For years, B.C.’s biotech sector has rested on the claim that it has spawned two local giants. But the boast is wearing thin. Does B.C. have what it takes to become the next Bay Area, or will we forever be the farm team for big pharmaceuticals eager to pluck the next great drug discovery and stay stuck in an incubation period? BCBusiness sat down with a round table to discuss.
For years, B.C.’s biotechnology sector has rested on the claim that it has spawned two local giants. But the boast is wearing thin. Does B.C. have what it takes to become the next Bay Area, or will we forever be the farm team for big pharmaceuticals eager to pluck the next great drug discovery? The biotech industry in B.C. is at a crossroads. With successes like QLT and Angiotech, the sector has taken its first baby steps but has yet to prove it can run with the champions in the global marketplace. Our top-notch research facilities have garnered global headlines and spawned an impressive string of biotech start-ups. And as industry promoters never tire of telling us, there are only five profitable biotechs in Canada, and three of them are in B.C. But look a little closer and the shine begins to fade. QLT, the local industry’s poster child, is floundering as it struggles to expand its product portfolio beyond the one drug it successfully developed. And as for the much-touted profitability factor, both QLT and Angiotech lost money in 2005. These may be one-time losses due to unusual circumstances, but nevertheless only one biotech, Aspreva, can lay claim to profitability today. To tackle these tough questions about the industry’s coming of age, BCBusiness convened a panel of industry veterans. Natalie Dakers has deep roots in local biotech. As the former president of Neuromed Pharmaceuticals, she oversaw the growth of one of B.C.’s first-generation pioneers. Drawing on that experience, she is now CEO of the Centre for Drug Research and Development, an organization aimed at helping guide early-stage research companies down the path to commercialization. David Hall has been involved with local biotech giant Angiotech since its formative years. In addition to serving as chief compliance officer and VP of government and community relations for Angiotech, he is chair of BC Biotech. Hector MacKay-Dunn is a partner at the Vancouver office of law firm Farris, Vaughan, Wills & Murphy LLP, and has represented dozens of local biotechs, including QLT, since the sector’s early days. BCBusiness: Is it safe to say that B.C. can now claim it has a successful biotech industry? David Hall: I would argue that it’s not a sustainable industry yet. When you get to the point where some of our successful companies have so much on their plate that they’re spinning companies out, and each of these companies is into the second and third generation of successful products, then you may have what could be defined as a sustainable industry. Angiotech is trying to get to that point where we have enough commercial products, and enough intellectual property being developed, that we can’t actually do it all and we end up in a situation where we’re spinning out companies. Hector MacKay-Dunn: I think we can say we’ve demonstrated the community’s ability to start biotech companies. What we’ve not demonstrated, and where it’s critical for us to determine whether we have a sustainable industry, is whether or not those companies that grow are sustainable. The risk we face is that as our companies demonstrate clinical success and are recognized – which is a good thing – they are purchased by larger companies from other jurisdictions. That’s great for investors, and a tip of the hat to the scientists. But it is quite a different thing to say that that success is actually breeding a life-science cluster. DH: If you follow Hector’s chronology of the development of companies, when the firms are acquired and taken away, the technology usually goes south. Canadians and British Columbians are going to be paying for the innovative medicines that come out of those discoveries in the form of importing the products, the drugs and the devices. Natalie Dakers: It’s one thing to be an exporter of products versus an exporter of ideas. The technology bust that we faced in 2000 has had an enormous impact on our ability to access the capital pool. In the past, universities have been the largest generator of the ideas that have created smaller companies that become larger companies. But how do we continue to evaluate these ideas and turn them into companies if we don’t have an appetite for early-stage companies? BCB: You mentioned a change in capital markets. Could a Neuromed or an Angiotech have emerged in today’s investment climate? ND: I’ve often asked myself that. Neuromed in 1998 raised $5 million in seed funding. Could I do that today? That was based on some excellent background science. We had a couple of chemical structures and we had some data, but very little. Could you take that to a venture capital company today and say: “This is a great idea and I think you should do it?” I don’t think you could. HM-D: Well, let me just disagree with you. I think it’s harder – I agree with you in that respect. And the sources of money are different. But I have, right now, in my practice, five start-up companies. DH: But the science is probably more advanced. In ’98, ’99, 2000, if two scientists cured a rat and were not sure how they did it, they could have funded that. The meter has moved. Today, you’ve still got an increasing amount of government money going into funding research. What we need to do in order to get some value for that – to make this industry sustainable – is get a Neuromed to come along, to have their science matured further than it used to be in order to attract the right kind of financing that can go deeper into the pool of development. If you have good science, you will get it funded. The point is getting the funding so you can get to that point of good science. BCB: Is it that this risk capital is out there for, say, Vancouver’s competitors in the U.S., but the money just can’t get into Vancouver? HM-D: Yes. DH: There are pools of risk capital. They’ll go wherever the opportunity is. HM-D: There are enormous pools of capital sitting in the Bay Area right now. DH: In the U.S. in general. HM-D: And the East Coast. The folks in the Bay Area, who’ve really discovered B.C. in the last two and a half years, love the ideas they see happening and they want to invest. But there is no obvious investor partner in Canada or B.C. for many of the U.S. VCs. DH: If you can remove the barriers so it’s fluid for these risk-capital pools to come in and invest in Canada, our industry can compete with anybody in the Bay Area, Boston, wherever. And, interestingly enough, those companies or those pools of capital come to understand that it’s actually very advantageous to leave the company in the jurisdiction in Canada and in B.C. There are tax reasons why it’s good to be here. BCB: Why is it so hard to find local money? ND: Look at our venture capital community now and where we were even five years ago: Royal Bank is no longer in the venture capital business. Scotia Capital, which was the largest life-sciences fund across Canada, has closed the Western office and they’re shutting things down. DH: You don’t have to get into the individual pools that exist within Canada. They are a fraction of what there is in Seattle, for example. Seattle would have more capital than all of Canada for ventures.