BC Business
The founders of BioLytical Labs were sitting on a revolutionary biotech product for rapid testing of HIV. So Robert Mackie and Matthew Clayton turned to their friends in high places for funding. The result? A star-studded start-up.
Where do you go for funding when you’re sitting on a biotech product that could help transform diagnostic procedures for one of the world’s most devastating viruses? When Richmond-based BioLytical Laboratories needed investors for its rapid HIV test, it looked to the usual suspects: Milton Wong, big-time health-sciences investor, and David Korbin, former director of Vancouver Hospital and Health Sciences Centre and former managing partner of Deloitte Touche. Strong backers, indeed, and both now sit on BioLytical’s board. But president and CEO Robert Mackie, 38, and COO Matthew Clayton, 36, also turned to their friends in high places – and the result is a burgeoning biotech so star-studded investors could be tempted to skip their homework. Being major sports fans (Clayton once played pro golf,) Mackie and Clayton have developed some tight relationships not only with shipping tycoon and former professional ski jumper Kyle Washington (also on BioLytical’s board) but some big names in the Canucks roster as well. Which is how a dozen NHL players, including Markus Naslund, ended up buying into a company whose sole purpose is to commercialize a rapid HIV test. “It happened just through friends of mine,” explains Mackie over the phone from Whistler. The NHL players tend to “hand the investments to their consultants in Toronto.” When Naslund’s consultant gave the green light to his client to invest in the company, it was like a domino effect. Other NHLers quickly followed suit, including Mackie’s close friend Geoff Courtnall, a former Canuck now in the construction business. Then there are the rock stars: Mackie’s best pal and his children’s godfather is Chad Kroeger, frontman for the Vancouver-grown rock band Nickelback, who’s also a big hockey fan. “Going to functions with him you meet a lot of sports guys,” says Mackie. Kroeger and his bandmates have bought into the company, along with other music celebs he won’t name. “He’s brought us to a lot of names in the rock community.” Name-dropping aside, if BioLytical is to fly as high as its promoters project, it has to compete in an increasingly competitive market that must operate within the restrictions of government approvals and in response to the latest medical advances. BioLytical’s only product on the market, the Insti Kit, is not the only rapid HIV test available in Canada, and it’s among 50 or so that have been dev-eloped globally. MedMira, a Halifax-based company, gained FDA and Health Canada approval for its Reveal G2 test last year but, claims BioLytical, at 60 seconds, Insti is faster. (MedMira’s test takes three minutes. Whether investors and customers care to quibble over mere minutes and pick the Insti kit over its competitors remains to be seen.) BioLytical’s is also the only one approved by Health Canada for point-of-care testing – that is, testing performed by a health care professional in contact with a patient. (MedMira’s test is only approved for use in laboratories.) And in June, BioLytical’s kit received CE Mark approval – a mandatory European certification that indicates conformity with health and safety requirements – making it available to the 28 countries in the European Community. The company is also currently seeking U.S. FDA approval. Other countries that have approved its use as a point-of-care device are Uganda, Kenya, the United Arab Emirates and Vietnam. The company also has distribution agreements in Mexico, Taiwan, Ecuador, India, the U.K., Turkey, Vietnam and regions in Africa. BioLytical’s Health Canada approval could not have come at a better time, preceding by just a few months the radical proclamations made by Julio Montaner, director of the B.C. Centre for Excellence in HIV/AIDS and president-elect of the International AIDS Society, at the XVI International AIDS Conference and in a paper published in The Lancet this past August. The world-renowned Montaner proposed that highly active anti-retroviral therapy (HAART), which is currently used to treat those carrying HIV, suppresses the virus to such small levels that it greatly impedes the ability of an infected person to transmit it. By expanding the use of HAART to include all those HIV-positive individuals who are not yet on treatment, he says, the spread of HIV and AIDS could, in ideal conditions, be effectively halted. The trick – and this is where BioLytical’s Insti test comes in – is to actively seek out and find those individuals who may not yet know that they are infected. “Approximately half of the people that should get treatment currently are on treatment,” Montaner explains. “The reasons for that are multiple, but they all relate to access. There are a substantial number of people who are infected that don’t know [they are carrying the virus].” The gap between infection and testing, he explains, relates to access and an aversion to the current system. “[An HIV] test requires that you ask for it, that you disclose why you’re asking for it, and requires that you go through pre- and post-test counselling. There is a level of sophistication that is required for you to even think about it to begin with… And then there are a couple of weeks that you have to wait for the results. It’s very stressful.” Montaner is currently putting together a pilot program in B.C. to aggressively pursue HIV testing and treatment, and intends to use BioLytical’s Insti Kit. “Having a test that is instantaneous, you have an opportunity to counsel the person and say ‘I’ll give you the test and I’ll give you the result and you can go on with your life.’ Most people test negative anyway. So that’s actually an assurance for people.” He even envisions a public awareness campaign to encourage people to get tested once or even twice a year. “We want everybody in B.C. to be tested. Not once, but several times, because the only way to get the hidden infections is to test people who don’t think that they’re infected.” BioLytical, says Montaner, will “certainly play a very important role in our strategy to both identify the cases [of HIV] and eventually treat those people that need to be treated.” [pagebreak] The endorsement has BioLytical execs cheering, but one local biotech insider says they could still be in for an uphill battle, primarily in distributing the product. Justin Stephensen, former life sciences analyst at Haywood Securities who is now principal of Vancouver-based Galiano Ventures, a private venture capital and advisory service focused on Canadian biotech and health care, says BioLytical has to play its cards right. “Often these tests can be produced extremely cheaply, so the margins should be very significant,” he observes. “But the crux of it is getting the right distribution network and having exclusivity with distributors that will not only take on their diagnostic as part of their kit bag, but will also focus on selling that particularly,” he cautions. “Some distributors are so huge, they have thousands of products, and a new product is just another product.” Overall, he says, the company’s prospects seem “positive.” That’s a wild understatement if you let Kyle Washington loose on promoting his latest investment. At his North Vancouver Seaspan office overlooking the water, Washington, 36, admits he’s not a biotech guy, but moving in similar social circles as Mackie and having done some basic research, he was sold on the product. “It sounds weird when you get athletes and rock stars investing in a biotech company, but it’s nothing more than contact with Rob [Mackie],” he explains. Washington, like Mackie and Clayton, exudes a kind of frat-boy energy: hyper, sporty and just a tad cocky. He’s the type of guy who strolls through his company’s halls greeting colleagues with a bear hug and a playful tap on the butt. “Rapid testing is the way of the future; it’s the way of today,” he says, unconcerned that his lack of biotech experience may not make him an authority on the subject. “Is it the biggest thing since sliced bread? Yeah. It really, really, really is.” He says Insti’s speed and accuracy – along with the “unlimited” market of the current HIV epidemic – make it a slam-dunk deal. How much has he put into the company? “Let’s just say I’m a significant investor. I know it’s going to happen.” Another close friend of Mackie’s, Dave Scatchard – a former Canuck and New York Islander who now plays centre for the Phoenix Coyotes – invested in the company two years ago after being similarly wowed by its market potential. “During the lockout, I had time off and this was something that I was interested in becoming involved with,” Scatchard explains. BioLytical, which launched in 1999, has, according to Mackie, about 350 investors, and is posting its first profit this year after putting $23 million into the company to take it from research and development into commercialization and production. The company is projecting revenues of $30 million for its current fiscal year and $100 million the following year. At the time this issue of BCBusiness went to press, the company said it was waiting for signatures on a five-year, $120-million deal with a distribution company in Saudi Arabia, and was in the last stages of negotiating a similar deal with India worth $35 million. It also claimed to be close to a deal with a company in the United Arab Emirates, where Insti is the only rapid HIV test to have passed the country’s clinical trials. Washington claims the company is not currently entertaining any exit strategies, but Clayton sounds a different tune: “We’re looking at exit strategies in the next year. Whether it’s acquisitions or an IPO to the market, we don’t yet know.” BioLytical did not develop the Insti test. Colorado researchers based in Richmond and operating as Intracel did that. BioLytical acquired the technology from Intracel for $15 million in 1999, and took on the job of getting the product to market, which entails conducting endless clinical trials to satisfy the requirements of each regulatory agency. Heading these trials is the job of BioLytical’s director of research and development, Richard Galli, who previously worked as a coordinator for the anti-retroviral resistance testing laboratory at the B.C. Centre for Excellence in HIV/AIDS (BCCE). It’s a connection that has obviously proved fruitful, what with Montaner’s planned pilot project, in addition to other studies conducted by BCCE in which the kit is used. Clayton is convinced that the Insti Kit’s speed and accuracy will make it the gold standard for HIV tests globally. Plus, he adds, the worldwide demand for such testing is limitless. If UNAIDS/World Health Org-anization estimates are anything to go by, he may be right. A May 2006 report estimates that by the end of 2005, between 33.4 and 46.0 million people were living with HIV or AIDS, 3.4 to 6.2 million of whom were newly infected with the virus. And analyst Stephensen says, in general, that rapid testing of major diseases is a “hugely growing field with double-digit growth rates per year.” However, much of the opportunity for rapid HIV testing lies in the Third World, in AIDS-ravaged places such as Africa, where there are few resources to spend on HIV treatment – let alone new diagnostic technologies. But Clayton is optimistic and says that he can get the cost of a single kit down to US$3.50 for disadvantaged countries. He also claims the company is “in talks” with the Clinton Foundation (a connection made by Washington) about using Insti Kit for HIV testing in underprivileged nations once it has received its WHO evaluation. Unfortunately for BioLytical, the WHO has currently suspended its HIV test evaluations while it re-examines its system, and the Insti test has been caught in the hold-up. [pagebreak] In North America, the test will cost US$8 to US$10. “We have to drive price for raw materials down, and we have to get our volumes high enough in sales to drive the prices down so they can be competitive,” says Clayton. As a Canadian company operating on Canadian soil, this is difficult, he concedes. “We will not be able to sell the product to everyone.” The focus, rather, will be to find niche markets and buyers who insist on quality. “I want to brand this product as the Mercedes Benz. I do not want to play the cheap game and look at every tender, because I cannot compete with $1.50 test kits.” The business opportunities for BioLytical aren’t only in the Third World, of course. Now that it has earned Health Canada approval, the company is pushing to get its kits covered under medicare, which is a province-by-province undertaking, and a slow one at that. In the meantime, the company has been focused on inking global deals and milking its sports connections by marketing directly to sports teams and organizations. When it was announced last fall that Trevis Smith, a linebacker for the Saskatchewan Roughriders, was HIV-positive and being arrested for two counts of aggravated sexual assault, the news sent shivers of fear through pro athletes across the country. As the media scrambled to report the developments and impact of Smith’s arrest (he will stand trial this October), BioLytical spotted an opportunity to gain some national exposure and made a big announcement: the company offered to provide free rapid HIV testing to athletes throughout the country. It was perfect timing. Media outlets across North America, including CTV and TSN, reported on BioLytical’s seemingly selfless act, and the Insti test, which had just been approved by Health Canada a couple of weeks prior, gained some free advertising. No one, as yet, has taken up BioLytical on its offer, but the company insists it has some big deals in the works. “As soon as we get our FDA [approval], the NFL would like to do it with us,” says Mackie, adding with some confidence: “We’ve been talking with the owner of the Canucks.” Touching a nerve Health Canada has issued guidelines for the use of point-of-care rapid HIV tests, stressing that pre- and post-test counselling should occur, and that any blood sample with a positive or equivocal reading using the rapid test must be confirmed at an approved HIV testing laboratory. Michael McDonald, professor at the UBC Centre for Applied Ethics, says the Insti test raises some ethical questions. “Are all the physicians that are going to be using this going to have the resources to be able to offer appropriate counselling at that point in a person’s life? Technology sometimes outruns our ability to provide the support services that need to go with them.” He concedes, however, that in the right setting, with the provision of pre- and post-counselling, rapid HIV tests could save patients a lot of anxiety. The majority of patients test negative, points out Robert Woollard, head of the UBC Department of Family Practice. Being able to give them this news – with the provision that they may need to come for follow-up testing in a couple of months – could prevent weeks of needless worry. And when patients do test positive, Woollard says presenting the news need not require a long, drawn-out visit. “You can acknowledge the heaviness of the news and make a plan for the next visit, at which time you can set aside an appropriate amount of time to go into what the therapeutic plan is going to be,” he says. Mark Tyndall is the program director of epidemiology at BCCE, and also sits on BioLytical’s scientific advisory board. His work has been focused on sex workers and drug addicts in the Downtown Eastside. He says that being able to provide results on the spot allows doctors and researchers to give results to patients without having to rely on them to show up to subsequent appointments. “In research studies, we still have difficulty following people up,” he explains. The ethical debate gets murkier, however, with the prospect of the Insti test – and others like it – moving from the doctor’s office to an over-the-counter item at the drugstore. Clayton maintains the company is averse to the idea, but Mackie admits it’s something that is definitely in BioLytical’s future. “I see it going that way,” he says. “If you ask me personally, I don’t think that’s the way we’re going to control the virus. Where you find out you’re HIV-positive definitely should not be in your basement. It should be where you can have proper education counselling and know that it’s not a death sentence, and know what’s next.” But with over-the-counter HIV kits available in the Netherlands, and the States expected to approve them in the next couple of years, home HIV-testing kits in Canada seem inevitable. “It’s just the way the world’s going,” Mackie concedes. “Financially, for BioLytical, for the shareholders, it’s a great thing. ” Paul Lewand, chair of the B.C. Persons with AIDS Society, is horrified by the prospect of home testing. “When it’s something that we’re able to get off the drugstore shelves, I see that as dangerous. People won’t have that really necessary counselling,” he says. Individuals may become suicidal when confronted with a positive test or go into denial. “Denial’s a really common way to deal with it,” he notes. “A lot of people for the first few years just prefer not to think about it.” McDonald also points out that an over-the-counter test could enable individuals to conduct tests on others, regardless of consent. The Trevis Smith case – which gave BioLytical its first big media break – highlighted this exact conundrum. The management at the Saskatchewan Roughriders was apparently aware of the linebacker’s HIV status, but his teammates weren’t. Phoenix Coyote David Scatchard, who has been in his fair share of scraps on the ice, says when it comes to contact sports, everyone should be tested. “Would I want to know if I was playing against someone with HIV?” asks the former Canuck, who has heavily invested in BioLytical. “That’s a tough question, but I think I would. I’ve been in fights before where I’ve cut the other player in a fight, and I’ve been covered in blood and my hands have been covered in blood… If we were all tested, I think that it would give you a little bit of peace of mind.” If BioLytical does end up signing deals with sports teams, it may well find itself caught up in an ethical and moral maze. Mackie, for one, doesn’t hold back when he considers the implications of his instant test and the right to privacy. “I don’t think you’re the only one who should know that you’re HIV positive. Look at Trevis Smith,” he says. “I think it’s the right of the federal government [to know people’s HIV status]. I think they need to be private about it. But I think responsible people have to know and give you education and not warn people about you, but maintain you. You’re walking around with a loaded gun.” How it works The Insti test, like the standard lab test used by doctors today, does not specifically detect the HIV virus; it detects the presence of HIV antibodies. Someone who tests positive for these antibodies is said to have a “reactive” test, and further testing is required to rule out the possibility of a “false positive” by checking for other markers of HIV infection. (In the current system, only these final, confirmatory results are sent back to the doctor to share with the patient.) BioLytical’s clinical trials determined that the Insti test had the same rate of accuracy as the standard lab tests. The kit comes sealed in a package the size of a small bag of chips, and contains everything required to test for HIV. A small lance is used to draw a drop of blood from a finger, which is sucked into a small pipette and transferred into a vial of “diluent” fluid. After the vial is shaken to mix the blood and diluent together, its contents are poured into a small “membrane unit well,” which looks like a tiny bowl. Once the fluid has flowed through the membrane, a vial of colour developer is added, followed by a clarifying solution. The membrane then displays one of three results: one blue spot means a negative test; two blue spots mean a positive test; if no spots appear, the test is invalid.