Your client wants to invest in a Canadian firm that is developing a promising new drug to curb the onset of Type 2 diabetes. Or, she wants to sink some money into a company that’s exploring genetically modified crops, or one that manufactures enzymes that convert cellulose into clean-burning ethanol.

Overwhelmed? Welcome to the complicated world of biotechnology, a term that describes the use of living organisms to create everything from disease-fighting drugs to plastics made from Earth-friendly agricultural products instead of fossil fuels.

“To put it simply, biotech is a tool box that we use to manufacture new compounds, new drugs and new processes for doing things,” says Ken Lawless, vice president of life sciences at the Ottawa Centre for Research and Innovation.

Although many still think of biotech in terms of medical breakthroughs, the sector reaches far beyond medicine. Canada’s 532 biotech companies develop products and processes that encompass agriculture, the environment and industry, as well as plant-based pharmaceuticals and health care.

One of the sector’s biggest sources of confusion lies in the increasingly fine line between medical biotech firms and pharmaceutical companies. The terms “large molecules” and “small molecules” are frequently tossed around to distinguish the two, but it largely comes down to science: biotech firms use biology to develop their products, whereas pharmaceuticals traditionally rely on organic chemistry.

Although this distinction probably won’t help anyone without a doctorate in biochemistry, it turns out that it may not be as important as it once was. In fact, some argue the difference between Big Pharma and medical biotech is superficial at best.

“The line between the two is extremely blurred because virtually every Big Pharma company has large molecules in drug development. To me, it’s just a question of how they’re marketed,” says Evan McCulloch, manager of Franklin Biotechnology Discovery Fund in San Mateo, Calif. And with more Big Pharma companies gobbling up small biotech start-ups, a growing number of firms are more accurately being described as hybrids of the two.

Here is a short glossary of terms that will pop up in information about biotech.

> NRDO. “No research, development only” biotech firms, such as YM Biosciences Inc. in Mississauga, Ont., typically step in when the earliest scientific research has been completed by another company.

Although most biotech firms don’t distinguish between research and development, NRDO firms focus strictly on products that have reached the clinical trial stage, at which point the failure rate is much lower.

“The idea of a NRDO is to take over when the really high-risk work is done, and scale it up or refine it,” says Peter Brenders, president and chief executive of BIOTECanada, an Ottawa-based non-profit industry association.

> Fipco. “Fully integrated pharmaceutical companies” do everything from drug development to full testing, and eventually manufacturing and sales.

> Clinical Trials. These are the multiple layers of testing that all products go through before they reach the market. Medical biotech firms live and die by the results of clinical trials, which can send their stock soaring or plummeting, depending on the outcome.

“Investors should look at the results of these phases as a ‘value inflection point’,” says Lawless. “It really reflects the value of a company.”

The various phases serve as a rigorous screening process that is heavily regulated by Health Canada; each phase can last for several months, and results must be approved before moving onto the next phase.

“It can take anywhere from seven to 12 years before any of these products make it to market, so these things take time,” says Brenders. In fact, only about one in 10,000 would-be drugs make it past the discovery lab, he adds. Once products enter the clinical trial phase, however, their chances of making it to market are in the range of one in 100.

Most biotech firms are keen to launch their products in other countries, so they’ll often conduct their clinical trials in larger markets such as Europe or China, where they may be able to recruit volunteers more easily. Data collected in other countries are typically transferable into the Canadian system, although the firms may be required to provide additional information.

Trials are conducted in the following order:

1. Pre-Clinical Testing. In this phase, researchers test the treatment on animals to determine two things: if the treatment is safe and if it has an impact on the disease they are trying to treat.

@page_break@2. Phase I Clinical Trials. Using a small group of volunteer patients, the treatment is tested on humans to determine whether it is safe.

3. Phase II Clinical Trials. Using a larger group of volunteers, the treatment is tested to determine its efficacy in the treatment of a particular disease, also referred to as the “indication.” Researchers might also launch a subset of tests to determine if the drug is more effective in treating liver cancer, for example, than breast cancer.

Phase II is the traditional point at which companies go public to raise extra capital. It takes anywhere from $800 million to $1 billion to bring a product to market, Lawless says.

4. Phase III Clinical Trials. This stage is often dubbed the “critical” phase because the stakes are higher and there’s still a 30%-50% failure rate.

The drug is tested on hundreds, if not thousands of patients and the results are carefully monitored to determine whether there are adverse reactions.

If the results are positive, the firm will seek regulatory approval to put the drug on the market. (See “regulatory submission” in column 4.)

5. Phase IV Clinical Trials. By this point, the drug has reached the market and is being monitored for its long-term safety and efficacy.

Phase IV typically comes into play only when a company or regulator has unanswered questions about the drug, such as its interactions with another treatment or its effectiveness in a particular patient set. Otherwise, this final phase in the clinical trial is widely referred to as “post-market surveillance,” in which any adverse reactions are reported.

Bear in mind that industrial and agricultural firms go through similar testing called “field trials,” which tend to have a shorter path to market. Their main challenge is to ensure the product is scalable and commercial.

> IP Portfolio. When biotech firms refer to their “intellectual property portfolio,” they’re talking about the patents that ensure them exclusivity to a compound and its use for a particular purpose. Companies spend millions of dollars to maintain their patents, which ultimately determine the value of a company when it brings a product to market.

“The strongest patents encompass both composition and use patents, which basically say, ‘We have a unique molecule, we’ve identified it and this is how it can be used’,” says Lawless.

Medical biotech firms usually aim to add additional patents to their drug to cover it for other indications. For example, the patent may give the drug exclusivity to treat not only breast cancer but liver cancer as well.

Determining the strength of a biotech company’s IP portfolio is virtually impossible to do without a thorough analysis, Lawless says. “Read up on these [analyst] reports because they’ll cover everything, including the firm’s competition, its market and its patent production,” he suggests.

> Regulatory Submissions (A.K.A. NDA: New Drug Approval). At the end of a successful Phase III or field trial, companies will submit a dossier to their regulating agency to bring the product to market. Medical firms apply to Health Canada or the Food and Drug Administration in the U.S.; agricultural firms submit to the Canadian Food Inspection Agency and possibly other agencies, depending on their jurisdictions.

No product goes to market without being approved by a regulator.

> Approval Process. This is the sequence of events taken by a regulatory agency to approve the product for market, or to grant its “notice of compliance.” This process can take one to two years, although Canada is working to speed it up.

> Product Pipeline. This is the name given to the collection of products a company is currently developing. A robust firm will have three to five products in its pipeline, each of which may be at a different stage in clinical trials. The idea is that if one product strikes out, others are waiting in the wings.

“Companies try to stage their products so, as one product achieves a positive results, it is quickly followed by the next product and then a product after that,” says Lawless. “You don’t want to have a hole in the pipeline. That steady stream adds value to a company because it’s generating sales and licensing revenue.” IE



BY LARA HERTEL