CEO’s Corner: Moving Forward – April 4, 2012

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The Iris Story

IRIS BioTechnologies is a life sciences company located in Santa Clara, California. The company was founded in 1999 with a mission to establish new and enduring medical treatment standards for the 21st Century based on genomic, proteomic, personal life dynamics, and environmental information. We are looking forward to a period of dynamic growth as we proceed with manufacturing, clinical study, and multiple product launch.

With five US and international patents granted and an extensive pipeline of disease chips including a BreastCancerChip™, NeuroChip™, ComprehensiveCancerChip™, CardioChip™, and MetabolicChip™, we expect to play a key role this year in helping to fulfill the promise of personalized medicine in a meaningful way. We are in an excellent position to reap the benefits of the convergence of recent technological breakthroughs in the life sciences industry and the affordability of highly intensive computational systems and data storage capacity.

We have no long-term debt and were recently granted a key patent, US patent 8,107,693, which has fortified and broadened our intellectual property. As we grow exponentially, we expect to help transform medicine and provide an attractive return on investment for our investors. The journey that started in 1953 with the discovery of the DNA and propelled forward by the initiation of the Human Genome Project in 1990s is now culminating in 2012 with the critical mass necessary to really begin a new revolution in medicine.

In the life science community, it is commonly known that it took more than $3 billion, thirteen years, and two thousand scientists to complete the human genome project. I try to remember this as 3B13Y2K. In the media, the term whole genome sequencing has been used for more than a decade. Among the public, most people assume that the term means sequencing the whole genome. But, that is not true. Even now, only 92% of the human genome is sequenced and there is no technology in the foreseeable future to sequence the whole genome.

Every human being inherits the DNA from both parents in the form of 23 pairs of chromosomes. Let’s call the father’s chromosome blue and the mother’s red. If you compare blue chromosome 1 with red chromosome 1, you’ll find that they are mostly similar but not the same. This relationship applies to the rest of the 22 pairs of chromosomes. In seeking funding for the Human Genome Project the decision was made not to sequence the blue and red chromosomes separately but to do a composite to reduce the project cost from $6 billion to $3 billion to facilitate congressional approval for this historic project. That was the first shortcut, and it is causing continual delays in scientific and medical progress.

While the human genome project took great care to insure accurate sequencing, a competing venture-capital-funded company made use of the daily freely-published-sequencing data from the government in conjunction with their own data using a shortcut shotgun approach to speed up the sequencing process and patent the genes that they discovered. Today, leading sequencing companies use the data from the human genome project as a template and just do shotgun sequencing. This second shortcut approach also has consequences.

For the past decade, the race in the sequencing market has focused on reducing the time and price to sequence the 92% of the somewhat known human genome. By the end of this year, one scientist will be able to sequence your DNA within one day for less than $1,000. That is a remarkable accomplishment compared to 3B13Y2K. But, here is the catch. If you send your DNA to 10 different companies, you’ll get 10 different results. If you take any of the ten results to 10 different genomic interpreters, you’ll get ten different interpretations.

On April 2, 2012, a study published online in Science Translational Medicine showed that your genome is unlikely to reveal whether or not you will actually get most common diseases. Bert Vogelstein, director of the Ludwig Center for Cancer Genetics and Therapeutics at Johns Hopkins University, and co-author of the new paper says, "It may become one important determinant in patient care, but certainly not the only one - and possibly not even a major one."

According to Scientific American, "Dr. Vogelstein doubts it will ever surpass more traditional tactics used by doctors to help shape care regimens, including preventative medicine and other information such as family history. Most common diseases, heart disease and stroke included, do not result from a single-point mutation—or even a combination of them; such diseases also involve one's own lifestyle and environmental exposures. Muin Khoury, director of the Office of Public Health Genomics at the U.S. Centers for Disease Control and Prevention, who was not involved in the new study, notes that it is solid work."

In my previous CEO letter posted on our Website (www.irisbiotech.com) on November 14, 2011, you can see the following three paragraphs.

The general public believes that there is a simple relationship between specific gene "variants" and many diseases. While this may be true for some rare diseases it is becoming very clear that it’s much more complicated especially for common diseases like heart attack, cancer and stroke. The past decade has proven that there are no easy paths and there are no shortcuts to solving complex medical problems. Since only a few of the genome-wide association studies have correlated a specific disease to a particular gene or set of genes it is time to reassess the "common variant" hypothesis and move to "next-generation" methods.

That "next-generation" method is what IRIS has been methodically working on for more then a decade. In this process, highly accurate gene and protein expression analysis, along with medical history, lifestyle and environmental information are combined with the sequencing and gene variant data as well as other pharmacogenomics information, and complex computer algorithms are used to improve medical diagnostics and enable the physicians to choose the best, personalized and targeted medical treatment.

In an early November 2011 press release the National Academies proposed what is essentially in the IRIS business model as described in our patents and patent extension. "A new data network that integrates emerging research on the molecular makeup of diseases with clinical data on individual patients could drive the development of a more accurate classification of disease and ultimately enhance diagnosis and treatment, says a new report from the National Research Council." The National Institutes of Health funded this report.

In 2008 IRIS received the Technology Innovation Award in Pharmacogenomics from Frost and Sullivan. They stated that, "Iris’s technology is a near-term opportunity, which would significantly transform the way in which personalized medication is currently being prescribed."

So, why hasn’t IRIS already transformed the practice of medicine and become a market leader in the personalized medicine segment on Wall Street? Listed below are the main domino effects that have had a negative affect on our growth.

Even though Heller Ehrman’s malpractice and the lingering effect of the economic crash of September 2008 derailed our game plan for four years, we are now back on track and considering various options, including a potential NASDAQ IPO, as we prepare for a period of exponential growth.

To date we have invested approximately $9 million in preparation for launching multiple products and services based upon our patented Nano-BioChip™ and BioWindows" Medical Informatics System. Scientific discoveries are taking place at a breath-taking pace and IRIS is keeping up and making adjustments to stay at the forefront of our sector.

We have been collaborating with Good Samaritan Hospital (San Jose) to begin a clinical research study to determine the effectiveness of tissue genetic testing in patients undergoing surgery for breast cancer. Good Samaritan Hospital is recognized nationally for acute and tertiary services. Good Samaritan is an accredited Comprehensive Community Cancer Center and consistently receives the American College of Surgeons Outstanding Achievement Award for cancer care. This is the beginning of a study that we expect will eventually include patients from multiple hospitals and surgical centers worldwide.

Each year more than a million breast biopsies, lumpectomies, and mastectomies are performed. The American Cancer Society estimate that approximately 230,480 American women were diagnosed with new invasive breast cancer in 2011, and 2012 is expected to be the same. Breast cancer is currently the top cancer in women worldwide.

The global market for a more personalized approach to medicine and health is expected to grow to $452 billion in 2015 according to PricewaterhouseCoopers projections. The core diagnostic and targeted therapeutic segment of the market is presently estimated at $28 billion and expected to grow by 10 percent annually. With health care spending expected to reach $4.3 trillion or 19.5 percent of GDP by 2017, solid companies developing personalized diagnostic products are expected to yield very good return on investment.

During the past few years we have spent our investor dollars wisely and focused on designing and building an advanced Nano-BioChip™ making system, streamlining the automated patient sample processing protocols and product tracking system, and interacting with physicians and patients to demonstrate the usefulness of Iris’s BioWindows" medical informatics system. Working with patients and medical professionals has enhanced our understanding of their specific needs helping us to appropriately tailor our products and services.

In March 2012, both the US Senate and the House of Representatives have passed their own versions of what is commonly being called the JOBS Act. According to the Wall Street Journal, this bill is expected to be signed into law shortly.

According to the Huff Post, "The centerpiece of the bill is a measure to reduce costs for companies seeking to go public by phasing in over five years SEC regulations that apply to ’emerging growth companies.’" That status would be in effect for companies with annual gross revenue of less than $1 billion. The measure would remove SEC regulations preventing small businesses from using advertisements to solicit investors, raise from 500 to 2,000 the number of shareholders a company or community bank can have before it must register with the SEC, and allow smaller companies to sell up to $50 million in shares, compared with $5 million now, without filing some SEC paperwork. It also encourages the practice of "crowd funding," in which the Internet is used to raise capital from a large number of smaller investors.

The JOBS Act would help IRIS to finance its dynamic growth while reducing expenses.

Thank you again for your interest in Iris BioTechnologies. For further information please contact Simon Chin, President and CEO, (408) 867-2885, simonchin@irisbiotech.com.