In for the long haul

You don’t have to be big to compete in today’s pharmaceutical industry. Robert McInnis, CEO of Ottawa-based biotech company PharmaGap, says you just have to survive.

“Big is almost a negative because then you start needing too much cash that the financial world isn’t funding,” McInnis says. “You have to be very lean and productive, so the whole size thing really works in our favour.”

For McInnis and his seven colleagues at PharmaGap, raising capital has always been the number one challenge. Like any development stage enterprise, it can be difficult to grab the interest of the financial markets.

But one of the things we’ve shown is that when we announce results, our stock price goes up.

“Our CEOs tend to be incredibly clever and resourceful when it comes to how they staff an operation,” explains Cate McCready, vice president of external affairs at the industry association BIOTECanada. “Canadian biotech companies are known for being incredibly frugal with any investment money that they do attract because it’s so difficult to bring investment dollars in.”

But frugality will not be an option in the upcoming year as the company’s chief therapeutic drug candidate for cancer treatment, GAP-107B8, moves closer to clinical trials. PharmaGap investors can expect to see research and development costs increase significantly from here on in.

“But one of the things we’ve shown is that when we announce results, our stock price goes up,” McInnis says. “So if you get your timing right, you can make a lot of money.”


And in the last year, PharmaGap has announced plenty of positive results.

In April, personnel from both PharmaGap and the Ottawa Hospital Research Institute appeared at the American Association of Cancer Research conference in Washington, D.C., to present data showing the effectiveness of GAP-107B8 in the treatment of ovarian cancer.

PharmaGap had approached the OHRI in late 2008 to test its drug “in the dish” (in vitro) and in mice.

The trend in the industry right now has been to rationalize your in-house research capacity to the best skill level possible.

Dr. Barbara Vanderhyden, a senior scientist at the OHRI and the lead researcher on the PharmaGap project, says collaborations like this don’t happen often but do occur “whenever companies approach us with compounds that look promising.”

“We thought the PharmaGap compound would be worth trying in our model systems to see whether it might actually be effective as preclinical work for human studies,” says Vanderhyden.

PharmaGap and the OHRI will continue to work together for the “foreseeable future” as Vanderhyden also noted testing on animals was already scheduled for well into the new year.

In October, PharmaGap also announced the success of toxicity testing of GAP-107B8 by a research team at LAB Research Canada in Montreal. Led by PharmaGap’s vice president of clinical development, Dr. Ken Sokoll, the tests measured whether the drug could be tolerated by the system when injected intravenously.

Because it operates with such a small staff, PharmaGap has benefited immensely from collaborating with contract research organizations and research institutes to move its drug compound forward through the development cycle.


According to McCready, partnering and co-licensing agreements like these provide better opportunities to co-develop therapies and technologies. It has become a popular strategy for many biotech companies struggling for capital.

“The trend in the industry right now has been to rationalize your in-house research capacity to the best skill level possible,” says McCready. “And then outsource some of your research to a CRO or back out even to a research institution to do some of the work for you.”

In 2009, the U.S. National Cancer Institute selected PharmaGap’s compound PhG-alpha-1 for in vitro testing in its labs in Bethesda, MD. These tests screened the drug against a panel of human cancer cells using their 60-cell drug-testing program – at no cost to PharmaGap.

The next hurdle will now be to pass all of the safety requirements necessary to get through FDA approval.

The parties directly involved with the research and lab work are not the only ones who gain, either. Vanderhyden says the biggest benefit is being able to serve the public.

“[It’s about] being able to utilize our expertise to help get promising new drugs out of the lab and into a clinic,” she says.
McInnis initially joined the management team in December 2004 as part of an agreement between PharmaGap and SC Stormont Inc., which specializes in providing strategic direction and capital to Canadian businesses in need of such services.

“Lots of little companies around had technology expertise but had no idea how to run a company,” McInnis says. “And PharmaGap was one of them we thought had the technology but wasn’t going to make it.”

McInnis added that neither he nor his Stormont colleague and current PharmaGap Chairman of the Board, Rod Bryden, had any real experience with the biotech industry when they first came on board. But six years in, he is confident that the company has a drug that works.

The next hurdle will now be to pass all of the safety requirements necessary to get through FDA approval, which McInnis says he hopes to be in a position to apply for by the end of 2011, with clinical trials on humans beginning early in 2012.

It’s a daunting task, but McCready says that the reason nine out of 10 products that go into the research and development cycle for health end up failing is because the science wasn’t provable. PharmaGap, with its consistent positive results for GAP-107B8, has already established it doesn’t have that problem.


And unlike the majority of the very few other emerging biotech companies currently trading on the TSX, PharmaGap stock is not illiquid.

“We’ve traded as low as $0.08 and as high as $1.14 in the last two years,” McInnis says. “And there are lots of people who’ve doubled their money on not very much movement.”

Still, financing will be an ongoing struggle for PharmaGap as it moves through the development cycle. In financial statements released Nov. 22, the company reported a net loss for its third quarter ending Sept. 30 of $883, 371, up more than $350, 000 from the $531, 429 loss posted in the same quarter last year. Costs for research and development will only continue rise from this point on until the drug comes to market.

PharmaGap has already posted net losses of $2.4 million for 2010 – an increase of $300, 000 from the $2.1 million loss in the first nine months of 2009. As of Sept. 30, it is operating with a capital deficit of $1.1 million.

“We’ve moved the drug along, we’ve come a long way… and we’ve been able to raise the money needed to do it,” says McInnis. “With hindsight, we could have done what we’ve done a couple of years quicker. But without hindsight, it took the time it took.”