The biotechnology industry in Canada boasts some 500 companies. Most of them are private, but 80 or so raise money in the public markets.

All but a handful have no revenue streams. Instead, they burn through investors’ cash at an astounding rate as they work to transform far-out ideas into commercial products.

To do that, they must attract deep-pocketed, patient and risk- tolerant capital. Few investments are as pricey, long-term and risky as biotechnology and life sciences ventures.

Back in 2001, the Tufts Center for the Study of Drug Development reported that it takes 10 to 15 years and US$800-million to bring a new drug to market. Human therapeutic biotech products are in the same ballpark, and nothing has gotten cheaper or faster in the intervening years.

It is not easy to obtain an US$800-million investment from your average Canadian venture capital fund.

“The venture capital model that funds biotechnology companies, especially early stage biotechs, has been adopted from the information technology (IT) industry, and increasingly, people are recognizing it is not really appropriate to biotechnology and life sciences,” says Vanessa Grant, a corporate partner with the Toronto office of McCarthy Tetrault.

Most venture capitalists look to exit their investments after seven years, but in the life cycle of a biotech company, that’s nothing. “It’s not enough time to get the drugs to market, let alone get any profit,” says Ms. Grant.

Biotech companies in the past have looked to government for funding. However, governments, while skilled at extolling the importance of biotechnology to the future of the Canadian economy, have been less skilled at supporting the industry. Governments tend to invest excessively in early-stage companies and fail to provide the funding mid-stage companies need to launch them into the big leagues.

Enter Big Pharma companies, which are filling the funding and investment void.

“A lot of the Big Pharma companies have totally scaled down their own research and are on a major hunt to fill their pipelines by acquiring biotechnology companies,” says Eileen McMahon, a Torys partner who practises in the intellectual property (IP) and food and drug regulatory areas.

In many ways, Big Pharma firms — the term encompasses massive multinational companies such as GlaxoSmithKline and Merck — are the perfect biotech investors. They have deep pockets, knowledge of the sector and are risk tolerant.

More so than the past, especially since many face expiring patents and lacklustre internal research and development performance. It means Big Pharma companies are taking big chances and they are aggressive.

“The risks that Big Pharma is willing to take on right now is considerable,” says Ms. Mc-Mahon. She says that Big Pharma companies are “going after early-stage companies, actively scouting out companies with products that are very far from commercialization.”

“The bidding almost gets into a frenzied state,” says Ms. McMahon. “The value of these deals to the business development people at Big Pharma is often jaw dropping. They look at an opportunity, and 10 years ago, there would have been a certain price tag associated with it depending on where in the life cycle the product or research was. Now, the prices are going through the roof.”

There’s a caveat, of course.

“The IP has to be good,” says Ms. McMahon. “When the IP is good, the deals are sometimes worth more than what the IP is worth.”

The implications for the cash-hungry biotechnology industry are considerable.

“They have to be strategic with their IP from the get-go,” says Ms. McMahon.

“People don’t want to invest in a biotechnology that doesn’t have IP,” agrees Patricia Rae, a partner and patent agent with Toronto’s Sim Lowman Ashton & McKay. “So IP is critical to the smallest biotechnology company. They need to protect their IP to get investment.”

What sets biotech apart from other life sciences disciplines is how early the IP ball gets rolling.

“With biotechnology companies, we often do the patent applications early,” notes Ms. Rae. “Many of these companies begin with research in an academic setting, and the inventor has to publish the research at a very early stage. And, to protect the IP, he or she has to get a patent application on file before publishing. That means you make predictions in the application, you have to speculate about where you are going.”

No matter how early or speculative the process, says Ms. McMahon, biotechnology companies have to take a strategic approach to their IP.

“How you do and present your IP is an important part of whether you will or will not get to a deal,” she says. “Good IP, coupled with the good strategic presentation of this IP, is one of the ingredients that makes it easy for Big Pharma to start salivating. It doesn’t mean you have to have all the answers. No biotech and no Big Pharma company has all the answers in IP, or in its regulatory strategy. There is never zero risk. But, when biotechnology companies do a good job of presenting their IP, it is interesting to see just how many Big Pharma companies step up.”

There are no Canadian Big Pharma players, so any deal would pass at least some (if not most) of the control and ownership of the research and technology to an international company. However, for any far-reaching biotechnology company, it is the world and not Canada that matters.

“Canada doesn’t have any rules that dictate if something is invented in Canada, it must be patented in Canada first, so many people do their U.S. patents first,” says Ms. Rae.

Ditto regulatory approvals. Compared with the U.S. Federal Drug Administration, Health Canada is just about irrelevant.

“The U.S. drives everything,” agrees Ms. McMahon. “If you look at any of the biotechnology or pharma companies, none of the really well established companies would ever seek Canadian regulatory approval before seeking U.S. approval. Even if the regulatory strategy in Canada goes sideways, what most companies are concerned about is how that impacts their U.S. strategy.”

Another caveat: the earlier companies do deals with Big Pharma, the less cash they’re likely to get — no matter how inflated the price tag. That affects the kind of legal services biotechnology clients need, and changes how the market defines biotechnology lawyers.

“Biotechnology lawyer is kind of a fake term,” says Patrick Kierans, an intellectual property litigator with the Toronto office of Ogilvy Renault.

“The first lawyers identified as biotechnology lawyers were the intellectual property people, the patent agents.

“Now, the field is evolving much as IT law did. It used to be associated with IP, but now what is it? I think it is more of an industry than a body of law.

“Biotechnology is moving in the same direction — it is more of an industry area than a body of law,” sums up Mr. Kierans.

An industry area about to grow up, or get swallowed up by international Big Pharma? Only time will tell.

(Copyright National Post 2007)