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Restructuring as a pure pharma play,
BioBalance aims its lead product at the vast markets for GI therapies
Healthcare
Specialty Pharmaceuticals
(BBAL.PK)
The BioBalance Corporation
A wholly owned subsidiary of
New York Health Care Inc.
363 7th Avenue
New York, NY 10001
Phone: 212-679-7778
Dennis O’Donnell
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Mat 5, 2005
BIO:
Dennis O'Donnell has been a director of the Company since January 2004, Chief Operating
Officer of the Company's BioBalance subsidiary since May 2003, President of BioBalance
since November 2003 and BioBalance CEO since July 2004. Mr. O'Donnell has more than 20
years of general management, marketing and business development experience in the
pharmaceutical, consumer healthcare and nutritional industries, principally with Wyeth
(formerly American Home Products) from 1983 to 2002, including as Vice President of
Wyeth's Respiratory and GI/Topical Business Units from 1994 to 1996; Senior Vice President
of Global Business Development & Strategic Planning for Wyeth's OTC Drug Division from
1996 to 1998 (where he identified drugs, devices and nutraceuticals for potential
licensing or acquisition); and Executive Vice President & General Manager of Wyeth's
Solgar division, a leading manufacturer of premium dietary supplements, probiotics and
specialty nutritional products. From February 2002 to April 2003, he was a consultant to
the pharmaceutical and consumer healthcare industries. Mr. O'Donnell is a registered
pharmacist, with a B.S. in Pharmacy from St. John's University and an MBA in Marketing
& Finance from New York University's Stern School of Business.
Company Profile:
The BioBalance Corporation is a specialty pharmaceutical company focused on the
development of novel treatments for various gastrointestinal (GI) disorders that are
poorly addressed by current therapies via accelerated regulatory pathways.
BioBalance’s first product, PROBACTRIX®, is a
non-pathogenic biotherapeutic agent that restores normal GI function by reestablishing a
healthy balance of gastrointestinal microflora. It has been clinically proven effective in
the prevention and/or treatment of various gastrointestinal disorders including pouchitis,
Irritable Bowel Syndrome (IBS), Crohn’s disease, ulcerative colitis and diarrhea
caused by antibiotics, chemotherapy or AIDS.
Acquired by New York Health Care in January 2003 in a
reverse merger, BioBalance operates as a wholly owned subsidiary. The combined entity
trades its common stock under the symbol BBAL.PK. The Company has announced plans to
divest the home healthcare business to focus exclusively on BioBalance and recently signed
a definitive agreement to divest certain New Jersey home healthcare assets for $3 million.
The Company is also finalizing the negotiation for the sale of the remaining home
healthcare business that will require shareholder approval. Pending shareholder approval,
the corporate name will become BioBalance Holdings Inc.
CEOCFOinterviews: Mr. O’Donnell,
what attracted you to BioBalance?
Mr. O’Donnell: “What attracted me most to
BioBalance was the technology. In PROBACTRIX®, the company owns the worldwide
rights to a breakthrough product that addresses a potential root cause of many GI
disorders. PROBACTRIX is a healthy strain of E.coli bacteria that has been
extensively studied in both the Soviet Union and Israel and has been clinically proven
effective in treating GI conditions ranging from Irritable Bowel Syndrome (IBS) to Crohn’s
disease and colitis. This was very interesting to me because chronic GI disorders affect
millions of people who spend billions of dollars on OTC and prescription products that
provide only symptomatic relief. For example, in IBS treatments, there are currently only
two prescription drugs approved with limited efficacy, yet have potentially harmful side
effects as well. PROBACTRIX may represent a major paradigm shift in the treatment of GI
disorders with no known side effects, and I think that’s extremely exciting.”
CEOCFOinterviews: You
became President last year and CEO a few months back; what has changed since you joined
the Company?
Mr. O’Donnell: “The Company is undergoing a
substantial restructuring, which I believe will make it much stronger and more profitable
in the future. Let me give you some background. Early in 2003, shortly after BioBalance
merged with New York Health Care, the Company ran into unexpected trouble when New York
Health Care’s president and a consultant were indicted on securities fraud, which
ultimately led to the Company’s delisting from NASDAQ. In addition, the hybrid
business model, pairing a probiotic business with a home healthcare business, proved to
have few business synergies and was viewed negatively by potential investors. Today, we
are refocusing the business exclusively on the business of BioBalance and the development
of innovative treatments for gastro-intestinal disorders that are poorly served by current
therapies on the market. We are in the process of divesting the home healthcare business
to become a pure pharma play focused on BioBalance’s exciting new biotechnology.
Investors see the potential: in February, we completed a private placement of about $4.9
million. In April, we announced the sale of our NJ home healthcare assets for $3 million,
and we are finalizing the negotiations to divest the remaining legacy business. I think
this turn-around represents an exciting story, in that this company has taken some lumps
but is now focused on a very bright future.”
CEOCFOinterviews: How
can E.coli be good?
Mr. O’Donnell: “A good analogy would be good and
bad cholesterol. Ten years ago, cholesterol was only bad, but now science has emerged to
show that there are good and bad forms of cholesterol. I believe science will also evolve
along a similar pathway for E.coli. There are hundreds of different strains of E.coli, and
most of them are neither good nor bad. There are a few strains that are highly pathogenic,
such as the ones in tainted hamburger meat that you read about in the headlines.. Our
product, PROBACTRIX®, is actually one of the few E.coli strains that are extremely
beneficial to the body. PROBACTRIX is an all-natural product, isolated from a healthy
human volunteer that works with the body’s immune system. Both in laboratory and
clinical testing, it has been shown to have positive effects on a number of GI conditions.”
CEOCFOinterviews: Does
this go under the same category as drugs?
Mr. O’Donnell: “Its regulatory pathway is as a
biological agent. There are two groups in the FDA; one is a drug group and one is a
biologics group. We are filing for prescription drug approval as a biological agent, which
is the same group that handles vaccines and other biological agents. PROBACTRIX®
has already received GRAS status – which means Generally Recognized As Safe
– which would allow us to sell the product as a medical food or dietary supplement.
However, we believe this product has much greater investment potential as a prescription
drug, so we are pursuing accelerated approval for its use as a prescription drug.
This may take longer, but we are confident that, if we succeed, it will mean much
greater return on investment for our shareholders.”
CEOCFOinterviews: Will
you tell us about the timeline?
Mr. O’Donnell: “In November 2004, we initiated a
clinical trial for IBS, or Irritable Bowel Syndrome, which is the chronic GI disorder that
affects 40 million Americans, making their lives miserable and, in fact, causing more
workplace absenteeism than anything but the common cold. This clinical trial is a
randomized, double blind, placebo controlled trial taking place at four medical centers
including New York-Presbyterian Hospital/Weil Cornell in New York. It is led by Dr. Mark
Pochapin, the director of the Jay Monahan Center for GI Health and Chief of GI Endoscopy
there. Two major hospitals in Israel and one in Canada are also involved.
“In Q3 of 2004, we also conducted a high-dose
safety trial to verify the excellent safety results found in prior studies and to
support Phase I status for our prescription drug effort. We did some extensive safety
testing in Israel about a year ago on 125 human volunteers, at ten times the normal dose,
with no reported side effects whatsoever.
“Our strategy is to pursue accelerated
prescription drug approval via “orphan drug” designation for pouchitis, a
frequent long-term complication following colon removal for which no drugs are currently
approved. At the end of 2004, as a first step in this process, we filed an Investigational
New Drug (IND) application with the FDA. Because of all the research already done, we
anticipate that we can move to a Phase II study for pouchitis in the third quarter of
2005. We anticipate a Phase III study will begin in 2007 and approval will be achieved by
the end of 2009 if the tests are successful.”
CEOCFOinterviews: Is
there any particular reason why the testing was in Israel?
Mr. O’Donnell: “The predecessor company was based
in Israel, and we still have a clinical team there, which allows us to do studies like
that on a quicker and cost-efficient basis. However, we will be conducting the IND
clinical trials here in the United States as we move forward as a prescription drug.
CEOCFOinterviews: You
recently signed a manufacturing agreement; will you tell us about that?
Mr. O’Donnell: “That is correct; it is with
Benchmark Biolabs Inc. and this relates to the issue of FDA development. Benchmark has a
state-of the art facility in Lincoln, Nebraska, where it will manufacture PROBACTRIX® for
our clinical trials once we receive FDA clearance to begin. We had been manufacturing
PROBACTRIX in another site when we were considering launching the product as a medical
food. However, in order to achieve FDA approval as a prescription drug, we must ultimately
manufacture it in a U.S. facility certified under Good Manufacturing Procedures, or “GMP.”
Benchmark expects to receive GMP certification in the near future."
CEOCFOinterviews: Will
you tell us about funding for the development?
Mr. O’Donnell: “We recently put together a
financial consortium led by Sterling Financial Investment Group, and we raised $4.9
million in a private placement offering. These funds will allow us to proceed with
clinical development of PROBACTRIX® as a prescription drug. Prior to this, we raised $6.1
million. In addition, BioBalance received the proceeds from the $3 million sale of the NJ
home healthcare assets.”
CEOCFOinterviews: How
far will that get you?
Mr. O’Donnell: “The recent funds will take us out
in excess of twelve months. With the anticipated conversion of warrants for the private
placement offering and potential cash from the pending sale of the remainder of the home
healthcare business, we expect to have funding in place for almost two years.”
CEOCFOinterviews: Will
you tell us about the market opportunity?
Mr. O’Donnell: “The total market opportunity for GI
disorders is huge. Irritable Bowel Syndrome (IBS) alone affects at least 40 million
Americans and constitutes a $3 billion market, according to a Red Chip Research forecast.
Information Resources, Inc. (IRI) estimates that about $2 billion a year is spent on
over-the-counter products that provide very limited relief. There are only two major
prescription products – Lotronex and Zelnorm – both of which are limited in
application and have potentially harmful and sometimes fatal side effects. PROBACTRIX®
addresses IBS symptoms with no reported side effects. However, to speed time to market, we
are planning to go after a prescription drug approval for an indication called pouchitis,
for which no treatments are currently approved.”
CEOCFOinterviews: What
is pouchitis?
Mr. O’Donnell: “Pouchitis is a severe inflammatory
condition that results following bowel resection, commonly due to ulcerative colitis.
Pouchitis affects about 200,000 patients in the United States. It is very painful and very
difficult to treat.”
CEOCFOinterviews: Is
there any treatment now for pouchitis?
Mr. O’Donnell: “There is nothing approved on the
market at this time, and the relatively small population affected makes the condition
appropriate for “orphan drug” designation. The FDA has a separate Office of
Orphan Drug Product Development designed to facilitate rapid approval of applications for
drugs that uniquely address critical conditions in small populations. Once approved,
orphan drugs are given seven-year exclusivity in the U.S. and ten years of exclusivity in Europe.
It is interesting to note that according to MedAdNews, orphan drug sales exceeded $28
billion in 2003 and are projected to reach $44 billion in 2008.
“I should also mention that, while a company can’t
promote a product for “off-label” usage, once a product is on the market for one
indication, physicians are allowed to prescribe it for other indications as well, which
provides a pathway for prescribing PROBACTRIX® to the large numbers of sufferers of
various other GI illnesses, including IBS.”
CEOCFOinterviews: How do
you decide what order to go after the various conditions you can address?
Mr. O’Donnell: “We have an outstanding team of
senior medical and regulatory advisors on whom we rely for advice in this area. We felt
that pouchitis was the most efficient and cost-effective path to market. Simultaneously,
we are doing an additional study as a medical food for treatment of Irritable Bowel
Syndrome. This is taking place here in New York at Cornell Medical Center, as I discussed
earlier.”
CEOCFOinterviews: You
have a lot of market potential in many areas of gastrointestinal disorders!
Mr. O’Donnell: “Yes, and there are a number of
additional indications that we will be considering down the road. Obviously, given limited
funding, we are not going to go after all of them at once, but we will be looking at doing
some pilot studies and ultimately filing INDs for each additional indication to broaden
the product’s market potential.”
CEOCFOinterviews: What
sets BioBalance apart?
Mr. O’Donnell: “While there are a number of
probiotic products on the market, they are sold as dietary supplements with very little
oversight by FDA and with little or no proof of effectiveness. We will be the first to
pursue prescription drug development of a natural biotherapeutic agent for GI disorders.
Our product is proprietary, and we hold patents in a number of areas for stability and
taste as well as the delivery system itself. The product is well protected by 32 patents
in the United States and abroad.”
CEOCFOinterviews: Is there much research in the
gastrointestinal area and why is your product going to be the winner?
Mr. O’Donnell: “There is a lot of emerging science
about GI disorders. One breakthrough study was independently conducted in California about
two years ago that linked the symptoms of IBS to the overgrowth of pathogenic bacteria in
the GI track. The study was done by Dr. Mark Pimentel from Cedars-Sinai Medical Center in California.
While we didn’t sponsor that study, it does support the science behind PROBACTRIX®.
It clinically proved that if you can kill off the overgrowth of pathogenic bacteria and
prevent re-colonization, you can restore the microbial balance in the GI tract and relieve
the symptoms of IBS. Antibiotics were found to kill off both pathogenic and healthy
bacteria, and that’s why their effect is so limited. This new knowledge about
restoring microbial balance points to a new paradigm in GI therapy, and PROBACTRIX is
clearly a first mover in this market. Moreover, no harmful side effects have ever been
detected in any of the studies on PROBACTIX.”
CEOCFOinterviews: After
testing, when might the first product be available?
Mr. O’Donnell: “We are looking to file our
Biological Licensing Application (BLA), which is similar to a New Drug Application (NDA),
sometime around late 2008 or early 2009, assuming that testing continues to go well.”
CEOCFOinterviews: Why is
this the right time for investors to consider BioBalance?
Mr. O’Donnell: “I think that if you look at what is
going on in the entire pharmaceutical industry right now, you’ll see that most of the
big pharma companies are having serious problems with their pipelines going dry. Most of
the innovation is coming from smaller biotech companies. As I mentioned before, there are
only two prescription products for IBS, which is a huge market. Both these products –
Zelnorm and Lotronex – have made money but both carry major safety risks of harmful
side effects. BioBalance will play an important role in supplementing the pipelines
of large pharmaceutical companies with prescription products bearing no known side effects
and addressing large markets. Right now it costs a little over $800 million dollars to get
a drug approved and onto the marketplace. That gives you an idea of how much a
pharmaceutical company would value a prescription product going into late-stage
development.”
CEOCFOinterviews: In
closing, what should investors know about BioBalance that may not be readily apparent?
Mr. O’Donnell: “I think it’s important to
understand that the company is completing a transition to a pure pharmaceutical play with
a breakthrough product entering Phase II development. We are moving forward to obtain
listing on a broader national exchange. We are S&P qualified, so we are “blue-skied”
for secondary trading in more than 37 states. We are in the process of hiring a very
knowledgeable CFO who will assist me in continuing the restructuring of the Company to
maximize shareholder value and help assure we remain in full compliance with the
Sarbanes-Oxley requirements. In closing, I would say that BioBalance is a company on the
move with tremendous upside potential.”
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