Deal buys time to bring kidney disease treatment to market

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Five years after Quebec biotech entrepreneur Dr. Francesco Bellini's plans to market a blockbuster Alzheimer's disease drug collapsed, his company has secured a second lease on life.

But the price paid to refinance Dr. Bellini's Bellus Health Inc. was steep. In a deal announced this week, Bellus – once known as Neurochem – will get $17-million from Pharmascience Inc., a Montreal-based private generic drug company with more than $700-million in revenues. In exchange, Pharmascience gets 10.4 per cent of Bellus's equity and all of its $168-million in federal research and development tax credits, tax-loss carry-forwards and other potential deductions.

Bellus, through a plan of arrangement, also plans to convert most of its $30.4-million in debt and preferred shares into common equity. Dr. Bellini, who ceded the title of CEO to his 32-year-old son Roberto in 2010, and long-time backer Power Corp. of Canada will each control about 30 per cent of the stock after the deal. Bellus stock closed Thursday at 5 cents, up a penny.

"This transaction is bringing the phoenix out of the ashes," the younger Mr. Bellini said. "We're a late-stage [drug development]company, and there are only a few of those in Canada. The base is now in place and we'll be looking to grow."

Neurochem is one of many high-flying Montreal biotech developers that crashed and burned over the past few years, beset by unsuccessful trials or a lack of financing. Many Canadian investors didn't have the money or stomach to finance long-shot drug developers, leaving players such as Pharmascience to snap up their stalled projects and tax writeoffs.

The refinancing will ensure Bellus has enough money to bring Kiacta, a treatment for a rare kidney ailment, to market, the CEO said. Bellus had already sold the rights to half of all proceeds from the drug – which it estimates to be more than $500-million per year at peak sales – to a U.S. firm in exchange for funding the trials. The Pharmascience money will give Bellus enough capital to fund its ongoing operations and add new prospective drugs to its pipeline.

"This clears up their capital structure and relieves any financial overhang they had," said Brian Bloom, president of Bloom Burton & Co., a Toronto-based boutique investment banking firm specializing in health care. "Investors can do nothing but look forward to the [Kiacta]data, which is a very good position for Bellus to be in."

Kiacta's success is not a sure thing. The U.S. Food and Drug Administration in 2006 said it wasn't convinced by trial results that the drug measurably improved the health of test subjects. It sent the company back to do a second trial. Results are expected in 2015.

Neurochem became one of Canada's biotech darlings after Dr. Bellini joined as CEO in 2002, buying a 24-per-cent stake with Power.

But after boasting that Neurochem's drug to slow memory loss among Alzheimer's disease sufferers would one day rake in several billion dollars a year, the FDA in 2007 ruled test results on its effectiveness were "inconclusive."