Alberta’s biotechnology sector is starting to flex some muscle again after a two-year market hangover that saw stocks plummet and companies fold clinical trials. But analysts say risk-wary investors still need to exercise patience.

As Edmonton charts out a new path for its booming “biocluster” of successful businesses, and Calgary continues to nurture its own fledgling industry, biotech is once again poised to be a leading growth area of Alberta’s economy.

“The opportunity is still there – it’s huge and not going away,” says Alf Sailer, vice-president, investment banking with Calgary-based Acumen Capital Partners.

“But it’s not realized yet. We’re in a market where to see more start-up companies, you need more financing for
startups. When we look at the exiting companies we have, the numbers aren’t growing.”

The total number of Alberta biotech firms has doubled to 40 over the past three years, about a dozen of which are traded publicly. But the numbers still pale in comparison to British Columbia’s 80 and are an afterthought compared to Ontario and Quebec, provinces which dangle lucrative incentives, including labour-sponsored funds with huge capital pools, to attract biotech business.

Kenton Friesen, Business Edge
Biomira CEO Alex McPherson notes venture capital still lags.

According to a study presented at the recent BIO 2002
conference in Toronto, the total market capitalization of Canada’s biotech industry topped $20 billion by the end of last year, up from $8 billion in 1997.

Not everybody believes Alberta has a fair chance to compete for those dollars.

“We’re still lagging, and our financing structure in Alberta is lagging,” says Sailer. “We’ve heard in the past about the Alberta Advantage – low corporate and personal tax rates. Well, that’s wonderful if a company is actually profitable and taxable.”

Alex McPherson, president and CEO of Edmonton cancer research firm Biomira Inc., agrees that venture capital is still a significant problem in Alberta for start-up companies, and the share price of many companies, including his own, is not reflective of where they are in the process of moving their products to market.

Myka Osinchuk

In addition, McPherson says other jurisdictions, particularly Quebec, are rolling out the red carpet to attract biotech firms with lucrative tax breaks. Alberta doesn’t seem to be trying to keep up, he adds.

If Alberta compares itself to the leading regions of biotech development, “we don’t even register,” says Myka Osinchuk, executive director of BioAlberta, a non-profit group that promotes the industry.

But she notes several companies have already notched impressive results in 2002, including U of A life sciences spinoff Isotechnika Inc., which recently signed a blockbuster $215-million US partnership deal with Swiss pharma giant Roche in the largest drug development deal in Canadian history.

In April, Pfizer Global Research and Development, the world’s largest pharmaceutical R&D organization, tapped Edmonton biotech firm Chenomx to provide software for its in-house research.

And vaccine developer Cytovax Biotechnologies Inc. recently launched Phase 1 clinical trials and completed a private placement for $5 million, although it recorded an overall net loss for the year in recent first-quarter results due to increased research and development costs related to its trial.

In Calgary, agriculture biotech company SemBioSys Genetics Inc. landed $750,000 from AVAC (Alberta Value-Added Corporation) earlier this year to develop its plant-based research for the commercial production of antibody proteins for use in human medicine.

Oncolytics Biotech has started human clinical trials into prostate cancer with its promising REOLYSIN drug.
But more needs to be done, says Osinchuk, to educate the average investor about both the science and benefits of biotechnology through these kinds of success stories.

“As a retail investor, it requires a lot more due diligence and a lot better understanding of the market and industry than you might find in other (sectors),” she says.

“Many of these companies have tight funds, and are not focused on marketing or branding. Rightly or wrongly, you can argue they need to be, but the reality is they need to focus on what makes their business move forward.”

Patience is definitely a pre-requisite, says Gerard Tertzakian, a former CEO of Cytovax. Currently president of Hannibal Ventures Inc., a technology seed capital venture company, Tertzakian says investors must wait anywhere between five and 10 years for a potential product to reach the marketplace.

“While two years ago people were willing to wait that long, because there was no tomorrow for the markets, today they are worried they could be wiped out,” he says.

There’s no question that those who invest in early-stage technologies, such as angel investors, will do very well, assuming they have staying power and patience. “Contrary to general thought, early investors in technology companies actually face very few risks,” he adds.

Earlier this month, Economic Development Edmonton released a “best practices” report for the city’s thriving cluster of biotechnology and biomedicine firms, vowing to bring on staff a “professional champion” to facilitate even more growth.

The report’s recommendations are based on a review of North American cities that have already established similar, self-sufficient clusters.

“The idea of an active champion is but one of a number of best practices, such as a one-stop-shop supporting corporate development and certain infrastructure such as clinical trial facilities,” says Tertzakian, who co-authored the report.

“Best practices will yield best results if the approach is co-ordinated and enthusiastic, which is where the idea of a champion comes in.”

Yorkton Securities research analyst Dave Martin predicts that the market will likely see a reduction in the number of biotechnology companies through attrition and consolidation if the financing window continues to stay closed.

He says investors should select a basket of stocks in the biotech sector, “so all their eggs aren’t in one basket.”

“We expect there will be successes in the
sector that will pay off big time, but there will also be failures . . . there’s certainly more opportunity for explosive growth in biotech, but there’s certainly more risk there.”

Yet Tertzakian believes many promising ventures are poised to emerge once the market finally bottoms out.

“The life cycle of this industry is that a few make it big, and a lot of them will consolidate . . . the startups are just the feedstock,” he says. “And I see a lot of startups that are (in the wings) right now, just waiting for the money to free up.”

Osinchuk agrees, and sees a promising future for biotechnology firms to work alongside Alberta’s main economic engine – the oilpatch - to generate new business streams.

“We have an enormous opportunity, given we’re a resource-based economy, and biotechnology is an enabling technology which has huge possibilities to impact that industry,” she says.

“Let’s face it, biotechnology isn’t going to replace the natural resources industry as a major driver of the economy . . . however, we’re going to be able to make a huge impact on our traditional industries like energy and forestry.”

“If we could create a 40-foot tree ready to harvest in two years,” she adds, “just think of the possibilities.”