Biotechnology Focus

Biotech Focus Industry Report

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By: Tony Pullen IS CANADIAN BIOTECH much ado about nothing? COMING TO LIFE REVISITED sudden value created by the stunning Endo merger with Paladin Labs, announced late in 2013, also added fuel. The launch of Concordia in late 2013 couldn't have been better timed to capitalize on the disappearance of Paladin and three other of Canada's larger healthcare players early in 2014. The acquisitions of Patheon, Cangene and Nordion, along with Paladin, freed up an aggregate of $5.5 billion of liquidity — almost 10 per cent of the total value of the sector at the end of 2013 — to be reinvested. In other words, this elegant combination of the right business plan, the right market cap and just the right amount of available liquidity was a perfect recipe for Concordia to harvest the potential insti- tutional interest to play the next version of Valeant or Paladin. The immediate structure and synergies of the Endo acquisition doubled Paladin's value overnight, and, more signifi cantly, made it a "100 bagger" from inception. It also spawned Knight Therapeutics, with A little over a year ago I decided to weigh in on the original question, captioned above. My purpose was to share my observations gleaned from operating as an investment banker in the space since the mid '80s. I wanted to pro- vide some context as to whether the resur- gent biotech market in the U.S. would cause a similar rebound for the space in Canada. No sooner was the ink dry on my effort than some upward movement and money fl ows trickled into the space. The interest was no doubt inspired by the enthusiasm engen- dered by the annual JP Morgan (JPM) confer- ence a year ago. As with the year before and the year before that, the conference triggered "game on" for the U.S. biotech sector. While 2014 saw some positive — and in a few cases spectacular — activity north of the capital market border, for the broad mass of Cana- dian biotechs the reality has unfortunately been "much ado about nothing." The positive mood engendered by JPM was aided and abetted in mid-January by an explosive share price advance in a relatively unknown company called Intercept Pharma. The catalyst was an early halt to a Phase 2 trial, this time for all the right reasons, in a new indication called NASH, short for non- alcoholic steatohepatitis. NASH is an appar- ent epidemic in the making, adding even more urgency around liver disease. The market capital- ization leapt from $900 mil- lion to $9 billion in a matter of days. In Canada this ignited a new move upward for Prometic Life Sciences, one of my favourite Canadian companies. It briefl y became a "tracking stock" for Intercept, caus- ing a run-up of a further 77 per cent from its year-end 2013 and driving its valuation toward $1 billion. This was a far cry from its sub $50 million value a few short years ago. Elsewhere in the Canadian bio scene, some "low altitude" gains in excess of 100 per cent made it seem as if the hoped for catch-up trade for Canadian biotechs was underway. Names like Medicure, Adherex (now Fennec), Microbix, Advanced Proteome, Genenews and Bellus leapt ahead by multiples of their year ending 2013 closes. Newcomer issuer Concordia Healthcare, led by a team of ex- Biovail executives, also leapt 300 per cent, fueled I'm sure by the stock market success of Valeant, ironically the old Biovail. Strong institutional demand for Concordia propelled it to a $900-million market cap seemingly out of the blue. Co- incidentally, the 6 BIOTECHNOLOGY FOCUS April/May 2015 INdUSTRy REPORT

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