Biotechnology Focus April/May 2015 report

By:Tony Pullen

INdUSTRy REPORT

IS CANADIAN BIOTECH

COMING TO LIFE REVISITED

much ado about nothing?

A

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

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$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

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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.”

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