News articles

January 4, 2006

'Vast' sector will roar in 2006, experts predict

By Ottawa Business Journal Staff
Wed, Jan 4, 2006 2:00 PM EST

When it comes to most things, making an educated guess about the future remains precarious at best.

But, those trying to peer into a crystal ball for the 140-company Ottawa biotech sector may as well forget it.

While a handful of Ottawa biotech executives happily talked about their companies and their particular futures, all gave almost exactly the same answer when asked about the industry in general: Each said they wouldn't want to speculate on another area of biotech because they simply didn't know enough about it.

"My gosh, I really can't speak to the medical area at all – all I know about that is what I read in the papers," said Brian Foody, Iogen chief executive.

"But globally in the whole area of life sciences as it relates to energy technology where we are in, there's really a growing level of interest and enthusiasm and it's getting wide recognition."

With the feeling that oil prices will remain high and a general movement among the global community toward sustainable development, things look positive in 2006 for Iogen's cellulose ethanol product.

Ian Curry, who became DNA Genotek chief executive in 2004 after 16 years in high tech, said that sector is easy to figure out compared to life sciences, which makes it difficult to know exactly where companies are and where they are going.

"The tricky part about biotech that I find is that it is so vast – even in Ottawa it covers so many different areas – it is more diverse than any industry that I have ever seen," he said.

DNA Genotek's technology helps researchers collect DNA samples from large cross-sections of the human population. Last month, the Geneva-based World Economic Forum named the company one of 36 Technology Pioneers for 2006. DNA Genotek was the only Canadian company selected.

With many predicting a continued movement toward personalized medicine over the next five years, companies such as DNA Genotek should have more customers crawling out of the woodwork.

The same was evident for the other executives, all of whom expressed a positive outlook for their particular area in the New Year. Taking their comments collectively, the future of life sciences certainly seems bright.

"There's a lot of what I would call good Series 'A' going to Series 'B' companies and we are now seeing the startup side picking up significantly," said Ken Lawless, president of the Ottawa Life Sciences Council, who predicted that 2006 would bring about half a dozen initial public offerings.

"Some of the same companies you are seeing now are going to continue to perform."

While he would not name the companies he thought would take the plunge into the public markets "for confidentiality reasons," he singled out a number of biotech firms as ones to watch, including, DNA Genotek, Epocal, Gangagen, Iogen, and Zelos Therapeutics.

Many executives felt the next 12 months should also see continued investment in key commercialization infrastructures, which accounted for some of the more than $400-million in new research facilities built in Ottawa in 2005.

"Without a doubt, we need the facilities and people to ensure that the industry can grow. It is not enough just to have money – you need people to move the science forward," said Jan Alfheim, president StemPath.

"There is a lot of good science and companies emerging from the Ottawa hospitals and the National Research Council. I think people are looking towards Ottawa more and more in terms of being a biotech centre."

To help the sector take full advantage of the opportunity, the OLSC plans to implement a three-pronged strategy in 2006 that will continue over the next two to three years.

The strategy will focus on increasing the quality and quantity of the deal flow, working on bringing more investors into the city and focusing on the retention and expansion of the company base.

"For Canadian industries to get to the next level, they need a level of financing that Canadian investors can't deliver and U.S. investors want to see seasoned management," said Mr. Alfheim.

"But, it's difficult to attract those people to the area because there aren't enough benefits for those types of people. Homegrown management doesn't get the investment, so you can't bring the company to success, and then you don't have the success stories to attract more money. It's a vicious cycle."

Whereas Ottawa is attracting about $80 million annually in venture capital, many feel it will need to double that just to meet the anticipated growth. Today, many companies with great potential head south and then become recognized as a U.S. success story.

Part of the problem for biotech companies is the sheer difficulty of communicating the challenge that is being overcome.

"In high tech, everybody talks about the next version all the time, but, in our world, DNA is it. There is no next version," Mr. Curry explained.

"DNA is so amazing and it controls the most incredible machine ever invented. Just trying to actually figure out how it all works is an enormously complex but incredibly valuable thing to go after."

Meanwhile, there are a number of funds investing in Ottawa's life sciences sector. It is also thought that Toronto-based Genesys Capital is about to close on a new fund, which will soon be in Ottawa looking to place some cash.

"There is money out there to invest, but people are more guarded about it and you have to work harder to get it," said Epocal CEO Imants Lauks. "You have to show more and make sound arguments to investors."

Epocal received a $5-million investment from Genesys early last year and expects to have its blood diagnostic technology in the hands of customers by the end of 2006.

As more companies, such as Epocal, bring their products to market and others take a run at a public offering, the sector will begin to hit its stride and be a bigger force in the local economy, Mr. Foody insisted.

"This is really an exciting time and I think that the life sciences and biotech have a tremendous amount to add."

By Jeff Pappone Special to the Ottawa Business Journal