VC INVESTORS FLOCK TO PHARMA STARTUPS
The biotech industry and its investors this week anxiously awaited the clinical test results of two promising drugs that might one day help slow down the degenerative effects of Alzheimer’s. The findings were mixed — Eli Lilly & Co.’ s solanezumab showed it has some potential, but patients taking Biogen Inc.’s BIIB037 failed to show statistically cognitive improvement — and investors reacted accordingly.
But while stock-market investors were paying attention to those two pharmaceutical companies, venture capital has been piling into regenerative medicine companies. The industry in 2014 received more than US$8 billion in funding, and investments in the first quarter of 2015 reached US$2.7 billion, up 135 per cent compared with the first quarter last year.
The reason is simple: Nearly 40 million people last year died from chronic diseases and 20 per cent of those deaths were cancer related. Although survival rates have nearly doubled in the past 40 years, the World Health Organization predicts instances of cancer will increase more than 70 per cent in the next two decades. The rise in cancer-related deaths may have helped increase funding in biotech and more specifically regenerative medicine where scientists are developing therapies that promise to treat and maybe even cure cancer and other chronic diseases.
Yet despite the increase in funding, Canada is still producing relatively few companies in the sector — something the Toronto-based Centre for Commercialization of Regenerative Medicine (CCRM) and venture firms hope to change.
“All of a sudden, in a space that’s been evolving over many years, we’ve got incredible efficacy data,” said Michael May, CCRM’s chief executive.
The recent influx of funding has been concentrated around cancer treatments, which represent onethird of new clinical trials so far in 2015. Investors are particularly interested in cancer immunotherapies, where patients’ own immune cells are engineered to recognize and attack tumours.
“The science in Canada is absolutely as strong as the U.S., but I think there are other parts of the ecosystem that are not as robust,” said Jerel Davis, partner at Versant Ventures, a San Francisco Bay area investment firm with a mandate to invest in lesser-known health science hot spots. It funds 110 companies, four of which are Canadian.
Davis said Canada lacks the established community of entrepreneurs, managers and venture capitalists that the United States has in cities such as San Francisco, Boston and San Diego. In the past four years, Versant has opened offices in Vancouver and Toronto to help spawn companies from the rich medical research communities in those cities.
CCRM, meanwhile, launched its first company, ExCellThera, in June, hoping to take advantage of the emerging investing community around biotech in Canada. The Montreal-based startup is developing a technology that expands stem cells used to treat and potentially cure leukemia. The first clinical trial phase is slated to begin later this summer.
ExCellThera received funding from IRICoR, a drug discovery and commercialization centre at the Université de Montréal that has invested in nearly 30 new technologies.
But funding for biotech startups, even in the U.S., hasn’t always been as forthcoming.
Investment in regenerative medicine began to decline when the biotech bubble burst in 2000 and suffered a steep plunge in 2008 as the market collapsed. The industry lost 25 per cent of its venture firms, and capital dwindled close to 40 per cent of pre-2000 levels. Most venture firms that stuck around shuffled money out of early stage biotech companies into less risky latestage companies.
“Because regenerative medicine is an emerging field, by definition most of the companies are early stage,” said Greg Bonfiglio, managing partner at Proteus, LLC, a regenerative medicine in-
We actually are in a very rational market
vestment firm in Portola Valley, Calif. “It was very challenging for these companies to attract interest from the venture communities. That changed pretty dramatically about 18 months ago with the emergence of cancer immunotherapies.”
The biotech window swung open in late 2013, and in the past year, more than 300 treatments and products have successfully passed early clinical trial phases, earning faith and funding from investors.
“I’ve been speaking at biotech conferences for seven or eight years on funding issues,” Bonfiglio said. “For the first time I’m able to stand up and say, ‘The market has finally improved and you’re now going to find venture guys much more interested.’ ”
CCRM’s May points to companies such as Seattle-based Juno Therapeutics for success stories in regenerative medicine startups.
Juno, which is developing a cancer immunotherapy, raised US$265 million in its initial public offering in December 2014. Valued at US$4.6 billion, Juno privately raised an additional US$300 million from investors such as Amazon.com founder Jeff Bezos.
In Canada, Northern Biologics is another small-name biotech startup seeing big money from investors.
Versant provided $10 million in seed funding last year for the company to develop cancer and fibrosis treatments using anti-bodies. The federal government contributed an additional $15 million, and, in April, Northern Biologics signed a collaboration agreement with pharmaceutical company Celgene Corp., earning another US$30 million.
Brian Bloom, president of Bloom Burton & Co. investment banking firm, said that while some companies are overvalued, we’re at no risk of repeating the 2000 biotech bust, primarily because the science backing the industry is much more sound than it was 15 years ago.
“We actually are in a very rational market,” said Bloom, whose Toronto-based firm specializes in health-care companies. “That’s not to say we’re not in an enthusiastic market — we are.”
Of course, North America’s struggling energy sector may also be propping up biotech valuations.
“People don’t know what to do with their risky penny-stock money that usually goes to mining and oil and gas, so it’s going into health care and biotechnology. But there’s a huge amount of efficiency,” Bloom said. “There are a lot of eyeballs and a lot of knowledge among health-care investors who, when things get too hot, start shorting the stocks.”
CCRM, which functions as a network for scientists and businesses with stakes in the regenerative medicine industry, also plans on joining the growing investment community in Canada.
“We’re working on building regenerative medicine focused investment funds to invest in companies that are emerging here in Canada, but also to attract foreign companies to come here and work and build their companies,” May said. “The timing for this is all so exciting.”