Canada has the highest number of biotech companies of any country outside the US, and the industry generates the highest revenue per employee and the third highest total revenue, world-wide. Ernst & Young’s 2004 report on global biotech indicates that there are 470 (389 private) Canadian biotech companies; 60% of them develop therapeutics, two-thirds of which focus on cancer. The industry has a strong academic base for innovation, a high level of university-industry collaborations and government-funded programmes in fields such as bioinformatics, genomics and proteomics.
Presentations by approximately 100 companies at BioFinance 2005, held in Toronto in May 2005, reflected a vibrant biotech industry in Canada. Since its inception in 1997, attendance has increased by 10% each year, with a yearly refreshment of the small company pool. Delegates expressed views on issues facing Canadian biotech, such as drug development and business strategies, venture capital financing, corporate governance and drug re-importation.
Business costs in Canada are lower than in other G7 countries. The Scientific Research and Experimental Development Tax Incentive Programme, which returns cash to private companies conducting research, is a major incentive to biotech companies. Public sector initiatives include the MaRS Discovery District (Toronto) and IRAP-TPC (Ottawa).
Loss of credibility of the industry resulting from safety issues surrounding COX-2 inhibitors such as Vioxx (rofecoxib) and controversy over efficacy of approved drugs like Iressa (gefitinib) highlights a need for personalised medicine strategies. Limited resources makes strategic change towards theranostics impractical for most biotech companies. Nevertheless, affirmed Frank Bobe, CEO of cancer-focused BioAxone, there is an awareness of the potential future value of diagnostic tests/markers, used as tools in drug development and put ‘back on the shelf’ when drug testing is completed. Bioniche has a test for responders to its mycobacterial cell wall-DNA complex (MCC), a bladder cancer therapy in Phase II trials. Transition assessed cancer markers in preclinical studies in monkeys treated with E1-INT, an Interferon Enhancing Therapy for diabetes.
As reported in IMS LifeCycle R&D focus, several companies at BioFinance 2005 were seeking drug development partnerships. After the broken promises of the genomics era, pharma companies are looking to extend the patent life of their older marketed drugs. Improving drug delivery is one way of doing this; various drug delivery/formulation technology companies presented at BioFinance 2005, including Mistral, which uses its PROCISE technology for oral, controlled release, and Equitech and Cipher, which re-formulate drugs. Drug design or discovery platforms can also be a revenue earner. Caprion has established collaborations with pharma relating to its CellCarta proteomics platform. Unexploited platforms include Variation Biotechnologies’ Variosite platform for generating vaccines that overcome antigenic variation and Protox’s protein engineering of aerolysin to produce targeted cancer therapies.
Nurturing small companies
The Toronto Stock Exchange Venture provides first-time access to public VC for early-stage companies. In 2004, 53 of 1,948 companies listed on TSX Venture were from biotech; since 2000, the industry has represented 15 of the 201 companies moving from TSX Venture to a more senior exchange. Transition listed via an IPO on TSX Venture in 2001 before listing on TSX in 2004. The company contracts out its research and aims at spending C$3-5 million over 18 months to get its products from preclinical development to Phase IIa trials before partnering.
Venture capital
With ample opportunity in their own country and certain negatives of cross-border financing, US VCs do not avidly mine Canada. Lack of profitable exit strategies has also discouraged VC investment in Canadian biotech. IPO windows of opportunity were seen in 1995-1996 and 1999-2000; although in the last two years some companies such as MethylGene had reasonable valuations, investor return recovery in Canada has not matched that in the US. Bobe contends that VC in Canada is spread too thinly and that VCs need to make better informed investment decisions, placing demands on companies to maximise funding security. Tony Cruz, CEO of Transition, suggests that VCs should act quicker and change focus from technologies to products, with less importance on share price.
Importance of cross border strategy
Cheryl Reicin, Senior Life Science Partner at business law firm Torys LLP (New York/Toronto), stressed the need for companies to plan early for cross-border regulatory, intellectual , tax and corporate restructuring property issues. The US accounts for 90% of the North American market, and a market leader drug in Canada may not necessarily qualify for reimbursement in the US. Bobe advised that VCs should demand that Canadian companies initially focus on the US and Japanese markets. He also suggested that strategic problems are also due to a lack of seasoned executives with global expertise.
Impact of corporate governance reforms
The Sarbanes-Oxley Act, enacted by US Congress in 2002, aims to protect investors by increasing company accountability. The SOA requires increased speed and detail of disclosure, with higher costs. Regulations similar to the SOA will apply to TSX-listed companies from June 2006. Reicin said that a major flaw of the SOA is that communication between company and auditor has been stifled. At BioFinance 2005 and the Sachs-Bloomberg 4th Annual North American Forum for Investing and Partnering in Biotech and Medtech, held in Boston in March 2005, representatives from Canadian companies, some listed on US stock exchanges, told R&D focus that the SOA has hindered biotech growth.
David Allan, CEO of YM Biosciences, asserts that the SOA forces directors to spend more time on issues related to process rather than results. Donald Corcoran, CEO of MethylGene, and Graeme McRae, CEO of Bioniche, doubt that the stricter regulations can deter the few ‘bad apples’. Cruz argues that the SOA creates risk-aversive boards of directors, stifling innovation. Reicon is optimistic, though, that SOA features will be modified for practicality before implementation in Canada.
Re-importation
In her opening address at the Sachs-Bloomberg conference, Kathleen Williams, Co-chair of Life Sciences at Palmer & Dodge LLP (Boston), another legal firm, asserted that the issue of drug re-importation from Canada into the US is ‘haunting’ the industry. At present, an FDA-approved drug can only be re-imported into the US by its manufacturer. Legislation coming into force in 2006, however, aims to legalise re-importation to reduce drug prices. Complicating matters is consideration of whether re-importation infringes patents. Anticipating the possibility that manufacturers will take action leading to increased drug prices in Canada, and recognising that Canadian stocks are insufficient for use as a ‘drug store’ for the US, the Canadian government stated in June 2005 its intention to ban bulk exports and modify regulations for internet pharmacy sales.
The background of funding issues, seminal regulatory and political changes and undulations of the market, paints an intriguing picture of the potential shape of Canadian biotech in the forthcoming years.
This article was written by Harin Mahadeva, an Editor for IMS LifeCycle R&D focus. Data from BioFinance 2005 were reported in R&D focus and in Drug News. For further information about either of these products, please contact Stephanie Earle via e-mail or call +44 207 393 5757.