The trials of Biotech
For developers like Procyon, bringing a new drug to market takes time and money

For most CFOs, bean counting and managing cash flow are their biggest worries. But Monique Létourneau, vice-president (finance) at Procyon Biopharma has a lot more on her plate, because like many biotech companies Procyon doesn't generate a lot of revenues and it must rely on investors to stay alive.

"Our focus is bringing promising oncology and virology compounds from the laboratory stage through to clinical trials. We then license them out for further development and commercialization," said Létourneau. "It's an expensive process, and we need to constantly raise money."

Procyon has developed a variety of products in the pipeline including Fibrostat, a cream to reduce post-surgical scarring, whose North American rights have been licensed to Biovail. Also in the pipeline are several promising compounds including a prostate cancer drug, code-named PCK 3145, in phase IIa clinical trials, and an anti-HIV protease inhibitor, PL-100, which is slated to be undergo animal safety tests in the near future.

But all this research and testing burns up a lot of cash. Procyon's has 40 employees to pay including 20 researchers, 17 of which have Ph.Ds. And that doesn't include the cost of the extensive lab facilities that the company maintains at the Biological Research Institute.

As a result, Procyon lost $4.8 million in the just first half of this year and is not expected to break even until 2007. In the meantime it's Létourneau's job to feed the beast, by helping to organize presentations to the financial community, enduring countless due diligence audits and keeping the market up to date with the latest developments.

But she seems up to it. At least that's the impression her resume gives. After completing her M.Sc. and CFA, Létourneau worked at a variety of consulting and managerial assignments, including 12 years as treasurer at Power Corporation, before taking on the CFO job at Procyon.

He challenges at Procyon are typical of those faced by the CFOs of the approximately 100 Quebec biotechnology companies doing research and development of therapeutic and diagnostic products, biological processes and pharmaceutical applications.

For many of these companies raising capital is an ever-increasing challenge. According to Réseau Capital, investment in Quebec life science companies has dropped 39.8% from $361 million in 2001, to $217 million in 2002. Although the drop was not nearly as severe as that which hit the information technology sector, getting investors to ante up is tough.

According to CEO Hans Mäder, Létourneau's role is crucial.

"Most investors still want to talk to the CEO first, but Monique plays a big role in helping to represent the company," said Mäder, an industry veteran who headed up Novartis's Canadian operations before taking over as Procyon 's chief. "Because we are always looking for new financing, in biotechnology firms the CFO is much more involved than in other companies," Mäder said.

One of Létourneau's biggest challenges is explaining the lengthy and complicated procedures that all new drugs must through in order to get Health Canada's benediction.

Before it can be marketed each new drug discovery must go through extensive pre-clinical research that is conducted in test tubes and on animals. This is followed by three phases of clinical research on increasing numbers of patients.

It's a tough process. According to the Pharmaceutical Research and Manufacturers of America, only five out of 5,000, compounds that enter pre-clinical testing will make it through the clinical phase, and only one of those five will make it to the pharmacy shelf. The process is such a drain on cash and resources that Procyon does not get involved in drug production and distribution, but instead licenses the task to bigger players.

As a result of the heavy competition for the decreasing capital pool, there's been a big move toward consolidation in the industry. "Quebec's Biotechnology companies are too small," said Létourneau. "We have a market cap of about $30 million, but U.S. investors won't even look at you unless you reach $200 million. So we have no choice but to grow."

Earlier this year Procyon acquired Pharmacor, another life sciences player, for $3.25 million, which was funded through new investor financing. The company is constantly evaluating other potential partners especially those in which synergies can be found with Procyon's existing business lines. But for the time being Procyon is going to have to count its pennies.



Photo caption: According to Monique Létourneau, vice-president (finance) at Procyon Biopharma Inc., Quebec has a very strong research infrastructure, buy many companies are having difficulty raising the funds to bring their discoveries to market.

Sidebar: Getting ahead

o Procyon Biopharam specializes in developing and bringing promising oncology and virology compounds from the laboratory through to clinical trials phase. Once the drug is approved the company licenses out the marketing and production rights.
o Like most early stage life sciences companies Procyon must invest enormous amounts of money into research and development, yet potential returns are far down the line. As a result, fundraising is highly important and the CFO's role becomes critical.
o To be approved by Health Canada or the U.S. Food and Drug Administration, a new compound must go through an extensive battery of pre-clinical and clinical tests starting in test tubes and moving on into animals and then humans.
o In recent years the venture capital pool for health sciences companies has dried up and there has been significant consolidation in the industry.


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