenic, toxic, carcinogenic, regulated gas that requires an out-gassing process in a controlled environment, whereas supercritical CO2 is an inert gas that does not require an out-gassing procedure.

With respect to NovaSterilis' long-term vision, Burns says the company hopes to be acquired someday: "We'll be profitable by the end of this year, certainly by next year. If someone thinks that's a good thing, they can come in and make us an offer that's beneficial to our shareholders."

NovaSterilis is "not well capitalized, but we've become very sustainable," Burns continues. "We've gotten to the point where we can generate revenue and do our own capitalization—it's a remarkable story along those lines." Perhaps a future buyer will agree.—Carolyn Riley Chapman