Aggregate Therapeutics seeks financing for publicly funded stem cell research

Novel approach to commercialization

A bold new experiment in commercialization has attracted a formidable slate of talent to help move Canadian stem cell research and technology out of universities and research hospitals and into the marketplace. Aggregate Therapeutics Inc (ATI), a creation of the Stem Cell Network of Centres of Excellence (SCN), is seeking private sector funding to implement its strategy of bridging the gap between early-stage start-up and venture capital financing by pooling and adding value to stem cell intellectual property (IP).

ATI's novel approach has attracted two veteran biotechnology venture capitalists from California and Ontario and secured the participation of 16 institutions and 37 investigators who have agreed to allow ATI unencumbered access to their intellectual property for five years in return for an equity position.

Working with $3 million in public funding, it is now seeking $10-20 million in private financing to flesh out, combine and augment promising Canadian stem cell IP. While the company acts as an incubator for early-stage discoveries, officials prefer to describe it as a ‘translational development funnel', pouring promising IP into a rigorous due diligence process to determine which has the best chance of making it to the marketplace.

Leading the financing charge is Dr Annemarie Moseley, ATI's acting CEO and a Palo Alto CA-based biotech executive with more than 20 years of experience. She will be advised by Dr Calvin Stiller, ATI's new board chair, an internationally renowned researcher and veteran venture capitalist. Stiller — who is also board chair of Genome Canada — became ATI's board chair on April 1st, replacing Frank Gleeson who stepped down to become chair for SCN. Also assisting Moseley in making introductions to the investment community is SCN board member Joseph Rotman, who recently led a commercialization task force that reported to Industry Canada earlier this year (R$, April 28 & June 22/06).

Moseley says she was attracted to ATI because of its unique model, the excellent science resident in Canadian institutions and the high degree of academic freedom in stem cell research relative to the US.

"It's all about the people. Canada has an excellent science base and if researchers can tweak their science to make it more exploitable, that's a good thing," says Moseley. "Right now ATI has a big vision but it will depend on the vision of the investigators … There's value in integrating and looking at early technology in many fields and the NCE (Networks of Centres of Excellence) system allows this. It's about labs, people and interaction and out of that we can grow."

IP CONSENSUS TAKES 2 YEARS TO ACHIEVE

ATI has been two years in the making with the majority of time devoted to negotiating a common IP agreement with participating institutions and investigators. That work was undertaken by several individuals including tech transfer pioneer Dr James Murray and Dr Graham Strachan, former president and CEO of Allelix Biopharmaceuticals Inc (now NPS Pharmaceuticals) (R$, July 16/04).

All institutions and investigators have been given shares in ATI in return for disclosing their unencumbered IP for a five-year period. For promising technologies, ATI will assist institutions with IP protection. If any technologies result in a licensing agreement, researchers will receive remuneration in addition to any financial benefit they may receive as shareholders.

Following initial seed funding, ATI zeroed in on the pilot commercialization program announced in the 2004 Budget. But when that program faltered and eventually died with the change in government, the hunt began for alternate sources.

Eventually, five public agencies came forward with $2.5 million to finance the early spade work at ATI (see chart). More than 40 different technologies were examined before five or six were in-licenced, leading to three foundational technologies being optioned to ATI. A draft of a private placement offering memorandum has been completed and is now being shopped to potential investors.

"A new investment banker will be identified this summer to lead the private placement and by fall we'll be ready to raise funding with a projected closing by Christmas. It's an ambitious timetable," says James Price, ATI's COO, on secondment from SCN. "This is a pilot program with a lot of partners … ATI is part of the NCE mandate to look at commercialization models."

Whether ATI is able to secure sufficient funding from Canadian sources remains to be seen. Moseley says that while her first choice is to raise funds from Canadian sources, she will look south if necessary.

"We want to keep the investment in Canada and the early investment is more about people ... We need a continuing opportunity pipeline and then work with local government for skills training," she says. "I want to preserve the spirit of the effort as much as possible but if I can't find Canadian funding, I'll have to regroup and go south ... The market dip has meant you can access people and space more cheaply so we need to strike while we can. But if there's no Canadian money, we go to a different plan."

Moseley notes that other countries such as the US, Australia and even Israel have established companies or mechanisms to help start-ups. If Canada had a similar type of mechanism, the commercial ization part could be funded while the continuing pipeline would be funded through grants or other government approaches.

TOOL KIT SLASHES IP NEGOTIATION TIME

One of the biggest pluses for the ATI model is an IP tool kit which was negotiated with institutional technology transfer offices and promises to be a valuable template for commercialization endeavours involving multiple institutions. The tool kit contains seven different harmonized legal agreements, pre-negotiated with all participating institutions.

"It's a standard set of documents and the universities have agreed to use them. It cuts down on the time for legal work so that it takes about one quarter of the time to negotiate IP agreements," says Dr Angus Livingstone, managing director of the university-industry liaison office at the Univ of British Columbia. "It has yet to be fully tested but it has a lot of merit … Word on the street is that institutions can't work together and these institutions have demonstrated that they can. This is the first time I've seen a broad base of universities brought together."

Livingstone initially joined ATI as chair of its tech transfer working group and is now an ATI board member.

Despite ATI's initial progress, no one is under the illusion that its success is a foregone conclusion. The biotech financing environment is just emerging from a deep slump that saw next to no financing for stem cell-based start-ups. The Canadian environment also has several challenges. The federal government has yet to introduce a commercialization strategy or supporting programs, despite years of talk and projected deadlines.

MARKET DIP FOR BIOTECH BUYS ATI TIME

Ironically the inability of stem cell companies to attract venture financing has worked in ATI's favour. In 2004 when the concept was being developed, there was concern that the company had formed too quickly before initial excitement disappated. Now it appears that the two-year delay has not hurt ATI's prospects as its quest for financing coincides with a encouraging market upswing..

"Private financing has been poor for biotech and especially stem cells. There were no deals in 2005," says Price. "Now things are picking up."

Adds Livingstone: " Stem cell companies have not taken off since 2004 so opportunities have not been lost. Strategic partnerships will generate cash flow like the biotech model where you raise a few rounds of financing than cut a deal with big pharma. I see good opportunities happening. "We plan to raise a few rounds of financing."

On the stem cell research front, the pool of IP that ATI draws on is relatively small, making its initial focus on technology bundling problematic. Livingstone says that any successful start-up will likely require additional sourcing of technologies and research infrastructure from outside the university system or even outside Canada.

"There are tools and techniques and technologies required to move a therapy into the clinic. There is a whole series of things you have to be able to do," says Livingstone. "Canadian academic institutions don't hold all the keys and the body of (stem cell) IP is too small. There's still a lot to be done."

Moseley agrees and says there is a lot of capacity building required as well as the participation of different levels of government and continuing funding for stem cell research from the granting councils. She asserts that the opportunities open to ATI could translate into big gains for Canada if properly executed.

"There's an opportunity to step in early in the field and see if we can't do something different to keep great science in Canada. We need to begin to create relationships between investigators and give them feedback on mechanisms to go through the early stages of development," says Moseley. "Pipeline opportunities become a triad between investigators, technology transfer offices and ATI. We've optioned more than a handful of early disclosures."

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