Local biotech company feeds into growing organic market

As Canadian and international consumers increasingly shift towards organic, healthy food options, a small Ottawa-based company says its core product could provide a much-needed alternative.

Biotechnology company Avivagen Inc., which trades on the TSX Venture Exchange under the symbol VIV and on the OTC Pink as CHEXF, has put decades of research into the health benefits of foods containing beta-carotene. It’s betting that the same chemical compounds that give carrots their familiar orange colour will be able to shift its books from red to a healthy green.

Avivagen’s patented product OxC-Beta is an oxidized form of beta-carotene. The company developed this natural health optimizer (NHO) as an immune system booster for animals, which it believes could become a natural alternative to antibiotics.

“We’re moving in the direction of becoming a competitive replacement to antibiotics in feeds,” says Graham Burton, Avivagen’s director of commercialization science. Burton co-founded the company after 19 years of biomedical research at the National Research Council of Canada, where he developed the foundation for Avivagen’s oxidized beta-carotene technology.

In a marketplace experiencing a growing distaste towards the use of antibiotics in livestock, this is a promising find. Certified organic foods are required to be free of antibiotics. The national market for organic food and drink was worth $3.7 billion in 2012, according to the Canada Organic Trade Association.

“The demand is definitely there and it’s surpassing the current supply,” says Matthew Holmes, executive director of the Organic Trade Association.

Holmes says the standards for food to meet certified organic criteria are “incredibly strict.” He says the product would have to pass review of the organic general management standards, as well as the permitted substances list published by the Canadian General Standards. Board. The road to this certification is both lengthy and costly, he says.

Despite growing consumer demand for organic, healthy alternatives, the company has been operating at a loss since it went public in 2005.

This month, the local biotech startup set its sights on foreign markets. The company, which has been struggling to move completely out of its early development stage due to strict regulations in Canada, is venturing overseas into markets in Asia.

“There’s a real willingness to try something new in the Asian market and the regulatory environment is less challenging, so it makes it easier to test,” says Burton.

But some are skeptical about the idea of conducting clinical trials under weaker regulations in China.

“If someone were to say, don’t worry, this (clinical trial) has been taken care of in China, you might worry. But Europe, U.S., Canada, and Australia, they are very much leaders on the regulatory side of things,” says Andrew Casey, president and chief executive officer of biotech industry association BIOTECanada.

“We have to think about where we can get the quickest and biggest return, then come back when we are at a volume to compete here,” says Burton in response to the company’s weaker third-quarter results.

Net losses for the third quarter ending July 31, 2014 fell deeper to $552,294, 21 per cent lower from the same quarter a year earlier. While the company has yet to release its annual report for 2014, its past numbers indicate some difficulties. Its net loss for the 2013 fiscal year totalled more than $2 million compared to a net loss of over $1.97 million in 2012. Results are trending towards a deeper loss in 2014 with the company so far reporting a loss of $1.48 million for the nine months ended July 2014.

The deficit isn’t uncommon for startup biotech companies, says Casey.

“Access to capital is a major obstacle for these companies,” he says. “These are phenomenal innovations, but they take a lot of money to go from a good idea to commercial success.”

Casey says biotech startups like Avivagen require a special kind of investor with a lot of patience and understanding of the field.

“It’s not like a phone app, where you know in two weeks if someone wants it,” he says. “It’s more like 10 to 20 years, so a lot of them shy away because the timeline is so long and the uncertainty is so.

Casey says biotech can involve long timelines, be capital intensive, and experience high business failure rates.

In Canada, Casey says 500 to 600 biotech companies are competing for the same capital.

Burton says a lot of the capital the company is fighting for is needed for research and development to move into the commercialization of the product for livestock. Operating expenses for Avivagen’s third quarter were $595,106, up from $496,567 a year earlier. A majority of these expenses were due to increased spending on product trials.

The company also expects expenses to increase for the balance of the year as it undertakes various research trials, efficacy studies and additional research to support its OxC –Beta product.

As of Dec. 4, Avivagen’s market capitalization stood at $11.14 million with shares trading at 6.5 cents. Despite the low share price, ScotiaMcLeod Investment Associate Jackson Carter says he’s wary of investing in startups.

“Although there is a chance, albeit a slim one, that companies like Avivagen will go on to become wildly successful, we tend to shy away from investing in startup biotech companies due to high inherent risks,” he says. “In Avivagen’s case, their third quarter revenue and high net loss are instant red flags. I would not recommend investing until they can begin to demonstrate meaningful sales.”

Casey remains optimistic. “The fact that they’re commercial tells me that they’ve got something promising,” he says. “That’s a big indicator. The market is a cruel place and will eliminate those that are not real.”