Biotechnology Focus April/May 2015 by Promotive Communications

INSIGHTS FOR THE LIFE SCIENCE INDUSTRY

CANADIAN BIOTECH COMING TO LIFE OR MUCH ADO ABOUT NOTHING?

INSIDE:

SPECIAL REPORT: The Clinical Trial Landscape In Canada

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APRIL/MAY 2015 VOLUME 18, NUMBER 2

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contents APRIL/MAY 2015 – VOLUME 18 – NUMBER 2

26 On the front lines of the war on superbugs

FEATURES IS CANADIAN BIOTECH COMING TO LIFE REVISITED Tony Pullen’s long awaited follow up piece revisiting the question: Is Canada’s biotech sector showing new life like its U.S. counterparts? Or was last year’s promising market activity much ado about nothing? (By Tony Pullen)

Is Canadian biotech coming to life revisited

Opinion

THE RISE OF THE CORPORATE VENTURE INVESTOR Lumira’s Peter van der Velden discusses the expanding role of the corporate venture investor in Canada’s healthcare innovation ecosystem. (By Peter van der Velden)

ON THE FRONT LINES OF THE WAR ON SUPERBUGS Tackling the crisis of antibiotic resistance. (By Chantall Van Raay)

IN EVERy ISSUE

Special Report: THE CLINICAL TRIAL LANDSCAPE IN CANADA

ACROSS CANADA Venture capital is considered a scarce resource for Canadian biotech companies. How can more public and private sector support reverse the trend. (By Mike Woollatt)

THE LAST WORD Taiwan is reaping rewards from a strategic pivot to build a sustainable biotech industry; Can it happen in Ontario? (By David Young)

A special report on what’s going on in Canada as it relates to regulations and policies governing clinical trials, and how we as a nation stack up in the global competition for clinical trial investment. (By Michelle Hampson)

ion! om www.biotechnologyfocus.ca

April/May 2015 BIOTECHNOLOGY FOCUS 3

PUBLISHER’S NOTE

PUBLISHER/ EDITOR-IN-CHIEF SENIOR WRITER Copy editor CONTRIBUTING WRITERS

Genome Canada unveils new Genomics Innovation Network The way genomics research is conducted in Canada is about to undergo a transformation. Specifically, Genome Canada says it is expanding its research model with the creation of a new Genomics Innovation Network. The new network will be comprised of 10 “nodes,” each receiving core operational funding from Genome Canada, with matching funds from various public and private sector partners. A total of $15.5 million in federal funding through Genome Canada is the initial investment being made in core operation funding for the nodes, with each receiving from $800,000 to $2 million in federal funds over two-years. Co-funding investments in the nodes from other partners, including provincial governments, academic institutions, and the private sector at a required minimum one-to-one ratio, bring the total initial investment in the Genomics Innovation Network to approximately $31 million. The node selection process was the result of a competitive process involving peer review by an international review committee. Under the old model, Genome Canada was making its investments in five science and technology innovation centres. Often, the five centres were “working in their own silos.” For this reason, Genome Canada president and CEO Dr. Pierre Meullien says the new network model will place greater emphasis on collaboration and the sharing of expertise among the centres. He adds that creating the Genomics Innovation Network will contribute to Canadian leadership in the development of new genomic technologies and better fulfilling this mandate. “Breakthroughs across all sectors that form part of Canada’s growing bioeconomy – health, agriculture, fisheries and aquaculture, forestry, energy and mining – rely on researchers across Canada having access to leading-edge ‘omics technologies, which are rapidly evolving,” says Meullien. “Moreover, we want to build on past successes where we’ve seen new genomics technology development become the foundation for Canadian business growth.” He adds that the investment will also support important work in the area of bioinformatics and computational biology, including addressing major challenges associated with the storage and analysis of “big data.” Each node will also provide Canadian and international researchers with access to the leading-edge technologies required for research in genomics, metabolomics, proteomics and related areas. The nodes will include: The Proteomics Centre and the Sequencing Platform at the BC Cancer Agency Genome Sciences Centre, both led by Genome British Columbia; The Metabolomics Innovation Centre led by Genome Alberta; the Toronto Centre for Phenogenomics, the Network Biology Collaborative Centre, and The Centre for Applied Genomics, each led by the Ontario Genomics Institute; and the Canadian Centre for Computational Genomics, McGill University and the Génome Quebéc Innovation Centre, the Canadian Data Integration Centre, and the Centre for Advanced Proteomics Analyses, each led by Genome Quebéc. twitter.com/biotechfocus linkedin.com/company/biotechnology-focus google.com/+biotechnologyfocuscanada facebook.com/biotechnologyfocus 4 BIOTECHNOLOGY FOCUS April/May 2015

Terri Pavelic Shawn Lawrence Mark David Chantall Van Raay

David Young

Michelle Hampson

Mike Woollatt

Peter van der Velden

Tony Pullen

Account Manager

Laskey Hart

GRAPHIC DESIGNER CONTROLLER MARKETING MANAGER

Elena Pankova John R. Jones Mary Malofy

CIRCULATION DIRECTOR Mary Labao circulation@promotive.net Tel: 289-879-4272

EDITORIAL ADVISORY BOARD Christine Beyaert, Cohn&Wolfe; Rob Henderson, BioTalent Canada; Najla Guthrie, KGK Synergize; Pierre Bourassa, IRAP, Montréal; Murray McLaughlin, Sustainable Chemistry Alliance; Carol Reynolds, AdFarm; Ulli Krull, UTM; John Kelly, KeliRo Company Inc.; Peter Pekos, Dalton Pharma Services; Brad Thompson, Oncolytics; Darrell Ethell, CanReg; John Hylton, John H. Hylton & Associates; Robert Foldes, Viteava Pharmaceuticals Inc.; Randal R.Goodfellow, P.Ag., Senior Vice President, Corporate Relations, Ensyn; Bob H. Sotiriadis, Robic LLP; Dale Patterson, Genome Canada; Darcy Pawlik, Syngenta Seeds Canada Inc; Gail Garland, OBIO; Barry Gee, CDRD; Bonnie Kuehl, Scientific Insights Consulting Group Inc.; Raphael Hofstein, MaRS Innovation Biotechnology Focus is published 6 times per year by Promotive Communications Inc. 23-4 Vata Court, Aurora, Ontario L4G 4B6 Phone 905-727-3875 Fax 905-727-4428 www.biotechnologyfocus.ca E-mail: biotechnology_focus@promotive.net Subscription rate in Canada $35/year; USA $60/year; other countries $100/year. All rights reserved. No part of this publication may be reproduced without written consent. Publications Mail Registration Number: 40052410 Return undeliverable Canadian addresses to: circulation dept – 23-4 Vata Court, Aurora, Ontario L4G 4B6 National Library of Canada ISSN 1486-3138 \ All opinions expressed herein are those of the contributors and do not necessarily reflect the views of the publisher or any person or organization associated with the magazine.

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By:Tony Pullen

INdUSTRy REPORT

IS CANADIAN BIOTECH

COMING TO LIFE REVISITED

much ado about nothing?

little over a year ago I decided to weigh in on the original question, captioned above. My purpose was to share my observations gleaned from operating as an investment banker in the space since the mid ’80s. I wanted to provide some context as to whether the resurgent biotech market in the U.S. would cause a similar rebound for the space in Canada. No sooner was the ink dry on my effort than some upward movement and money flows trickled into the space. The interest was no doubt inspired by the enthusiasm engendered by the annual JP Morgan (JPM) conference a year ago. As with the year before and the year before that, the conference triggered “game on” for the U.S. biotech sector. While 2014 saw some positive — and in a few cases spectacular — activity north of the capital market border, for the broad mass of Canadian biotechs the reality has unfortunately been “much ado about nothing.” The positive mood engendered by JPM was aided and abetted in mid-January by an explosive share price advance in a relatively unknown company called Intercept Pharma. The catalyst was an early halt to a Phase 2 trial, this time for all the right reasons, in a new indication called NASH, short for nonalcoholic steatohepatitis. NASH is an apparent epidemic in the making, adding even more urgency around liver disease. The market capitalization leapt from $900 million to $9 billion in a matter

6 BIOTECHNOLOGY FOCUS April/May 2015

of days. In Canada this ignited a new move upward for Prometic Life Sciences, one of my favourite Canadian companies. It briefly became a “tracking stock” for Intercept, causing a run-up of a further 77 per cent from its year-end 2013 and driving its valuation toward $1 billion. This was a far cry from its sub $50 million value a few short years ago. Elsewhere in the Canadian bio scene, some “low altitude” gains in excess of 100 per cent made it seem as if the hoped for catch-up trade for Canadian biotechs was underway. Names like Medicure, Adherex (now Fennec), Microbix, Advanced Proteome, Genenews and Bellus leapt ahead by multiples of their year ending 2013 closes. Newcomer issuer Concordia Healthcare, led by a team of exBiovail executives, also leapt 300 per cent, fueled I’m sure by the stock market success of Valeant, ironically the old Biovail. Strong institutional demand for Concordia propelled it to a $900-million market cap seemingly out of the blue. Coincidentally, the

sudden value created by the stunning Endo merger with Paladin Labs, announced late in 2013, also added fuel. The launch of Concordia in late 2013 couldn’t have been better timed to capitalize on the disappearance of Paladin and three other of Canada’s larger healthcare players early in 2014. The acquisitions of Patheon, Cangene and Nordion, along with Paladin, freed up an aggregate of $5.5 billion of liquidity — almost 10 per cent of the total value of the sector at the end of 2013 — to be reinvested. In other words, this elegant combination of the right business plan, the right market cap and just the right amount of available liquidity was a perfect recipe for Concordia to harvest the potential institutional interest to play the next version of Valeant or Paladin. The immediate structure and synergies of the Endo acquisition doubled Paladin’s value overnight, and, more significantly, made it a “100 bagger” from inception. It also spawned Knight Therapeutics, with

INdUSTRy REPORT Canada’s most notable corporate participant in the response to Ebola was Tekmira, for which the outbreak became a company-making event with the stock advancing from $8 to $25 in a matter of days.

a market cap verging on $100 million, as the new vehicle in which Paladin’s CEO Jonathan Goodman could continue to work his magic. In less than a year that magic has created in Knight a robust ecosystem raising and monetizing up to $400 million of equity and moving its market cap in excess of $600 million at time of writing. This placed it immediately into the top 20 of Canadian healthcare entities. Both companies, Concordia and Knight, virtually blind pools, proved that to achieve stock market recognition in Canada, size matters! Stateside, nothing demonstrated the power of the U.S. biotech capital market like the story of Juno Therapeutics in 2014. This company, a joint venture spawned by two prestigious research centres in Seattle and New York’s Memorial Sloan Kettering, announced a Series A round of $120 million in December 2013. During 2014, it topped that up with another $180 million as the year progressed and then raised $300 million in an IPO at year-end against a valuation of $1.8 billion. So much for rounds ‘B,’ ‘C’ and ‘D’! Post issue, the shares immediately traded up 60 per cent on their way to a peak over $60 in early January of this year. The market cap reached $5.5 billion before settling back— from zero to $4 billion in just one year of capital market activity. For local perspective, that equates to the entire market cap of all but the top seven Canadian biotech companies shown in appendix B. The Endo/Paladin trade was an early entrant in a frenzy of inversions on both sides of the border. For the better part of the year, until the Treasury Department caught up in October, it seemed like the entire pharma industry was taking part in a speeddating event. As one observer phrased it, “Wall Street bankers dropped everything to search for inversion candidates with the same frenzy and single-minded ardour they employed in creating sub-prime paper and other financial bubbles!” This search for inversion candidates, along with the protracted Valeant/Allergan dance,

dominated the biotech conversation globally for much of 2014. When the Treasury Department finally stepped in, the unwinding ultimately led to some substantial hedge fund damage and overall market volatility particularly when the Shire PLC/AbbVie Inc. drama was called off in October. A Canadian by-product of the inversion hunt was the near disappearance of QLT, one of our original biotechs, until Endo purchased its would-be acquirer, Auxilium Pharma. This left QLT standing alone at the altar with a $28 million break fee as a consolation prize. (Another Canadian postscript to follow later.) In last year’s commentary, I discussed my favourite observation about the biotech industry: the one constant is the continuing rapid advancement of science, whether it be in universities, hospitals or corporations. There was no better demonstration of this fact than the revelation of the arsenal of assets assembled inside Juno. All of the company’s early stage assets target oncology at the cellular level. Juno has two platforms and numerous clinical candidates focused on activating and directing T cells within the immune system — personalized medicine writ large! The progress of science in a more general sense was highlighted at ASCO in June where some interesting observations were shared about the ongoing battle with cancer. In his opening comments, the president of ASCO noted that today in the U.S., two out of three cancer patients live at least five years after their diagnosis — compared to about half of patients in the 1970s — and the mortality rate has dropped 20 per cent since the 1990s. It was also noted that this improvement in quantity of life has come with a continuous improvement in quality as well. Such progress has its cost though. The Pharmaceutical Research and Manufacturers of America issued a report late last year entitled “Researching Cancer Medicines: Setbacks and Stepping Stones.” According to this report, over the past 15 years of clinical activity involving the three most difficult cancers — brain, melanoma and lung — there have been only three new approvals for glioblastoma multiforme versus 75 failures. In the case of melanoma, there were seven new therapies approved and 96 failures; for lung cancer, 10 successes versus 167 that failed to

progress. All single-digit success rates. Another demonstration of scientific progress came with the sudden outbreak of Ebola in West Africa in July. Soon after this tragedy hit the headlines and brought to life our worst fears about this lurking health menace, attention quickly turned to the fact that there were as many as 30 drugs and vaccines at various stages of clinical development, five of which were of Canadian origin or involvement. Cynically, many of the programs had more to do with addressing the risk of biological warfare than preparing for an actual outbreak. The crisis quickly raised numerous ethical, moral, practical and even racial issues that had hitherto been largely theoretical. The best example I came across was the dilemma articulated by an official at Emory University School of Medicine, which had quickly become the epicentre for stateside isolation and treatment. He lamented the fact that no matter how Americans responded, they were bound to be condemned. The optics of only treating American doctors and aid workers instead of the hundreds of African suffering and dying would be just as criticized as sending “unproven” drugs to the front line in what could only be characterized as a massive clinical trial. Canada’s most notable corporate participant in the response to Ebola was Tekmira, for which the outbreak became a companymaking event with the stock advancing from $8 to $25 in a matter of days. A year ago, it was probably the most undervalued pure biotech company in Canada, trading barely above its cash value. The leverage provided by this enhanced valuation enabled it to become the public partner to an IPO-bound U.S. company, OnCore Biopharma, thereby creating a potential powerhouse in the hot hepatitis space. The latter entity has strong management DNA from Pharmasset Inc., which was purchased by Gilead Sciences in late 2011 for a then eye popping $11 billion. Gilead was making a huge bet given its $30 billion valuation at the time. Pharmasset’s lead clinical asset went on to become the blockbuster drug Sovaldi with a current sales run rate of $12 billion. Gilead is now valued at $150 billion a short three years later. That is the upside of biotech! This merger of Tekmira and OnCore will take the combined entity to a billion-dollar April/May 2015 BIOTECHNOLOGY FOCUS 7

INdUSTRy REPORT valuation and set the stage for it to become one of the big stories of 2015. Unfortunately for Canada, the story will play out on the Nasdaq as Tekmira will end its long and convoluted history as a TSX listed biotech, dating back to when it started life in the early ’90s as Inex Pharma. The company listed on Nasdaq in 2010, a step always coveted by Canadian biotechs. Its volatile capital market experience since then should be required reading for Canadian CEOs considering that path. Speaking of the Nasdaq, one highlight for the Canadian space last year was that two B.C.-based companies did accomplish “straight to Nasdaq” IPOs. Aquinox Pharma raised $52 million against a valuation of $65 million just as the U.S. window was shutting in March, as discussed further below. This led to a bit of a rocky start for the issue. Xenon Pharma, after years of gestation as a private company, fared better by launching in November and raising $41 million against an $80 million valuation at $9 per share. The company caught the year-end wave and finished 2014 at $20. Somewhat under the radar and of local interest, Highland Therapeutics, a Toronto-based private company, managed to pull off a $25-million private placement

8 BIOTECHNOLOGY FOCUS April/May 2015

late in the year to continue the clinical progress of its novel ADHD drug prospect. Meanwhile, in stock market terms, the post JPM conference momentum began to lose steam in March/April leading to a 20 per cent “sneeze” in the Nasdaq Biotech Index. This “cold” quickly resulted in Canada’s aforementioned nascent rally “catching pneumonia,” with the emerging interest all but disappearing — particularly from a financing perspective. In my comments last year, I worried that if capital began flowing back into the sector it might not be as discriminating as I would hope. I had no way of knowing at the time that the then-emerging “staking rush” (I mean that literally, as many companies were erstwhile mining entities) into medical marijuana start-ups would create just such a problem. For the purposes of this report, I have chosen to ignore the whole area as nothing more than a promotional binge for which there cannot be a happy outcome. This has been doubly ironic to me because a number of years ago I spent considerable time and effort helping Canassat Therapeutics, now Cynapsus. The company had a creative program to develop a sublingual delivery technology for the therapeutic, pain mitigating elements of THC

— potentially a better alternative to “smoking weed” for seriously afflicted cancer patients. Talk about being too early. In those days the association with marijuana was a liability for the company’s efforts to raise money. Hard to believe now that in order to keep going and also separate itself from the stigma, it sold off its ownership interest in Prairie Plant Systems, then the official supplier of medical marijuana to the Canadian Government’s flawed program. I have no idea how much money has been raised in the space, or how much has disappeared. According to my attempts to find out, neither does anyone else. My guess is that it was relatively significant — perhaps a few hundred million dollars — and money the cash-starved real biotech companies could have put to much better use. As it was, a few small financings ranging between $1 million and $5 million were achieved early in the year to sustain a handful of companies, but somewhat indiscriminately as I had feared. In addition to Concordia and Knight, there were a few other larger raises by the likes of Stem Cell Therapeutics (now Trillium), Tekmira (for reasons already discussed) and Lorus Therapeutics just as the window started to narrow in the U.S. Now

Industry Report Figure 1: S&P/TSX Venture Composite Index

rebranded as Aptose Biosciences, Lorus, which restructured in late 2013 by selling 50 per cent of itself for $8 million, continued its “Americanization” by raising another $28 million in March/April, this time in a crossborder deal for another 50 per cent. Other notable raises were achieved by industry veteran Transition Therapeutics, Merus Labs and newcomer Tribute Pharma, the latter two both enjoying significant $30 plus million liquidity events reflecting the continuing focus on specialty pharma plays. This narrowing of the U.S. window—not that it had done much for us anyway while it was open—was exacerbated dramatically by the continuing destruction of the TMX Small Cap index, which continued to drop steadily to a level below its all-time low (in 2008) by late in the year. It would be hard to find any index anywhere in the world with a record like this. In an article on December 27 in the Financial Post, columnist Peter Koven wrote: Canada’s junior stock market is in crisis. Hundreds and hundreds of companies can’t raise money, do anything productive to create shareholder value, or get anyone to trade their stocks. But the biggest problem may be that most people just don’t seem to care. Tell a Canadian market participant that the S&P/TSX Venture composite index hit an all-time low in December and you will likely be met with astonishment. The once-mighty junior exchange, a place where issuers have raised more than $80 billion in capital during the past 13 years, has fallen so far off the investment community’s radar that

most investors seem to have no idea it is plumbing such depths. The raw numbers are grim. The index is down a whopping 73 per cent since March 2011, and 80 per cent from its all-time high in 2007. The total market value of the exchange’s nearly 2,000 companies is less than $30 billion. Little wonder that against this backdrop the riskiest of stock market sectors should be so marginalized for the balance of 2014, regardless of what was happening south of the border. At year-end, FP Infomart reported that while Canadian corporations raised a total of $40 billion of equity, units and convertible debt in 2014, a 25 per cent increase over 2013, only $10 million was raised by capital pool companies. This was half the preceding year’s total and a clear indication of the collapsed state of the junior markets. A number of small Canadian biotech companies attempted all year to get public via this route without success. In recent years, tech and biotech issues have struggled just as much in Canada when money is flooding into resource stocks as when it is fleeing, so the late 2014 collapse in oil prices took investor psychology through the floor. Not long after the April thaw, the Nasdaq Biotech Index began to recover and move steadily higher, advancing 50 per cent by year-end, and reopening the IPO window as it advanced. Issues of $50 to $100 million were launched with apparent ease. The depth and breadth, not to mention the clinical stages, for the “class of 2014” IPOs has been unrivalled in recent years and indicates, in the U.S. at least, the old model of biotech

financing is back. In late July, a further catalyst was provided by Puma Biotechnology, which reported breakthrough results in a large adjuvant trial in breast cancer, generating a five-fold increase in its share price. The S&P/TSX Health Care Index did largely reflect this performance but only because its constituents by now have dwindled even further to only three names, Valeant, Catamaran and Extendicare (the latter, for all intents and purposes, a real estate play.) The former two are the success stories that emerged from the seventeen $200 million+ market cap companies in Canada at the end of 2006. Then, their combined value was $3.7 billion, as highlighted in my commentary a year ago. Of the other 15, nine have disappeared one way or another while the remaining six lost over half their market values over the ensuing eight years. Valeant and Catamaran alone ended 2013 worth $48 billion. They not only added another $20 billion of value in 2014, but also gained another $30 billion so far this year. Sadly, due to all the factors mentioned earlier, very little of this value accretion or the renewed boom in U.S. has benefitted the broad mass of Canadian biotechs. What few smaller financings that were achieved were forced to resort to as much as five-year warranting as incentives. Of course, it hasn’t helped that the few clinical results reported by Canadian companies were mostly negative. One spectacular exception was Trimel Pharmaceuticals, which not only achieved an NDA — the first one in Canada in recent memory at least — but went on to secure a very lucrative partnership for its newly approved product, Natesto, by year-end. Were these classical corporate achievements reflected in Trimel’s share price? Unfortunately no. Shareholders have been caught in a management/ major shareholder battle worthy of a sitcom. This played out in spades at the company’s AGM in June, organized to highlight the recently released positive results for Tefina, the female version of Natesto. The last time the lead investigator, Dr. Sheryl Kingsberg, spoke about the clinical path of Tefina was in February 2012. During that event the share price leapt from $1.75 to over $5. The two events, the AGM and investor presentation, instead became a bully pulpit for the founder and erstwhile largest shareholder to very publicly vent his frustration with company management. This completely negated the impact of Dr. Kingsberg’s very positive presentation. It certainly hasn’t helped Trimel that there has been widespread concern, unwarranted in my view, about cardiac risks for the whole testosterone space. However, the potential for Natesto to become a April/May 2015 BIOTECHNOLOGY FOCUS 9

INdUSTRy REPORT ‘best-in-class’ alternative product has been lost in the controversy. A product acquisition and an additional dilutive financing, in midsummer, added to the confusion by implying that management might be shifting its focus to become a specialty pharma play utilizing its Barbadian tax advantage. I had featured Trimel as a likely standout performer last year for all the reasons the company delivered on. I still believe substantial upside exists to reflect the commercial potential of Natesto and/or the chance that some large pharma, or even Endo itself, will step up and take advantage of what has become a ridiculously low valuation. Now back to the Canadian postscript mentioned earlier. Connecting the dots between Endo, its recent purchase of Auxilium and the Endo/Trimel partnership makes for some fascinating financial juxtaposition. Endo has acquired its way to become a $15 billion specialty healthcare solutions company which now includes its recent $2.6 billion acquisition of Auxilium with its extensive portfolio of men’s sexual health products. Last time I checked, Trimel’s market capitalization was stuck at a measly Cdn$150 million. Now that Endo has become Trimel’s partner of choice to launch Natesto in the U.S. starting this month (arguably the next generation product for this space), there has to be more to this misalignment to be resolved. So what happened with the broader mass of Canadian healthcare companies since 2013? First off, a number of new names pushed their way onto the $200-million–plus list, as shown in Tables 1 and 2. There was also a modest expansion in the universe from 81 entities to 96, although some of this increase occurred because I have included medical software companies in the list. More encouraging was an increase in the population of companies with market capitalizations between $50 million and $200 million, from 29 to 31. From a performance perspective, in 2014 this group of companies, excluding Valeant and Catamaran, showed a 40 per cent gain both on average as well as on a cap-weighted basis. While it sounds impressive, at face value it felt more like a muted rebound for the mass of smaller companies. The 20 best performers gained 260 per cent on average, while the remaining 26 gainers rose 29 per cent, mainly due to the math of their depressed share prices. Conversely, the remaining 50 on my list declined an average of 41 per cent with five near-wipeouts due to clinical reversals. One of the near-wipeouts was Sophiris Bio, formerly B.C.-based Protox Therapeutics. Sophiris migrated to the sunny hills of California between 2012 and 2013 to 10 BIOTECHNOLOGY FOCUS April/May 2015

pursue the route to Nasdaq. After a 52 to 1 share consolidation, it raised $65 million at approximately 33 per cent of its postconsolidation share price in order to keep going. Curiously, late last year, the company appeared back in Toronto to be featured at an “On the Radar” presentation at the TMX in spite of having delisted in late 2013. I am still scratching my head about that. Tragically it got “on the radar” just before the release of a very disappointing interim analysis, which caused a further 80 per cent collapse in what was left of its share price. This early release had clearly been intended to be a positive catalyst for its late stage clinical program for BPH. Moving south has been an expensive

exercise and has erased all but $0.50 from an adjusted $40 share price—yet another case study of the risks and rewards of finding investor reception in the U.S. Among the companies with $200-million–plus valuations I would still highlight Prometic Life Sciences, Tekmira and Knight Therapeutics. I believe Prometic will continue its upward revaluation as its multi-faceted assets gain more attention from U.S. investors. With the capital raised in 2013 and 2014, it will be able to fully exploit its plasma-based orphan drug assets while PBI-4050 should make steady progress in the clinic. Along the way the most frequently asked question during Prometic’s long market history has been

Table 1 COMPANY NAME

MKT. CAP 2013 (IN $ MILLIONS)

Valeant Pharmaceuticals Int.

$38,193

Catamaran Corp.

$9,964

Paladin Labs Inc.

$2,436

Patheon Inc.

$1,373

Novadaq Technologies Inc.

$999

Nordion Inc.

$540

Medical Facilities Corp.

$537

Prometic Life Sciences Inc.

$444

TearLab Corp.

$329

QLT Inc.

$294

Cipher Pharmaceuticals Inc.

$215

Neovasc Inc.

$202

Ca so life

Don

$55,526 Table 2 COMPANY NAME

MKT. CAP 2014 (IN $ MILLIONS)

Valeant Pharmaceuticals Int.

$55,483

Catamaran Corporation

$12,474

Concordia Healthcare Corp.

$1,349

Novadaq Technologies Inc.

$1,074

Prometic Life Sciences Inc.

$1,046

Knight Therapeutics Inc.

$629

Medical Facilities Corporation

$577

Cipher Pharmaceuticals Inc.

$429

Neovask Inc.

$415

Tekmira Pharmaceuticals Corp.

$398

Transition Therapeutics Inc.

$276

QLT Inc.

$237

Nobilis Health Corp.

$208 $74,593

Read it here first. Canada’s foremost news source on the Canadian life science industry. Don’t get left behind.

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@BiotechFocus

INdUSTRy REPORT “Why doesn’t someone buy it?” Perhaps 2015 will see that question answered. As already mentioned, Tekmira, post OnCore merger, should be the story in 2015 among this group. I believe that Knight, while still a work in progress, will benefit from being a “must own” for Canadian institutions. Below that threshold, in addition to Trimel, I would still highlight Titan Medical, Cynapsus, Aptose, Microbix and Immunovaccine as being capable of having breakout years in 2015. While all but Aptose had decent 2014s, with gains ranging from 44 to 400 per cent, most of these results stemmed from extremely depressed valuations at year-end 2013 rather than full recognition of their potential. Immunovaccine in particular also gained some much-deserved attention during the Ebola crisis. This is an ideal setting to show off the mechanism of its novel Depovax technology. In the midst of the crisis, the company reported some spectacular animal work with Ebola that allowed it to raise badly needed funds in September. I have long been impressed by the potential of the company’s vaccine technology, which was originally validated by its success in controlling reproduction in Canada’s seal population a number of years ago. It brings this same approach to systemic circulation of antigens targeting various cancers. This potentially represents one of the few generalized approaches to cancer therapy I have seen relative to the more recent focus on personalized targeting. The company has struggled forward for years in spite of the hostile financing environment in Canada. Someday soon it should catch the attention its technology deserves. Two other companies I highlighted last year had much tougher going than I expected in 2014. Spectral Diagnostics, now Spectral Medical, announced a doubling in the size of its long-running trial, further delaying its painstaking efforts to gain FDA approval for its needed sepsis therapy. I still believe the trial will succeed in this unique indication, but the change in the trial size gives added meaning to the phrase “failure is not an option” for this “bet the company” effort! A near doubling in the share price since last year-end suggests the company still has a following for this protracted odyssey. Oncolytics reported mixed results from its “moving picture” of clinical trials, which failed to live up to the expectations of the capital markets in 2014. I still believe that there is clinical relevance for Reolysin. I am even more intrigued though by the company’s disclosure of some extremely 12 BIOTECHNOLOGY FOCUS April/May 2015

interesting, but early stage, potential for Reolysin in combination with GM-CSF. This could radically change Reo’s potential if sustained on further investigations. The worst part of 2014 from my viewpoint was that my favourite small companies suffered incredible “failure to launch” problems in spite of their obvious attributes. The most disappointing by far were CNS Response, Medifocus and Ventripoint. As stated last year, these companies all carry the three attributes I look for most in healthcare investing: having little or no regulatory risk, addressing unmet medical needs, and products with the potential for high, therapeutic-type margins. While nothing of substance happened to their technologies and their relevance to the needs they address, a frustrating mix of bad circumstances, management decisions and partner engagement halted or reversed their share prices. CNS Response struggles to survive while waiting for the Walter Reed Memorial Medical Centre to resume its apparently highly successful clinical trial. The trial was halted last June after its early read out showed impressive results. In the interim, awareness, evidence and concern about mental health issues in all manifestations grows unrelentingly and nowhere more profoundly than in the U.S. Military. This was powerfully portrayed in the blockbuster movie American Sniper. Medifocus, with two game-changing technologies—one of which carries immediate revenue with the potential for rapid growth—has been hobbled by an ownership and management team with all the characteristics of the gang that couldn’t shoot straight. One consequence of this was a stall in the rapid sales ramp Prolieve had been achieving since its re-launch in 2012. The only highlight it enjoyed in 2014 was an anecdotal report of the complete elimination of a very large breast tumour in a procedure at a clinical site in Montreal. As for Ventipoint, in spite of achieving FDA approval early in 2014 for its immediately needed cardiovascular diagnostic software, the company continues to wrestle with financing issues. These issues relate to delays in partnering efforts initiated in China late last year. The issues have negatively impacted the launch of its VMS product in the U.S. At least in the case of Ventripoint, management has the problem in hand and is aggressively working on an early resolution. I would like to reiterate that four issues I highlighted last year are still trapped in the sub $50-million small cap cellar but continue to look interesting. IntelliPharmaCeutics certainly had a wild ride and did manage to spend most of last year above this level. I expect more of the same in 2015. Critical

Outcome Technologies is gradually winning credibility for its lead candidate COTI-2 but not its underlying Chemsas platform. Immunovaccine I have already discussed. Nuvo Research had enjoyed a great year of recovery in 2014 but suffered a serious clinical setback after the year-end. While this certainly puts WF10 into a holding pattern, I expect management to continue to work hard to surface value as a specialty pharma play. Finally, I would mention a number of companies that are in the midst of interesting transitions or are on the verge of transformative events that have either created a lot of new, unexpected value or may do so. CRH Medical performed a brilliant acquisition to completely change its business profile in the GI space by way of purchasing an anaesthetic supplier to gastroenterologists, the primary market for its novel O’Regan system. The acquired revenues, EBITDA and potential synergies appear to have open-ended upside. Delmar Pharma will be updating its clinical progress in GBM at the AACR in April. Telesta has almost shed all the vestiges of its former self, Bioniche, and has bet the company on its remaining late-stage asset targeting bladder cancer. At Bellus Health, young Roberto Bellini has made significant progress transforming the former Neurochem back into a viable entity over the past year and has set up Kiacta for pivotal events in 2015 that could accelerate his vision of recreating a viable biotech company. Last year, I concluded my report by pointing out that, adjusting for the 10 heavyweight companies in Canada, principally Valeant and Catamaran, the remaining 71 only had a combined market value of $3 billion, an average of $44 million each. I suggested that among these there had to be more “Prometics” to be discovered. Making the same adjustment to the numbers at year-end 2014, the resulting market capitalization of $4.7 billion leaves an average market cap of $54.7 million for the remaining 86. However, only four companies, Cipher, Neovasc, Tekmira and Transition, which collectively increased from $780 million to $1.5 billion in 2014, account for most of this difference. This leaves the broad mass of Canadian companies in the same sorry state as one year ago. Is Canadian biotech coming to life? In broad terms, I’m afraid the answer is “much ado about nothing.” To see this story online visit www.biotechnologyfocus.ca/ is-canadian-biotech-coming-tolife-revisted-or-much-ado-aboutnothing

Special Report:

THE CLINICAL TRIAL LANDSCAPE

IN CANADA

By Michelle Hampson

CLINICAL TRIALS ARE A KEY ASPECT OF HEALTH INNOVATION, driving the translation of basic research to products on the market. The benefits of clinical trials for patients, institutions and economies are numerous, including better access to care and quality of life, increased knowledge and understanding of diseases, attraction of highly qualified clinicians, job creation and economic growth. Canada has long been known internationally for its high quality of research, which has been a significant attribute for attracting clinical trials in the past. However, over the last decade Canada has fallen behind in the global race for clinical trial investment. According to a HealthCareCan report, Canada’s share of pharma-sponsored trial sites dropped from five per cent of the global total in 2005 to four per cent in 2010; additionally, the number of Canadian sites participating in clinical trials had declined by 16 per cent, researchers had enrolled fewer Canadians in those trials, and the cost of recruiting patients was among the highest in the world at over $17,000 per patient.1 Several different factors are driving this decline for Canada. Examples include the emergence of low cost clinical research competitors from emerging markets and their improving quality, combined with increasing hospital and academic overhead charges in Canada. With time being of the essence for conducting clinical trials, a large part of Canada’s decline on the global market can also be attributed to more efficient trial processes in other countries. April/May 2015 BIOTECHNOLOGY FOCUS 13

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“I am more concerned in making certain that an institution’s review process is going to be done quickly, so that I can get my trial going, with the set of patients I need. It’s important to work with institutions that aren’t overloaded or backed up and can work on a schedule – because in industry, time is money.” — David Dodd, president and CEO of Aeterna Zentaris “Canada is increasingly less competitive and less often one of the sites chosen for clinical trials,” says John Soloninka, president and CEO of the Health Technology Exchange. “It’s just not about quality only anymore; there are other jurisdictions in the world that are just eating our lunch.” In 2011, Canadian government, institutions and industry recognized the crisis and came together at the National Clinical Trials Summit to identify problems and to undertake initiatives to reverse the trend. Nine key action steps were outlined and many of these steps have since been taken on at both the provincial and national levels. Provincially, there have been a number of initiatives to make each jurisdiction more appealing. What will likely have the most significant impact, at least in respect to getting trials in Canada running more quickly, are streamlined research ethics review processes. Most provinces have recently introduced initiatives to make the ethics approval process more efficient. Other factors that are coming into play include model Clinical Trials Agreements (mCTAs), quality of research and infrastructure, patient recruitment and tax incentives. Each sponsor has its own priorities when choosing trial sites, but ultimately, time is money. The provinces pursuing initiatives that get the first patient through the door quicker will likely attract more trials than others, and those jurisdictions that work collaboratively to make the clinical trials process as smooth as possible across borders will be where the major sponsors and decision makers focus their attention.

Streamlined Review Ethics Boards

With multicentre clinical trials, the ethics review process has often been complicated and inefficient with independent reviews required at each site. The Action Plan that followed the National Clinical Trials Summit in 2011 identified the issue of multiple ethics reviews at each site, which result in “different requirements, results, and inconsistent turnaround times,” as one of four factors affecting clinical trial start up times. This inefficient process is believed to discourage clinical trials investment in Canada and is “costing Canada substantially in lost opportunity.” From the industry perspective, David Dodd, president and CEO of Aeterna Zentaris, explains, “It really comes down to how quickly we can get the first patient into the BIOTECHNOLOGY FOCUS April/May 2015

program. And that is driven by the ethical review board.” Prior to the summit, many provinces recognized the need for more efficient systems and endeavoured to restructure their processes. However, there is some variation in the types of models and uptake by each. For example, in some provinces the harmonization only applies to handful of institutions through reciprocity agreements, rather than systematically throughout the entire province. Perhaps the most useful approaches that provinces are taking are those that work inter-provincially, which may be most appealing to companies looking to do large, multi-site trials – the most significant source of investments and most likely to be beneficial for Canada as a whole. Each province has a slightly different approach, each with its own benefits and limitations. Alberta was one of the first provinces to form a reciprocity agreement between its six designated review ethics boards (REBs) in February 2011. Since then, the six respective REBs have merged into three and a full reciprocity agreement became effective in November 2013, which allows approval from one of the three REBs to apply to all health research locations in the province. Additionally, to coordinate the ethics review process, Alberta has been using an online system (REMO). In Saskatchewan, a reciprocity agreement between the University of Saskatchewan, the University of Regina and the Regina Qu’Appelle Health Region came into effect in June 2012, covering all human research. Under this agreement investigators complete a single application/submission package, which is submitted simultaneously to the institutions. REBs collaborate on a unified Notice of Ethical Review (NER) issued by the initial REB and researchers respond to a single set of revisions/requests for clarification that has been agreed upon by each REB. As well, the University of Saskatchewan has been established as the Board of Record to the provinces’ regional health authorities, which has been accomplished through MOUs with three of the Regional Health Authorities and the Saskatchewan Cancer Agency. British Columbia was the next in line to adopt a harmonized REB system. With oversight from the Michael Smith

Special Report:

The CliniCal Trial landsCape in Canada

Health Research Foundation, eight institutions in British Columbia signed a reciprocity agreement in April 2013. Using an electronic system, one REB is selected and once the ethics are approved, the approval applies to all sites that fall under this agreement. Explaining the benefits to this system, Laurel Evans, director of Research Ethics at the University of British Columbia, says, “What that does is really allow us, on an institutional level, to try out various models so that we don’t have to go back and get contracts or proper authorization from senior leadership, from the institutional management, every time we want to try to do something a little bit different. That has been a huge benefit for us.” There are currently three models that are in place for the eight institutions involved in the BC reciprocity agreement: minimal risk, above minimal risk and sponsor clinical trial models. However, Evans notes, that often industry is not interested in intra-BC trials, but rather trials with sites across different provinces. One initiative that may help in this respect is a tripartite agreement between the University of British Columbia, the University of Alberta and the University of Saskatchewan, that allows a sponsor to have a single harmonized ethics process across all three of these institutions. Nova Scotia has also been a leader in optimizing its review ethics boards. In January 2014, stakeholders in the province created a Multisite Review Ethics Board, which does a single review of multiple sites within the province using an online system. This applies to all trials involving adults in the province, while the IWK Health Centre maintains its own review ethics board for trials involving children. In February of 2015, Québec launched its new Multicentre Framework, which applies only to public institutions and covers any research that is being done at multiple sites, not just clinical trials. The framework will be in a transition period until March 31, 2016, where during this period stakeholders can offer input for improvement. With this framework, one designated REB does the ethics review, while at the same time site-specific assessments are underway, local institutions have the option to submit comments. A downside to this model is that it only applies to public institutions, which all fall under the same insurance policy, and excludes private and university-affiliated REBs.

In March of 2015, Clinical Trials Ontario (CTO) officially launched its new Streamlined Research Ethics Review System within the province of Ontario. With this system, REBs of various institutions become CTO Qualified. When a trial application is submitted, CTO will select a “REB of Record” from one of its qualified REBs, which does a single review for all sites and is responsible for continuing ethics oversight of the trial. The review process is managed using an online system. At the time of launch, eight REBs were CTO Qualified, with more REBs in the process of becoming qualified. One benefit of CTO’s model is that the qualification process is a means of quality assurance, which in some cases may address trust issues between institutions.2 The Council of Academic Hospitals of Ontario (CAHO), which represents Ontario’s 24 research hospitals, has said it is the intent of its member hospitals to use CTO’s new system. To increase its appeal for multicentre trials across Canada, the University of British Columbia has indicated its interest in becoming CTO qualified and it is encouraging other institutions in British Columbia to do the same. Although the CTO streamlined system is in its early stages, should it be adopted by more out-of-province institutions, it could be a significant step towards a more connected network of streamlined REBs across Canada. For Canada as a whole, the increasing emergence of specialized REBs such as the HIV REB or the Ontario Cancer Research Ethics Board (OCREB) may be helpful in attracting more trials internationally. An assessment of new REB systems by SPOR-SHRER found that, “For the specialized REBs, quality of review was seen as a benefit with the review questions from the specialized board (both scientific and community members) considered more germane to the REB application than some of the local REB review questions. They had been told it was “a lot less work to submit to (the specialized REB) than to their local REB.” The higher level of expertise on the specialized REB was also noted as a benefit for researchers.”2 The same report found that personnel in the jurisdictions using online systems found the electronic approach helpful. More specifically: “Access to these (online) systems was credited by researchers with streamlining applications submissions, saving time and money by not having to photocopy, resulting in a noticeable improvement in timelines, the convenience for researchers of being able to access the system

“I think that we need to continue with our efforts to harmonize contracts and harmonize ethics, making the administrative processes more efficient so that it fades into the background and allows our researchers to really shine. We need to promote the great assets that we have for clinical research, and that’s where the Canadian Clinical Trials Asset Map comes into play.” — Heather Harris, director of the British Columbia Clinical Research Infrastructure Network (BCCRIN) April/May 2015 BIOTECHNOLOGY FOCUS

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“My view is that it’s really through the principal investigator and through the infrastructure that’s put around that investigator. And I think if you ask most CROs or companies doing trials, that’s the number one issue. And Canada continues to avoid that issue. The Canadian government thinks they can do education, they think they can provide incentives, but you’ve got to get the right PI and (dedicate) money for the infrastructure… That’s where the focus should be.” — Dr. Albert Friesen, president and CEO of Medicure

at any time, having all documents in one place and being able to track and automatically record correspondence.”3 In summary, much progress has been made to improve the REB process, including: • Reciprocity agreements among multiple institutions within a province (e.g., BC, Alberta, Saskatchewan); • Reciprocity agreements between institutions, but across multiple provinces (e.g., UBC, U of S and U of A); • Province-wide harmonization (Quebec and Nova Scotia); • A single designated REB among a group of qualiﬁed REBs through the CTO model (Ontario, but with the potential to connect REBs across provinces); • The adoption of online platforms, which appears to be increasing efficiency; and • Specialized REBs, which can oﬀer a higher quality of review. The key question going forward is how closely provinces can work together to make the REB process seamless across Canada.

Clinical Trials Agreements

The second major time constraint when initiating trials is negotiating the Clinical Trials Agreement. Since the Clinical Trial Summit of 2011, there has been a national initiative underway led by the Canadian Institute of Health Research (CIHR), the Association of Canadian Academic Healthcare Organizations (ACAHO), HealthCareCAN and Rx&D to create a model Clinical Trials Agreement (mCTA) that could be used as a national template for contract negotiations. The national model is still being piloted and the feasibility of this mCTA is still in question. Many pharmaceutical companies, and especially larger ones, will have their own legal concerns and dedicated legal teams. Dodd explains, “(A model contract) can be helpful… but the company is going to decide what’s important to them and their legal team is going to drive the modifications. Any model contract that I look at, I assure you my clinical and legal team are going to review and send back a redlined version.” However, he does note that taking initiative to create a model contract indicates that the given jurisdiction is dedicated to meeting the sponsor’s needs. BIOTECHNOLOGY FOCUS April/May 2015

“In any selling situation where you’re going to sign a contract, that’s what your targeted customer always wants to hear,” he says. Likewise, Jeff Bacha, president and CEO of Del Mar Pharmaceuticals, feels that in principle model CTAs are great, but industry input is crucial. He cites a situation in the U.S. where a model CTA has been negotiated, with input from 39 industry institutions. “We are a party to that agreement with one of our sites, and as we extend our trial it will make things very easy because there is no (further) contract negotiation,” says Bacha. The national mCTA, which is open to industry input, is still being piloted with no published revisions since 2012. While this ongoing mCTA is being fine-tuned, some provinces have endeavoured to create their own. British Columbia (BC) was the first to create a provincial mCTA in June of 2013. The BC mCTA is in place at eight of the province’s research intensive institutions and may be used when a pharmaceutical industry sponsor is interested in initiating a Phase 2 or 3 clinical trial. Heather Harris, director of the British Columbia Clinical Research Infrastructure Network (BCCRIN), says, “We’re finding that most of the uptake is with smaller, more virtual biotech companies that may not have an extensive legal department to do their contracting. We’re finding that the major pharma companies may already have master service agreements in place with our institutions and their preference is to use those. Definitely, it would be a faster process for people who don’t have a legal group to use the model agreement.” With its Streamlined System for research ethics reviews in place, Clinical Trials Ontario is now also looking into creating a streamlined contracts review process for the province of Ontario. While provincial efforts to increase the efficiency of the contract process are underway, it is still important for independent Canadian institutions to be as flexible as possible. Dr. Albert Friesen, president and CEO of Medicure, notes that often the contract negotiations can take much longer than necessary, especially when inexperienced lawyers become involved.

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The CliniCal Trial landsCape in Canada

“I think in a lot indications, Canada does have a leadership role in terms of the quality of its investigators. From a clinical perspective, if you look at the number of publications that come out of that little area around the university and college corner in Toronto, it’s staggering on a per capita basis.” — Jeff Bacha, President and CEO of Del Mar Pharmaceuticals “Some sites do these agreements every day and they don’t need to spend nine months going back and forth to contracting sites,” he says. How well Canada can speed up the contract process largely depends on how receptive companies are to the new model CTAs, as well as flexibility among independent institutions in negotiating contracts.

Quality of Research

Quality of the research, which has always been a strong point in Canada, is still a priority to most sponsors. Quality of research is often related to the experience and expertise of investigators and the infrastructure to support clinical research. These factors, plus a means for Canada to advertise its quality assets through the new Canadian Clinical Trials Asset Map, are described in the following subsections.

Experienced and Knowledgeable Investigators

One of the most important factors contributing to the quality of research is the experience and expertise of the principal investigator. Jan-Ake Westin, VP of Clinical Research at Medicure, says that for sponsors choosing sites, “It boils down to, in reality, where the best investigators are. That comes from their medical and scientific skills, and the staff they have.” “I think in a lot indications, Canada does have a leadership role in terms of the quality of its investigators,” says Bacha. “From a clinical perspective, if you look at the number of publications that come out of that little area around the university and college corner in Toronto, it’s staggering on a per capita basis.” While Canada tends to have high quality researchers, it’s important to keep them engaged in the clinical trials sphere. A common problem internationally is the high turnover rate of PIs. A Tufts Center for the Study of Drug Development study states: “While the number of investigators globally now stands at nearly 40,000, a record, half of them were new to the job in 2013, the most recent year for which data is available.” In addition, although the highest turnover rates are observed among the least

active investigators, turnover rates have been getting progressively worse among more active investigators.4 Susan Marlin, president and CEO of CTO, believes that supporting new PIs and retaining our experienced ones is vital. “We’re not going to have the investigators to do the trials years from now if we don’t continue to engage them in the process…and really have the environment such that they think it’s a good thing to do clinical research,” she says. If Canada wants to increase its ability to attract clinical trials, creating incentives to retain principal investigators, as well as providing training and infrastructure to support principal investigators, should be key priorities.

Infrastructure

Infrastructure is the means to facilitating Canada’s high quality work, however, there are different types of infrastructure to consider. In regards to infrastructure in the clinical setting, many Canadian sites are lacking enough staff and resources. Some provincial governments, such as Ontario’s, have been particularly supportive of R&D research, which helps to cultivate high quality research. The Québec government, which has dedicated a lot of funds to biomedical research, is also supportive of R&D research. Perhaps the most effective way to attract sponsors is through highly specialized research institutions and well-established networks; overall, Canada is strong in this sense. “I think one of the things that Canada has done that has (been beneficial) is the centres of excellence and networks that have been established, which was really somewhat of a government driven initiative to create pools of money that could allow for collaboration,” Bacha comments. For sponsors, established networks are a reliable resource to find qualified investigators that offer streamlined clinical trials and higher levels of patient recruitment. Québec, which already has a high volume of research institutions, may become more appealing in the near future in this respect. The McGill University Health Centre has undergone a massive overhaul with the formation of a mega-facility that replaces the existing facilities of the Royal Victoria Hospital, the Montréal Children’s Hospital, the Montréal Neurological Hospital and the Montréal Chest Institute. After much planning, the megacentre will be fully functioning this April. Similarly, another massive merge is underway with the Centre hospitalier de l’Université de Montréal, and is expected to be completed by 2016. “These are to be two major poles of attraction for research…. from a logistics and a cost perspective, having these mega upcoming research centres will provide tremendous opportunities and benefits,” says Gilles Gagnon, president and CEO of Ceapro Inc. He notes that while Canada has successfully attracted April/May 2015 BIOTECHNOLOGY FOCUS

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The CliniCal Trial landsCape in Canada

late stage clinical trials, new megacentres such as the ones in Québec will increase the potential to attract clinical trials at earlier stages as well.

The Clinical Trial Asset Map

To put Canada on the international clinical trials map, a collaborative effort led by the Canadian Clinical Trials Coordinating Centre is underway to better advertise Canadian researchers and their expertise. With the official launch date set for this June, the Canadian Clinical Trials Asset Map will be an interactive database of Canadian clinical research capabilities to help sponsors easily identify clinical research sites and investigators. In a statement to Biotechnology Focus, Alison Sargent, the executive director of Rx&D’s Health Research Foundation, says, “The overall objective for the CCTAM is to provide a comprehensive picture of the breadth and depth of Canada’s clinical research assets. The CCTAM addresses a gap in the Canadian clinical research resources and mainly, a compressive pan-Canadian one-stop shop tool for all Canadian clinical research resources.”

Patient Engagement and Recruitment

Another critical but often overlooked component of the clinical trials process is patient engagement and recruitment. For Canada, the issue is not so much the time for enrollment, but rather the number of patients enrolled. “There are a significant number of sites that have one, two, five, 10 patients recruited, which means their cost per patient – when you include the site preparation, the monitoring – is very high,” says Soloninka. At the Clinical Trials Summit, it was speculated that the reasons for poor recruitment in Canada may be due to: • Access • Universal health coverage and perception of good care • Lack of trust and knowledge • Ineﬃcient infrastructure • Focus on operational improvements The Canadian Clinical Trial Summit...Starting the Conversation report states that, “Canada has yet to develop targeted resources and strategies to market, explain, and attract patients and the public to clinical trials. This can further result in recruitment, retention, and compliance problems.”5 Unfortunately, since the Summit, there has been limited activity at the provincial or national levels to address this

problem. British Columbia has taken the most progressive steps so far, with a clinical trials participation survey underway that looks at the reasons why people are taking part in clinical trials and, even more importantly, why they are not. The survey recently achieved 600 participants and BCCRIN says it will be presenting the interim results of the survey at the ACRP 2015 Global Conference & Exhibition in Salt Lake City this April. “We’re very excited about this,” Heather Harris of BCCRIN, says. “This is going to give us some really great insights into what’s going on inside clinical trials participants’ heads, so we can better target our engagement strategies, our protocols and consent forms, and things like our behaviour as we’re bringing patients into clinics and welcoming them. It’s really providing some great information.” Additionally, BCCRIN has signed an MOU with CTO to work on issues that are important to both organizations, which includes patient recruitment. The two organizations say they will be launching a public opinion poll about clinical trials within the next few months. To this point, CTO has remained focused on its first strategic priority, which is streamlining the ethics review system in Ontario. Going forward, CTO is turning its attention to patient recruitment and retention. Susan Marlin says the results of this joint survey with BCCRIN will help shape CTO’s patient engagement strategy. Another key development in Canada in terms of patient engagement includes an evolving collection of Permission to Contact (PTC) databases, where patients agree to share personal data and are receptive to being contacted at a later date about relevant trials. The initiation of PTC databases began in some jurisdictions in British Columbia and has since been taken up by other jurisdictions. “We have over 80,000 participants in a PTC database in Canada, and over half of those are in BC,” says Harris. “It’s a real area of strength for us, and something that we’re hoping to move forward with and become a provincial program in BC. Hopefully we can connect with some of the other provinces on this.” PTC databases may play a significant role in mobilizing enrollment processes in the future, especially if stakeholders in Canada can continue to build these databases to include more participants in more areas across the country. Dr. Albert Friesen notes that while recruit-

“(Priorities are) the quality of the researchers and the quality of infrastructure. The upcoming mega centres, SHUN and McGill are really placing Québec at the forefront, I would say, for the next several years, in terms of the potential to attract investments from pharmaceutical companies in Canada.” — Gilles Gagnon, president and CEO of Ceapro Inc. BIOTECHNOLOGY FOCUS April/May 2015

Special Report:

The CliniCal Trial landsCape in Canada

ment is a significant challenge in Canada, Canadian sites do have their own strengths. “On average, Canadian sites when selected because of expertise, actually have a higher rate of enrolment than U.S. sites,” he says. Moving forward, Canada could benefit from emphasizing recruitment through specialized institutions, creating more PTC databases and acting on the feedback from the surveys that are underway. Nationally, there is clearly a deep need for more action on the clinical trials education and participation front.

Tax Incentives

Although tax incentives are not a priority for sponsors when choosing sites, it is still a factor for consideration. Unfortunately, Canada is lacking compared to other countries in this respect. KPMG’s 2014 Competitive Alternatives report found: “For research and development operations, many of the countries studied offer significant R&D tax incentives. France, the Netherlands, and Canada offer the lowest effective tax rates in this subsector.”6 In this regard, the Canadian Scientific Research and Experimental Development (SR&ED) tax credit may be helpful for Canadian companies and CROs in attracting clinical trials. However, the credit is limited and often doesn’t reflect the full scale of a given company’s investment. In terms of attracting foreign investors, the SR&ED credit is often not applicable, unless indirectly through Canadian CROs. However, some provincial credits are fully refundable to all corporations. Additional tax incentives can vary substantially by province, from 4.5 per cent to 37.5 per cent7 depending on the jurisdiction. Québec is particularly attractive in terms of tax incentives, offering provincial tax breaks of up to 80 per cent for total eligible R&D expenditures that are incurred in connection with a research contract with a university or eligible research centre. Moreover, Québec offers tax incentives to attract foreign researchers, offering them a 100 per cent income tax break for their first two years of living in the province, 75 per cent for the third year, 50 per cent for the fourth year and 25 per cent for the fifth year.

Canada against the International Playing Field: What Needs to Be Done

Since the 2011 Clinical Trials Summit, the federal government has recognized the value and the need to make Canada a leading jurisdiction for attracting clinical trials. Several initiatives to strengthen the environment for clinical trials in Canada have been undertaken, including the creation of the Canadian Clinical Trials Coordinating Centre. This centre is providing collaborative clinical trials oversight throughout Canada and has generated the Canadian Clinical Trials Asset Map to better advertise Canada’s research strengths. As such, dedicating money to networks

and collaborative efforts has been critical in maintaining Canada’s quality of work and should be continued. However, further steps to support health research at the clinical trials phase would be helpful in attracting more sponsors, such as making the SR&ED tax credit more accessible to Canadian businesses, and offering more competitive cost incentives to international sponsors. Jeff Bacha suggests, “If there are incentives provided in terms of grants available to PIs who are involved in international studies, that helps to reduce the costs overall. Whether that grant comes to the sponsor or the PI as offset, that’s going to be a big driver.” Canada does have many strengths that make it a desirable location for testing new drugs including a highly trained workforce, experienced investigators, a high standard of medical care and a diverse population. However, the more steps that Canada can take to speed up the time for trials to get started – the number one issue for most sponsors who are holding patents that will expire – will put it in a better position to attract trials. Model clinical trial agreements that apply to multiple institutions is another area that we could better leverage. The national mCTA being developed by the Canadian Institute of Health Research (CIHR), the Association of Canadian Academic Healthcare Organizations (ACAHO) and Rx&D may be helpful when it is finalized; however, how widely it is accepted by sponsors is yet to be seen. The provincial initiatives to streamline the REB process will likely make some Canadian sites more appealing to sponsors in terms of increasing the efficiency of the approval process; if Canada aims to improve this process even more, additional inter-provincial collaboration is essential. To regain traction in the global race for clinical trials, Canada needs to remain flexible and listen to the needs of sponsors. By continuing to improve processes that affect trial start up time and retain our high quality of research, we may become a leader once again.

References 1. http://www.healthcarecan.ca/wp-content/uploads/2014/07/ Trials-and-Tribulations-Clinical-trials-The-national-efforttoattract-more-investments-to-Canada.pdf 2. http://www.healthcarecan.ca/wp-content/uploads/2014/07/ SPOR-SHRER-Report-Appendix-D-Harmonization-Survey.pdf 3. http://www.healthcarecan.ca/wp-content/uploads/2014/07/ SPOR-SHRER-Report-Appendix-D-Harmonization-Survey.pdf 4. http://csdd.tufts.edu/news/complete_story/pr_ir_jan_ feb_2015 5. http://www.healthcarecan.ca/wp-content/uploads/2014/07/ ClinicalTrialsSummit_Background_Final-posting.pdf 6. http://www.competitivealternatives.com/reports/2014_compalt_report_vol1_en.pdf 7. https://www2.deloitte.com/content/dam/Deloitte/global/ Documents/Tax/dttl-tax-global-rd-survey-aug-2014.pdf April/May 2015 BIOTECHNOLOGY FOCUS

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By Peter van der Velden

VEnTUrE cAPITAL

THE RISE OF THE CORPORATE VENTURE INVESTOR

AND THEIR ROLE IN CANADA’S HEALTHCARE INNOVATION ECOSYSTEM

even years after the global economic downturn began, it is clear the innovation financing ecosystem for Canada’s healthcare sector is fundamentally stronger, but while there has certainly been a re-emergence, it is most definitely not the status quo. At first blush, the most obvious reality is that the number of domestically domiciled venture capital (VC) firms in Canada with meaningful mind and management in Canada and a dedicated healthcare focus has been dramatically reduced. While this might not immediately lead one to conclude that the ecosystem is healthier, the simple reality is that for the most part, it is. The management teams of those VC firms that remain active and that are thriving in today’s market are dramatically different than those operating five to 10 years ago. For the most part these teams are deeper and more experienced (operationally and financially) and they bring with them far better global connectivity. That new global connectivity in many cases now includes limited partner investors in their funds that go beyond the traditional pension funds, endowments and insurance companies. Instead, many of these funds have been able to attract capital from, and develop more in-depth relationships with, some of the leading corporate healthcare organizations in the world. As a result, these VCs are better able to allocate resources to the truly best-in-class domestic opportunities, are better able to attract capital for their investees from a wide network of alternative sources and are better able to bring unique value added skills and networks to bear in supporting the growth of their portfolio companies. The engagement of corporate venture investors is of course nothing new, but today it clearly feels different both in scope and magnitude. The role of corporate venture capital investors (CVC), both as investors in funds of independent VCs and as direct investors themselves is evolving rapidly and has significant implications with respect to the

funding ecosystem for emerging technology centric companies around the world. While the Canadian data is just starting to emerge, CVCs in the U.S. participated in a surprisingly high 18 per cent of the 3,617 venture capital deals in 2014, up 25 per cent year-over-year and up 55 per cent from 2012. That translates into direct investment participation in 656 deals and the investment of some $12.3 billion by CVCs in 2014. The healthcare sector, despite a more established history of CVC investment, also participated in this upswing, with CVC funding jumping 23 per cent in 2014 vs. 2013. This increase was powered by a particularly strong Q2 2014 which saw a significant number of $40M+ transactions. Year-over-year the increase in healthcare CVC activity was a healthy eight per cent.1 Looking back, historically there was really only one Canadian domiciled healthcare VC with a meaningful corporate relationship. That was of course my legacy firm, MDS Capital, but even in that situation, the relationship was more one of providing infrastructure and oversight rather than offering capital and expertise. Today, many of the country’s most active investors have very different and in fact, materially more meaningful relationships with the large corporate

players in the ecosystem. For domestically domiciled funds, examples of these relationships include Lumira Capital (Merck), TVM (Lilly), and Teralys Capital (Knight Therapeutics). For funds that are not Canadian centric per se, but that have recently participated in investments in the Canadian ecosystem, examples include Forbion (Knight), Venbio (Amgen, Baxter and PPD), Sanderling (GSK, Mayo Clinic), and Versant Blue Line (Celgene) to name a few. At the same time, Canada enjoys active engagement from a wide variety of captive VC arms of corporations like SROne (GSK), Baxter Ventures, Amgen Ventures, J&J’s Innovation Labs, Pfizer Ventures and a host of others. Traditionally the CVC model in healthcare was for the most part a function of the corporate parent allocating some capital in-house, hiring a team (often of internal personnel) and then focusing on investments

Healthcare CVC funding jumped 23% YoY in 2014 behind an array of $40M+ deals in Q2’14. YoY healthcare CVC deals rose 8%.

Figure 1 Corporate VC Investment and Deal Volume in Healthcare

April/May 2015 BIOTECHNOLOGY FOCUS 1332

3/25/15 12:16 PM

In Q4’14, Series A healthcare CVC deals rose to a five-quarter high to take nearly 1/2 of all deal share. Series B deal share fell to 24% in Q4 after taking over half of all CVC healthcare deals in Q3.

VEnTUrE cAPITAL Figure 2 Share of Healthcare Corporate VC by Series - Number of Deals that were almost exclusively tied to existing corporate programs and objectives. In many cases this capital also came with additional strings attached and the CVCs were often willing to sacrifice valuation (and financial returns) in exchange for gaining specific rights from the portfolio company at the time of the investment. For some CVCs, this model worked extremely well and resulted in substantial growth of their innovation pipelines. For others, it did not. While the reasons for failures are likely many, one often-cited theme was the lack of financial return metrics and objectives2 as part of the core investment thesis and driver for the CVC entity. Given this observation, it is not surprizing that the CVC model has continued to evolve in recent years. At the in-house or “captive” level, the CVC teams have evolved to include both homegrown and outsiders in the deal teams, and strategically while many still focus on core strategic investments, many others have established internal funds that are relatively autonomous investment entities that continue to leverage their parents core value-adds. This model ultimately gives far more latitude to invest into areas outside of the parent’s core objectives. One of the other fundamental differences of many of the CVCs today is their desire to achieve self-sustainability and the need therefore to focus on financial metrics as well. In parallel with this evolution at the captive CVC level, many corporates have begun to engage more closely and even partner with independent VCs, providing them with direct capital for their venture funds. While the goals for this approach certainly vary, they include: being able to engage “beyond their four walls,” gaining insight into new therapeutic areas; gaining visibility into key trends in regional markets; being able to influence and support innovation without all the encumbrances of their inherently large infrastructures; being able to engage earlier or differently from how they might do so via their typical business development initiatives; efficiently financing interesting but perhaps non-core opportunities off balance sheet; and being able to us capital stranded offshore to support the creation of next generation healthcare solutions globally. Of course other advantages of partnering with independent VCs include the ability to leverage third-party capital for strategic objectives while also being able to ensure that financial metrics are a core part of the investment thesis. The result of all this has been that while once often referred to as “dumb money,” CVCs are today anything but. Investing 14 BIOTECHNOLOGY FOCUS April/May 2015

directly or via independent VC managers, CVCs have in fact become highly soughtafter syndicate partners. Across the entire VC financial spectrum this resulted in CVCs accounting for 28 per cent of all Series A capital in Q4 2014. In the healthcare sector, the move to participate in earlier stage investments has been very pronounced and in Q4 2014, Series A investments accounted for almost half of all investment activity by healthcare CVCs.3 In Canada there is real evidence of the engagement and importance of CVCs, and their related independent VC partners, particularly with respect to investments in therapeutics companies. The largest healthcare venture backed financing in Canada in 2014 was for Aurinia Pharmaceuticals. Lumira Capital (with Merck as a key LP), led the recapitalization financing for Isotechnika in late 2013 (which supported the merger with private company, Aurinia) and in 2014 was the only Canadian venture firm to participate in the $57 million financing led by Venbio (whose LPs, as mentioned above, include Amgen, Baxter and PPD). In Q1 2015 one of the largest biotech financings, if not the largest, was the $21 million round for Thrasos Pharmaceuticals. The new round, which was led by BDC Healthcare Venture Fund, was supported by existing investors that include SROne (GSK), Mitsubishi Tanabe, and Lumira Capital (Merck). On the medtech side of the equation we have not seen corporates engaging nearly as much in Canada, either directly or via investments in the funds of private VCs, but the recent investment by Canon in Ottawabased Spartan Bioscience is hopefully an encouraging start. With domestic and global healthcare corporations continuing to invest less and less in domestic Canadian R&D (spending by all patenees was down 9.8 per cent year over year in 2012 and the R&D-to-sales ratio declined to 5.3 per cent in 2012 according to the Patent Medicines Pricing Review Board4)

it is clear that despite the changes and improvements in the ecosystem there is still an35 opportunity for much more to be done. CVC investing is clearly a growing and important global reality. It is also an emerging activity in Canada, but one that still lags comparables in markets like the U.S. As corporate Canada confronts the realities of a much-debated productivity gap and thinning innovative product pipelines, governments worry about the hollowingout of industries, research and development spending in Canada continues to lag that of global leaders, and as corporate balance sheets grow heavy with idle and unproductive cash, now could be the perfect time for even more corporations – domestic and foreign – to seize the CVC opportunity. By investing directly themselves, or as a limited partner in an existing VC fund, these corporations can access Canada’s phenomenal healthcare innovation ecosystem, generate enhanced returns on idle cash and further strategic objectives. That sounds a lot like a win-win situation.

References 1. CB Insights, The 2014 US Corporate Venture Capital Review, February 2015 2. Financial Metrics in Corporate Venture Capital: Enhancing Strategic Value by Focusing on Financial Goals, Kauffman Press 3. CB Insights, The 2014 US Corporate Venture Capital Review, February 2015 4. http://www.pmprb-cepmb.gc.ca/home Peter van der Velden is Managing General Partner at Toronto-based Lumira Capital and the Past President of Canada’s Venture Capital & Private Equity Association (CVCA).

To see this story online visit http://biotechnologyfocus. ca/the-rise-of-the-corporateventure-investor

By Mike Woollatt, CEO, CVCA

Across cAnAdA

GREATER PRIVATE AND PUBLIC SECTOR SUPPORT NEEDED TO DRIVE

GROWTH IN THE BIOTECH SECTOR

fter years of flying under the radar, venture capital in Canada is maturing as an industry, and with it opportunities in life sciences and biotechnology are growing. And yet, venture capital remains chronically underfunded – a stubbornly persistent trend that will negatively impact the future of life sciences in Canada at a time when greater economic diversification is needed most. Without higher levels of investment we risk stifling innovation in biotechnology and losing out on all the socioeconomic benefits that come with supporting a sector that adds high paying jobs to Canada’s economy – the engineers, scientists and researchers that propel this industry forward, while minimizing breakthroughs in medicine that improve quality of life for all Canadians. The good news is that we don’t need to

panic – yet. Canadian venture capital firms and its managers bring a wealth of experience that wasn’t as prevalent 10 to 15 years ago. The reality is that outside the U.S., every country had to bump and grind its way into developing a vibrant venture capital community. It was new territory, and simply emulating what was going on in Silicon Valley wasn’t easy to do – they had such a large head start. Our understanding of the mechanisms that make a successful venture capital market is far more advanced now. For instance, we know that more niche and sector specific investment mandates serve us better. We are now seeing very targeted venture capital funds set up in all fields, whether it be health and life sciences, information and technology or others. This has obvious advantages of access to the cutting edge of a field, and opportunities

for in-depth due diligence on any potential acquisitions. As a result, we are also seeing venture capital funds steering away from hiring generalist analysts and towards hiring people with direct field experience (i.e. doctors and IT entrepreneurs). As a country, we also now understand the vital role that government can play in venture capital. This isn’t a weakness by any stretch. Governments everywhere have recognized that venture capital is a smart investment to make. In fact, that bastion of capitalism and venture capital, Silicon Valley, got its start with public money too – government was directly involved and still is in the U.S. in a big way and producing big results. That’s why the Canadian federal government’s relatively new Venture Capital Action Plan (VCAP) is so important. VCAP is a $400 million strategy to help increase private secApril/May 2015 BIOTECHNOLOGY FOCUS 15

Across Canada tor investments in early-stage risk capital. It includes a commitment to fund private sector-led funds with matching funds from other private sector investors and interested provinces. One of them, the Teralys Capital Innovation Fund, has a specific healthcare team which guarantees capital for life science start-ups. Recently, Teralys Capital and the Harbourvest Funds of Funds both received capital commitments for Knight Pharmaceuticals. This creates massive leverage economics. It is common for follow on investment that multiplies the original by three or more. The initial spark by government is foundational capital that enables Canadian VC funds to attract outside investment. That’s VCAP’s objective, and it is being fulfilled. This is all coming together to create a more robust VC framework that creates big advantages for Canada. According to our 2013 report1 with Industry Canada, over a five year period, VC backed companies have almost 2.5 times higher sales growth, almost 50 per cent greater employee growth, invest over three times more in R&D and have 15 per cent higher survival rates. Venture capital deal and investment volume continues to grow in Canada, and life sciences reliably captures a high percentage of VC investment. In 2014 alone, life sciences secured almost a quarter of total VC investment dollars, and 18 per cent of all deal activity with $423 million invested over 68 deals. Moreover, biotechnology had a commanding share of life science venture capital deals in 2014 accounting for $201 million, or almost half of available investment dollars, and 40 per cent of all life sciences deal activity. What’s particular to life sciences is how many of us benefit from strong performance in this sector. Investors are getting great returns for their money. Aquinox and Xenon Pharmaceuticals both exited by way of initial public offerings in 2014 combining for almost $100 million ($51 and $47 million respectively). But what really stands out is that investment in this space spurs advances in medicine, truly game-changing alternatives are surfacing that are having a real impact on people’s lives. Thrasos Therapeutics, a clinical-stage biotherapeutics company focused on delivering new solutions to individuals affected with kidney disease, raised CDN $60 million from Canadian and U.S. investors including Lumira Capital, SR One, Pappas Ventures and Mitsubishi Tanabe Pharma America, and more recently raised $21 million led by BDC Capital. Canadian investors are helping to lead science through strategic funding, connections and entrepreneurial know-how. 16 BIOTECHNOLOGY FOCUS April/May 2015

However, resting on our laurels now is not an option. When compared to what’s going on south of the border it’s clear that Canada has more to accomplish. According to data from the MoneyTree Report from PricewaterhouseCoopers (PwC) LLP and the National Venture Capital Association (NVCA), Biotechnology captured $6 billion of total VC investment in the U.S. last year. If we use the typical 10x model to compare the economics vis-à-vis Canada and the U.S., Canada’s $201 million would translate to roughly $2 billion in the U.S. – not the $6 billion that is actually invested south of the border. Just a third of where it should be to be comparable. So, the venture capital community in Canada has matured and is set up for success. The government understands its vital role and is playing it well so far. Yet we are still chronically underfunded. What’s left to be done? We would argue more of the same and to continue on this path. Private venture capital must continue to play its role in nurturing life sciences. It must continue to mature and refine its offering, but venture capital is not a panacea. There is room for government to expand its support and there are other vehicles of funding, such as corporate Canada that should be more active for its shareholders. On top of increasing existing financial commitments, government can also act as a large customer and create a procurement model that favours Canadian innovation. This is particularly true in medtech, digital health and the IT sectors. This tactic is frequently applied in other markets and yet Canadian governments both provincial and federal, have been reticent to deploy. It is vital – often an entrepreneur’s first big contract outside of Canada is with government. In fact, we have many examples of Canadianborn innovations in health and life sciences gaining traction with governments outside of Canada before even securing domestic approval and adoption. This needs to change. Australia, Finland, Germany, Sweden, the United Kingdom and European Commission stress public procurement as a means to drive innovation. Even with NAFTA in place the U.S. has a well-documented “Buy America” agenda while we sit on the sidelines hiding behind NAFTA provisions. Too often government is only interested in the cheapest option instead of the best option to serve Canadian citizens. By prioritizing emerging Canadian biotechnology solutions for investment, the government can address pressing health issues, while having an amplifying effect on innovation. And finally, as mentioned, more activity from corporate Canada in venture capital should be encouraged. While it is common in the U.S., few Canadian corporations take

advantage of investment in the start-up community. There are four main reasons to consider this option. Strategic investment in aligned sectors can give a company access to new intellectual property and patents, help identify star candidates for recruitment, stay on the cutting edge of their industry, all while providing a hefty return on investment. There are examples of this in the life science space - Novartis, Johnson & Johnson, GlaxoSmithKline, Merck and others have all demonstrated the value of CVC. Yet we pale in numbers compared to the U.S. in corporate venture activity. It is time for more bold action on this front, and corporate Canada should seize the opportunity. We have been talking about innovation and productivity gaps in Canada for decades. Yet at a time when the Canadian economy really needs innovation as traditional manufacturing on the decline and oil and gas suffers from substantial and lasting price shocks, we are lacking the necessary funding. By working together, biotechnology can flourish in Canada, but it will take a coordinated effort, and political will. This combination of public and private sector support can lay the foundation in which to build many new economies in Canada – life sciences is no exception.

Reference 1. http://www.bdc.ca/en/bdc-capital/ venture-capital/newsroom/pages/ impact-vc-on-busin.aspx Mike Woollatt is the CEO of the Canadian Venture Capital & Private Equity Association (CVCA). Prior to joining the CVCA, he co-founded Beaconsfield Group, a successful management consulting and public affairs firm. Mike has held senior executive roles at various major Canadian corporations, including Bell Canada, CTVglobemedia, and Canwest Global Communications. Before entering the private sector, Mike worked for the Government of Canada, both as an economist in the bureaucracy and as a political advisor at the Department of Finance. He has also worked overseas as an economist on international development projects. Mike has both a B.A. and M.A. in Economics from the University of British Columbia. To see this story online visit www.biotechnologyfocus.ca/ greater-private-and-public-sectorsupport-need-to-drive-growth-inthe-biotech-sector

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By: Chantall Van Raay

InfEcTIoUs dIsEAsEs

On the front lines of

WAR SUPERBUGS THE

hen 150 of the world’s leading scientists gathered in California this spring to map out new approaches to fight antibiotic resistance, McMaster University experts were at the forefront of the scientific discussions focused on tackling this crisis. Infection-fighting antibiotics are the workhorses of modern day medicine, enabling everything from successful cancer chemotherapies and organ transplants, to joint replacements and preterm infant care. But antibiotics, once considered a sure-fire way to cure and control a host of infectious diseases, are in a fierce battle as microbes – bacteria, viruses, fungi and parasites – develop resistance to the drugs faster than new treatments are delivered to the clinic. As antibiotic resistance is at an all-time high and expected to worsen, McMaster lead scientist Gerry Wright and his team at the Michael G. DeGroote Institute for Infectious Disease Research in Hamilton, ON, are collaborating with more than 60 McMaster researchers including engineers, chemists, health scientists, doctors, mathematicians and anthropologists to address this critical problem. Working across fields of study, this team of internationally respected researchers is investigating at a break-neck pace, building on more than two decades of research momentum and efforts to improve human health in the escalating global challenge of infectious diseases and antibiotic resistance. “Resistance to antibiotics is a challenge of global proportion,” says Wright, Canada Research Chair in Antibiotic Biochemistry and the institute’s scientific director. “It is considered one of the greatest global crises of our time and if left unchecked, the world could soon face 10 million deaths per year because antibiotics used to treat infections no longer work.” The staggering estimate, released late last year by the British government, is from one of many recent reports by the world’s public 18 BIOTECHNOLOGY FOCUS April/May 2015

health leaders demonstrating the real and pressing need for solutions. Already, 23,000 people die yearly from antibiotic-resistant bacteria in the U.S. and more than two million fall ill, according to the U.S.-based Centers for Disease Control. In Canada, up to 12,000 Canadians are dying each year from antibiotic-resistant infections. Health Canada reported in March that drug-resistant microbes or “superbugs” have cost Canadians $1 billion in medical care. Canada has joined the global call to arms to fight deadly drug-resistance infections with the federal government unveiling a new action plan that includes several steps to address the problem, as well as funding for a study on antimicrobial resistance’s impact on the economy. Wright says Canada’s plan aligns well with similar efforts in the U.S. and Europe. The dilemma, explains Wright, is almost all bacteria have developed some form of resistance, making antibiotics less effective at treating serious infections. And while movement is being seen in public health surveillance data, global management of antibiotic delivery in the clinic and agriculture, innovation in infection control and diagnostics, new antimicrobial therapies, new drug discovery has stalled, magnifying the problem. No new antibiotic drug classes have been discovered for more than 30 years and activity in the pharmaceutical industry is at a low not seen since the pre-antibiotic era 75 years ago. In 1990 there were 18 large drug companies searching for new antibiotics and now there are no more than four. “The antibiotic discovery pipeline is dry,” Wright says. “The reasons for this are complex, including economic and regulatory hurdles, but principal among them is that traditional target-based or cell killing screening approaches have failed to deliver new drug candidates over the past 20 years and ‘big pharma’ has moved to more tractable areas of drug discovery.”

McMaster infectious disease experts Eric Brown and Gerry Wright. Wright is the scientific director of the Michael G. DeGroote Institute for Infectious Disease Research (IIDR) at McMaster University. Wright says universities like McMaster and its team of experts are perfectly positioned to assume some of the roles pharma used to play and to deliver tangible solutions that will help make Canada a leader in the field. Working collaboratively, and with colleagues from institutions nationally and internationally, the university’s researchers are finding candidates for drug development for new antibiotics along with alternatives to traditional antibiotics and new diagnostic tools by developing creative approaches to address the drug-resistance threat. “Our critical mass of researchers expertly cross the boundaries of science, engineering and health sciences. Using their extensive knowledge and experience, combined with access to our state-of-the-art and unique combination of research facilities and screening technologies, they are priming the discovery pump in this field,” he says. “We have already made substantial inroads and have already generated new molecules that have commercial potential. This new intellectual property can lead to new medicines and also new start-up companies that can exploit new business opportunities and create jobs for highly qualified employees.” McMaster’s approach is unique, he adds. Not only is it multidisciplinary, it thrives on creativity and breaking through traditional thinking about how to find new solutions: • Unlike traditional academic-driven discovery that is typically dominated by solitary analy-

Infectious Diseases

sis of narrowly defined systems, McMaster researchers are performing a variety of largescale chemical screens across a number of innovative targets with a goal of providing lead compounds that can be explored in preclinical and eventually clinical studies. • New screening methodologies such as the combination of bioactive compounds with antibiotics to preserve the activity of legacy antibiotics are delivering results. Recent work by the team demonstrated that a combination of the cephalosporin cefuroxime and the anti-platelet drug ticlopidine were highly effective in selectively targeting MRSA (methicillin resistant Staphylococcus aureus). • In an effort to contribute fresh directions for new antibacterial therapeutics, McMaster researcher Eric Brown, with others, studies new antibiotic targets in Gram-negative bacteria, a problem of resistance that is acute. Brown’s group has found that starving bacteria under conditions typically found in infections makes these bacteria particularly vulnerable to antibiotics. • A potentially revolutionary treatment of infectious diseases exists in targeting bacterial virulence factors, the proteins involved in host colonization, immune avoidance and transmission. McMaster researchers Brian Coombes, Mike Surette and Lori Burrows, world leaders in this field, study pathogenic bacteria. In particular, the researchers look at the interface between the host and the pathogen and countermeasures those pathogens have evolved to defend themselves and withstand the human immune system’s attempts to kill them off.

McMaster is also tackling resistance by finding ways to boost the immune system to better treat infections. A rise in the elderly population as well as an increase in the average number of days spent in hospital has contributed to rising severity and incidence of hospital-acquired infections. This has prompted researcher Dawn Bowdish to investigate why the elderly are particularly susceptible to pneumonia and is developing new therapies that bolster the body’s own natural defense mechanisms. Other researchers are working out in the field, locating samples from unusual environments including the sediment of the Great Lakes, muskeg swamps of Northern Ontario and, with collaborators, Cuban marine and coastal environments and a variety of locations in Nigeria to revive the historical collections of pharmaceutical companies. Wright’s lab recently made strides in this area after discovering a fungus living in the soils of Nova Scotia. The lab screened the fungus using its state-of-the-art infrastructure and screening methodology, and discovered that the molecule’s properties targets and rapidly disarms one of the most dangerous antibiotic-resistance genes currently in existence. Called NDM-1, officials have referred to the gene as a nightmare since it is capable of overpowering nearly every drug from the penicillin class of antibiotics. The compound is currently in pre-clinical assessment and under evaluation by the U.S. National Institutes of Health. Wright’s team is also in the process of licensing the drug to a potential spin-off company. Wright’s team also works in tandem with researchers such as John Brennan, director of McMaster’s Biointerfaces Institute where researchers are focused on creating new approaches for the detection of infectious diseases. For example, Brennan’s team is developing new ways to use an ordinary office inkjet printer to print paper biosensors, simplifying the diagnosis of infections like E. coli, salmonella and C. difficile. Knowing what bacteria are causing disease enables doctors to more accurately prescribe the right antibiotics and lessen the chance of developing resistance. As the world enters a new medical era, McMaster is meeting the urgent global need to prevent, detect, treat and use an evidencebased approach for drug-resistant infections and infectious disease research, says Wright. “McMaster is finding creative and innovative solutions to ensure we do not revert to pre-antibiotic times, when infections that we now routinely cure are again life threatening,” he says. “We have seized the opportunity to advance how we discover new drugs and

Michael G. DeGroote Institute for Infectious Disease Research By the Numbers

• 37 principal investigators, including eight medical doctors and 29 PhD students • Researchers from three Faculties (Health Sciences, Sciences and Engineering) and eight departments, including Biochemistry & Biomedical Sciences, Medicine, Pathology & Molecular Medicine, Chemistry, Biology, Mathematics & Statistics, Anthropology, Geography & Earth Sciences • 400 graduate students, post-doctoral fellows and clinical fellows • More than $83 million in research funding acquired since the institute was established in 2007 • Unique supporting infrastructure, including: • Centre for Microbial Chemical Biology – early stage drug discovery, natural products • Robert E. Fitzhenry Vector Laboratory – GMP manufacturing for vaccine candidates • Farncombe Family AxenicGnotobiotic Facility – microbiome investigations • McMaster Genomics Lab – high-throughput sequencing, 454, MySeq • Renovated BSL3 Suite – HIV, Mtb, animals rethink drug use and drug combinations. We are confident McMaster will help Canadians can enjoy better health through new technologies and innovations in this important battle against superbugs and antibiotic resistance.” To see this story online visit www.biotechnologyfocus.ca/ on-the-front-lines-of-the-war-onsuperbugs April/May 2015 BIOTECHNOLOGY FOCUS 19

THE LAsT Word

By David Young

TAIWAN REAPING REWARDS from strategic pivot to build sustainable biotech industry Can it happen in Ontario? dr. david Young, Md

is the current CEO of Actium and is the founding Chairman of OBIO.

ntario has a deep respect for science, research and education. The thread that winds through human health, universal healthcare, and life science research joins the tapestry that is Ontario’s diversity of strengths, placing the province at the cross-roads of a significant economic opportunity. Ontario’s commitment to education is at a historic high, producing significant results: high school graduation rates are at 90 per cent, university graduation rates are at 30 per cent and tertiary education is widely available through colleges and the 23 universities in the province. The large network of research universities means the province has a solid base of trained people, discovery capabilities, infrastructure and a repository of knowledge in the life sciences. Ontario has consistently funded basic research in life sciences which puts it in a good position to buffer against the rapidly changing economic environment by converting that investment into commercial opportunities. The shifting economic sand that threatens Ontario is

20 BIOTECHNOLOGY FOCUS April/May 2015

free trade and the expanding network of global trade agreements being forged. Ontario’s economic engine has been to this point the auto sector, which accounts for more than one-third of its exports, primarily to the U.S. The Canada-U.S. Auto Pact signed in 1965 was abolished in 2001; Canada’s auto sector peaked in 1999 when it was the fourth largest auto maker in the world, now it is 10th. As an indication of the future softening of the auto sector’s importance to Ontario, global car companies are not investing in Ontario - of the US$24 billion being spent on growing capacity by the world’s car makers this year none of it is being invested in Canada. The second leg being sawed off in Ontario’s economy is due to the cyclical erosion of commodity prices since commodities provide a further 10 per cent of Ontario’s exports. The trifecta of an economic downturn, the need to service the current debt of C$267 billion and interest rate increases can trigger a calamity in Ontario. The provincial government can create policy to af-

THE LAsT Word fect the first, which has a knock on effect on the second but it has no control over the third. The exigencies of government budgets can curtail freedom of action but the spending side of the ledger is where a government can exert the most control. Development and investment decisions for future growth are the tools by which governments can bend the revenue and expenditure curves to an intersection. These can be long cycles but the payoffs are not only big, but vital to the health of a jurisdiction. This is especially true as global forces erode a jurisdiction’s economic base. Ontario is living this dynamic now; are there lessons to be learned from other jurisdictions confronting the same issues?

Lessons to be learned, ﬁnding a comparable Taiwan has striking parallels to Ontario and faces a similar crisis in its economy. Taiwan and Ontario have similar GDPs, C$631.8 vs. C$695.7, respectively assuming an 80 cent Canadian dollar. Like Ontario, Taiwan relies on one industry for the bulk of its exports - with electronics comprising about 40 per cent of Taiwan’s exports, in the same ballpark as the auto sector for Ontario. Taiwan sells about C$25 billion of oil a year, and together with electronics these two sectors make up about 45 per cent of its exports; in Ontario auto and commodities make up about the same fraction of exports. Taiwan’s largest trading partner is also a behemoth - China receives almost 40 per cent of its exports; Ontario exports almost 80 per cent of its goods to the U.S. Since martial law was lifted in Taiwan in 1987 the country has been governed by the main opposition party, the DPP, for eight years and the current governing party, the KMT, for the remainder. In Ontario, the current main opposition party, the PC’s, has governed for eight years, and the current governing party, the Liberals, have been in power for 14 of the remaining 27 years. Like Ontario, Taiwan is seeing fundamental shifts in its economy because manufacturing has migrated to jurisdictions with lower labour costs like

China and other Asian countries. Like Ontario, Taiwan’s exposure to oil subjects it to broader commodity trends. How Taiwan is dealing with these pressing issues is a useful case study in harnessing innovation to pivot an economy from an impending weakness to a future strength. Like many jurisdictions that recognize the manifold global demographic shifts, Taiwan, through successive generations of government, acted on the insight that healthcare is increasing in its importance to both governments and consumers. This is not only because of the aging of the baby boomers but also because of the emerging middle class globally. For example, China’s middle class can ultimately increase to 500 million people. The Taiwanese government launched successive waves of plans, policies, funding and reforms over the last two decades culminating in a transformation of its life science sector over the last five years. Astonishingly, the combined market capitalization for Taiwanese life science companies increased from US$3 billion to US$30 billion over five years. There is a robust, deep and liquid public market for biotech companies in Taiwan. Investor participation is wide from retail investors, to traditional venture capital, and private equity, to family offices, as well as corporate and conglomerate investors. Valuations are generous, and amount of capital raised is comparable to U.S. biotech companies at the same stage. The Taiwan Biotechnology & Pharmaceutical Industries Promotion Office estimates there are 840 biopharmaceutical or biotech companies operating in Taiwan. By comparison the Canadian life science landscape has remained stagnant at about US$3.6 billion combined market cap for the same universe of companies. The workforce in biopharma in Taiwan increased from 42,000 people in 2008 to about 71,000 currently while Industry Canada estimates that 27,000 people work in the industry in Canada. Scaling the Canadian metrics

Table 1

ONTARIO (in C$ billions, 2014) Exports Imports Trade balance GDP

TAIWAN 353.29 350.10 3.19 695.71

$391.50 342.25 49.25 631.82

TOP FIVE INTERNATIONAL EXPORTS, 2014 (%)

Motor vehicles & parts Precious metals & stones Mechanical equipment Plastic products Electrical machinery

33.9 11.2 9.2 3.7 3.6

Electronic equipment Machines, engines, pumps Plastics Medical, technical equipment Oil

39.3 10 6.8 6.6 6.4

China Hong Kong United States Singapore Japan

26.2 13.6 11.1 6.5 6.3

TOP FIVE INTERNATIONAL EXPORT MARKETS, 2014 (%)

United States United Kingdom Hong Kong China Mexico

79.3 6.4 1.8 1.2 1.2

April/May 2015 BIOTECHNOLOGY FOCUS 21

THE LAST WORD in Taiwan, such as funding for up to 49 per cent of the cost of a clinical trial and direct Chi-Huey Wong, a prize winning chemist at the research grants to biotech companies. There has been talk of a biotech bubble in Scripps Research Institute and a co-founder of Taiwan, and in recent months there has been Optimer Pharmaceuticals, was convinced to some retraction in the GreTai Biotechnology return to Taiwan and head up Academia Sinica. and Medical Care sub-index. However, the underlying premise and fundamentals of the Taiwan biotech sector are still valid. The aging society is not going away. The march of medical and healthcare innovation is not stopping soon. The importance of health to the individual is only going to Ontario makes the comparisons stand out even more. to become more important as people around the world become more What is striking about Taiwan’s development plan for biotech is the affluent. The conversation on the balance of private vs. public payment persistence of its government’s vision, and the resources it was willing in healthcare is only going to become more urgent as public healthcare to devote to it. Perhaps it was through the success of guiding the counbudgets are being reigned in. try through many iterations of economic development from low value These global trends are as germane in Ontario as in Taiwan. Are there add products like textiles and petrochemicals in the 1960s and 1970s, any lessons to be gleaned from Taiwan’s success in biotech that are to the transformation of the island into the leading tech manufacturer applicable to a similar jurisdiction such as Ontario? The principles of in the 1980s and 1990s that created the belief that another “economic investment, persistence, coordination, objective decision making, getmiracle” was possible. ting the best people to help, long term planning, effective tax policies, In 2009 the “Diamond Action Plan for Taiwan Biotech Takeoff” incentives for broad private sector capital mobilization, clearly stated helped coalesce the many elements at play to catalyze the growth of goals, and public promotion have worked over many economic cycles the sector. Prior to the plan that sparked the transformation, the govin Taiwan. It should not escape any but the most casual observer that ernment was diligent at tweaking all the factors that went into such this kind of behavior has kept the governing party in power for 19 of a central initiative including bringing in key leaders to advise, and the last 27 years; long term planning and staying the course in creating ultimately to champion the cause. economic expansion has rewarded the KMT with longevity. Rather than In 2006 Chi-Huey Wong, a prize winning chemist at the Scripps viewing economic pivots as impossible tasks that could lead to political Research Institute and a co-founder of Optimer Pharmaceuticals, was wilderness, both main parties in Taiwan see it as an essential tool to win convinced to return to Taiwan and head up Academia Sinica by its electoral mandates - after all jobs and prosperity matter to everyone. prior president, the Nobel Laureate Yuan Tseh Lee. Dr. Wong helped Taiwan’s success in biotech is based on a big bet. Ontario has made to get the Biotechnology and New Pharmaceutical Development Act big bets before; funding the auto sector created 50 years of prosperity. passed which had provisions similar to the Bayh-Dole Act in the U.S. To be successful in biotech Ontario has to put significant capital into the and a 35 per cent tax exemption on investments in biotech research. ecosystem to make a difference - like Taiwan, $2 billion of risk capital Perhaps more significant was the accompanying creation of a US$2 bilmay be what is needed. Ontario has to use its policy levers, like creating lion venture fund, a new Food and Drug Administration and expanded a capital gains holiday for life science investments, to mobilize private infrastructure support for the sector to pave the way for turning the capital; it has to recruit champions with track records of objective and sector into a pillar of Taiwan’s economy. relevant success to lead the charge; it has to concentrate its attention Taiwan’s Diamond Action Plan is notable for being multi-faceted and into a few efforts so that there is clarity in mission and accountability; trying to cover all aspects of the ecosystem. This includes core science and it has to have the political will to make it a top three priority for the and development functions like creating a Supra Incubator that inteprovince so that everyone will know what the big bet is. grates the physical resources of the four life science parks on the island, Perhaps at first these actions seem bold, but, upon reflection, end up as well as providing new infrastructure. The regulatory regime works being necessary. The pivot to a biotech economy in Ontario can change hand-in-hand with establishing best-in-class practices and aiding industhe future prospects for the province as much as it does for Taiwan. trial development. The coordination function spans both fundamental and translational research to commercialization and capital formation. Dr. David Young, MD, is the current CEO of Actium and is the founding Financial regulatory changes that facilitated listing of biotech comChairman of OBIO, a biotech industry group; a director of MabNet, a NSERC panies happened to coincide with government efforts and the shift in Strategic Network and a director of the St. Michael’s Hospital Foundation. He investor sentiment that made biotech investing widespread. This rediwas the Founder, CSO and CEO of ARIUS, a biotechnology company which rection of private risk capital fueled the growth of the industry beyond was publicly traded on the TSX until its sale to F. Hoffman-La Roche and the direct government investment that would not have been sustainthe BIOTECanada Biotech Company of the Year in 2009. He is a recognized able or desirable. The general tax regime and some specific incentives entrepreneur and received the Entrepreneur of the Year award from the also tilted investment into biotech. Taiwan’s corporate tax rate is 17 Association of Chinese Canadian Entrepreneurs. per cent, and the capital gains tax can be as low as 7.5 per cent if the shares are held for more than a year. There are many biotech specific tax credit and tax deferral mechanisms, such as a 35 per cent corporate tax credit for training and a 20 per cent tax deduction for corporate Got something to say? shareholders that provide further incentives for biotech investment. Please send your comments/letters to @ There are also direct subsidies that blunt the risk and capital intensity biotechnology_focus@promotive.net inherent in research and development to make biotech mainstream 22 BIOTECHNOLOGY FOCUS April/May 2015

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ON THE FRONT LINES OF THE WAR ON SUPERBUGS