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Big pharma’s failures may be Alberta’s biotech windfall

Apr 7, 2007

by Christopher Gulka

It wasn’t that long ago when biotech firms were throwing in their towels, abandoning projects and restructuring themselves into oil and gas companies. Many notable biotechs went this route: Synsorb Biotech became Hawker Resources, SignalGene Biotech became SignalEnergy, and AltaRex Corp. became Twin Butte Energy.

But finally there are signs of life in the biotech sector, particularly in health sciences research. After hitting a five-year low last year, the S&P/TSX capped health care index is slowly on the rise again. Though most of the biotech stocks are currently nowhere close to hitting highs, they are coming off lows and have been successful raising capital. Others are in the late stages of clinical trials or trying to market their products stateside.

One key factor in the continued success of the industry will be the expiration of patent protection of major branded drugs over the next five years. Between 2007 and 2011, an average of 10 drugs a year will expire in the U.S. market alone. Last year, pharmaceutical giant Pfizer lost the patent for its best-selling antidepressant Zoloft and it will suffer another blow when the patent for Lipitor expires in 2010. Alberta biotech companies could be the beneficiaries of $20 billion of generic therapeutics that will flood the market over the next five years.

Behind locked lab doors, the big pharmas have been making new drugs to replace the old ones, but there have been a number of high-profile failures. Hailed as the new Lipitor, clinical trials of Torcetrapib were halted by Pfizer in December 2006 due to safety concerns. Immediately investors and media outlets in Canada and the U.S. turned their attention to smaller biotech companies, such as Calgary-based ResVerlogix, involved in the development of products for cardiovascular disease. ResVerlogix is developing a cholesterol-lowering drug that has shown promise in first-stage testing. From December 2006 to February 2007, Resverlogix stock has gone from $5.50 to $29.50. The following companies may be in a position to be the future success stories in the biotech sector.

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BIOMIRA INC. (BRA: TSX $1.38) is an Edmonton-based biotechnology company specializing in the development of innovative therapeutic products for the treatment of cancer. The company is trading between its 52-week low of $0.98 and its high of $1.95, far off its five-year high of over $6. The shares surged a bit in January when the company announced its phase III clinical trial for the Stimuvax treatment for non-small-cell lung cancer and a phase II trial of PX-12 for pancreatic cancer. With approximately $22 million in working capital, Biomira has arranged for an additional $13-million US financing. Being well financed and well into its clinical trials, Biormira may be set to regain its former glory.

ONCOLYTICS BIOTECH INC. (ONC: TSX $2.50) was formed in Calgary in 1998 to develop its proprietary product, Reolysin, as a potential therapeutic for a wide variety of human cancers. Oncolytics has completed six clinical trials in Canada, the U.K. and the U.S., and is currently in the process of conducting another six phase I or phase II trials in the U.K. and the U.S. The stock is trading close to its 52-week low, well below its 52-week high of $6.09. It has recently completed a $12-million financing deal, giving it a strong working capital position of over $40 million. Well into its clinical trials and well financed, Oncolytics is set to capitalize on renewed interest in the biotech sector.

SEMBIOSYS GENETICS INC. (SBS: TSX $3.20) is a biotechnology company engaged in the development and commercialization of protein pharmaceutical and non-pharmaceutical products. SemBioSys is developing a plant-based insulin to serve the expanding diabetes market and to facilitate the commercialization of alternative insulin delivery technologies. The company is
trading near its 52-week low of $2.75 and far from its high of $8.25. Even though the company’s stock has languished, the market believes in the company as SemBioSys just raised an additional $12.75 million in capital. With approximately $30 million of working capital, the company is well financed to develop its products, and breathe life back into its stock.

Christopher Gulka, CA, CFA is the Prairie Trader. He is an avid investor, sometime day trader, and owner of Working Capital Corporation.

Prairie Trader is an independent overview and assessment of Alberta-based companies in the public markets that have investment potential. The author declares that he has no investment or business interest in any of the recommended companies described herein. Alberta Venture assumes no responsibility for the accuracy of any stock recommendations. You can reach Gulka at prairietrader@albertaventure.com or send feedback to feedback@albertaventure.com.

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