Mark Kershey of Spartan Bioscience Inc. (Photo by Darren Brown, OBJ)

Ottawa's biotech startups face daunting challenges

Know-it-alls were Mark Kershey's greatest nemesis when it came to finding people to sponsor a DNA dream machine.

In 2005, Mr. Kershey and three others had put a lot of money, time and faith into a scenario that would make even the scientists on CSI happy: a simple, portable instrument that could read your DNA – the genetic barcode that helps determine your health – and spit out the results in only 30 minutes.

Problem was, high-tech investors assumed they also knew about biotech, he said. When they didn't understand what the machine was supposed to do, they weren't willing to put in the financing.

"Let's be clear. I'm talking about sophisticated investors, but their knowledge of biotech is limited," said Mr. Kershey, vice-president of corporate development at Spartan Bioscience Inc., the developer of the DNA analyzer. "You need to bring (discussions) down to the level where you can converse."

Making investors understand the product is only one hurdle to clear when biotech companies like Spartan try loosening the pursestrings. Finances are something every tech startup in Ottawa has to deal with, but biotech companies have an additional complication: regulations surrounding medical practice mean it could take 15 to 20 years to bring a product to market, as opposed to two or three for a software company.

Biotech companies face the daunting challenge of convincing investors to buy in to a long-term vision rather than a short-term payoff, said Michelle Scarborough, vice-president of investment and commercialization with the Ottawa Centre for Research and Innovation (OCRI).

"When companies are looking for seed financing, they need to look at who their investors are and what their needs are," said Ms. Scarborough. "And investors need to be forward-thinking instead of in the moment."

OCRI's MedTech hosts a seminar May 28 for nascent biotechs looking for seed funding. Ms. Scarborough said it takes more mentoring to start a biotech company, thanks to health decrees from agencies like Health Canada and the U.S. Food and Drug Administration. Biotech products must be safe for humans – that means years of testing, trials with volunteers, and paperwork typically lies ahead.

With this in mind, telling a potential biotech investor they'll get a return on investment when their newborn is in college can be a tough sell. Companies often need to shorten the turnaround time before the money dries up, and one Ottawa biotech company – Braebon Medical Corp. – did just that.

It not only sells sensors to sleep facilities, but also markets oral appliances to reduce snoring, along with management software.

"We started with the (sensors) because the time to market is rapid," said president and CEO Richard Bonato, adding they were brought to market in roughly 60 days. That might have been different if they'd begun with medical devices, he added.

"Had we gone the other way, it would have taken $2 million, $3 million to develop. Then you're in a scenario of 'What do you do then?'"

Even a simple product like a turbine to improve dental handpieces takes time, something Jean Castonguay, president and CEO of ProDrive Systems, knew when his company began in 2003.

Mr. Castonguay will speak about his experience at the MedTech seminar.

Like Braebon, his company went after a market niche where it could generate cash flow quickly, but ProDrive avoided the traditional model of angel investors and venture capitalists.

Mr. Castonguay's company diversified its investors by seeking funding from an accredited investors program. That way, no single entity could bankrupt the company by pulling out early. After three years, the company is now ready to go public.

"We've taken our time to do the right thing. We have walk-away money and independence," he said.

But newer companies may not have that luxury, according to Joe Irvine, the University of Ottawa's director of technology transfer and business enterprise. Investors are now skittish in the wake of the U.S. housing crunch, he said, adding venture capital available a few years ago is drying up.

"We're seeing a lot more activity in the biotech field," he added. Given the amount of choice available to invest in emerging technologies, "it's harder to start a company on (patenting) a single molecule now than you could 20 years ago."

By Elizabeth Howell

Special to the OBJ