Three proposals seek to exploit growing demand for biotech commercialization
December 2, 2002
Backers exploring potential for collaboration
Three ideas aimed at shrinking the commercialization gap for biotechnology and biopharmaceutical products appear to be on converging trajectories as the life sciences and biotechnology industries seek to secure major new investments and regulatory changes for their struggling sectors. Backers of the proposals are increasingly confident that the federal government is finally prepared to move on the complex area of commercialization and are in varying stages of discussions amongst themselves and with public officials on the best way forward.
But whether the proposals can co-exist or formally unite — a seeming prerequisite for serious consideration by Ottawa — remains a matter of speculation. In recent months, Ottawa has been sending out encouraging signals that it’s ready to build on its investments in university research, in particular biotechnology and health sciences. The inclusion of commercialization in the September 30th Speech from the Throne and the Innovation Strategy have underlined the growing realization that investments in R&D will be largely squandered unless the results are taken to market and the benefits remain in Canada.
biotech ceo network
The most recent proposal — and the only one not directly seeking federal cash — is Bio Canada Connect (BCC), a rapidly growing network of Canadian biotech CEOs. Industry minister Alan Rock attended BCC’s founding meeting last month and encouraged participants make a submission to the National Innovation Summit. The brief outlined the three major thrusts that BCC plans to focus on: regulatory environment, government support and funding, and human resources. BCC has established five sub-committees to examine these issues. They will also be looking at the issues of private capital and the province of Quebec as a case study in biotech promotion. The proposal is distinguished by its advocacy of the flow-through share mechanism — most widely used in the oil, gas and mineral exploration industries — to move biotech companies through the financing rounds leading to commercialization.
“There’s a need to know biotech CEOs across the country. Consolidation is looming and it’s better to consolidate marketing efforts and keep the value in Canada rather than license out,” says Dr George Jackowski, chairman and CEO of Toronto Synx Pharma Inc. “You need a commercialization strategy when you’re spending R&D.”
|“Canada has the potential to package its unique resources and position itself as a leader in both the development of new biopharmaceutical products and the |
creation of alternate models of healthcare delivery.” — BDDA proposal
Also attending BCC’s founding meeting was Dr Fraser Mustard, a central architect of the another major proposal for commercializing life sciences discoveries – the Canadian Biotechnology Commercialization Initiative (CBCI). CBCI is incorporated as a not-for-profit organization with an informal linkage to Inno-Centre Canada and has been seeking federal funding for nearly two years (R$, May 3/02). At last count, CBCI was proposing $15-20 million annually in federal funding to create a fund to help stimulate venture creation. Its aim is to build clusters of biopharmaceutical research, strengthened by adding value to promising biopharmaceutical intellectual property. It is currently seeking seed funding to develop a detailed business plan and has met with BCC officials to explore the potential for moving forward together.
“BCC has similar policies to the CBCI but we do it in a unique way. As a group of CEOs, we can get the ear of Rock,” says Rod Wilson Synx’s president and COO and a BCC member. “We can co-exist quite nicely with CBCI.”
BDDA pitching a blockbuster fund
Discussions are also pending between BCC and yet another biopharma commercialization proposal. The Biopharmaceutical Drug Development Accelerator (BDDA) is the largest and most expensive of the three. It is seeking federal assistance to establish a massive fund that would assemble a core of drug development expertise that would serve as a critical resource for small firms seeking to move their products through the development chain to commercialization.
Various funding models are being proposed, but essentially the BDDA would establish an Innovation Development Fund that would require investment of $500 million annually for five years, matched by private sector investment, before becoming self-sustaining. All profits would be turned back into the fund, although it would be managed by a “private sector partner”. The proposal is being guided by senior officials at MDS Inc, Medicago Inc, Nexia Biotechnologies Inc, SemBioSys Genetics Inc and others, including Dr Calvin Stiller.
“The concept of the Accelerator is a support mechanism where you can bring talent to bear on assessment — is it a good prospect, is it not,” says Dr John Evans, chairman of Torstar and former president of the Univ of Toronto. “If it is, how do you take it downstream? This will be a very credible advocate for financial support in order to carry out that process which is measured in the hundreds of millions of dollars.”
The massive financial muscle that the BDDA’s backers are seeking to assemble could be provided by the federal government, public/private funding or a combination involving the use of flow-through shares. How the latter will work in the context of the BDDA is complex and is addressed thoroughly in its 50-page proposal released in September.
Flow-through shares would allow the BDDA’s Fund to flow out the tax benefits to investors who acquire shares. The Fund would be limited to investing in research rather than specific firms and could only provide a maximum of 50% investment in any single compound. Once a drug candidate is taken through the clinical trials and regulatory processes, it would be offered back to the original IP holder or optioned out to the highest Canadian bidder.
“(The IP holder) would have a chance to buy it back as it gets closer to market so they haven’t lost it. But they have to be prepared to pay for it at that stage for the intervening investment that’s made into it,” says Evans. “For purchasing it back, they may partner with a venture capital fund or it could be a pharmaceutical company they pool up with because they would need marketing and distribution capabilities. The aim is to take the process further in Canada and create the employment and some of the wealth generation. Some of the big pharmas will take the best assays but there’s nothing wrong with that.”
The BDDA proposal generated considerable interest in the halls of the Innovation Summit last month, not solely due to the high-powered personalities backing it and the use of flow-through shares, but for its sheer scale and scope. One observer noted that it’s difficult not to endorse such a proposal. But he adds that the concept needs time and an effective champion to navigate the shoals of government bureaucracy and political buy-in.
The backers of BCC also welcome the BDDA proposal, but they, too, have some misgivings. They contend that its backing by the powerful machinery and financial muscle of MDS could be a mixed blessing, particularly the way in how it proposes using the flow-through share mechanism.
“We have nothing against MDS but we don’t think they should get first pick from anything coming out of Canada. They’re a big company,” says SYNX’s Wilson.
“We’re also focusing on flow-through shares,” adds Jackowski, also of Synx. “We feel every company should get them and not just one fund. I disagree with John Evans on this point.”
Flow-through shares complicate proposals
The proposed use of flow-through shares by both BCC and BDDA could complicate the challenge of selling their concepts in Ottawa. The use of a tax mechanism immediately involves the Finance department as well as Industry Canada. Finance has an historical aversion towards the use of directed taxation, preferring instead a neutral tax system where mechanisms are applied broadly.
Also posing a challenge to all three proposals is the current uncertain fiscal environment and competing pressures for what many believe will be dwindling future federal surpluses.
“There are a number of interesting proposals floating around but some of these (biotech commercialization proposals) are pretty damned expensive,” says Dr Andrei Sulzenko, senior assistant DM of Industry Canada’s policy sector. “It’s a tough fiscal environment and we’re still working off a backlog from the Speech from the Throne and trying to mop up stuff for which there are commitments.”