Staff Writer

Editor's Note: This is part two of a two-part series on trends in Canadian biotech funding. Part one ran in Friday's issue.

While some Canadian biotech firms have favored staying private as they build valuations for eventual listings on a large U.S. market like Nasdaq, others have opted to go public first on Canadian exchanges.

And despite the challenges, several of those have succeeded over the years in making the leap to Nasdaq. Most recently, it was Laval, Quebec-based Labopharm Inc., which began trading on the U.S. market late last month following an $88 million initial public offering.

Of the 135 public biotech firms in Canada, a total of 23 have dual listings on a U.S. market. Sixteen firms have listings on Nasdaq, four are listed on the American Stock Exchange and three are on the New York Stock Exchange.

One of those, Oncolytics Biotech Inc., closed a C$3.4 million (US$2.3 million) IPO in late 1999 to list its shares on the Alberta Stock Exchange, switching over to the Toronto Stock Exchange a year later. In 2001, the company began trading its shares on Nasdaq as well.

"Listing in Canada first was not a bad move for us," said Doug Ball, chief financial officer of the Calgary, Alberta-based firm. Of course, Oncolytics went public in "the 2000-era, when biotech had more favor in the markets and better valuations relative to today. But the difficulty for any start-up is creating the awareness [among investors], and I believe it's taken us three years to get the level of awareness we have now."

For the first years, trading was slow for Oncolytics on Nasdaq, but Ball said that the majority of the company's public shares - about 60 percent to 65 percent - trade on the U.S. market.

While the Nasdaq listing has availed Oncolytics with a U.S. investor base, the biggest advantage has been access to European investors. Since the company's inception in 1998, it has raised more than $80 million, with the majority of its recent financings coming from overseas.

"Surprisingly, there was more comfort in the European [investor markets] because they trade on Nasdaq all the time," Ball told BioWorld Today. Adding the Nasdaq listing "broadened our access to capital" and improved the "ease of buying and selling stock in the open market."

ConjuChem Focuses On Growth

Often, getting that first listing on a Canadian market marks the first step toward building a sustainable business and growing a strong investor base.

Moving steadily in that direction is Montreal-based ConjuChem Inc., which recently closed a $15.75 million bought-deal financing in which it sold 7.5 million shares priced at $2.10 each.

Founded in 1997, ConjuChem went public on the Toronto Stock Exchange in 2000, and has been able to access capital needed to fund development of its long-acting compounds for diabetes and growth hormone deficiency. The company has plans to jump to the Nasdaq market "at the appropriate stage of our evolution," said Lennie Ryer, vice president of finance and chief financial officer for ConjuChem.

For a firm to "grow to be a billion-dollar-plus market cap company, it would almost necessitate a Nasdaq listing, in our opinion," he added.

In the meantime, however, ConjuChem is enjoying an "above-average liquidity for a small-cap TSX-listed company," Ryer told BioWorld Today, due mostly to success in penetrating the U.S. capital markets. He estimated that on an average trading day, more than 50 percent of its publicly traded stock is held by U.S. shareholders, and at times it's been as high as 75 percent.

"It's a question of needing a certain amount of liquidity and U.S. following before you even move over [to Nasdaq]," Ryer said. "Otherwise, the cost benefit doesn't flush out in your favor."

Firms also need "a bit of a sexy story to attract investors," he added. "ConjuChem's lucky enough to have a very large potential upside based on the commercial potential of the drugs in our pipeline."

The company has had its share of setbacks over the years, most recently the halting of its DAC:GLP-1 Type II diabetes compound last fall, a few months after Phase II results showed toxicity issues related to the diluent used to administer the compound. That news dropped ConjuChem's stock (TSX:CJC) more than 50 percent to C78 cents. (See BioWorld Today, July 19, 2005, and Oct. 3, 2005.)

But the outlook improved last month, when the company reported preliminary data from its Phase I/II study of PC-DAC:Exendin-4, a preformed conjugate version of DAC:GLP-1. Results showed that PC:DAC-Exendin-4 demonstrated efficacy in reducing glucose levels "for periods exceeding one week and with near perfect tolerability," Ryer said.

The product is designed to act as a long-acting version of Byetta (exenatide), a drug launched last year by partners Amylin Pharmaceuticals Inc., of San Diego, and Eli Lilly & Co., of Indianapolis, as a twice-daily adjunct treatment for Type II diabetes patients who fail to achieve adequate blood sugar control using metformin or sulfonylurea, or a combination of both.

Funds from the recent financing will be used to advance PC-DAC:Exendin-4, as well as DAC:GRF, a Phase II-stage compound designed to treat growth hormone deficiencies through once-a-week subcutaneous injections.

"We also hope to move at least one other product into the clinic in 2006," Ryer said.

With funds from the bought-deal financing, plus a non-dilutive capital injection of $6.4 million from a recapitalization and reorganization expected to close soon, ConjuChem expects to have about a year's worth of cash.

The company also looks toward "delivering on further milestones in 2006 that would improve our valuation and give us further flexibility in our corporate financing strategy," he added.

Maintaining A Canadian Base

Once Canadian companies successfully have migrated to Nasdaq, gaining access to large global markets, why do so many choose to retain their listings on TSX and other local exchanges?

"I've seen companies in the past that had dual listings and did not maintain their Canadian listing," Oncolytics' Ball said. "If you do that, you run the risk of becoming an orphan on the Nasdaq," a market that has a tendency to be a little more volatile.

"I would be reluctant" to delist from TSX, he added. "Then, if you go through periods where the Nasdaq market isn't that interested, you'll still be able to maintain a Canadian base." (See "Canadian Biotechs With Dual Listings," below.)

Or companies could plan dual listings from the start. Aspreva Pharmaceuticals Inc. filed simultaneous IPOs to list on both TSX and Nasdaq. The Victoria, British Columbia-based firm went public last fall, pricing 7.2 million shares at $11 each (C$13.68) to raise $79.2 million. (See BioWorld Today, March 7, 2005.)

It's a question private Canadian companies such as Gemin X Biotechnologies and OncoGenex Technologies Inc. would have to consider when deciding to enter the public market.

"More than likely, we'd do a dual listing," said Dan Giampuzzi, president and CEO of Montreal-based Gemin X. Though some of the restrictions keeping Canadian investors off U.S. markets have been relaxed over the last few years, he added, "it's still easier for certain institutions in Canada to invest locally."

Scott Cormack, president and CEO of OncoGenex, of Vancouver, British Columbia, said whether to list on both Nasdaq and TSX is "one of the more hotly debated topics internally."

The downside is that having a dual listing could "end up splitting your liquidity," he said. "But there is a certain home grown sentiment of having a listing on TSX."