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Pharmacologists work inside Natco Research Centre in the southern Indian city of Hyderabad March 13, 2012.Krishnendu Halder/Reuters

U.S. biotechnology investor Versant Ventures is expecting big things from Canada in drug discovery, opening a third incubator in this country to try to find promising early stage therapies to sell to major pharmaceutical companies.

Versant's strategy is not the standard way of investing in early stage companies. In that model, when the companies buy the company that has made the discovery, the scientists go with the company to its new owner. What's more, sales can take a long time. Instead, Versant partners with scientists in its incubators to create drug programs that can be sold as they reach a promising milestone. When the drug development is sold, the scientists remain at the incubators working on the next discovery.

Versant's new office in Montreal for its Inception Sciences incubator follows its Blueline Bioscience office in Toronto and an Inception Sciences site in Vancouver.

Menlo Park, California-based Versant is optimistic about Canada. The company believes there is a potential in the drug discovery business here and strong academic talent working on pharmaceutical research, said Versant partner Jerel Davis, who relocated from San Francisco to Vancouver to oversee the Canadian operations.

"We think there is a lot of under-recognized talent in Canada," he said.

In addition to the Canadian sites, there is also an Inception branch in San Diego. The other offices are busy, creating demand for a new location.

Montreal was a natural extension because the city has had a long history as a drug research centre, but some of the big pharma companies such as AstraZeneca PLC and Merck & Co. Inc. have closed facilities there, leaving scientists needing a place to work.

"That's left a huge amount of talent," said Mr. Davis. In addition, some of the scientists who founded the first incubator in San Diego had worked in Montreal at Merck, and so there is a "shared heritage."

Versant has $1.6-billion (U.S.) under management that is focused on life sciences, and has been an early stage investor for about 15 years. However, the incubator idea was born only about two and a half years ago.

The company wanted to find a way to stay in early stage research, where the investment returns can be higher, but find a way to ensure that it was able to sell its investments at an early stage.

The incubator idea smooths that, because the researchers work with pharma companies to decide what to focus on, and the pharma companies get an option to buy the drug programs when they reach certain milestones.

The incubator also has another advantage.

"The team can stay together and they can repeatedly go set up these programs" to search for remedies, said Mr. Davis.

The timeline is relatively fast from startup of an incubator to having drug discovery programs up and running, he said. The company launched the Inception unit in Vancouver in early 2013. The first nine months or so were spent in talks with pharmaceutical companies about areas in which to collaborate. In October, the unit did a deal with Bayer to seek treatments for retinal eye disease.

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