Patent Lawsuit Against Histogen Forces Layoffs And A Scramble For New Funding

2/24/09Follow @bvbigelow

A patent infringement lawsuit filed last month against Histogen has triggered a funding crisis at the San Diego biomedical startup, which was forced to lay off all 36 of its employees at the end of January.

Histogen founder and CEO Gail Naughton told me this afternoon the suit filed by rival SkinMedica of Carlsbad, CA, prompted a group of angel investors to withdraw their planned $2.4 million investment in Histogen at the end of January. The ensuing funding crisis has been playing out behind the scenes at Histogen, even while Naughton reported promising findings on the startup’s experimental hair regrowth treatment last week at the 4th Annual Stem Cell Summit in New York.

“The lawsuit really took us by surprise, particularly because it was an infringement suit that was filed when we don’t even have a product on the market,” Naughton told me. “It really cut us off at the knees.”

Since then, Naughton says she has been working on two fronts to find new funding for Histogen. But losing the early stage funding, which had been set to close on Jan. 29, necessitated the immediate layoff of all Histogen employees, she said. About 20 employees have volunteered to continue working despite the layoffs, which were first reported today by The San Diego Union-Tribune.

“I’m not trying to take advantage,” Naughton told me. “They are an unbelievably engaged and passionate group of people who really believe in what we’re doing, and I’m very grateful.”

Privately held SkinMedica provides both prescription-based and cosmetic skin-care products to dermatologists and others to improve the health and appearance of skin. SkinMedica’s suit alleges that Naughton, Histogen, and its cosmetics subsidiary, Histogen Aesthetics, are infringing on two SkinMedica patents covering its “NouriCel” product line and related proprietary technology for culturing human cells in growth media. SkinMedica acquired the patents in 2003 from Naughton’s previous company, San Diego-based Advanced Tissue Sciences, which filed for bankruptcy in 2002 after spending 14 years developing living tissue skin patches.

Naughton denied that Histogen or its subsidiary are infringing on SkinMedica’s patents.

Naughton says she’s been meeting over the past four weeks with a whole new group of investors, whose primary interest is in the potential use of ReGenica, Histogen’s lead product in development, as a hair regrowth product. Histogen says ReGenica is made from proteins and other molecules secreted by human fibroblast cells grown in proprietary bioreactors that mimic the embryonic environment. Last week, Naughton reported early results from a clinical trial that suggests that injecting ReGenica into the scalp promotes hair growth. She says she also has been having simultaneous discussions with four pharmaceutical companies about forming a partnership to help bring certain Histogen products to market.

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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