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mid-market business

Vancouver researchers Dr. Aziz Ghahary, left, and Ryan Hartwell developed a burn treatment cream, and attracted attention from Calgary-based mid-sized company Advanced Orthomolecular Research.DARRYL DYCK/The Globe and Mail

A series looking at the unique challenges facing Canada's midmarket companies and how they innovate, stay competitive and grow. This piece looks at the risky biotech sector, where Canadian mid-sized businesses are attractive to larger corporations, which are able to bring products across the finish line. But they have to grow big enough to be enticing.

On Feb. 7, 2012, Robert Heft sold his biotechnology company, Montreal-based Enobia, to U.S. pharmaceutical giant Alexion Pharmaceuticals Inc. for the robust price of $1.1-billion (U.S.) – the largest sale of a private, precommercial biopharmaceutical company, according to industry experts.

Dr. Heft and his colleagues achieved a rarity in the industry. They had attracted the attention of Big Pharma and cashed in.

Biotech can involve long timelines, be capital intensive and experience high business failure rates. Some investors and larger companies seek safety in size, making Canada's mid-sized biotech companies an attractive market – as long as they can mitigate their risk, secure investors and reach the first stages of commercialization.

A tough decision

The struggle over the decision to sell is evident in Dr. Heft's recollection of that day. "I felt conflicted. On the one hand, wanting to finish what we started and put so much into, on the other hand, wanting to deliver to our shareholders."

But like many Canadian biotech companies, Enobia needed the funds and connections of a larger corporation to bring its product across the finish line.

It was Enobia's lead therapy, asfotase alfa, a treatment for the life-threatening bone disease hypophosphatasia, that sealed the deal with Alexion. The therapy was more than six years in the making and became the company's primary focus after Dr. Heft took over as Enobia's president in late 2005. Enobia used more than $150-million to gather preclinical data on asfotase alfa and wanted to bring this treatment to patients suffering from this disease. Today, Alexion has brought the drug through its Phase 2 clinical trials.

"In Canada, you get to a point where it requires too much capital and too much infrastructure for you to actually do it on your own," explains Andrew Casey, president and chief executive officer of national industry association BIOTECanada. "You have to license it out or sell it to a larger company."

Life sciences and GDP

Canada's life sciences biotechnology sector is a significant part of the economy. Drug manufacturers alone shipped $10.5-billion worth of goods manufactured in Canada, and contributed almost $4.6-billion to Canada's gross domestic product in 2012, according to Statistics Canada. But they need to make it to the commercialization stage first – something many struggle to achieve.

So how do some companies make it from risky startup to the goal of attractive mid-sized company?

There are ways to shield oneself from some of the risk, and it requires capital, something the biotech industry has struggled for since 2008, explains Mr. Casey.

Unlike other sectors, such as mining or oil and gas, biotech companies are generally developing their product with the hope of attracting attention from potential partners or buyers. "And this is where the challenge comes in," Mr. Casey says.

"On the surface you go, well that's too bad because that's a Canadian company that's been lost now," he says, but he explains that this is how many biotechnologies come to market, due to a shift in R&D from the larger companies. These larger companies don't develop in-house, rather they find the next company to invest in and conferences are a place where many Canadian firms get noticed, he says.

Speed dating for industry giants

He likens the process to speed dating for many of these mid-sized companies that only have a limited amount of time to present ideas and court the attentions of industry giants. "You look around the floor and you've got all those multinationals: Pfizer and Novartis, Roche," describes Mr. Casey, "and they're essentially trying to find the diamond in the rough."

And these mid-sized companies want to be noticed by other companies or by equity investors, such as B.C.-based companies Xenon Pharmaceuticals Inc., which recently listed on the Nasdaq.

And after investors get involved? "Then all of a sudden you're no longer living out of the back of your car and that allows you to put in place the business structure, pay people, pay clients, do more scientific research, undertake some more clinical studies," Mr. Casey says. "It allows you to really start to run the company."

The struggle to grow

The struggle to even get to the mid-market level is not insignificant, either.

Researchers and industry experts, such as Mr. Casey, argue that there needs to be more funding and facilities provided to usher products from the research level to the commercialization stage.

For example, the Centre for Drug Research and Development, with headquarters located at the University of British Columbia, and Montreal's Inception Sciences Inc., act as incubators to stave off risk at these first delicate stages of innovation.

Vancouver researchers Dr. Aziz Ghahary, a UBC professor, and PhD candidate Ryan Hartwell wouldn't even be sitting in their lab if it wasn't for outside funding from several supporters, including WorkSafeBC and the Canadian Institutes of Health Research, and a lab facility supplied by Vancouver Coastal Health and the UBC department of medicine.

They have developed a topical burn treatment cream, called FibroStop, and they have attracted attention from Calgary-based mid-sized company Advanced Orthomolecular Research (AOR), set to work with UBC to manufacture the cream for the Phase 1 study.

These researchers act as part of the biotech pipeline needed to foster companies 20 times their size and add products to their portfolios.

Looking for a larger company

"We purposely didn't license it out because we wanted to advance the technology to be presentable to a larger company," Dr. Ghahary says.

The sheer cost of overhead for this research would have kept this product from being developed and supplied to AOR.

"Without the financial and academic support we received, we couldn't have achieved where we are today," Mr. Hartwell says.

As for Dr. Heft, retirement from the biotech industry was a consideration after the Enobia sale was completed. "I did give it a lot of thought," he admits. Instead, he now sits on the board of several smaller biotech firms with the hopes of building the industry he's been involved with for almost three decades.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:00pm EDT.

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PFE-N
Pfizer Inc
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XENE-Q
Xenon Pharmaceuticals Inc
-2.43%42.89

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