Mind Race : Technology: Biomagnetic Technologies’ ‘physicists’ toy’ has evolved into an instrument that could revolutionize treatment of brain disorders. The company and a much larger competitior are scrambling for a marketable use for the technology.

In the late 1960s, a group of UC San Diego physicists developed an experimental tool called a magnetometer to measure the Earth’s magnetic fields. After seeing that there was ample demand for the device from other physicists, they formed a company now known as Biomagnetic Technologies to manufacture the product.

Twenty years later, that initial scientific device, which was once dubbed a physicist’s toy, has evolved into a biomedical instrument that could revolutionize how doctors diagnose and treat brain disorders. In the process, Biomagnetic Technologies has been recognized as a pioneer in magnetic source imaging, a method of devising a map of the brain and its functions.

But the publicly owned company is now in a product development race with Siemens, a much larger West German-based conglomerate, to come up with a marketable use for the technology. At stake is a huge market. There are 44 million Americans afflicted with functional brain disorders who conceivably could benefit from such a device, the company maintains.

Biomagnetic Technologies recently introduced a prototype product called a biomagnetometer that, by measuring magnetic fields created by the brain’s electrical activity, could give doctors a “window” into the workings of the brain, heart and neuromuscular system.

A wide range of studies are under way at various medical centers throughout the United States and Europe concerning its usefulness in diagnosis and treatment of brain and heart ailments such as epilepsy, stroke, Alzheimer’s disease and sleep disorders.

“Once we prove applications, the (company’s) growth could be very, very fast,” said Biomagnetic Technologies President Stephen O. James. “We’ve got a unique technology that no one else has right now. It gives us time to try to commercialize this.”

The biomagnetometer is a computerized scanning device that consists of 37 independent magnetic field detectors housed in a thermos-like container. By measuring the magnetic fields, medical researchers can understand not only the source of where that electrical activity occurs in the brain but whether it is normal or not.

For example, epileptics whose seizures cannot now be managed by medication sometimes choose to have a portion of their brain surgically removed. The biomagnetometer has the potential to pinpoint the location of the brain tissue that causes seizures, helping save as much healthy brain tissue as possible.

The market for such a product could far exceed that of magnetic resonance imaging, a medical instrument that provides an anatomic picture of the brain but is limited in that is does not measure brain function, James said. The new technology would complement magnetic resonance imaging and existing diagnostic high-tech devices such as ultrasound and computerized scans.

Electroencephalograms (EEGs), for example, measure electrical activity, but their signals are imprecise because they are altered by tissue and distorted by currents within the brain. In addition, the procedure for some patients can take up to two weeks and cost upwards of $20,000 when electrodes are implanted in the brain.

Magnetic source imaging, however, is considered non-invasive, as having no potentially harmful effects on patients. Procedures could cost patients as little as $5,000, James said.

Initial clinical results have been encouraging, said Dr. Christopher Gallen, a senior research associate at the Research Institute of Scripps Clinic. Scripps and Biomagnetic Technologies recently signed an 18-month research collaboration agreement, the focus of which is to determine whether the detection of the magnetic fields can help in diagnosing and treating epilepsy, stroke and Alzheimer’s disease.

“The challenge is to make it live up to in practice to what it’s promised in principle,” Gallen said.

If successful, the implications for the medical community are enormous, Gallen said. The biomagnetometer is potentially revolutionary because it provides the “ability to look at brain activity on a millimeter basis,” he said.

With the more precise measurements, clinicians and researchers hope to develop more specific and effective treatments.

“This is the best opportunity I’ve ever had to work on something potentially so important,” Gallen said. “It has the potential to tell about the basic underlying nature of our humanness.”

That the technology could be used to manufacture a medical device has come as something of a surprise to the company’s founders.

The company was founded in 1970 by UCSD physicist John Wheatley and colleagues to develop magnetic sensing devices used for a variety of laboratory and commercial purposes, including the detection of subterranean mineral and oil deposits.

The scientific instrument, called a magnetometer, is still sold by the company to physicists, said Gene Hirschkoff, vice president for technology who has been with the firm since its inception, when it was called S.H.E. Corp. Hirschkoff and several others now with the company were students of Wheatley, who died in 1986.

But the turning point for Biomagnetic Technologies came in the mid-1970s, when medical researchers approached it about using the magnetometer to study the brain. By 1982, refinements of the device had allowed UCLA researchers to pinpoint the location of brain tissue that was causing a patient’s epileptic seizures. That breakthrough led to the company’s strategic refocus.

James was recruited by the company’s board of directors in 1984 to help the company develop medical applications of what became known as “biomagnetism.” At the time, he viewed the company as “an entrepreneur’s dream” because no one else possessed the technology, James said.

To date, Biomagnetic Technologies has sold more than 50 of its devices at prices of up to $2 million or more. The company’s market is highly specialized, consisting of about 450 advanced medical research centers in the United States, Western Europe and Japan.

But other medical equipment manufacturing firms are now moving in. Siemens Medical Systems, a large West German-based medical equipment manufacturer, is Biomagnetic Technologies’ closest competitor, according to trade analysts. James acknowledges that he can “hear the hoofbeats” of Siemens and others.

Gregory Freiherr, principal owner and medical technology market analyst for the consulting firm of Silver Spring-based Gregory Freiherr Inc., said that Biomagnetic Technologies is staking out future ground in a very narrowly defined market.

Siemens, with its strong corporate backing and foundation in the medical equipment industry, is formidable competition, Freiherr said. “Who’s going to come out on top in the future is anybody’s guess,” Freiherr said.

However, the first head-on battle between Siemens and Biomagnetic Technologies ended favorably for the San Diego company. It occurred last year when both were vying to sell a magnetic source-imaging machine to a research institute funded by the West German government.

“My heart fell into my stomach, though, because traditionally the German government has been very gracious in supporting Siemens,” James said. “We were facing a situation where I thought we would be at a great disadvantage, that the cards were really stacked against us. But we went ahead and bid anyway. I figured, frankly, we had nothing to lose.”

Ten German “referees” were assigned by the West German government to determine who had the better system.

“They were all German referees, and it was a German researcher and German government money,” James said.

The results? Nine out of the 10 referees chose the Biomagnetic Technologies instrument, James said.

“We beat them under the most difficult of circumstances. And we charged our full price, we didn’t try to win the situation by trying to discount the equipment or offering other incentives,” James said.

The $2-million order was the first sale of the company’s prototype. Delivery is slated for this summer.

Despite that success, Larry Haimovitch, a medical technology analyst with the San Francisco-based investment banking firm of Furman Selz Mager Dietz & Birney, said the biomagnetometer “still (has) some ways to go. . . . It has to be proven that it has a real role in day-to-day medicine. It also needs to come down in price. It’s a very exciting technology that needs to be seasoned.”

James concedes that his company is in something of a race against time. If Biomagnetic Technologies takes five years or more to come up with a marketable product, rather than the two- to five-year period that the company now targets, the company will have a hard time raising sufficient funds to remain operating.

“But we’ve got a very fair chance right now,” said James, noting that the company has $20 million in cash in the bank, much of it raised in its initial public stock offering last summer. “We’re very well financed for being a small company. There are not very many companies that have twice as much cash in the bank (as) annualized revenue.”

Sales of an early version of the biomagnetometer generated $10 million in revenue in the fiscal year that ended September, 1989, up from $6.7 million in 1988 sales. But the company suffered a $5.5-million loss last year, largely because of development costs related to the new prototype. The company also wrote off $1.5 million in inventory as obsolete.

The company employs more than 130 scientists, engineers, technicians and sales personnel in Sorrento Valley.