MannKind’s Help Puts CTL Closer to Its Cancer Vaccine Biotech: A Step Toward The Future By CARLOS MARTINEZ Staff Reporter Just three years ago, CTL ImmunoTherapies Inc. was nothing more than a proposal on a piece of paper in John Simard’s small Northridge apartment. Today, the company is bankrolled by Alfred E. Mann, founder of MiniMed Inc., and is developing a vaccine many believe will shrink tumors and eradicate some forms of cancer. “We’re fortunate that we don’t have to struggle to get financing anymore,” said CTL CEO John Simard. “It’s been a long while since I’ve been in that situation.” Unlike dozens of other biotechs in the San Fernando Valley, CTL is well-funded with cash infusions totaling more than $30 million from Mann’s MannKind Corp. since 1998. Housed in a 42,000-square-foot state-of-the-art facility with labs and high-end equipment, including a $250,000 electronic cell sorter, Chatsworth-based CTL is one fortunate biotech. The company is currently conducting clinical trials for some of its vaccines, one of which could battle cancers of the breast, lung and prostate. With pioneering research into T-cells, a kind of white blood cell that attacks body cells that are infected or malignant, CTL is hoping to develop vaccines that could reach the market within two years, leading to potential sales in the billions of dollars over several years, Simard said. “We could be bigger than Amgen. There’s that much potential,” he said. But three years ago, things looked much different. Despite what Simard was convinced was the vaccines’ potential, funding remained hard to come by. “There was always interest out there from investors, but the funding was small only a few hundred thousand dollars,” he said. A researcher working on T-cell immune responses, Simard felt the funding he was looking for would help determine whether the cells (also known as cytotoxic T lymphocytes, or CTL) could help eliminate tumors. Simard said earlier research proved that T-cells, if stimulated by a particular kind of vaccine on an ongoing basis, could prove effective in reducing the size of a tumor. “The trick with these vaccines is that they can’t be delivered in a single shot,” he said. “You’ve got to keep the vaccine around. As long as the vaccine is around, the T-cell is around and working, doing its job.” But the trick was to find a method to deliver a continuous dosage of vaccine long enough to let the T-cells reduce the size of a tumor. Enter Mann’s MiniMed Inc. (now owned by Medtronic Inc.), which had what Simard was looking for: a small, wallet-sized pump that delivers insulin to diabetes patients. When he approached MiniMed in 1998, Mann became interested in CTL and offered to fund the company as long as it met certain goals, so-called “mileposts.” “Part of the deal was that he would buy stock, but we would have to meet a number of milestones and these milestones were very aggressive under a short timeline,” Simard said, referring to the goals outlining levels of progress for vaccines as an incentive to receive further funding. “You’d only have a little bit of money to get you to a certain target, so if you run out of money and you didn’t meet your target and you don’t meet your result, then the story was over,” he said. Bill Robbins, managing director of Convergent Ventures LLC in Los Angeles, said such deals are not unusual. “Investors are cautious and it takes a lot more capital to get off the ground in biotech than in other cases because there’s labs that have to be built and expensive equipment that has to be bought,” he said. Investors are also looking at a myriad of options when it comes to biotech investments, said Myles Greenberg, director of fund management for Arthur M. Pappas & Associates. While CTL is still in the research stage, Simard is looking forward to 2004 when the vaccines are likely to hit the market. Revenue projections for that year amount to $5.5 million, before jumping to $1.6 billion in 2008. “These aren’t academic exercises. We’ve got products here that will work,” he said. “We’re absolutely convinced that we’ll get approval for these products.” Robbins was a bit more cautious about projecting CTL’s future revenues. “It’s still quite early to tell. The market is real in the oncology and hematology area if they can improve survivability for patients,” he said. “But it all depends if the product performs 100 percent as promised.” The mapping of the human genome in 2000 showed investors that there is research potential in a number of areas, he said, referring to potential new drugs and therapies that could target a variety of diseases or conditions. Simard said he understands the risks involved for investors in biotech firms. “That’s why it’s important to deliver on your promises,” he said. “We know we have to perform and get stuff to the market as quickly as humanly possible.” CTL, acquired by MannKind in December, must still meet its mileposts or funding will be in jeopardy, Simard warned. So far, so good. The company has also benefited in other ways from its relationship with Mann as he introduced Simard and his staff to researchers at USC and Stanford University, who are helping the firm conduct its clinical trials. Mann himself had no qualms about CTL’s potential for success. “I fully believe that we’ll find a cure for cancer. I’m committed to finding the cure,” he said. Based on the work of 1996 Swiss Nobel laureate Rolf Zinkernagel, who showed how the human immune system worked, CTL refined his theories and developed a number of patents based on the Zinkernagel discoveries. Zinkernagel, who served as an advisor to the company, showed how T-cells sought out and destroyed cancerous cells to stop the disease from spreading. There are other companies working just as feverishly as CTL to develop vaccines to fight cancer but, Simard said, his company is the only one benefiting from Zinkernagel’s expertise.

The Briefing: THE BOSS’ MANAGEMENT STRATEGY When Stephen McCormack went to work for AlleCure Corp. two years ago it was as the start-up’s president, CEO, board director and first employee. It was also his first job as a manager in the private sector after 18 years in medical research. While still in its early stages, the Valencia-based company (one of several started by biotech and medical device pioneer Alfred E. Mann) is well on its way to developing technologies and products that restore balance to the immune system and treat conditions such as allergies, asthmas, restenosis and other autoimmune disorders. At the same time, McCormack said, AlleCure has managed to meet its “milestones,” objectives along the way that keep companies accountable to their investors. McCormack spoke recently with Business Journal editor Michael Hart about the challenges of starting a new profession with a new company in a relatively new field. “The shift from being in research to starting a company and taking on all the hurdles is something not everybody can do. I had been working in medical research from an early age and had a good sense of the technical challenges. I had formed a not-for-profit, so I had a sense of the mechanics behind it, but any experience in initiating companies was not there. “One of the key components I’m facing is how a CEO leads in times of change. The thing that surprised me was the complexity of the human challenge and keeping everybody motivated. “The biotech industry is still in a revolutionary era. You have to consider what the marketplace timing will be and there’s a lot of fluctuations. “AlleCure’s early challenge has been building the infrastructure to build our products and hit our milestones. We had products we were able to make into other products almost immediately. That catapulted us into the marketplace and allows us to conduct all the necessary research. We’re in midstream, well into clinical trials, but we’re still building a lot of our operating capacity. “Our chairman (Alfred E. Mann) recognizes and it was his belief that I’d do anything to make this a success. The challenge now is to continue to obtain investment funds, primarily in private markets because public markets haven’t opened up yet. “We’re still looking at a two- to three-year time frame, not five to seven years. One needs to have increased awareness of where the marketplace is going. Our major objective now is to hit all our mileposts and to build an allergy and asthma franchise.”

Valley Forum: What Can Biotech Do for You? In the last 25 years, the biotechnology industry has been responsible for a number of discoveries that have improved health care throughout the world. Even more promising achievements are in various stages of development all over the world, including the San Fernando Valley. So, the San Fernando Valley Business Journal asks: What type of medical breakthrough do you hope for or expect from the biotechnology industry in the next 25 years? Matthew Bissanti Chief Operating Officer Andwin Scientific Inc. Canoga Park We at Andwin believe that the key to curing diseases lies not in focusing on individual diseases, but streamlining the research process. We are subsequently dedicated to improving automation, specimen integrity and cost reduction through innovative products. Mitchell C. Carson President Impact Products LLC Agoura Hills I expect to see cures for breast and prostate cancer within the next decade. William Sparks General Manager Beverly Garland’s Holiday Inn North Hollywood I would expect to see medicine integrate the mind and the body to show how our choices and motivations relate to our physical strengths and ailments. That is, to show how the body reveals the symptoms that the mind causes. Bonny Herman President & CEO Valley Industry and Commerce Association Sherman Oaks I would like to see more early detection-type products at the retail, over-the-counter, consumer level for early signs of cancer, heart and eye diseases. It would also be wonderful if there were a non-invasive surgery for back pain relief.

Biotech: A Step Toward The Future. Special Report: By CARLOS MARTINEZ Staff Reporter When Alfred E. Mann agreed to build an $80 million research complex to house MiniMed Inc. (now Medtronic MiniMed) at Cal State Northridge, many figured it, and the help he planned to give to boost the school’s biotech studies program, would be enough to attract new science students and faculty to the campus. And four years later, the school has expanded its biotech offerings by about two dozen classes, but its efforts to compete for life science students with traditional powerhouses in the field like Caltech, UCLA and USC remain largely ineffective. “We’re not in the same place (academically),” said Lou Ann Kennedy, Cal State Northridge provost. “We really haven’t been competing with these other schools, but we’re using this partnership with MiniMed as a recruiting tool.” The school has increased its overall enrollment since 1995, from about 24,000 students then to 32,000 now. Enrollment in biotech-related courses and majors has also steadily increased. “But it’s difficult to say whether more students are coming here because of biotech,” Kennedy said. Because biotech studies range across several disciplines biology, microbiology, engineering and computer science college administrators say it’s hard to quantify the number of students attracted by the opportunity to work in the relatively new field. In 1998, MiniMed built its four-building, 700,000-square-foot complex on 28 acres on the north side of the campus. The buildings now house Medtronic MiniMed, other firms and laboratories used by the school for research. Cal State Northridge has touted its relationship with Medtronic MiniMed in publicity materials, the school catalogue and its Web site in an effort to attract more students and faculty. Stevan Birnbaum, a Cal State Northridge lecturer on finance and manager of a biotech venture capital fund, said the school has gotten a fair amount of attention from students attracted by its emphasis on biotech, but neither he nor the school were able to say how many. “I’ve had biotech students come into my class with some solid ideas about what it takes to start up a biotech firm,” Birnbaum said. “But I don’t think we’re planning to put Caltech out of business.” Mann, however, hopes the school’s graduates will eventually make their way to his firms and other area biotech and medical device companies. “We have some students already working part time, but we’d like to see more after they graduate,” he said, noting that it’s too early to tell what impact Medtronic MiniMed’s relationship with the school will have on supplying a talented workforce to the area since it was begun less than four years ago. As part of its partnership with MiniMed, the school said it has created a number of opportunities for internships and research opportunities for students. “You’re seeing a lot more schools getting into biotech with their own programs,” said Edward Pope, president of Westlake Village-based Solgene Therapeutics. “Northridge recognizes the value of the industry.” Jerry Lee, a UCLA biology professor, said schools like CSUN are emphasizing the disciplines that feed into biotech like never before. By bringing more attention to drug development areas along with medical device development, schools are responding to the growing industry. But Lee, like Kennedy, sees Cal State Northridge’s biotech program as an enhancement to its general curriculum, not as an effective way to attract better students or more prestigious faculty members. Gary Clark, president of the non-profit Ventura County Biotechnology Institute, said local biotechs eventually will benefit from Cal State Northridge’s efforts. “There’s no doubt that companies will benefit from a ready pool of talent trained at the university,” Clark said. But even if Cal State Northridge’s drive is still in its early stages, it already has stiff local competition: Cal State Channel Islands welcomes its first students on the grounds of the former Camarillo State Hospital this fall. That school is developing a biotechnology program as part of its overall undergraduate biology program. Having strong academic programs closely located to the area’s cluster of biotech firms is a big incentive for firms to hire its young graduates, said Ahmed Enany, executive director of the Southern California Biomedical Council. “There is a big demand for well-trained people at these biotechs,” he said, noting that many companies now must recruit staff from out of state. According to the California Health Institute’s newly released study, biomedical research accounts for more than 125,000 jobs in Southern California, with an average salary of more than $50,000. Enany said research opportunities available at Cal State Northridge are another plus for biotech’s medical device companies. Electronic and software components have become an integral part of implants and other related technologies in the biotech area, Enany said, noting that Cal State Northridge could well become an important source of research in that area.

Valley Talk Name That City One Los Angeles, the recently formed anti-secession group, put out its first official piece of campaign literature last week in an effort, according to the group, to inform Valley residents of “the dangers of secession.” The One Los Angeles newsletter, which came by mail to the Business Journal complete with an envelope in which to return a financial contribution, includes a few suggestions for names for the new Valley city, albeit names that clearly came straight from Tongue-n-Cheekville. On the list of ideas are “Brainless City,” a clear jab at Valley VOTE President Jeff Brain, and “City of Richard Close’s Political Ambition,” referring to Valley VOTE Chairman Richard Close. No Bunnies Allowed When Playboy Enterprises Inc. announced in January that it would be building a television production facility just south of Glendale, company publicist Scott Barton could already see the sidewalk lined with the curious. “I just told people it’s near Glendale and let them figure it out,” said Barton, who handles publicity for the company’s. “I don’t think people realize that it’s not really going to be that exciting in there,” he said. “It’ll be a bunch of guys in T-shirts running around, trying to put a show together There won’t be a bunch of girls in bunny outfits going in and out of there every day.”

Promise of Tomorrow: Biotech’s Next Hot Companies By CARLOS MARTINEZ Staff Reporter Scores of biotech firms in the San Fernando Valley are in the midst of developing new therapies and medical devices, but only a handful are likely to see their products come to market anytime soon. While Southern California is filled with biomedical expertise, given the proximity to UCLA, USC and Caltech, it has not received the venture capital that has poured into Silicon Valley or San Diego, said Ahmed Enany, executive director of the Southern California Biomedical Council. “You see funding, but it’s not comparable to these other places, and a lot of it goes not to traditional biotechs that deal in biology, but companies that make medical devices,” he said. Despite the success of Amgen, the 101 Corridor’s oldest and most prosperous biotech, it has not been the runaway biotech hub many had expected, local experts say. Partly because Amgen has not spawned spinoffs in the way large pioneering companies in other areas have, the 101 Corridor has not garnered the attention of venture capitalists who have fueled biotech growth elsewhere, Enany said. “You’re just not getting that ‘critical mass’ that biotechs talk about in terms of getting that important VC interest,” said Gary Clark, president of the non-profit Ventura County Biotechnology Institute. Funding issues have left a number of biotech startups by the wayside in recent years, but some are poised to make their bid to perhaps become the next Amgen, Clark said. Here are a few of the companies that could gain a higher profile in the next few years. Solgene Therapeutics This Westlake Village-based biotech firm hopes to make a bundle with its drug delivery system that encapsulates living cells and releases them much as they would be released by the body naturally. Solgene CEO Edward Pope said the system is ideal for delivering insulin and bone growth cells to reduce the impact of osteoporosis and arthritis. Ahmed Enany, executive director of the Southern California Biomedical Council, said the technology offers potential for the company, which is struggling with funding at the moment. “They have something that could eliminate the symptoms of diabetes and that has very real possibilities,” he said. Solgene is currently on a capital drive to raise the $6 million needed to begin clinical trials for a product that could be in the market in seven to eight years, Pope said. Estimated revenue for the product could reach $5 million its first year, double that in succeeding years, Pope said. AlleCure Corp. The Valencia-based biotech bankrolled by Alfred E. Mann, founder of MiniMed, is developing allergy vaccines that its managers say could make asthma a thing of the past. Enany said the company’s research into these vaccines will prove immensely profitable once they reach the market. “Allergies are a big market and, if you have a vaccine that addresses that market, it will become huge. There’s no question,” he said. The two-year-old company receives its funding, an undisclosed amount, from Mann’s MannKind Corp. Although AlleCure won’t estimate how much its technology would be worth once its products hit the market, Enany said it would be in the “hundreds of millions” of dollars. Second Sight Inc. The year-old company is developing eye implants that connect a video camera to the patient’s optic nerve, giving sight to those for whom other therapies do not work. Gary Clark, president of the non-profit Ventura County Biotechnology Institute, said the company’s technology is unique in its application for blind patients. “There’s nobody else out there doing that, so it’s a wide open market for them,” Clark said. The company received a $12.5 million grant in 2000 from the National Healthcare Institute, but its general funding comes from Alfred E. Mann’s MannKind Corp. Second Sight CEO Robert Greenberg said the company anticipates the implants will be available within five years, with “high revenues” expected in the first year, but he would not elaborate further. Greenberg estimated there are 3 million patients around the world that could benefit from the implants. ZLB BioPlasma Inc. Blood and its related products are what make this year-old company go. Bankrolled by Australian and Swiss investors, the Glendale-based firm hopes to make a serious bid at being a major provider of blood products to the nation’s labs and blood banks after acquiring blood labs in the Midwest and Nevada. Although its financing remains confidential, ZLB president Pete DeHart said ZLB hopes to service the growing market of immune-based therapies and services. Richard White, manager of White Associates Investment Fund, said in a few years the company could be ready to take over a large segment of a market served by scores of smaller labs dealing in human plasma. “They’re very aggressive in their strategy and it looks like it will pay off,” he said. Advanced Biotherapy Inc. Already conducting clinical trials, the Woodland Hills-based biotech is looking at marketing its biologically engineered interferon-gamma antibodies for therapies that would treat several diseases, including rheumatoid arthritis. Advanced Biotherapy president Edmond Buccalletto said the company is developing therapies for the newly patented antibodies, but also is looking to license it. “We’re looking at a market that is in the tens of millions, so it’s difficult to say how much this is worth down the road,” he said. The antibodies would also treat multiple sclerosis, juvenile rheumatoid arthritis, psoriatic arthritis and Ankylosing Spondylitis, a condition that causes curvature of the spine. But the company warned that it would be five to eight years before the product comes to market. “There are always ifs, so if this product works like they say it does, then it could be really big,” said Brent Reinke, managing director of Crosby Heafey. Aperio Technologies Inc. A medical device maker in Thousand Oaks, this company is already making a push for its proprietary slide-scanning equipment that allows microscope slides to be scanned and digitized with high-resolution images. The two-year-old company developed specialized computer programs that can be applied to its slide scanners, allowing scientists access to and retrieval of slides remotely. The company has begun marketing its technology and is developing other related applications, but the privately held firm would not disclose its financial targets or funding. Richard White, manager of White Associates Investment Fund, said the firm’s technology is getting attention from labs and other biotechs, and could take off once it gains wider acceptance.

The Amgen Success Story: Can Lightning Strike Again? By JACQUELINE FOX Staff Reporter The founders of Amgen Inc. may have been armed with $19 million in startup capital, but even they didn’t have a solid idea about what they were going to use it for when they first launched the company in Thousand Oaks in 1981. Amgen’s small army of about 35 research scientists were conducting experiments for an emerging industry known as biotech, but what they were aiming for was anyone’s guess. “We weren’t even sure pharmaceutical was where we were going to end up,” said Dennis Fenton, one of Amgen’s first 50 employees. He started with the company in 1982 at the age of 29 as a research scientist and was recently named vice president for operations, manufacturing, process development, quality and information management. In fact, one of Amgen’s first “bio-breakthroughs,” according to Fenton, was what he called the “accidental” creation of a non-chemical indigo dye, which the company tried to market to blue jeans manufacturers, such as Levi Strauss & Co. Amgen even worked with big oil firms conducting bio-remediation research for soil cleanup projects. “We were funded by a number of companies to look into that, but didn’t get anywhere,” said Fenton. Of course, most in the industry know the rest of the Amgen story and have tracked the company through the early days, from its first patent for the red blood stimulant EPOGEN in 1987 to the recent announcement of its planned acquisition of rival Immunex. But industry experts, and even Fenton, agree that the astonishing growth of the company, from a one-building research lab next to a piano shop to a multi-billion-dollar corporate titan, is a success story any number of small biotech firms in the Sam Fernando Valley could be in the process of rewriting. Why? “Because the biotech revolution isn’t over,” said Ahmen Enany, executive director of the Southern California Biomedical Council. “Biotech is really very new. It’s a baby. We are still going through the revolution and, because the science is changing every year, anyone can jump up and dominate and turn their product into the next big thing.” According to Enany, the two-year-old Protein Pathways, which moved its offices to Woodland Hills from Westwood in January, is a good example of a company to watch closely. “They are in the drug discovery business, like Amgen, involving the use of proteins, and there’s obviously a lot of potential in this area,” said Enany. “If a company can come up with a compound to diagnose and treat diseases like Alzheimer’s, for example, it could be a company 10 times the size of Amgen. That’s a no-brainer.” Protein Pathways Vice President Bill Boyle had a couple of other reasons for why he thinks his company is on the right track. “I agree with that assessment, because of the kind of technology we are using, bioinformatics, or the computational approach to drug discovery, as opposed to the traditional empirical method,” Boyle said. “We think our advances certainly could lead to a stand-alone company that is a major pharmaceutical company with lots of investors.” The second reason: the company braintrust. Boyle was director of research at Amgen for 11 years. Pathway’s CEO, Daniel Vapnek, was one of Amgen’s original employees, and two of the company’s board members worked on Amgen’s original business plan. Boyle and the board members, he said, also have close relationships with top biotech venture capitalists, including former Amgen CEO and Chairman Gordon Binder. But what will it take for a biotech startup with a much smaller profile and braintrust to attract venture capital? Certainly more than revenue projections and fancy lab space, said Stevan Birnbaum, president of OXCAL Venture Corp., which funds biotech companies. “What will we be looking for?” Birnbaum asked. “A complete management team, led by a charismatic individual that can attract the people he or she needs to get the top-quality scientists out there.” Birnbaum likened the biotech industry now to the early days of the semi-conductor industry. He said the field is about to crack wide open, with applications stretching far from the world of pharmaceuticals to include everything from shirt fibers to construction materials for the mass market. “When I first started in the venture capital business, I made an investment in the semiconductor industry and I was told that the ideas I had for long-term investments were crazy,” Birnbaum said. “Today you’ve got semiconductors in watches, thermostats and toasters , the technology is being used for everything, and biotech has the potential to go through the very same cycle.” “I think the San Fernando Valley is a place that has a lot of what it takes to be the kind of region to incubate these types of companies, but for them to be created, you need entrepreneurs that aspire to the successes of Amgen,” he said. Boyle said, “I look up and down the 101 corridor and that should be beaming with spin-offs from Amgen right now. But it’s going to happen, I’m dedicated to seeing that happen, and there’s simply no reason why it won’t.”

Latest Privacy Proposal Could Cost California Billions Commentary by By PETER A. JOHNSON and ROBIN VAUGHESE It sounds good: require every business to contact you and get your permission before it can share any of your personal information with other companies. But underneath that simple-sounding idea are hard-to-see but harmful effects that would ripple through the economy. The California State Legislature is considering whether to require consumers to provide affirmative consent, or “opt-in,” for information sharing between businesses. Such an “opt-in” law would mark a significant and costly departure from the more flexible but still consumer-friendly “opt-out” approach found in the rest of the country. In fact, our own research shows California consumers, non-profit organizations, businesses and the state itself will be on the hook for several billion dollars. The types of costs for consumers range from increased interest payments for mortgages and credit cards to higher costs for financial goods and services. But consumers wouldn’t be the only ones to pay. Costs would also be borne by entities as diverse as California itself. Our recently completed study titled, “Hidden Costs: The Economic Costs of an Opt-In Privacy Regime for California,” represents the first attempt to quantify the economic impact of schemes that severely limit the use of information by businesses. The report looks only at a few sectors of the California economy: financial services, charitable organizations and non-store retailing. We relied on extremely conservative estimates, which means the economic impacts are understated and could, in fact, be much greater than what we found. But even using conservative assumptions, we made several notable findings, including: – California charities would lose more than $1.5 billion in revenue because of added expenditures and lost donations. – California customers of the 90 largest financial services firms would pay an estimated $1 billion more for goods and services because of added costs to identify and reach customers. – Financial institutions and e-tailers would pay hundreds of millions of dollars updating their businesses to comply with “opt-in.” – Direct marketers would have to spend over half a billion dollars more to reach the same consumers. We also looked at segments of the California economy for which the value of information is less apparent. For instance, we analyzed the effects “opt-in” could have on housing availability and affordability in California. We found that the inability of mortgage companies to use information to fine-tune risk and securitize debt could impact mortgage rates in California, as it has in places like Europe that operate under an “opt-in” system. Even a 1-percent increase in the average mortgage rate in 1999 would have increased interest charges paid by Californians by $418 million. By 2004, that’s an extra $2 billion in interest payments. And with $2 billion less for California tax rolls, at least $80 million would be lost. If we apply that same 1-percent increase to 1995 mortgage interest rates, the last year for which comprehensive U.S. Census housing affordability data is available, the broad impacts are even easier to see. Some 1,850 fewer homes would have been sold in California that year. As a result, approximately $332 million in home sale revenue would have been lost along with as many as 1,700 California construction workers’ jobs. New homebuyers would have paid $1,760 more per household in interest payments that year, totaling $110 million. This inability to fine-tune risk and securitize debt would also impact the credit card industry. We estimate that even a 1-percent increase in the annual interest rate on credit cards, again a conservative estimate, would result in an additional $927 million in interest payments by California consumers. “Hidden Costs” was just a first attempt to put a price tag on the broad concept of third party “opt-in” restrictions on California businesses and organizations. We believe the report presents, for the first time, a critical component to the “opt-in” discussion the economic consequences. Peter A. Johnson, Ph.D., is adjunct professor at Columbia University’s School of International and Public Affairs. Robin Varghese is adjunct fellow at the Forum for the Free Flow of Information and is completing his doctorate at Columbia University’s Graduate School of Arts and Sciences.

Something’s Amiss If Investors Ask Editors for Advice Commentary: From The Newsroom by Michael Hart Once again, we return to the questions we’ve been asking for almost a year now: Is business picking up? Is the economy ready to turn around? What difference does it make to me? In other business publications, these ruminations are accompanied by theories stating there never was a serious problem and once again asking what a recession really amounts to these days anyway. The chances are that if you’re reading this right now, and you come somewhere close to being the kind of person market researchers tell us buy this paper, the idea that we have experienced little more than a shallow dip in business is preposterous. But the key word, as it has been for the past year, is “mixed.” Yes, apparently residential real estate was one of two “tent poles” that kept the national economy from being worse than it could have been. Closer to home, the Southland Regional Association of Realtors says home prices in the San Fernando Valley are breaking records and sales are doing well too. However, talk to brokers on the commercial side of the business and you learn that deals are harder to make and it now takes 10 phone calls to accomplish what you could with one call a year or two ago. We hear that the consumer has never stopped buying, taking all of this hubbub in stride, that retail is that other tent pole. Yet we know that Kmart, for instance, is in dreadful trouble and department store chains are rethinking the way they do business, probably forever. Locally, however, stores are as crowded as ever, a major retail complex that opened just last year, Burbank’s Empire Center, is hard to get into on the average weekend afternoon and a number of retailers are moving ahead with their own plans to open new stores. In the tech world which has borne the brunt of the bad news and been at the heart of most of our speculation since mid-2000 we have local companies like Digital Insight recording its first profitable quarter and planning a stock offering in which it hopes to raise $100 million. And Nomadix, which provides software that enables Internet access to the mobile user, just closed a $9 million round of new financing. But you also have companies with strong balance sheets (Ixia, a telecom in Calabasas might be a good example) that have sizable market share and plenty of cash on hand with conservative business plans who haven’t laid anybody off but are still saying, “Wait until next year.” Then you’ve got data storage companies, like Simi Valley’s QualStar Corp., that figured to be the latest sensation in the IT management world after the events of Sept. 11 still feeling the pain. In the last issue, senior reporter Shelly Garcia reported that QualStar’s revenues for the quarter ending Dec. 31 of $10 million were $5 million less than for the same quarter a year earlier. “Things aren’t like they were a year ago,” said QualStar CEO Bill Gervais. Moving back into the world of things-are-looking-up signs, I experienced a personal first last week: A partner in a venture capital firm actually asked me, a newspaper editor, if I knew of any promising start-ups worth investing in. In order to save him from all your brilliant ideas, this venture capitalist with so much money to burn he’s asking me for advice will remain nameless. Nevertheless, the point I wish to make is this: If investors are running around acting like journalists, scratching in every dark, dead-end corner they can think of for information, something in the economy is changing. I learned in talking to him that our jobs are pretty similar. As a reporter and editor, I have spent a lifetime calling up people who didn’t want to talk to me, going to meetings I hadn’t been invited to and listening in on conversations I wasn’t supposed to hear all in the name of finding out something our readers didn’t know about and somebody didn’t want them to learn. It turns out investors do the same thing. Also just like me, of course, they get plenty of unsolicited pitches, most of which by virtue of the fact they’re unsolicited are not very promising. Often, when somebody really works hard to make sure you don’t want to find out something, you know it’s probably valuable. And when you think you might be on the edge of something promising with a competitive story, you talk to everybody you can think of. News, just like business, comes in cycles: heavy in the spring and fall, light in the summer and drop-dead quiet in December. So, is the recession over in the San Fernando Valley? Is business picking up? Can you breathe a sigh of relief? Where are we in the cycle? We’ve all got our own very personal, very idiosyncratic ways of figuring out the answers to those questions. I guess the fact that somebody wants to pump a newspaper editor for information on how to invest his money is mine. Michael Hart is editor of the San Fernando Valley Business Journal. He can be reached at [email protected].

HemaCare Hopes for Best After Suit Against Red Cross Corporate Focus By JACQUELINE FOX Staff Reporter Sherman Oaks-based HemaCare Corp.’s stock price has been in de-listing territory since 1998 and profits have fallen off significantly over the last several quarters. Net income for the three months ending Sept. 30, 2001 was $5,000 on revenues of $6.4 million, compared to net income of $301,000 on revenues of $5.3 million for the same quarter in 2000. So, on paper the 24-year-old company, which provides blood and blood services to hospitals in 14 states, looks like a lot of other businesses experiencing hard times. However, changes in the blood business are beginning to open doors for the company and are threatening to break a monopoly long held by the American Red Cross. And while revenues remain strong, HemaCare’s profits have been eaten up by expenditures the company has made to accommodate the changes, including securing two new contracts in the last 12 months. In February of 2001, the company signed an agreement with Children’s Hospital of Chicago to set up a blood services program there. This month Albany, N.Y.-based St. Peter’s Hospital took on HemaCare as an additional blood services vendor and, for the first time, stripped the Red Cross of its exclusive relationship with that facility. Dr. Lisle A Eaton Jr., medical director of transfusion services for St. Peter’s, said the hospital has always wanted its own blood center but has been thwarted by stringent New York state laws and a reluctance to take business away from the Red Cross. “I think there’s been a big unwillingness to stray from (using the Red Cross) because they are so much more to the people in this country than just blood providers,” said Eaton. “It’s kind of like kicking apple pie and all that is good right in the teeth.” HemaCare executives, however, have not been as reticent about challenging a sacred cow like the Red Cross. In fact, the company filed its second lawsuit against the nonprofit in 2001, charging it with setting artificially low prices to secure exclusive contracts with hospitals like St. Peter’s. Alan Darlington, HemaCare executive chairman, said the suit forced the Red Cross to change its pricing structure and gave hospitals new options to work with. Julie Juliusson, communications manager for the Red Cross’ Southern California region, said she couldn’t comment on the changes at St. Peter’s or elsewhere due to the pending litigation. Eaton said HemaCare’s prices are competitive and, since threats of blood shortages are an ongoing concern, having an alternative is comforting. “We think the Red Cross has done a great job, but there’s a constant shortage or a constant fear of shortage for us here,” said Eaton. “We haven’t exactly had to cancel things but, by the same token, we don’t have the luxury of knowing if we are going to have enough product from one day to the next.” Similar deals for HemaCare are on the radar and, as a consequence, additional start-up expenditures will follow, probably cutting into profits for some time. But this, Darlington said, is exactly the kind of growth the company has spent years positioning itself for. “What’s finally happening is the structure of our company is changing fundamentally as a result of the new business,” said Darlington. Darlington said the company is poised to boost its stock, trading at 95 cents a share on March 15, back up to the $3- to $4-range this year. Net income for 2000, the last full year reported, was $4.4 million on revenues of $21.5 million, compared to net income in 1999 of $1 million on revenues of $19 million. Fariba Ghodisian, an analyst with Roth Cap Partners in Los Angeles, agreed the blood market is on the cusp of sweeping changes that are certain to give Red Cross more competitors. “Blood is a business, it’s like a pharmaceutical product,” said Ghodisian. “So you could argue that we should have more competition there already. You would also think there would be more regulation in the market and I wouldn’t be surprised to see some of that come along.”