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Diffusion Pharmaceuticals aims to transform the future of medicine

December 28th, 2006

By Muphen R. Whitney

The Company at a Glance:
Diffusion Pharma has developed a technology that reduces the resistance of oxygen’s diffusion through blood plasma.

Website: www.diffusionpharma.com

Number of Employees: 9 employees plus consulting relationships and use of staff at contract laboratories

Location: Charlottesville, VA

Funding: $8.3 million

Funders: Private investors ($5.6 million) and the U.S. Office of Naval Research ($2.7 million)

Diffusion Pharmaceuticals LLC is the prime example of a successful collaboration between an innovative scientist and a businessman with a passion for the life sciences. In Diffusion Pharma’s case the scientist was Professor John L. Gainer, the inventor of the company’s core technology, and the businessman was David G. Kalergis, an entrepreneur in the life sciences arena.

The two founded the Company in February, 2001 with $20,000 in the bank and no office – in fact they operated for more than a year without having an office. What they did have was the fruit of Dr. Gainer’s lifetime of research as a Professor in the Department of Chemical Engineering at the University of Virginia.

In the early 1970s Dr. Gainer worked on theories of how gases move through liquid. He became fascinated with how his theories could be applied in practical ways to how oxygen moves through blood, and he developed novel ways of enhancing the movement of oxygen through blood for therapeutic effect.

The result of Dr. Gainer’s work is Diffusion Pharma’s lead product candidate, trans sodium crocetinate (TSC), which is the most advanced drug candidate in the Company’s pipeline (where nine additional drug candidates are being developed). TSC enhances the ability of oxygen to diffuse through blood plasma in a unique way that has several advantages over the other current therapeutic methods of blood replacement/blood substitutes and conventional oxygen therapy through delivery of oxygen from tanks.

By treating the underlying oxygen deprivation (hypoxia) at the root source, TSC promises a better form of hypoxia treatment by reducing the amount of overall damage and cell death caused by the other methods. Also, as drugs go, manufacturing TSC is relatively inexpensive, which is a significant advantage to the Company and its investors and to physicians and their patients.

With a novel drug that fulfilled a significant need and promised considerable profits because of the low cost of manufacturing and the enormous market demand, what possible problems could Gainer (who currently is the Company’s Chief Scientific Advisor and member of the Board of Directors) and Kalergis (Diffusion Pharma’s CEO) face in their quest to establish a successful company?

“TSC’s mechanism of action is entirely novel and challenged the status quo thinking,” says Kalergis. “Also, it is based on an application of chemical engineering principles – not on standard ideas from the fields of medicine and physiology. A proposed new mechanism of action, especially from an ‘outsider’, as Dr. Gainer was viewed since he is a Chemical Engineer, often promotes skepticism.”

The Company also had to overcome technical problems in formulating TSC. The formulation problems were handled expertly in the lab, and Kalergis came up with a two-part strategy to handle the skepticism.

“The first part of our strategy was to continue to produce hypothesis-driven experimental data that stands up to peer review scrutiny,” Kalergis explains. “The second part was to drive TSC’s development through critical early-stage FDA milestones. We couldn’t just expect people to take our word that TSC has powerful therapeutic properties. We needed to demonstrate that it worked in humans.”

“That takes a complex, years-long, multimillion-dollar scientific and business effort to show safety and efficacy in animals, to produce a drug that is up to FDA standards, and to receive FDA permission to move into human testing.”

The success of the Kalergis strategy is demonstrated by the fact that the Company will start its first human tests in early 2007 in a Phase I facility in the U.S.

Kalergis had a funding strategy, too, the central aspect of which was proving the value of the TSC technology to the United States Navy to secure Small Business Small Business Innovation Research (SBIR) money.

“In the beginning, both VCs and pharma companies said we were ‘too early’ for them to take a chance on such a novel mechanism,” Kalergis says. “That pretty much left government and angel funding, which we pursued with reasonable success. And it turned out to be a good strategy because now that we’ve made significant progress on our own, we’re not beholden to any other financial entities as we move forward.”

The United States Navy sees many possible uses for TSC, the most important of which is TSC’s potential to treat casualties suffering severe blood loss on the battlefield. They also like Diffusion Pharma’s focus on driving the drug toward human use rather than animal testing.

The Company’s private investors liked the opportunity to be a part of something that could transform the way medicine is practiced. Although they recognized the risks in pioneering a novel mechanism of action, they realistically assessed the financial rewards and the value to human health if the Company succeeds.

“Our private investors have been with us from the beginning, and they continue to increase their level of investment with each round of funding,” Kalergis says.
Anyone who looks at the potential market for TSC would surely be an eager investor. The drug could corner an absolutely huge market if it is approved for use in emergency medicine, stroke, heart attack, respiratory disorders, and cancer – all areas where hypoxia is a grave issue for physicians and their patients.

“Any medical condition, acute and chronic, characterized by oxygen deprivation at the cellular level could potentially be treated with one of our drugs,” Kalergis says. “We calculate up to 20 million patients in the United States could benefit from TSC each year. That is potentially billions of dollars just in the U.S. – and our patents protect us worldwide.”

Kalergis also notes that the human trials that TSC is about to begin will create an entire new range of challenges and opportunities for Diffusion Pharmaceuticals.

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