Diagnosing a Minnesota niche in medical marketplace

Minnesota is not home to Big Pharma. But maybe Mini Pharma?

A small but growing stable of Minnesota-based start-ups specializes in diagnostics, a technology that could help major pharmaceutical manufacturers such as Pfizer Inc. and Merck & Co. speed development of lifesaving drugs. By quickly identifying diseases and measuring drugs' efficacy earlier in clinical trials, the companies could also reduce costs and limit potential side effects.

Orasi Medical Inc. of Edina, a spinoff from the University of Minnesota, recently raised $3.5 million to develop software that can test compounds designed to treat neurological diseases such as Alzheimer's. Last week, Red Herring, a business/technology magazine, named Orasi one of the 100 most-promising start-ups in North America.

Ativa Medical Inc., a St. Paul-based start-up, is licensing technology from Honeywell Corp. that can quickly measure a patient's blood cell count and store the data on a chip.

"Your bloodstream is a database of almost every metabolic process in your body," said Ativa CEO David Deetz.

Martell Biosystems Inc. is close to raising $3 million to help develop a blood test for breast cancer. The company will soon open a lab at the new biosciences center in downtown Rochester, near the Mayo Clinic.

"I think there is an interesting opportunity for diagnostic companies in Minnesota," Bonnie Baskin, a prominent entrepreneur, wrote in an e-mail. "I am familiar with a few, and with funding and good management, they have a chance. There are lots of good technology and industry people in town."

Baskin is founder and former CEO of St. Paul-based AppTec Laboratory Services Inc., acquired last year by WuXi PharmaTech in China.

Normally, Baskin is skeptical of developing a biotech industry in Minnesota. And for good reason. The state draws scant venture money for biotech start-ups; in recent years, about two-thirds of venture capital investment in Minnesota went to medical device firms.

But experts say that very expertise makes the state a natural incubator for diagnostics firms. For example, major manufacturers, such as Medtronic, make devices to monitor blood sugar levels and signal a pump to deliver the right amount of insulin.

"A lot of devices have diagnostic components in them," said Orasi CEO and co-founder Shawn Lyndon. "It's a logical extension."

Minnesota's research into what's called bioinfomatics should also give the state an edge in diagnostics, analysts say. Since 2002, IBM and Mayo have collaborated on a project that uses IBM's Blue Gene supercomputer to compare genetic data and give providers speedy access to medical data for treatment of diseases in genetically similar individuals.

These diagnostic tools, combined with computer-based molecular modeling, can also allow researchers to simulate the pathways and linkage points of various pathogens and design drugs to exploit this information.

"As an initial step to building biopharmaceutical capacity in the state, [we must] leverage Minnesota's strengths in a concentrated effort to expand the state's diagnostics and monitoring industry," according to Destination 2025, a report by the BioBusiness Alliance of Minnesota and Deloitte Consulting.

Minnesota is unlikely to produce drugmakers to challenge Pfizer. But it can nurture diagnostic start-ups to help Big Pharma get products to market faster and cheaper, experts say.

These start-ups require less capital and face lower regulatory hurdles than the devices or drugs themselves. As a result, diagnostics start-ups are easier to sell to investors, said Doug Johnson, a former investment banker who runs the U's Venture Center.

The U is planning to spin off a company this year based on the regenerative tissue work of Dr. Doris Taylor that will allow drugmakers to test therapies on human cells instead of animals. Such technology can provide tremendous value to drug companies looking to cut costs and boost innovation, Johnson said.

According to a report by PricewaterhouseCoopers, Big Pharma "has to focus more heavily on speciality therapies since most of the diseases for which there are currently no effective medications or cures are not amenable to mass-market treatments.'' The report also said drug makers have to reduce the time and costs in researching and developing such medicines to "ensure that society can afford them."

Diagnostics can help with those initiatives, supporters say.

Thomas Lee • 612-673-7744