Super Model

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By Amber Lepage-Monette

Though a common trend in the Canadian biotechnology scene may be for companies to develop technologies to an early stage, and then either merge with other firms or sell those technologies, as with anything, there is always an exception.

In this frequently seen scenario, Bioniche Life Sciences Inc. (Belleville, ON) is one such exception. By letting revenues pay for R&D costs, securing a global presence and advancing products to further development stages before entering into deals, Bioniche has crafted itself a different kind of business model.

“We said, if we could create a company that could sustain itself, the highest return to the investor is when you commercialize the product,” explains Bioniche president and CEO Graeme McRae. “And Canadian biotech return, to the investors, has not been as high as in the United States and Europe, where the companies have been able to sustain the product development through to a later stage.”

This mentality led one external analyst to call the company “a mini-multinational,” McRae says. And it’s a term he doesn’t disagree with. “That’s why we’re different,” McRae says. “We run a manufacturing business, we run an animal-health business using a lot of proprietary technologies, and we’ve built a $50-million-plus company that is committed to taking the technologies further down the development pipeline than traditionally happens with biotech in Canada.”

Bioniche typically does deals at a very late stage, McRae explains, in which they are more often distribution deals, rather than traditional licensing deals.

Money Maker
Though it now has three major divisions — Animal Health, Human Health and Food Safety — Bioniche can trace its roots back to the animal-health arena, when McRae established Vetrepharm in 1979.

One reason for starting in animal health, McRae says, is that that is where his background lies. Though he calls himself a “dropout from university,” McRae gained extensive experience conducting research projects for the Australian animal-health division of Pfizer Inc. (New York, NY). After shifting from human health to animal health within the company, McRae moved to North America and started Vetrepharm, which would later become Bioniche. “I was very lucky,” he says. “I had some mentors within Pfizer that really said to me, you know you’ve got to really understand the technology that you’re working with, and I’ve never stopped.”

Other factors that may have played a part in McRae’s decision to start a company in the animal-health area: time and money.

“In animal health, you can get a product to the marketplace generally a little faster, certainly for a much reduced cost. Even though the returns are not as high, you can move a little more quickly,” McRae says. “You can move at a lower cost to your investors and you can generate cash flow.”

While some recite the often-used figure of about $800 million to develop a drug for human use, McRae says that not only can many small companies accomplish that same task for much less — between $100 million and $400 million — but for animal- health companies the numbers are even better.

Developing a product in the animal-health field can cost between $5 million and $10 million, McRae says, depending on where the product is going to be registered.

The added benefit — on top of generating revenue sooner and being able to bring a product to market faster — is the experience it provides.

“To us, the revenue model is very important,” McRae says. “Because, while you’re out there generating revenues, you’re also developing understanding and expertise.”

This approach gives the company an advantage of getting to know the market, while also letting the market get to know the company.

“We can manufacture a human product or an animal-health product for sale in Europe, Japan, Australia, New Zealand, U.S. or Canada,” McRae says.

“So when your mainstream products, like our bladder cancer product, go into a pipeline, we have a group of people who are competent and capable of being able to know what the next step is . . . because we do it all the time.

“A lot of companies don’t have that infrastructure, and that’s why a lot of companies end up with big pharma, which does have that infrastructure.” As McRae says, “If you can have revenue and the skill set, you can really move your products through very quickly.”

Branching Out
With approximately 15 products on the market right now generating about 80 per cent of the firm’s revenues, Bioniche is currently focusing on two main products in its pipeline.

In the area of food safety, the company’s E. coli O157:H7 vaccine is a product administered directly to animals, with the cattle industry being the main target.

“The beef industry is being told by the meat packers that when this vaccine comes out, if you don’t vaccinate, then you don’t have a market for your product,” McRae says. “We saw that, and not many other companies did. In hindsight, it looks so simple, looks so logical. But in fact, at the time, which was four or five years ago when we started this project, people thought we were crazy.”

The company hopes to file the vaccine with regulators in Canada later this year, and to receive registration early next year, McRae says.

Though the company started in the animal-health field, and still has a strong presence there, it can’t be said that Bioniche is nearsighted. The company has eight human-health products on the market in the U.S., and two products approved in Canada and Europe.

Bioniche’s main human-health product is mycobacterial cell wall-DNA complex (MCC), a bladder cancer drug that the company has been using in the animal-health market for years.

The product, McRae says, is an excellent example of how the company uses technologies it is familiar with to better achieve success.

“You build a confidence level internally, rather than going into the marketplace with a technology that’s really unproven. And we’ve done that with a couple of technologies, where we’ve sort of said, well, let’s try the vet market first, get a feel for how the product works, how safe it is, and then let’s move it into the human field. Meanwhile, you’re generating some income,” McRae says.

In Phase II clinical trials, MCC has been shown to reach a 65-per-cent cancer-free response, McRae says. The drug is also currently being prepared to enter into Phase III trials.

“A lot of major companies that have deeper pockets than we have would do a study very quickly in either the United States or Europe,” McRae says. Bioniche, however, is negotiating to get a common protocol between European and North American regulators, so that the company would only have to conduct one study, with sites in both locations, McRae says. McRae says the key to this approach isn’t saving money. What counts is being organized and putting the time in at the beginning, to save time in the end and facilitate approvals.

“We look at our ability to manage a study, and we can manage one large study. We can’t manage two,” he says. “So our game plan is to take the extra time to get the protocol right and accepted by everybody.”

Local Approach
Bioniche’s familiarity with other markets is, in part, what allows it to take advantage of this approach.

The company has research, manufacturing and marketing/ sales facilities in Canada, the United States, Ireland, Switzerland and Australia.

“We’ve always had a global vision from the day we started this company, and it’s a corporate evolution that we work very had with our management structure to make sure we bring management in with a lot of global experience,” McRae says.

Part of the plan has been to take advantage of opportunities as they come. In Ireland, for instance, Bioniche bought out a small company with a sophisticated facility that had “basically ceased to exist,” McRae says, allowing Bioniche to get an excellent deal. By putting in the effort and money needed, Bioniche now has a facility that is home to about 130 employees, and the company is expanding by building a second manufacturing facility, he says.

Expanding this global presence is key at Bioniche.

“Local knowledge, local contacts, is the way you have to operate globally,” McRae says.

“Each place you go, people like to buy locally,” he says. “So when we do registration work in Europe, when you’ve got the address of an Irish facility, where they know there’s a regulatory person, they can pick up the phone in Europe and talk to somebody in Europe . . . it makes a big difference on your registration throughput, your knowledge of local markets.”

Bioniche plans to continue to push in-house R&D as part of its future plans, while growing and changing along the way.

McRae says he anticipates the company’s growing success will benefit others in the industry as well.

“I can see us being like a big brother to little biotech companies who say, I don’t know how to take it the next step. Well, we do and we can help them. We can advise them, and I think if we can be successful exploiting technologies on a global basis, and if our model works as well as it appears to be working, I think you’re going to see a lot of small biotech companies in Canada following the same direction,” he says.

One weakness with Bioniche’s business model, McRae admits, is that it isn’t getting its due.

“Our stock is trading today at less than one times revenues. Biotech companies trade at 25 times projected revenues,” McRae says. “We’re expecting a lot of patience from our investors in Canada, who are not being well treated by the company share price.

“And that’s the difficulty with this model. We have to bear the pain in terms of market valuation until we prove to the Canadian finance community that this is the way to go and this is the model that works, and this is the model that gives the highest rate of return to the investors.”