Transforming

The Face of Medicine:

Advances in Biomedical Science

Tammy S. Neff joined Muhlenkamp

& Company, Inc. in September 2003.
Her responsibilities are primarily
research oriented, including evaluating
company financial statements, annual
reports, and proxy statements; analyzing
industry and company research reports;
interviewing and visiting company
management teams; and making
investment recommendations for
inclusion in the Muhlenkamp portfolios.
Tammy has 14 years of experience in the
healthcare industry as a Psychiatric Nurse
Clinician and Healthcare Administrator.
Before joining Muhlenkamp & Company,
she served as Director of Operations for
the University of Pittsburgh, Department
of Psychiatry Faculty Practice Plan.
Tammy received a dual Bachelor of
Science in Nursing and Psychology from
Carlow College in 1989. She completed a
Masters in Business Administration from
the University of Pittsburgh in 1994.
She holds a Chartered Financial Analyst
(CFA) designation and maintains Series
6, 63, and 65 securities registrations.

Tammy S. Neff
Investment Analyst, CFA, Muhlenkamp & Company, Inc.

This booklet, Transforming the Face of Medicine: Advances in Biomedical Science,

reflects investment research by Muhlenkamp & Company on behalf of clients and
shareholders. We hope you find this booklet useful. Let us know what you think.

Transforming the Face of Medicine:

Advances in Biomedical Science
Advances in biomedical science are transforming the way healthcare is
being provided. This booklet examines some breakthrough innovations, along
with a look at some of the companies making these advancements. Areas of
interest include:

Personalized medicine;

Cancer and targeted cancer therapies;

Immune system;

Viruses; and

3-D bioprinting.

Personalized Medicine
Personalized medicine is the application of information learned from
studying the human proteome. Scientific discoveries in the lab continue
to make their way into clinical practice, ushering in a new era of medicine.
Arriving at this point requires some background.

In the early 1900s, healthcare was provided in the comfort of ones home.
Doctors made house calls to deliver babies and care for the sick. People
routinely died at home, often attributed to old age or natural causes.
Doctors didnt always know why.

Source: The Doctor, a painting by Sir Luke Fildes, portrays a home visit
in the late 1800s.
By the 1920s, doctors used insulin to treat diabetes and penicillin to ward
off bacterial infections. Advances in the 1930-40s led to blood typing and
the establishment of the first blood bank, along with a vaccine for the flu. In
the 1950s, Jonas Salk developed a vaccine for polio, and Watson and Crick
described the structure of DNA as a double helix. Biomedical advances in
the 1960s led to the first human heart transplant in South Africa. The 1970s
brought us MRI technology (magnetic resonance imaging), which is more
accurate than X-rays, along with the first test-tube baby. In the 80s, advances
in cardiology enabled a patient to live 112 days with an artificial heart. Dolly,
a sheep and the first cloned mammal, was born in a laboratory in 1996. In
2005, a team of surgeons successfully performed a partial facial-transplant.
This is a mere sampling of the numerous biomedical innovations that have
taken place over the past century.

Fast forward to today

There are specialists, high-tech diagnostic equipment, and treatments for
just about everything that ails us: orthopedic surgeons who perform hip and
knee replacements, surgeons who use robots to assist with procedures, and
oncologists who prescribe medicines that target cancer cells, while sparing
healthy ones.

Source: Wesley Medical Centre; surgeons using da Vinci Surgical System.

Using robotics allows doctors to perform complex surgeries with minimally

invasive procedures, improving patient outcomes.

We are living in an era of near optimal diagnosis and treatment to manage

most diseases. Lifespans have increased significantly:

Source: 1900-1960 Andrew Noymer, University of California Berkeley;

19612012 World Bank.
The average life expectancy for men and women in the U.S. has increased from
age 47 to 77 since 1900. The exception was in 1918-19 during a flu pandemic
that infected an estimated 500 million people worldwide (about one-third of
the worlds population at the time) and claimed an estimated 20 million to 50
million victims.

But we still dont have all of the cures

Today, in response to ailments, doctors prescribe a course of action to
diagnose and treat what is wrong. While the predominant model of healthcare
remains curative, advances in biomedical science are shifting this model of
care towards one of prevention and personalized medicine.
How so?

With the mapping of the human genome that was completed in 2003,
scientists have an inventory of our genetic makeup. This was a monumental
achievement as it provides scientists with a catalogue containing the code of life.

Source: http://novaonline.nvcc.edu
DNA is the genetic blueprint found in cells, responsible for the transmission of
inherited traits. The structure of DNA was discovered in 1953 by James Watson
and Francis Crick.

Think of the human genome as a globe of the earth. It is a useful model,

providing a complete, albeit broad picture.

Source: Wake Up World; July 2012

Funded by the US government, the Human Genome Project began in 1984 and
was completed in 2003. This international scientific collaboration sequenced
human DNA, resulting in a map of the human genome.

But, how many of us would use a globe for driving directions?

About 99.90% of the genetic material in human beings is the same for any
two people. It is the remaining 0.10% that is critical, as the risk for disease and
the response to medication are contained in these functional variants. This
is why we need a more dynamic and precise navigation systemlike Global
Positioning Satellite or GPS. Scientists are now developing this more specific
map, known as the human proteome, to better understand how our genes are
related to life, disease, and death.

Source: Journal of Proteome Research; January 2013.

The Human Proteome Project, by characterizing all 20,300 genes of the
known genome, will generate the specific map of the protein-based molecular
architecture of the human body. The human proteome will become a resource
to help illustrate biological and molecular function, and advance diagnosis and
treatment of diseases. As of May 2014, two independent teams have assembled
draft maps of the human proteome. The future is very promising, but this global
collaboration will take time to translate insights from the lab into clinical care.

The word proteome comes from the phrase PROTEins expressed by a

genOME. This is important because the proteins expressed by our genes and
how they worktheir sizes, shapes, functions, interactions, and signaling
pathwaysare the dynamic and precise part of our genetic code. The human
proteome is the critical link to understanding the relationships among genes,
proteins, and disease.

Biomedical insights gained from studying the human proteome provide

the foundation for personalized medicine. There are two broad implications:

Information can show up in our genetic material long before

we have any symptoms of illness. Knowing what to look
for, we can take steps to potentially prevent or delay disease
from occurring.

When disease does occur, we have a better understanding

of the underlying cause based on the genetic material, and
personalized, targeted medical treatments can be developed
and delivered.
An individuals genetic code becomes an Owners Operations Manual.
It is a tool that allows you and your doctor to establish a personalized plan
of health and treatment. It is important to remember this manual does not
predict the future. When an individual carries a genetic mutation associated
with a specific disease, it does not necessarily mean it will develop; several
factors enter the equation.

Source: www.lifetechnologies.com
Ion Torrent is an example of a desktop printer-sized personal genome machine
that can sequence your entire genome, or relevant parts of your exome, in a few
hours. Sequencing provides doctors with the Owners Operations Manual to
determine your personalized plan of health and treatment. (Exome sequencing
targets the region of the genome responsible for complete coding. The exome is
often where the functional variants responsible for disease occur in proteins.)

Examples of Personalized Medicine in Clinical Care

Today, there are genetic tests for a variety of diseases. For example,
the BRACAnalysis is a genetic test that confirms the presence of
a BRCA1 or BRCA2 gene mutation associated with future development of
a specific type of breast and ovarian cancer. (You may recall Angelina Jolie
brought this issue front and center in May 2013, when she announced her
decision to have elective surgery to reduce her risk of developing cancer based
on her positive test and family history.)

Source: http://www.cdc.gov/Features/HereditaryCancer

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Between 5%-10% of breast cancers are inherited and up to 90% of these

are related to mutations in BRCA1 and BRCA2. When healthy, these genes
repair damaged DNA and protect against certain cancers. Women who
inherit a mutated BRCA gene have a higher risk of developing breast and/or
ovarian cancer.
Genetic testing is also available for other types of cancer, including
prostate and thyroid. The Prolaris test measures the level of genes involved
in prostate tumor proliferation. This test helps doctors determine disease
aggressiveness, as well as prescribe personalized treatments. The Afirma
Thyroid FNA Analysis, a 142-gene expression test, allows doctors to
determine if the thyroid nodules in question are benign or cancerous. This
test can prevent unnecessary invasive surgery, along with life-long thyroid
replacement medication.
Providing doctors and patients with more effective treatment options
and improved outcomes is the goal of personalized medicine.

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Cancer and Targeted Cancer Therapies

What causes cancer? Biomedical research has concluded that cancer is a
genetic disease.
Cells are the basic unit of life that contain our genetic code. The average
human being has more than 100 trillion cells. Each cell has a specific purpose;
some cells have short lives, others long. It is estimated that about 1 million
cells die every second, amounting to our body weight annually. Normally, to
replace one of the dead cells, an existing cell must divide. For each division to
be successful, the entire genetic code of the mother cell must be copied to the
daughter cell.
Compare cell replication to
photocopying every page of an
encyclopedia a trillion times a day.
You can begin to imagine the number
of errors that may occur, resulting in
genetic mutations.
Just like attempting to photocopy
massive volumes of paper, errors can
occur in cell replication. Fortunately, our cells are equipped with enzymes
that help copy, proofread, edit, and correct errors. As with most things in life,
this system is not foolproof. Sometimes, errors get passed along. Errors in our
genetic material are called mutations.

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Over time, mutations can accumulate and cause cancer and other
diseases. Mutations may occur on their own, as part of the normal process
of life. Other times, they are inherited. Mutations can also be activated by
repeated exposure to environmental hazards like high doses of radiation.
When mutations accumulate, they often form solid masses known as tumors.

Source: Foundation Medicine; www.foundationmedicine.com

Imagine if tumors could talk! This illustration depicts a tumor (purple mass)
expressing its unique genetic makeup, a combination of the three billion
subunits (Bases A,C,T, and G).

Through biopsy or surgery, solid tumor tissue can be analyzed using nextgeneration genomic sequencing technology. The FoundationOne test decodes
a tumors DNA, compares it with all genes known to be relevant in human
cancers, and matches any mutations with targeted therapies.
Historically, cancers were categorized and treated based on where they
occurred in the body: lung, breast, colon, pancreas, skin, blood, etc. With
advances in biomedical science, cancers are now being categorized and treated
based on their underlying genetic mutations.

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Traditional cancer treatments include surgery, radiation, and

chemotherapy. Newer treatments include targeted cancer therapies: drugs or
other substances that interfere with specific proteins involved in cancer cell
growth and survival. Traditional chemotherapy acts against all actively dividing
cells and, typically, has more harmful side effects. Targeted cancer therapies use
information about a persons genes and proteins to prevent and treat disease.
Several types of targeted cancer therapies have been approved for use:
TYPE OF TARGETED THERAPY
Hormone Therapies

Signal Transduction Inhibitors

Gene Expression Modulators

Apoptosis Inducers

HOW THEY WORK

Slow or stop growth of hormone-sensitive tumors;
prevent body from producing the hormone, or interfere
with how hormone works.
Block harmful communication between molecules
within cancer cells; stop cancer from growing.
Modify the function of proteins that control how genes
are expressed in cancer cells.
Apoptosis is one way the body rids itself of abnormal cells.
Cancer cells block apoptosis; these therapies restart
the apoptosis process.

Angiogenesis Inhibitors

Block the formation of new blood vessels necessary

for tumor growth.

Monoclonal Antibodies

Deliver toxic molecules or radioactive substances,

killing targeted cancer cells, without affecting
surrounding cells.

Vaccines

Preventive vaccines inoculate healthy people against cancer.

Treatment vaccines strengthen a cancer patients
immune system.

Source: Muhlenkamp & Company, Inc.

Despite their promise, targeted cancer therapies have limitations. Cancer
cells can continue to mutate and develop resistance to these medications.
Further, the complexity in structure and function of some proteins makes it
challenging to develop new therapies. As an example, scientists are working
with the ras gene family, which is elusive and difficult to regulate. Continued
research is important because ras genessignaling proteins involved in tumor
formation and growthoccur in as many as one-quarter of all cancers and in
the majority of pancreatic cancers.

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The Immune System

In an effort to find a cure for cancer, researchers continue to broaden their
scope. Immune oncology marks an entirely new way of approaching cancer.
Scientists are developing treatments that target the immune systemnot
cancer cellsmaking it applicable to a broad range of cancers.
Our immune system helps to protect us from disease. We have a front
line of defense like our skin and the bodys general response that prevents
infection with every little cut. We also have more specific defenses deep within
our cells. Every day, we encounter countless external threats, such as bacteria,
viruses, parasitesany foreign invaderand our immune system selects the
appropriate response. There are also internal threats, including the mutations
and cancer cells previously discussed. Known as immunosurveillance, the
immune system recognizes and attacks these cancer cells.
How does immunosurveillance work?
Simply stated, the body can tell the difference between cancer cells and
non-cancer cells based on specific proteins that are released. Remember, cancer
cells are very clever. They have the capacity to cloak themselves and evade
detection. Further, they can deregulate, disarm, and shut down the immune
system. When the immune system shuts down, cancer cells accumulate and
overrun the body.
Many of the immune systems anti-cancer responses are being studied in
clinical trials. As referenced in the table on page 13, monoclonal antibodies
are delivery vehicles, historically used to target and destroy cancer cells. In
immune oncology, scientists engineer these vehicles to specifically target and
reregulate components of the immune system. Think of this new class
of medications as akin to driving a car. In order to initiate a successful
tumor-killing immune response, you need to fill the tank. Once started,
you need to take your foot off the brake and, then, press the gas. Though
simply stated, this analogy explains how a new class of medications is being
designed to reregulate different parts of the immune system that had been
shut down. Because the relationship between cancer and the immune system
is so complex, scientists think the greatest potential in the field of immune
oncology is to target two or more of these immune drivers at the same time:
1+1=3. Additionally, scientists are evaluating the benefits of prescribing
both immune oncology and targeted cancer therapies, referred to as
combination therapy.
Scientists think that restoring appropriate function of the immune system
will greatly improve outcomes and, possibly, provide a cure.

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Viruses
Viruses are tiny organisms that cannot exist on their own. A virus requires
a hostbe it plant, animal, or human. Once it invades the host, a virus hijacks
a cells replicating hardware and inserts its own DNA. Then the virus begins to
reproduce, forever altering the hosts genetic material.
Broadly speaking, viruses vary in their potency; some are benign like strains
of the flu, while others are more life-threatening, such as HIV and hepatitis.

Source: http://www.epidemic.org. Hepatitis C virus.

Undetected and untreated, the hepatitis C virus can cause liver disease and
cancer. Largely a mystery, hepatitis C viruses have no color and are smaller
than the wavelength of visible light. Technically speaking, hepatitis C is an RNA
virus, which means it mutates frequently. So, once an infection has begun,
hepatitis C creates different genetic variations of itself within the host. These
mutated forms are frequently different enough that the immune system cannot
recognize them. Once thought of as a chronic life-long condition, a cure for
hepatitis C is now available.

Despite their menacing features, viruses have attractive characteristics.

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Given their ability to penetrate a host cell and alter the genetic material,
scientists are reengineering viruses. They are creating therapeutic agents by
inserting, deleting, and/or inactivating various genes within the virus to
achieve a desired effect. A bioengineered virus can then be combined with a
medication to target disease, including cancer.

Source: www.nature.com. Gene therapy.

When a bioengineered virus is combined with a cancer-fighting medication,
it is known as oncolytic immunotherapy. This illustration shows the cancerkilling power of an oncolytic adenovirus (oncolytic ad). Oncolytic agents
specifically target cancer cells, while sparing healthy cells. The viral offspring
then spread throughout a tumor and surrounding area, ultimately resulting in
improved antitumor effects.

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3-D Bioprinting
Three dimensional (3-D) printing originated in the 1980s, providing a
technology that is now used to manufacture everything from small houses for
families in China, to prosthetic limbs for patients across the globe. Though an
emerging field, the promise of 3-D bioprinting is even greater.
3-D bioprinting uses computerized additive manufacturing to build
human tissues. Through this process, bio-ink (a paste of living cells) is
deposited layer upon layer onto biological designs that have been programmed
into a computer. This technology allows scientists to create human cells and
tissues used for research, drug development, and personalized medicine.
Scientists are now experimenting with printing a wide variety of cells and
tissues, including bits of lung, kidney, heart, liver, skin, muscle, and cartilage.
The hope is that, someday, bioprinted organs can be created on demand using
a patients own cells, lowering the risk of rejection by their immune system.

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3-D bioprinting differs from traditional tissue engineering in which

cells are cultured and then seeded onto individual biodegradable molds or
scaffolds. 3-D bioprinting is more precise because the printers run under
computer control. Organs and tissues vary in complexity. Flat structures like
skin or cartilage are less complex than tubular ones like blood vessels or
windpipes. Organs like the kidney, liver, and heart are even trickier.

Source: www.explainingthefuture.com
Scientists hope to bioprint replacement organs on demand according to
patient-specific needs. 3-D bioprinting derived from todays inkjet printers.

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The NovoGen Bioprinting platform generates bioprinted liver tissue used in

drug development, improving therapeutic drug discovery and development.

Biomedical research in the United States is a $100 billion industry, with

approximately 65% supported by commercial enterprise.1 Advances that make
their way into clinical practice are transforming the way healthcare is being
provided. In addition to improving the human condition, we think there are
ample investment opportunities.

1 http://www.nejm.org/doi/full/10.1056/NEJMsb1007634

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Following are snapshots of some of the companies we find interesting:

Gilead Sciences (GILD)
Gilead has expertise in infectious diseases, especially viruses. For more
than a decade, Gilead has been changing the face of HIV. Once considered
a death sentence, HIV attacks the bodys immune system, making those
infected susceptible to cancer and other life-threatening diseases. With Gileads
medications, patients lives have improved, changing a death sentence into
a condition that can be managed. Early treatments for HIV required taking
handfuls of pills, several times a day and, if you failed to do so, you were at
risk of developing AIDS and dying. Not only are Gileads medications more
effective in treating HIV, they have combined several medications into one pill
which makes managing the condition easier. But they havent stopped here.
Gilead is working tirelessly to find a cure for HIV, much like theyve found a
cure for the hepatitis C virus.
Hepatitis C silently attacks the liver, causing increasing amounts of
damage. Once diagnosed, it requires an extensive life-long medication
regime. In December 2013, Gilead received FDA approval for its hepatitis C
medication. The medication cures certain strains of hepatitis C in 8-12 weeks.
Celgene (CELG)
Celgene has expertise in understanding the relationship between cancer
and the immune system. Their medications work by attacking cancer cells and
boosting the immune system. With these characteristics, the medicines are
helpful in treating a variety of cancers, ranging from blood and soft tissue to
solid tumor. Additionally, Celgene has a broad and deep pipeline of cuttingedge compounds in clinical-research trials.
Bristol-Meyers Squibb (BMY)
Bristol-Meyers Squibb is a traditional pharmaceutical company in
the midst of reinventing itself into a leading global biotech company.
Bristol-Meyers Squibb was the first to obtain FDA approval for an immune
oncology therapy.

Current and future portfolio holdings are subject to risk.

Company holdings and sector allocations are subject to change and should
not be considered a recommendation to buy or sell any security.
The opinions expressed are those of Muhlenkamp & Co. and are not
intended to be a forecast of future events, a guarantee of future results,
nor investment advice.

2014 Muhlenkamp & Company, Inc. All rights reserved.

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