Compared with their higher-profile cousins in software, Ottawa’s tech companies devoted to medical therapies and devices face an uphill battle for funding and market penetration. This week, OBJ is looking at how they’re trying to overcome those obstacles.
Unlike their cousins in the software space, the National Capital Region’s biotech companies rarely make the headlines. They don’t generally boast gaudy, hockey-stick-type revenue trajectories, either, thanks to some significant roadblocks: the mountains of capital that must be poured into R&D; the long, the tortuous path to regulatory approval often required by agencies such as Health Canada and the U.S. Food and Drug Administration; and the legal costs of safeguarding precious intellectual property chief among them.
“There’s not the same types of shortcuts and ways to sort-of hack something together to get by, to mimic a solution … when you have things like FDA requirements and even some basic things like privacy and other things that apply in a regulatory environment,” explains Nick Quain, vice-president of venture development at Invest Ottawa, which hosts several biotech and medical device firms in its accelerator at Bayview Yards.
“It really is a different path for those companies. It’s a longer, winding road with a lot of other elements to it.”
Finding investors willing to play the long game can be a challenge, a fact that Spartan Bioscience CEO Paul Lem and others in the local biotech space know all too well.
Spartan, which earmarks “many millions of dollars a year” for research, has been one of the luckier ones: it landed a key financial backer in Japanese camera-maker Canon, which has roots as a medical diagnostic company. With Canon’s support, Spartan is developing an innovative cube-like testing device that could make a substantial impact in the at-home diagnostics market.
The company has also received millions in funding from supportive local angels, including Shopify chief operating officer Harley Finkelstein. Last year, Finkelstein predicted Spartan would become “Canada’s next great business success story,” an endorsement that put a wide smile on its founder’s face.
“You see software companies, within a few months, they’ll launch their project and start getting feedback from the market – whereas with us, it takes seven years and eight years to run these massive clinical trials,” Lem says. “You’ve got to hold the team together, raise enough funding to persist until these trials are positive.”
A few other local biotech startups have also reeled in big bucks from venture capitalists looking to cash in on the next wave of medical treatments for diseases such as cancer.
Turnstone Biologics, for example, has landed more than $50 million in funding over the past four years. The firm is a leader in the emerging field of immunotherapy, in which viruses that attack malignant tumours are administered to patients. Turnstone’s $41-million series-B round four years ago was the largest VC deal in Ottawa since Shopify received $100 million in 2013.
Biotech a tough sell
Yet for every Turnstone, there are dozens of other startups that are scrambling to find funding angels.
Biotechnology isn’t always easy to get your head around, many founders concede, which sometimes makes would-be angels and VCs leery about sinking cash into a business they might not completely understand.
While just about everyone can grasp the appeal of an app that lets you instantly hail a cab from your phone, for example, treatments that use viruses to attack cancer cells aren’t easy to describe in a 30-second elevator pitch.
“One of the challenges we have in Canada is that we don’t have a really well-developed medical device/biotechnology sector,” says Jason Acker, the co-founder of PanTHERA CryoSolutions, a biotech venture based in Ottawa and Edmonton. “That can make it challenging for us to find investors that are sophisticated and knowledgeable in this area to invest in a company like ours.”
PanTHERA, which has developed a compound that helps preserve human cells used in next-generation medical research, has received grants from the federal government as well as agencies such as Canadian Blood Services to help it get off the ground. The firm is now in the midst of putting together a $250,000 seed round.
“You have to kiss a lot of frogs before you get a prince,” says Acker, a researcher at the University of Alberta who co-founded the four-person company three years ago with the University of Ottawa’s Robert Ben. “We’re used to asking for money.”
Diversification the key
Biotech entrepreneurs say that forging multiple paths to commercialization can help young firms keep the lights on while their products are winding their way through the clinical trial and regulatory approval stages.
For example, about a decade ago, Ottawa medical researcher Jean-Simon Diallo began working on a compound that helps cancer-fighting viruses used in therapeutic treatments bypass the human immune system’s defences. Diallo came up with the idea for his treatment while working alongside pioneering Ottawa Hospital cancer researcher Dr. John Bell, one of the founders of Turnstone Biologics.
Diallo likens his solution – which is made of tiny molecules he understandably won’t reveal much about – to a home alarm system.
“It’s great to keep robbers out, but sometimes you need to let the plumber in,” he says. “What we have really is the key to let in the plumber.”
But Diallo faced a major problem trying to fund his research: The cutting-edge cancer therapies being devised by Bell’s team at the Ottawa Hospital were still in their early stages and not approved for widespread use. Consequently, Diallo says, financing for his complementary treatment was hard to come by.
But when the researcher found another use for the compound that didn’t require the same stringent testing – as an additive to boost the effectiveness of vaccines – a viable revenue stream suddenly opened up and investors came knocking.
“That’s what essentially triggered the formation of the company,” says Diallo, who launched his firm, Virica Biotech, in late 2018 and recently joined Invest Ottawa’s accelerator.
Diallo, who now employs a handful of people in Ottawa and Toronto, has raised $800,000 in seed funding so far and is aiming for $2 million. He hopes to follow that up with a $5-million series-A raise in the near future.
“Most drugs approved cost a billion dollars to get to market,” he explains. “That’s astronomical. Basically, you’re putting money in until it works. If it doesn’t work, then you’ve lost everything. In our case, we have that kind of safety net.”
Expensive obstacles to commercialization
John Phillips, the director of product management at Kanata-based AusculSciences, agrees many potential investors are taken aback at the scope of the capital required to bring medical device technology to market.
AusculSciences makes sensors that help detect coronary artery disease by listening for sounds of “turbulence” that can indicate blockages in the flow of blood from the heart. The high-tech equipment – which Phillips claims is far more effective at detecting blockages than traditional treadmill “stress tests” and can be administered at clinics without a doctor present – has been tested on more than 1,000 patients at the Ottawa Heart Institute as well as the University of Calgary and the University of New Brunswick.
The company has raised more than $10 million US from investors and employs 25 people, about three-quarters of them devoted to R&D. The firm is now applying to Health Canada to conduct blinded clinical trials in the hope of getting the device approved for sale by the end of the year.
AusculSciences is also eyeing a move into Europe and, eventually, the United States, which conducts twice as many stress tests as Canada on a per capita basis, Phillips says.
“It’s an incredibly attractive market, but it does have significant regulatory hurdles,” he adds, noting new medical inventions such as AusculSciences’ system tend to face tough scrutiny from the FDA.