Alberta Inventors and Inventions - Technology Transfer - University of Alberta Spin-Off Companies

On the medical side, the development of a pharmaceutical drug is a game of life and death – success could benefit potential millions of people suffering illness. On the business side, it's a strategic game of patience: big dollars rolling in and none trickling out for years - if ever. It requires visionary financing, careful staffing and an extensive period of clinical trials and eventual approvals. Finally, often 15 years or more after the initial lab work, it's time to hit the global market to see if the drug will preponderate the expectations or disintegrate in untimely fashion.

Alberta's biotech leaders face their business challenges with a resounding theme of creativity and faith in what they term as good science - embracing the odds in an industry known for more than its share of failures. The five firms interviewed for this story are among a short list of companies pioneering the biotech industry in the prairies, a place only recently tagged as a locale for the white coats of the industry to conjunct. The majority are small companies in terms of staff, but the potential for growth and high return on investment is staggering.

Raising the funds needed for initial research and development, and the pre-clinical and clinical trials to follow, is a massive concern in the biotech industry. When fingernails become the standard light brunch of stockbrokers worldwide, finding investors willing to weather the wait-and-see approach necessary in drug development becomes increasingly daunting.

"In this market right now, it's hard to get biotech financing," says Kevin Geise, president and CEO of Edmonton's BioMS (currently in the data analysis stage of Phase II human clinical trials in the development of MPB8298, a synthetic peptide technology for the treatment of multiple sclerosis).

But in 1999, when BioMS first licensed the technology, the funding came together rather easily - primarily from Albertan investors. Geise says money was raised through the strength of the technology, conveniently developed part way into the Phase II clinical trial stage by researchers at the University of Alberta (U of A) over the previous 25 years. The nature of the product and its potential to help the many MS sufferers in Canada and around the world added to its investor appeal. Target annual sales of about $4 billion US for the potential blockbuster drug (over $1 billion US in sales annually) with orphan status (no one in the world has anything like it) keep visionary investors pacified. Until it hits the market, they will have to find assurance in the developmental milestones of the company -trial start and finish dates, results, patents achieved and overall financing achievements.

BioMS began with a private round of financing that raised $19 million followed by public financing of $8 million over the last year and a half (CDNX:MS).Warrants exercised by current stockholders added another $9 million to the pot early this year, rounding it at about $36 million.

"I'm a bit fortunate because right now," says Geise, "I have enough money in the bank to develop my product through the basic regulatory development." That takes care of the Phase III (usually the final) clinical trials taking place over the next three years - at which point, if all goes well, the technology will be approved and investors will begin to see dollars flowing back into the company.

Investment-wise, the lowest risk in biotech is evidenced by the advent of Phase III human clinical trials. Conversely, government support is more readily available in the early stages of the research because of the recognized need (though it is used to complement outside funding and doesn't carry development on its own). No-man's land is the late pre-clinical/early clinical stage, where government funding tapers and private or public funding is difficult to solicit, says Geise.

An Edmonton-based company that has grown healthy without public funding or extensive use of government grants is NAEJA, one of the oldest biotechs in Alberta. Founded in 1987 by Ronald Micetich as a U of A spin-off, the company remained under the name SynPhar as a joint venture partner with Japan's Taiho Pharmaceutical until 1999 when the assets were rolled over into NAEJA and DrisCorp Pharmaceutical was acquired.

Through the transitions, the firm has remained a 100% family-owned affair specializing in early product development in the area of infectious disease. Fifteen of its own anti-infectious compounds are in varying stages of development, with two, Tazobactam and Disopain, already on the market. While much of the discovery and early development of drugs in Alberta is done in university labs, NAEJA has found a way to operate rather independently and in the complete absence of venture capital.

"We've had to become very creative within how we sustain operations," says Sameeh Salama, director of business development and microbiology. A contract research division (doing work for companies like Pfizer US) was established to provide financing for the ongoing internal research. Another source of funding is the out-licensing of various products the company has taken up to the clinical stage. Agreements for upfront payment and milestone payments help the short-term cash flow, with the added benefit of being kept in the loop through to the approval of the technology.

"We decided rather than go into mergers and acquisitions, we basically do the discovery of compounds and then look for a partner who will push this through clinical trials and development," says Salama. NAEJA's partnering with companies that need a pipeline of products and have existing clinical trial and marketing teams is a win-win.

Long-term financing will come from the royalties received from approved out-licensed drugs. "If all 15 products make it into clinical use and all the royalties come back from them, we'll be in very good shape," says Salama.

Unlike NAEJA that has established a diversified platform of work, Isotechnika (TSX:ISA) can hold its entire future between its thumb and index finger. "With this company I've got 100% of my future and probably my kids' future at stake," says chairman and CEO Robert Foster. He says his immunosuppressive organ transplant drug ISATX247 is so far superior to what is currently available it will, if approved, render the current treatment ineffective or even unethical.

Assuming effective commercialization, the technology should do sales of significantly more than $1 billion US annually, says Foster. The process of raising funds for research was initially slow and Foster didn't mentally register the magnitude of it until his company had guaranteed loans equalling $800,000. That was 1993. At the end of 2001 Isotechnika had cash reserves of $53.3 million. And April of this year saw the signing of a co-development deal with industry giant, Roche, that will pay Isotechnika (assuming all milestones are reached) $215 million US plus an undisclosed percentage of gross profits. Roche will also contribute 70% of the remaining development costs.

The financing has come together for the company, but Foster says it is a serious challenge for all biotech companies in the province. "There's not a lot of access to venture capital and there's no access to labour-sponsored venture funds either.

"But if you believe in what you're doing, you just push forward," says Foster. "Given our backgrounds in science -I really felt strongly that we had good science - the ideas would eventually come, if we had the right amount of cash at the right time." The agreement with Roche puts an exclamation point behind the statement. "People will see eventually that this is a pretty amazing deal...," says Foster.

As visionary gamblers familiar with investing and crossing fingers to see how the returns will shake loose, Alberta's farmers and oil industry workers have an innate understanding of the biotech industry, says Brad Thompson, president and CEO of Calgary's Oncolytics Biotech Inc. (TSX:ONC, NASDAQ:ONCY), a company working on a viral treatment for prostate cancer. But that appreciation does not necessarily reach up into the government's list of priorities.

Public biotechs across Canada compete on a fairly level playing field, rising and falling with the strength of the stock market, says Thompson. But the field tilts jurisdictionally. "Half the biotech in this country is in Quebec and it's there for a reason... because the (Quebec) government has made a commitment to biotech and has made it very easy to raise money through government-backed venture capital." Governmental help includes grants and loans through the Quebec pension plan.

"We don't have that here," says Thompson. "It's just not ideologically on the page in Alberta to have that kind of commitment to non-energy." He adds that people get "twitchy over outright grants to industry" but insists there are many creative ways to structure incentives such as investment agreements and repayable loans. Thompson's touch of envy for Quebec's biotech environment seems to be echoed by the industry throughout Alberta.

"It could change overnight, but as an individual company I'm not about to go out and go through the process of trying to change it," says Thompson. What he will do is make sure Oncolytics' intellectual property is properly patented. An oversight in patenting can cause a successful drug to fail as a result of immediate competition in its specific arena.

Financial concerns not cloud the cerebrum of the managerial staff of KS Avi-cenna, formerly Intelligence. All their funding comes from the mother company in London, England, KS BioMedix (LSE:KSB), allowing the firm to focus on the dynamics of team building and production. The one-year-old daughter company is an Edmonton-based biotech manufacturer with eight different drugs on the pipeline in addition to various contract work. In the last four months it has entered Phase III clinical trials for its brain cancer vaccine, TransMid, an alternative to chemotherapy.

With most Edmonton biotech companies involved in research and development, KS Avicenna was forced to expend considerable energy finding and bringing individuals experienced in the licensing of drug manufacturing to the city. Of its 36 employees, 90% were hired from February to August 2002, arriving from provinces across the country. Incentives were offered for employees to make the move to the prairies, but the excitement of working at the forefront of a new company had its own appeal.

"It's been a struggle of getting the chemistry between management and staffing -bringing them up to speed and manufacturing everything all at once," says David Lima, director, quality engineering, sounding weary but confident of success. "Coming from Toronto, I find the biotech industry here is really close-knit, which is nice."

KS Avicenna isn't the only biotech in Edmonton to experience the positive pressure of a hiring binge. NAEJA has gone from a staff of 37 to 80 in the last year due to expansion of its contract work division - and management has searched the world to bring them in. Lab renovations have resulted to create more workspace.

"We're very fortunate being in Edmonton, Alberta," says Salama. "1 think the standard of living and the state of technology in Alberta is one that is an advantage to us and we've been able to attract people from pretty well all over the world - places like Russia, China and even... Australia and the United States."

The standard of living in Alberta isn't always enough to swing qualified biotech personnel this way. The traditional Canadian development of the pharmaceutical and biotech industry has been focused in Ontario and Quebec, says Geise of BioMS. "As a consequence, we've had to develop a national approach to our staffing, so I've hired a lot of people outside the province. The pool of human resources within the province is still developing. Hopefully it will be a lot better 10 years from now." It has proven easier for the company to have its development team forming the clinical plan and dealing with regulatory authorities headquartered in Ontario. Pulling them this way would require heavy incentives. The research team, however, remains centred in Alberta.

Only nine people find full-time employment at BioMS with both provinces combined. After full approval has been granted, a decision to switch to in-house manufacturing could increase the number by another 20. Add an in-house marketing team and 100 more people would come onside globally.

But moving manufacturing and marketing in-house is unlikely, as drug development has become an industry of contractors and subcontractors, making it possible to hire out manufacturing, consulting and clinical trials to specialized companies evolved through the downsizing of some major pharmaceutical firms. It frees local biotechs from the chore of assembling a complete staff from the four winds to unite for the comprehensive development process.

"Ultimately it's the scientist who is the core (of the industry) and they are coming out of Alberta in a very prolific manner," says Geise. If he can, he will keep as much of the growth in the province as possible.

Oncolytics' Thompson is not so upbeat, saying that if the core of a company is in the province but the bulk of its employees are elsewhere, it won't do much for the province. His company is a prime example, with eight full-time employees—seven in Alberta and one in Ontario, and 40 or 50 others who earn their living through Oncolytics on a contract basis but are mostly located in the U.S.

Thompson has friends in the industry in San Francisco who have worked at five or six different companies without having to move, meaning their kids can stay in their schools and spouses don't have to change jobs. "If you come to Calgary's biotech you don't have that network. You work for Oncolytics for four or five years and then if you want to go to work for somebody else you have to move again."

Though the income tax environment is positive in the province, it's not enough to entice many. "At some point – and Oncolytics is pretty close to that point -you say the majority of our human resource growth won't be here," says Thompson. "Do we think that Biomira will actually become a fully integrated pharmaceutical company in Alberta? Unlikely. Do we think that Isotechnika will, now that they've signed with Roche? No."

Indeed, the drug development industry in the province does not appear poised to make the turn from categorically focused biotech companies to the more diverse world of major pharmaceuticals. Yet, increased activity in the industry testifies that there are individuals dedicated to developing their biotech dreams locally. Promising results from a number of clinical trials and the financial health of many of Alberta's biotech companies suggest the business of drug development in the province has passed its preclinical trials.

Faith and Good Science