Venture capital helps finance Canadian drug development

Canada’s Edesa Biotech Inc. is one step closer to making a drug to treat diseases in dermatology and gastroenterology a reality, with funding that includes an investment from Spain, secured with the help of the Canadian Trade Commissioner Service (TCS).

Bringing a new drug to market is a long, complex and expensive process. Edesa Biotech Inc., an emerging specialty pharmaceutical company in Markham, Ont., has already met with some international success as it develops a novel drug to treat diseases in dermatology and gastroenterology.

In September 2017, the company announced that it completed its first major round of financing with a syndicate that includes one of the top venture capital (VC) firms in Spain, an investment it obtained with assistance from the TCS. The $7 million “Series A” financing will allow the two-year-old start-up to carry out Phase 2b clinical trials on a molecule that it has licenced for the treatment of allergic contact dermatitis. The funding will also help support proof-of-concept studies using the product on hemorrhoids and anal fissures.

“There’s definitely an opportunity to improve patients’ quality of life,” says Dr. Par Nijhawan, a gastroenterologist who is the founder and CEO of the clinical-stage private company, noting that the key is that the treatment is non-steroidal, so that it can be tolerated better and used longer than current drugs. “This financing will now allow us to advance development on a series of novel treatments that provide the opportunity for significant positive patient impact in the relatively near future.”

Nijhawan, a serial entrepreneur whose company has five employees, says there have been “no new effective treatment options in the last three or four decades” for contact dermatitis and anorectal dermatological disorders, which are extremely prevalent and tend to be recurring. The new molecule being tested is intended to block the “inflammatory cascade” involved in the conditions. Phase 2a trials have been completed for the new medication on contact dermatitis.

The financing syndicate, led by Lumira Capital of Toronto, a VC fund that specializes in health care investments, includes participation from Inveready Technology Investment Group of Barcelona, and Montreal’s Pharmascience Inc., a Canadian pharmaceutical company as well as two Canadian family offices.

Over the last year Peter van der Velden, managing general partner of Lumira Capital, began work on putting together a syndicate to continue the process of clinical studies and commercialization for the drug.

The common element between Nijhawan and van der Velden that led to the investment by Inveready is Aurora Polo, a trade commissioner in Barcelona whose responsibilities include the life sciences and health industries in Spain. Polo assists Canadian companies and institutions with the Spanish market in terms of trade, science and technology, and identifies potential Spanish investors that could invest in Canada.

Nijhawan, with the support of a TCS program called Going Global Innovation (GGI), started focusing on potential international investors for his drug development. GGI gives Canadian innovators up to $75,000 to help formalize agreements to undertake technology commercialization with foreign organizations. The funds may be used to offset a variety of costs they face when participating in targeted meetings with foreign collaborators.

“GGI helps ease the burden of the cost of development outside of Canada. It subsidizes your travel, but it’s still up to you to get out there and show that you can execute…It is well worth it,” says Nijhawan, who used the GGI funds to attend massive global partnering conferences that attract the “who’s who” from biotech, pharma and finance. These included the BIO International Convention, held in June 2016 in San Francisco, and BIO‑Europe Spring, which was held in Barcelona in March 2017.

Meanwhile, Polo brought van der Velden to Spain in the autumn of 2016 to speak about Canadian innovation, health care and VC opportunities. Lumira is one of the largest and most active health-care VC firms in Canada, and van der Velden is also former-chair of the Canadian Venture Capital and Private Equity Association.

In Spain, he encountered officials from Inveready including Sara Secall, the company’s investment director, in a series of meetings that Polo arranged. Inveready expressed an interest in potentially investing in Canadian companies and nine months later, after Lumira provided Edesa with a financing term sheet, the two companies talked about having Inveready participate in the financing. Edesa also met Inveready through Polo. When company officials attended the BIO‑Europe Spring event in Barcelona and mentioned they were looking for Series A financing, Polo included Inveready among a list of possible Spanish syndicate participants. Polo’s subsequent virtual key contact introduction led to discussions directly between the two parties.

Inveready’s decision to join the Edesa financing deal “was thanks to Aurora,” Secall says. “She’s very, very active in her role here in Spain in contacting all sorts of players in the biotech sector.” She notes that Inveready’s Series A investment in Edesa is an “outlier” for the company, which more typically invests in Spanish early stage research, with a focus on the life sciences and information and communications technologies (ICT) sectors.

“But we’re open to good opportunities that will make money for our investors, and this was an opportunity that, had we found in Spain, we would have definitively invested in,” she says, stressing that Lumira’s credentials and track record made Inveready inclined to support Edesa. “We felt that we could help the company succeed further on,” she says. “It not only has the potential of high returns for our investors and for us, but there’s a large population of patients who can benefit from this product and whatever comes next. If we can alleviate people’s pain, it all adds to the satisfaction we get.”

Secall says her company, which is currently invested in about 25 companies in the biotech health-care sector, feels there is “good science coming out of Canadian institutions,” as well as critical support from government through various programs. “It doesn’t surprise us that there are good Canadian companies that are good investment opportunities for companies such as us.”

The cost of bringing pharmaceuticals to market is humungous, Secall comments, so companies naturally look to global investors. “We’re happy that the syndicate is diverse.”

Lumira’s van der Velden says Polo’s invitation to Spain was critical to the contacts and relationships that he now has there. “And being able to translate that into an investment in a Canadian company, from our perspective that’s pretty good value,” he says. “I think it’s fantastic.”

Because this was Inveready’s first Canadian investment, it helped that the firm was able to meet with Edesa and Lumira through Polo and get a really good sense of the opportunity. “If you’re coming into a country like Canada, you want to be able to touch base with some of the local players,” van der Velden says. “For Canadian companies, being known and supported broadly outside of Canada is absolutely, fundamentally important. We want to bring best-in-class investors into best-in-class Canadian companies.”

TCS involvement is reassuring for potential foreign investors like Inveready, van der Velden notes. “The fact that the Canadian government believes we are credible helps. It gives them comfort that we’re a viable partner in the marketplace.”

Having international investors brings many advantages for syndicates, van der Velden says, from diversifying risk and increasing the breadth of future rounds of capital to bringing in “more smart people who can bring different market perspectives to the table.” It also enhances access to potential partners, buyers and key opinion leaders who know about the company and its products.

“You want to have a diversified portfolio with exposure to more ideas, more innovation and more connections,” van der Velden says. “You build a set of trusted relationships with co-investors and you look to do more with them.”

He says that the best investors tend to look outside of their own markets, and having Inveready involved in a Canadian syndicate may encourage it to get involved in other investments in Canada. For example, it has a place on Edesa’s board, meaning that company officials come to Canada for meetings, “and they might see other companies they can get involved with, if they have a good experience.”

Nijhawan says he was not familiar with Inveready when his financing round started, so the introduction from Polo was particularly productive. He says trade commissioners elsewhere in the world have been invaluable, with their knowledge of local areas. “It helps to have that connection.”

Raising money in Europe is challenging, especially for outsiders, Nijhawan says, so it’s important for potential investors to know and understand a business.

He says the largest challenges in his field remain the science and the huge amount of time required for pharmaceutical research. He advises others to believe in their product, be persistent and remain positive. “A lot of people give up after hearing ‘no’,” he says. “You have to be out there to meet people. Some meetings are unproductive, some are very productive.”

The $7 million Series A financing will fund Edesa’s development of the drug for about 2.5 years, at which point Nijhawan is hoping for more offshore investment for the Phase 3 trials for contact dermatitis, which are even more expensive and complex to carry out. “It helps to get a diverse group of people backing Edesa,” he adds. “These are very exciting times for us. We’re very enthusiastic about what we’re doing.”

From Barcelona, Spain, this story is one example of how trade commissioners located in more than 160 cities around the world help Canadian companies succeed. Read more about the Humans of the Trade Commissioner Service.