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Aequus Pharmaceuticals has the right Rx to bring new drugs to the Canadian market

Last updated: 07:35 08 Nov 2018 AEDT, First published: 06:53 08 Nov 2018 AEDT

Snapshot

'I joke that Wall Street and Big Pharma didn't wake up today wondering where that next $10 million Canadian product is going to come from, but we do,' says CEO Doug Janzen

pills

Canada has long been ignored by the large pharmaceutical companies in favor of its more lucrative neighbor to the south where drug makers charge US patients exorbitant prices.

However, it is in this vast untapped territory that Doug Janzen spotted a business opportunity.

“Canada is just a really great example of a country that doesn’t generate enough revenue for the really big players to focus on,” says the chief executive officer of Aequus Pharmaceuticals Inc (TSXV:AQS; OTC: AQSZF).

“While most big Pharma companies have a Canadian subsidiary, we found a big opportunity to bring drugs into Canada that are approved in the US or Europe but have revenue potential under $10M per year, which just isn’t exciting to the global pharma companies. Companies aren’t ignoring Canada because they don’t want to make money here. They’re ignoring it because they don’t have any infrastructure and it’s not lucrative enough in the short term for them to build it,” Janzen adds.  

Aequus takes medications that are already available in the US or elsewhere and licenses or acquires the Canadian rights, then takes the clinical data that supported that approval and works with Health Canada, Canada’s national health system, to get them approved and commercialized in Canada.

A trio of pharmaceutical products currently form the core of its business.

The first is Zepto, an FDA-approved precision pulse technology that offers benefits over traditional surgical techniques to remove cataracts. The Zepto technology was licensed from Mynosys Cellular Devices, a Fremont, California-based company. The second is Vistitan, which reduces the pressure inside the eyes of patients with glaucoma and was first marketed by the pharmaceutical giant Sandoz.

Its third drug is another Sandoz Canada offering the transplant therapy Tacrolimus, which aims to treat and prevent acute rejection following an organ transplant.

“I joke that Wall Street and Big Pharma didn’t wake up today wondering where that next $10M Canadian product is going to come from, but we do. When you aggregate together four or five of these drugs then you get a really nice business that’s profitable and you can start investing cash flow into more blue-sky projects,” explains Janzen.

Core drugs fund key research

The revenue from this core group of Canadian-licensed drugs and therapies will provide the funds for the development of so-called reformulated products, where Aequus’s team of contractors works to change the delivery method of a particular drug and secure global licensing rights for the products.

“We kind of have three different buckets of revenue,” he says. “One is the day-to-day business. The second is when we license products into Canada that are approved in the US and the third is when we reformulate assets and have global rights for them. So, our business is growing quickly.”

Up next on the development front are two drugs Aequus licensed from Supernus, a very successful US specialty pharma company.  Topiramate XR and Oxcarbazepine, a pair of once-a-day anti-epileptic drugs have been successfully marketed by the Maryland-based Supernus in the US where they report almost $400m in sales, by Janzen’s estimates. Aequus is about to initiate the clinical work requested by Health Canada for Topiramate XR, and hopes to file for approval upon completing a small clinical study.

“Big companies have bigger fish to fry. Supernus would rather have their teamwork on the next $500 million drug, but we think these anti-epileptic drugs could do $15 million to $20 million in sales here,” says Janzen.

Smart niche strategy

“We see this niche where we can pick up $5 million, $10 million or $15 million products for Canada and not take any of that clinical development risk, instead we’re just taking commercial risk, which we mitigate by focusing on products that Canadian clinicians have directed us to, he adds.

Aequus’s relationship with Supernus provides a case study of how the company operates. Aequus is responsible for the regulatory submission and business activities for both products in Canada. Supernus, meanwhile, is set to glean milestone payments and royalties from product sales in Canada.

At the same time, the Aequus team is also working on its own pipeline of reformulated products.

The most exciting of these, according to Janzen, is an anti-nausea medication geared at pregnant women. Instead of taking a pill four to five times a day, Aequus has engineered a transdermal patch as an alternative with the help of its partner in the US Corium International – a leading patch manufacturer. “We are active in developing the product profile and development plan with Corium, but they do all of the technical work when it comes to creating our patch products,” notes Janzen.

Janzen is a reformed investment banker who departed from corporate finance to work for a decade as the CEO of Cardiome Pharma, a Nasdaq-listed drug development company that completed over $1bn in licensing deals and raised over $300 million, before setting up Aequus.

The revenue potential of each of Aequus’s drugs is upwards of $5m and its upfront costs for licensing drugs is limited mainly to the filing costs to secure the approval of Health Canada, which hover around $200,000.

“We kind of fit into a spot where there’s not a lot of competition,” says Janzen. “Canada is a small territory and it’s a very regulated market. That’s what has provided us with an opportunity. For lots of big companies, any product that can’t do $50m or $100m in revenue just doesn’t meet their threshold.”

Eying future profits

Aequus had a $666,243 loss in the second quarter but in the same three-month period, it reported its fifth consecutive quarter of revenue growth, reporting sales of $377,855. Last August, the company also closed a secondary offering, bringing in $775,000 to fund its runway costs. And by 2021, Janzen’s target is to have more than $20 million in yearly revenue. Turning a profit is not far away.

“We’d like to get the business profitable and see that happening in the not-to-distant future,” he says. “When you’re spending money on development, clearly that affects profitability. But our base business is close to break-even at this point and we expect to push through that.”

“We want to get to a spot where we don’t just get by, but we can self-fund a couple of projects a year,” he adds.

Health Canada demands a review process that can last at least 10 months, and usually a clinical study. Then there is the laborious process of getting reimbursed by the various Canadian provinces.

“It can be a frustrating road,” he says. “For the commercial products that we have in Canada, the first part involves meeting the requirements of Health Canada and the second part involves getting reimbursed. You have to negotiate with each province which can be very complex but we have an experienced team and some wins under our belt and are confident we can be successful with future products

Janzen’s team is streamlined, with a core group of about 20 employees. The company’s chief operating officer, Anne Stevens, previously worked with him at Cardiome Pharma and spent five years with Bayer HealthCare, while Chief Commercial Officer Ian Ball was previously the CEO of TeOra Health, a specialty pharmaceutical company with a focus on ophthalmology that was acquired by Aequus, and also served as the global head of Life Cycle Management at Novartis for 10 years.

Still in its early days of development, the team at Aequus is selective about the drugs they choose to include in their pipeline. But looking ahead, Janzen wants to level the playing field for Canada in the world’s drug game.

“When you think about the really expensive but also really successful rare disease biologics that are available in the US, they rarely make it into Canada for pricing reasons,” he laments.

“Companies are making corporate decisions not to bring certain assets into Canada just because they don’t want to accept the lower price. That happens all the time. All the time.”

Opportunities Down Under

Janzen is looking to do bigger deals for drugs that might yield sales of $10m to $15m. He’s also contemplating expanding into Australia.

“Everything I said about Canada, you could say about Australia. The same model would work in Australia,” he says. “It’s a small market that gets overlooked in the same way as Canada does. And like Canada, it’s a huge country by land mass, but 85% of the population lives in six cities.”

“That’s an area that we spend a lot of time looking at it,” he adds. “We’re just waiting to find the right person to build our expansion around.”

Contact Ellen Kelleher at ellen@proactiveinvestors.com

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