Cerco Medical intends to command a large share of the emerging market for cell therapies with the company’s proprietary thin sheet encapsulation device. Cell therapy, including stem cell therapy, promises to revolutionize medicine. Cerco’s lead products are the Islet Sheet implantable devices to treat insulin-requiring diabetes. A technology such as the thin sheet is required for cell therapy to fulfill its therapeutic promise and enormous market potential.

Although projected cash flow from operations will not turn positive for six to ten years, the Return on Investment is very high because of the profit potential for a therapy to normalize blood sugar without insulin injections. Economic costs of diabetes are high; a cure would save $85 billion of direct treatment costs alone. The domestic revenue potential for the Islet Sheet is on the order of $20,000 per each of 1.5 million insulin-requiring diabetics, or $30 billion annually.

Cell therapies are intuitively attractive – restoration of health through replacement of damaged cells – and have been pursued for many years with modest commercial success. The difficulties of spurring stem cells to become useful tissue are well known, but a less appreciated yet stubborn problem is rejection by host immune systems. Because cells transplanted from one human to another are rapidly rejected and fail, most cell therapies today use autologous cells, that is, cells taken from the patient to treat disease sites in the same patient.

Treatment of autoimmune diseases such as type 1 diabetes cannot be done with autologous cells, and donor, animal and stem cells require a means to prevent immune rejection of the islet cells. The technology needed to expand cell therapy beyond autologous limits is Cerco Medical’s Thin Sheet that can protect cells from the immune response and permit them to function for years. The Sheet is patented and can be removed or replaced giving a crucial safety advantage over other immune barrier devices.

The company’s first products will be Islet Sheets to treat diabetes. The therapy is similar to islet transplantation, which can normalize blood sugar for years. The Islet Sheet can deliver the benefits of islet transplantation without expensive and toxic immune suppression drugs.

Cerco Medical and the University of California will collaborate on clinical trials of the Islet Sheet. In 2008 Jonathan R. T. Lakey, a long-standing associate of Cerco Medical, was been appointed Professor in the Department of Surgery at UC Irvine Medical School and Director of Research. The Islet Sheet will be the first major clinical study in the new UCI clinical islet transplantation program. Studies have shown that a key to success in islet transplantation is high quality islets, and Dr. Lakey has the best record of human islet work in the world.

Building a profitable cell therapy company will require a large amount of capital. The company plans to generate results in Phases. Phase I, development and patenting of Islet Sheet technology, is complete at the cost of $1 million. The current effort is to fund Phase II, demonstration of efficacy in rigorous large animal models of diabetes, and is projected to cost $6 million. Phase III will be proof of clinical efficacy (euglycemia – normal blood sugar – greater than one year) using human, pig, and stem-cell derived islets, and is projected to cost approximately $20 million. Phase II research will be funded with a combination of foundation grants and Cerco Medical company funds. The Company is seeking $5 million in invested capital for preclinical studies and general corporate purposes during Phase II.Profits are projected for 2014 and positive cash flow in 2016, but investor liquidity could come earlier from either an Initial Public Offering or sale of Cerco Medical to a large health care firm when clinical success is manifest in 2013.