For burgeoning biotechs it's buy, sell or license

B.C. startups depend on partnerships or buyout agreements with world leaders to survive and grow

By Corey Van't Haaff
Business in Vancouver November 15-21, 2005; issue 838

Change is constant in the biotech industry, where smaller companies depend on licensing agreements or buy-outs to grow. Small companies need major capital to expand, and large pharmaceutical companies are often the only ones with pockets deep enough to make products commercially viable.

"The usual practice," said Jim Heppell, president and fund manager at B.C. Advantage Funds, "is that a B.C. startup company with a new therapy does its pre-clinical work in animals to ensure the drug is safe and non-toxic."

Then, he said, the drug goes to Phase 1 trials with humans to prove safety, followed by Phase 2 trials to prove efficacy (that the drug works with the targeted population).

"This is the usual place they enter into discussions with large pharmaceutical companies and license their product."

Examples of such licensing agreements in Vancouver abound. Angiotech licensed its taxol-coated stent to Boston Scientific Corp. Cardiome licensed its technology to Fujisawa Healthcare. QLT licensed its technology to Novartis, and Zenon signed two licensing deals: one with Novartis for US$157 million and one to Pfizer for $87 million.

Aspreva did it a little differently. Aspreva saw that Roche had a highly successful drug in the market, Cellcept, which was used for immune suppression in transplant patients.

Aspreva reversed the typical licensing agreement. Knowing that Roche concentrated on drug therapies with a potential billion-dollar market and knowing that the lupus market was roughly $400 million, Aspreva secured a licence from Roche to carry Cellcept through clinical trials for lupus and other auto-immune diseases. It was a beautiful deal, Heppell said. Cellcept was already proved safe and had been widely used off-label, so Aspreva now does the clinical work to prove the drug's different uses, then shares in the eventual revenue.

Buyouts are not the most common vehicle for biotech growth; licensing seems to be king. It allows smaller companies to get some money up front. They receive subsequent payments when milestones are met.

"The big upside is royalty payments that come downstream from the partners can become very profitable," said Heppell.

ID Biomedical has seen both sides of the coin. In 2001, it acquired Intellivax, a private company developing vaccines and inter-nasal technology. Intellivax had regulatory expertise that ID Biomedical was missing. "What that did is give us a bigger portfolio of products so we reduced our risk," said ID Biomedical CEO Tony Holler.

When it had several products developed to a stage where the company had to either license its products or build its own manufacturing facility, it acquired Shires' vaccine business in September 2004. In that deal it got Shire Pharmaceuticals' existing manufacturing facility.

Although Holler's original strategy was to continue as an independent company and license the selling side, GlaxoSmithKline decided it would rather buy ID Biomedical than simply sell its products. It offered $1.7 billion in a deal that will be presented to shareholders on November 16.

"It's the ultimate risk-reduction step for shareholders," said Holler. "They take a cheque; it's the highest price the stock has been at. There's no risk for the average investor. It's a huge homerun."