Eager investors eye future B.C. biotech breakthroughs
By Gillian Shaw

Vancouver Sun

Friday, October 26, 2007

VANCOUVER - When Ken Galbraith oversaw the $584-million US sale of Langley's AnorMed he could have settled back to a leisurely life doing nothing more strenuous than strolling the beach near his White Rock home.

Instead, the former AnorMed CEO has joined the Vancouver venture capital firm Ventures West, battling gridlock traffic to his new downtown office every day and frequently flying to meetings, all because he is convinced British Columbia is on the threshold of some major biotech breakthroughs.

"I'm back to working full-time," said Galbraith, a partner at Ventures West who leads the company's biotech portfolio. "I'm predicting things are going to be really good over the next three to five years.

"This getting up every morning to commute from White Rock and getting on planes is going to pay off. I'm betting on it.

"I think we are going to grow some really good companies in B.C. I don't want to miss that. No one wants to miss out on a good party."

Galbraith isn't alone in his view. There is growing competition among investors to fund the most promising science coming out of the province's universities - as well as institutions like the BC Cancer Agency and others - and there's a feeling that a number of companies are poised to capture the attention of the global biopharmaceutical market.

Brenda Irwin, a director at BDC Venture Capital, sees a resurgence of interest in major institutional venture capital financing after a three-year hiatus. In 2004, Inimex Pharmaceuticals, a University of B.C. spin-off, had its first institution-backed financing by a syndicate of venture firms. But it wasn't until June of this year that Aquinox Pharmaceuticals, another UBC spin-off, followed suit, scooping up $14.5 million in one of the largest early-stage venture capital financings in B.C.'s recent biotech history.

"There had been some seed finance for local biotechs, but in terms of larger funds and larger dollars raised it has been a long time between institutions chasing interesting new deals," said Irwin. "It was a three-year dry spell."

While market watchers worrying that recent gloomy financial news surrounding B.C.'s biotech pioneers Angiotech Pharmaceuticals and QLT Inc. may be ready to deliver the death knell for the sector, it appears that the patient is not only out of critical care, but is up and running around.

"It's a cycle," said Barbara Campbell, associate director of the University-Industry Liaison Office at the University of B.C., where both QLT and Angiotech have their roots.

"You expect the technologies to fade gradually into the sunset as competitors come up and the technology lapses," she said. "But other companies are being birthed now that in five to seven years will be producing products like the Angiotechs and the QLTs did."

With a constant pipeline of inventions that have the potential to become commercial products coming out of B.C.'s institutions, entrepreneurs need money to develop that pipeline. On the positive side, angel investors have upped the amounts they are willing to put in to seed early-stage development.
But at the same time, institutional venture capital firms have been waiting to invest in companies that are further along in their development - which come with less risk and a shortened period to a return on the investment.

"I think there has been a lull," said Galbraith. "But there are a whole bunch of things coming together.

"There has been research money poured into B.C. in the past five years, and a lot of that is going to come to fruition."

Pat Brady, vice-president for life sciences investments at Vancouver's GrowthWorks, said he has seen a "fairly steady outflow of deals coming out of the universities.

"It has not been spectacularly growing, by any means," he said. "We have seen more diagnostic/biomarker technologies coming out. Part of that is due to the knowledge gain from the human genome and all the technology in that area. And the other part is these technologies tend to be less expensive to develop, quicker to develop, and so more palatable for investors."

Biomarkers are indicators of diseases or conditions and they help doctors in diagnosis, in determining what drugs might work, or what other clinical decisions should be made.

"There is definitely a need for as-early-as-possible diagnosis, and biomarkers are a part of a personal medicine swing that allows you to personalize medicine choices better and also to segment your [patient] population, and hopefully get them the right medicines for their particular makeups," said Brady.

Brady said with the appetite for Initial Public Offerings (IPOs) "choppy" over the past couple of years, companies are attracting rounds of U.S. venture capital funding to accomplish what 10 years ago the public markets would have funded. Despite that, B.C. companies are getting their products through to clinical testing.

"Ten years ago, there certainly weren't anywhere close to this number of companies in the clinic," said Brady. "There has been dramatic growth.
"I think this industry has shown to be very cyclical on the biotech side, and I think we are all anticipating an upswing."

Karimah Es Sabar, president of B.C. Life Sciences would agree.

"The bottom line is there is a lot of new stuff bubbling up again," she said.
She said the growth of the industry here and its successes so far mean up and coming companies will find the way easier than it was for B.C.'s biotech pioneers.

"The new companies that come up the pipeline will have much better support and infrastructure than the older ones will have had," she said. "We have big companies anchored here, and we have lots of experience.

"I think these young companies are in good stead to be nurtured here."

New companies are finding doors are opening more easily, and once they get in the door, there's more money on the table. While the sale of some of B.C.'s more successful biotechs like AnorMed and ID Biomedical has left the province without those companies still growing here, it has also put a lot of money into the pockets of local entrepreneurs and has sent talent out seeking new opportunities. Many are spinning off new companies and hoping to see their money seed the next big success story.

"The activity level and the size of the commitments from angel investors is changing profoundly in the biotech community," said Irwin. "There is a growing list of successful biotech and tech entrepreneurs financing startups.
"They are not only financing but their commitments are larger."

It used to be the average angel investor - investors with pockets deep enough to provide some seed money to start-ups - would put $25,000 to $100,000 in a round of financing that would raise a few hundred thousand dollars in total, said Irwin.

"Over the last 18 months we are seeing companies with multiple angels coming in with commitments in excess of $100,000 each," she said. "The range is now anywhere from $100,000 to a couple of million from angel investors.
"It is a consequence of a maturing sector locally, and the consequence of a few successes."

As a result of that, companies are able to advance further in their development before they need to turn to the larger institutional funds for backing.
Vancouver's Sirius Genomics is in that category, now within 18 months of approval for a DNA diagnostic test to create personalized drug decisions for critically ill patients, an accomplishment it has achieved primarily with the help of angel investors.

The traditional empire-building business model has been replaced by a virtual model, said Irwin, where a few core scientists and employees can develop the company. Outsourcing and even having dual-located executives - who may run a company even though they don't actually move here full-time - are trends that help leverage the funding plus attract and retain talent.

Augurex Life Sciences Corp. the recent winner of a New Ventures BC competition and one of B.C.'s new biomarker companies, could see its technology for the early detection of arthritis through a blood test on the market as early as 2010. Its staff numbers recently jumped by a third when co-founders Norma Biln and Anthony Marotta hired another person.

iCo Therapeutics has honed the virtual business model to the point where it has been able to accomplish with about $9 million in invested capital what would have taken $80 to $90 million under the old model.

Its lead product, iCo-007, was given the go-ahead from the U.S. Food and Drug Administration last January to commence clinical trials for the treatment of diabetic macular edema, a condition that can lead from mild vision loss to blindness.

"On the front end, we have for approximately $2 million taken this drug from licensing from Isis to an IND filing," said iCo CEO Andrew Rae. "On average, if you were to look at the Tufts University numbers to get to an IND filing, it is typically $30 million.

"We have done it for about one-15th the cost," Rae said of the drug, which iCo licensed from Isis Pharmaceuticals in 2005 for the treatment of various eye diseases.

iCo has followed the lead of Aspreva Pharmaceuticals, a Victoria company that parlayed its innovative business plan in which it took existing drugs and re-invented them as a treatment of underserved diseases into its recent $915-million sale to the Swiss pharmaceutical and health-care company, the Galencia Group.

That savings, compared to developing a drug from scratch, are coupled with a stripped-down corporate structure where iCo's four executive officers plus support employees make up the company's entire staff, with manufacturing and clinical work contracted out on an as-needed basis.

"It allows you to maneuver and manage the cash in a more flexible fashion than having a large staff on site with lab facilities," said John Meekison, iCo's chief financial officer.

Managing cash at those early stages is critical at a time when the large institutional funds aren't interested in ponying up the traditional amounts needed to get a drug to trials.

"The venture capital community, by and large, is looking to become involved in companies at later-stage development," said Meekison, whose company has received all but $1 million from angel investors and high-net-worth individuals.

"Our industry is struggling with funding earlier stage activity, that pre-clinical work.

"You're seeing a lot of companies bootstrap their way through it."

While companies in the diagnostics field like Sirius and Augurex face a considerably shortened time to market, B.C. is also home to a number of companies that could soon see years of development and clinical testing pay off.

"CellFor, Celator, Neuromed, OncoGenex and Xenon - what you will see as a common feature in all five companies is a large number of institutional venture capital firms involved and a lot of patient capital for therapeutics," said Irwin, citing a list of potential home run hits which - with the exception of CellFor. which is in plant biotech - are in the biopharma field.

"I would say the vast majority if not every one of those is going to put Vancouver on the map within the next two years."

gshaw@png.canwest.com