Zymeworks IPO bears good tidings for Canadian biotechnology

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The Canadian biotechnology business is a picture of good health.

On Friday, management of Vancouver-based cancer therapy developer Zymeworks Inc. rang the bell on the Toronto Stock Exchange, five weeks after its stock debuted in a $59-million (U.S.) initial public offering in Canada and on the New York Stock Exchange. It was by far the largest biotech IPO on a Canadian exchange in a decade and came on the heels of one of the largest stock offerings ever by a Canadian biotech firm, after dual-listed lupus-drug developer Aurinia Pharmaceuticals Inc. raised $150.5-million in March.

Those deals are the latest in a surge of funding for Canadian pharmaceutical developers. According to Thomson Reuters, Canadian life-sciences firms raised $1.1-billion in venture capital last year, double 2015 levels.

Next up is a likely initial public offering from Montreal's Clementia Pharmaceuticals Inc., which recently announced positive clinical-trial results for its treatment for a rare genetic condition called fibrodysplasia ossificans progressiva. Sources say the company, led by veteran biotech entrepreneur and McGill University-trained neurosurgeon Clarissa Desjardins, is hoping to raise $100-million in an IPO as early as this summer. Clementia raised more than $90-million in private capital in 2014 and 2015 from top U.S. biotech financiers including OrbiMed Advisors and New Enterprise Associates as well as Canada's BDC Capital.

"You're starting to see a whole generation of Canadian companies that are very different than what we've seen" in the past, said Peter van der Velden, managing general partner of Lumira Capital, one of Canada's leading biotech venture-capital firms and a financier of both Zymeworks and Aurinia.

Canada has had biotech successes in the past, including 10-figure takeovers of BioChem Pharma Inc., Enobia Pharma Corp. and ID Biomedical between 2001 and 2011. But the sector's prognosis looked grim early this decade as global drug companies downsized their Canadian research labs and many domestic biotech startups ran into trouble.

The recent resurgence is related to several global and domestic trends, said Cédric Bisson, partner with Montreal's Teralys Capital, a leading Canadian investor in the space.

Globally, "the dynamics have been very good" for biotech firms as big pharma companies look to replenish their development pipelines with acquisitions and partnerships, Mr. Bisson said. In addition, advances in such areas as cell-based therapies and genomics have increased the commercial potential of new treatments. Venture investors have become savvier and more disciplined about which early-stage treatments to finance to increase their chances of success, which, in the drug business, typically only comes after years of development, clinical studies and regulatory milestones – and hundreds of millions of dollars of associated costs.

Canadian industry players have also become increasingly aware that to succeed, they must adhere to the same practices as startups elsewhere, hiring top global talent and raising sufficient capital to finance the long, uncertain path to commercial success, Mr. Bisson said. "That's what we have to do. We're playing in an international game and we know the public markets and international companies will only care about the best stuff."

They have been aided by a small but active group of Canadian biotech financiers, including venture funds Lumira, CTI Life Sciences, Genesys Capital Management, BDC and Teralys, as well as the Quebec Federation of Labour's Solidarity Fund and U.S. financiers Versant and Sanderling Ventures, whose success has helped to draw more U.S. capital to Canada.

"The fact that the Canadian story is starting to resonate really helps with fundraising," said Lumira's Mr. van der Velden, whose firm has raised 70 per cent of its planned $175-million (Canadian) fourth fund.

Meanwhile, some hope Zymeworks's successful IPO will compel more Canadian firms to cross-list on the TSX rather than bypassing Canada for a New York-only listing, as some firms have done. That's what Zymeworks chief executive officer Ali Tehrani had in mind when he was marketing his IPO.

While Mr. Tehrani said he could have easily raised all his funds in the United States, "I kept telling [Canadian investors], 'If you can't come in and support great Canadian companies, you won't have other great Canadian companies come to you'" in the future. He raised almost half his funding in Canada. "Hopefully, this should make the path slightly easier for other [Canadian biotech firms] to follow us," Mr. Tehrani said.