Profits and pitfalls: Staying ahead in B.C. biotech

For while biotech CEOs savour their successes, they’re only too aware that the patent-protection clock immediately starts ticking down to the time when generic drug-makers will be free to legally compete with them.

B.C. has groomed hundreds of biotechnology and medical device companies. But, in the province’s history, only three have ever been profitable: QLT Inc. (TSX:QLT), Angiotech Pharmaceuticals Inc. (TSX:ANP) and Aspreva Pharmaceuticals Corp. (TSX:ASV). Aspreva alone has managed to stay profitable since it first notched a year in the black.

That record may not sound like cause for jubilation, but few jurisdictions can make the same claim.

"There’s only a certain amount of time when profitable companies have exclusivity [to their drug] under patent," said Farris, Vaughan, Wills and Murphy LLP biotech lawyer and partner Hector MacKay-Dunn. "Your own success will invite competitors."

To ward off competitors and stay profitable, life sciences companies need to make acquisitions. In Angiotech CEO Bill Hunter’s words: "If you’re going to have 200 sales reps out there, you can’t have them selling only one product." Hunter spreads his 1,738 staff across North America, Europe and Puerto Rico.

QLT CEO Robert Butchofsky agreed that acquisitions provide the lifeblood necessary for biotech companies to grow. He said QLT bought Colorado-based Atrix Laboratories Inc. in 2004 largely for new technologies such as the now-available Eligard, which combats prostate cancer, and the anti-acne drug Aczone, which Butchofsky expects to launch in 2008.

The Atrix acquisition also brought the Atrigel drug delivery system.

"The clock is ticking on Aspreva. In Aspreva’s case, there is no apparent competitor on the horizon but the finite clock of patent protection is ticking and comes to an end in 2010," said MacKay-Dunn, who is on Aspreva’s board of directors.

"Aspreva has been out there actively looking for that next opportunity and time will tell as to their success."

Soon after Olympic athletes leave Vancouver, patent protection for Aspreva’s drug CellCept will come to an end. CellCept helps alleviate myasthenia gravis, which is a chronic autoimmune neuromuscular disease characterized by varying degrees of skeletal muscle weakness.

MacKay-Dunn believes strict accounting rules are the second major obstacle for biotech companies to stay profitable. Those rules can transform companies’ operating profits into bottom line losses.

QLT’s experience is a case in point, he said. QLT made waves when it reached profitability for the first time in 2000, thanks to its success in bringing the world’s first drug for age-related macular degeneration, Visudyne, to market. Soon, upstart drugs such as Lucentis and Macugen were competing with Visudyne head-on.

QLT managed to log three successive profitable years before it dipped back into the red in the 2004 fiscal year. But ask Butchofsky why his company couldn’t continue racking up bottom line profits and he says, to the contrary, "We’ve been profitable going on seven full years."

Here, he refers to company profits before noting the cost of various non-cash writedowns and goodwill losses from QLT’s Atrix acquisition. Butchofsky was vice-president of sales and marketing when QLT bought Atrix.

"We’ve generated about $2 billion in sales worldwide for Visudyne since it was approved in 2000, and we’ve been generating an operating profit the whole time," Butchofsky said.

Hunter similarly blames accounting peculiarities for his company’s US$1.2 million loss in 2005. "A loss in 2005?" he asked. "That’s a quirk of accounting because we had to take a charge for an acquisition. We were cashflow positive," he said.