Biotech Firm To Set Up Shop in Fells Point Company among first start-up businesses in empowerment zone By Mike Field A new company, formed to commercialize recent discoveries by Hopkins researchers in how blood cells develop, has announced plans to locate its offices and laboratories at Belts Wharf in the city's Fells Point neighborhood. Gryphon Pharmaceuticals becomes one of the first companies to locate within the city's new empowerment zone, a federally sponsored redevelopment area that will entitle Gryphon to claim certain tax credits and other benefits. It is the seventh spin-off company created based on research and discoveries made in Hopkins School of Medicine laboratories since the university began encouraging such efforts less than three years ago. It has long been hoped by city and university officials alike that the convergence of pioneering research performed in Hopkins laboratories coupled with financial incentives such as those offered in the new empowerment zones would lead to a biotechnology-based boom in new businesses, new jobs and new sources of funding for both the university and the city. Although initial projections proved overly optimistic, there is a growing sense that the hoped-for synergy of findings and finance is at last beginning to happen. Key to the growth in new companies, say university officials, was the 1992 decision by the board of trustees to approve a dramatic change in university and School of Medicine policies concerning equity ownership and royalties from the licensing of discoveries made in Hopkins labs. The new policy permits the university and its faculty to hold equity in companies commercializing those discoveries--albeit with strict rules concerning the eventual sale of stock or other shares. The changes encourage the disclosure and development of discoveries with the prospect of financial reward for both the university and the scientists who make the discoveries. "I think we are on a move," said School of Medicine Dean Michael E. Johns. "If you look at the number of disclosures of discoveries, the number of patent applications and the number of licenses and options granted over the past five years, it's a line sloping strongly upwards. The [1992] changes in policy came at a time when our entire environment was recognizing the need to transfer technology. Increasingly, this is what we're seeing happen." Gryphon Pharmaceuticals will develop discoveries made by Curt Civin and Donald Small, professor and assistant professor, respectively, of oncology and pediatrics. Their research focuses on how hematopoietic stem cells found in bone marrow eventually go on to produce all the component parts of blood, such as the red and white blood cells and platelets. "These cells are the grandmother of all cells in the blood system," said Dr. Small. "We believe if we can learn how to amplify their numbers we could increase the body's ability to replenish component parts of the blood." Such an ability would have a wide range of applications, including use in the treatment of leukemia and solid tumors. "Currently, the limiting factor in high dose chemotherapy is the bone marrow's ability to replenish blood cells," Dr. Small said. "Even using a bone marrow harvest and rescue, as is frequently now done for chemotherapy patients, it still takes many months for the body to replenish these cells. If we could increase the rate of recovery, we could conceivably increase the dosage of chemotherapy and ensure complete destruction of the cancer cells." Hopkins will contribute to Gryphon the intellectual property rights to four proprietary molecules thought to affect the growth and development of hematopoietic stem cells, as well as exclusive commercial rights to certain future scientific discoveries from the laboratories of Drs. Civin and Small. In turn, Gryphon will provide $2.2 million in research funding as well as the business, legal, management and facilities support for the new venture. An initial capitalization of 5 million shares of Gryphon stock provides the university, Dr. Civin and Dr. Small each with a minority share in the venture. University policy prohibits its participants from trading the stock until two years after the first commercial sale of products resulting from the Hopkins research. Financing for Gryphon came from Osiris Therapeutics Inc., a 2-year-old biopharmaceutical company based in Cleveland. As part of the deal, Osiris will move its company operations and 32 employees to the Belts Wharf facility, bringing not one, but two new companies into Baltimore. "We need to be in proximity to a major university medical center in order to be able to recruit people with the skills we need," said Osiris president and CEO Jim Burns. Osiris owns and has been developing proprietary technology based on mesenchymal stem cells, cells similar in many regards to hematopoietic cells. Mesenchymal stem cells are the progenitor cells for bone and connective tissues. "I'm convinced that our two groups of scientists working together to find the regulatory molecules in these cells will make discoveries that could only occur in this manner," Burns said. The funding of a new company by an existing one is a recent development in the world of biotechnology start-ups. Previously, most funding had come from venture capitalists, although lately the national press has reported an increasing reluctance on the part of investors to bear the high cost and high rate of failure of such businesses. For Wall Street, say many analysts, the bloom is off the biotechnology revolution. "The fact that Gryphon was created by an existing company shows that when you've got a good invention, there is funding to be found," said Fran Meyer, associate dean for technology licensing at the School of Medicine. "This latest venture is further evidence that the policy change of 1992 was needed, and the policy is working. I think largely due to the revolution in molecular biology, we are seeing more and more inventions that can be developed into commercial products." Dr. Meyer cautions that not every discovery--no matter how important it may seem to researchers involved--can earn the kind of attention and investment evidenced in the Gryphon agreement. "A discovery must represent a significant breakthrough in technology," said Dr. Meyer, whose job it is to evaluate the dozens of discoveries made in School of Medicine labs each year. "It must be an invention that will result in strong patent protection and that can serve as a platform for several new products, hopefully with widespread applications. The faculty involved in the discovery must be interested and willing to work with a company in further development and finally, in order to attract financial backing, there must be the potential for the new company to grow from zero to $100 million in sales in eight to 10 years." The potential for large dollar sales in the new products is necessary to attract investors because of the large risk involved. "There has to be the potential of significant return because of the huge amounts of money that are required in development," Dr. Meyer said. "This is why we only expect to see two or three new companies a year, instead of the 10 or 15 some people were once speculating about. There are really only a limited number of discoveries made each year that will qualify. Even so, this represents an important development for the future. The economic impact of these discoveries is going to continue to grow."