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Sunday, November 14, 2004 - Page updated at 12:00 AM

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Flu-vaccine shortage a boost for little-known biotech firm

Seattle Times business reporter

ID Biomedical


Founded: 1991

Employees: 450, including 90 in Bothell

Headquarters: Vancouver, B.C.

What it does locally: Research, development and small-scale manufacturing of next-generation vaccines against flu, strep throat and bioterror agents

Ticker: IDBE (Nasdaq)

Top executives: Anthony Holler (CEO, in Vancouver) and Todd Patrick (president, in Bothell)

Financials:

2003 Revenue: $6.8 million (Canadian)

2003 Net Loss: $31.9 million (Canadian)

Stock market value: $780 million (U.S.), as of Friday close on Nasdaq

Stock performance: Up 40 percent since Oct. 5, when Chiron announced it couldn't supply half of the U.S. flu vaccine.

Todd Patrick was driving to a routine day of meetings around dawn on Oct. 5 when his cellphone rang. It was Anthony Holler, his partner in running a little-known biotech company, ID Biomedical.

"You're not gonna believe this," Holler told him.

He read aloud some stunning news: "Chiron will not supply flu vaccine to the U.S. this season."

They quickly realized two things: The U.S. public-health system was in turmoil from losing half its flu vaccine; and their company was in the right spot, at the right time, with a once-in-a-lifetime opportunity.

Just one month earlier, ID Biomedical took grief from many of its investors for paying $120 million for a money-losing flu-vaccine factory in Quebec.

But when a bacterial contamination crisis hit the nation's largest flu-vaccine supplier, ID's asset suddenly looked like a gold mine. Though licensed to supply vaccine only in Canada, the factory was one of the few sources in the world potentially able to provide a precious commodity for millions of Americans.

The maneuver to buy the vaccine plant was just the latest bit of shrewd timing for ID Biomedical. In the mid-1990s, it bought a tuberculosis vaccine and quickly sold it for a profit to a big company. In spring 2001, it bought a biodefense company just months before the terrorist attacks and anthrax scare. And this year, it bought the flu-vaccine factory before the shortage hit.

In position to be lucky

"Sometimes the harder you work, the luckier you get," Patrick said, in an interview at his Bothell office. "We had to put ourselves in that position to be lucky."

Until the morning of Oct. 5, the 13-year-old company had a lot in common with other unprofitable, struggling biotech companies. It was developing promising next-generation vaccines at a branch in Bothell, but years of testing lay ahead to learn if it had a winner. When the Chiron fiasco hit, however, ID Biomedical suddenly had a potential market for 1.2 million doses of vaccine it had expected to sell cheap or throw away for lack of a buyer.

This past week, the FDA inspected the Canadian plant. If it passes, a deal to supply vaccine to the U.S. government could be done within weeks. The contract could be worth $10 million or more this season, a lift for the cash-burning company.

It also could pave the way to greater future sales — ID plans to quadruple the factory's production, with an eye on permanently entering the U.S. market in 2007, or sooner. The company already has negotiated contracts with the Canadian government to supply vaccine to every Canadian in case of an epidemic.

Perhaps more importantly, by acquiring a factory that makes injectable vaccines, the company got its hands on cheap raw materials for its next-generation, higher-priced nasal-spray flu vaccine.

ID Biomedical's stock has surged more than 40 percent on the Nasdaq since the shortage was announced, propelling its market value to $780 million.

Sharing credit, blame

Holler and Patrick get most of the credit for piloting the company, and the blame for chasing a few failed long shots, such as an AIDS vaccine.

Patrick, 42, the company president, is based in Bothell, where ID now employs 90. Holler, 51, the CEO, is based at the Vancouver, B.C., corporate headquarters.

They are close — Patrick's children call his business partner "Uncle Tony" and Holler's kids call him "Uncle Todd." They ski, golf and vacation together. They live three hours apart, but they talk on the phone three to four times a day.

They play different roles. Holler is the gregarious, motivational, promotional face of the company, connected with investors. "Spend five minutes with Tony, and you get all charged up," said Mark Reddish, a company scientist in Bothell.

Patrick, a lawyer's son from Pullman, Wash., is a strategist, a negotiator, a sometimes pessimistic counterweight to Holler.

They get paid the same amount.

"We both know what we're good at, and we stick to it," Patrick said. "We listen to each other. We trust each other."

Outsiders give the company high marks. RBC (Royal Bank of Canada) Capital Markets, which has done investment banking for the company, said in a report last month, "We continue to believe ID is one of the better-managed companies in our research universe."

David Miller, president of Biotech Monthly, an independent industry newsletter in Seattle, said that among the 23 biotechs his newsletter covers, "[Patrick] is one of the more brilliant managers we've come across."

ID Biomedical started in 1991 in Vancouver, B.C., and at first it struck out. The company developed a test to spot antibiotic-resistant bacteria, but that didn't sell well. By 1999, ID shut down the diagnostics business and laid off most of its workers in Vancouver, B.C. It bet its future on developing new vaccines, and chose to do it in Bothell, where it would be easier to recruit talented American scientists.

Developing new products

Some outside the company thought that strategy was a dead end because vaccines are traditionally low-priced commodities and the markets are dominated by five big companies. But ID thought with advancing technology it could develop new products, such as a strep-throat vaccine, and charge higher prices.

Patrick had an insider's view on fledgling technologies — he ran the technology licensing office at UCLA. While there, he sold development rights to an experimental tuberculosis vaccine to ID Biomedical for $1 million.

Soon after, Patrick was recruited to join ID Biomedical. He started getting calls from bigger vaccine companies interested in buying the vaccine's rights. A year later, ID Biomedical licensed the technology to Aventis, the world's largest vaccine company, for $5 million.

With the cash, Patrick and Holler convinced the board of directors they could find more vaccines, develop them, and sign even bigger deals.

"That gave us credibility," Patrick said.

The company used the money to build labs in Bothell, recruit a small team of scientists and license an experimental strep-throat vaccine, which it is still developing. In 2001, it bought a Montreal company with nasal-spray flu vaccine that had spent years in development by the U.S. military.

Again, the timing in 2001 was fortunate. When the Sept. 11 terrorist attacks happened, ID Biomedical was suddenly on the U.S. military's list of biodefense contractors. Three months after the attacks, it won a defense contract to work on a plague vaccine.

By early 2003, ID Biomedical reported its nasal-spray flu vaccine protected all patients studied from getting fevers after direct exposure to flu. Its stock rose, and the company took advantage, raising $125 million.

Investors were begging for ID Biomedical to sign a partnership with a big vaccine company, the sort of validating event that would push its stock price ever higher. But Patrick said the prospective partners were driving the kind of bargain that would squash his company, so it walked away. Instead, ID Biomedical decided to buy its own vaccine factory from Shire Pharmaceuticals.

The company paid $120 million for the factory, and investors reacted by driving down ID Biomedical's stock. For one thing, it could expect about three years of regulatory testing before getting licensed for the U.S. market.

There was one other downside — shifting resources toward the injectable-vaccine factory meant ID would have to delay its promising nasal-spray flu vaccine.

But Shire, eager to focus on other parts of its business, even loaned ID Biomedical $100 million to take the factory off its hands. "It was an absolute sweetheart deal," said Miller, who owns shares in ID.

Bothell plant a key asset

ID Biomedical is still an unknown in the Seattle biotech club, and its profile among investors is higher in Canada than in America. But Patrick said it plans to remain a transnational company. He said the Bothell plant is a key asset — one on American soil, where the U.S. military can develop biodefense vaccines.

The company's ultimate goal, Patrick said, is to become a global vaccines producer.

Whether it can get there is still uncertain. If flu-vaccine shortages continue, and demand increases for bioterror vaccines, ID could take advantage.

Kevin Kelly, an attorney with Heller Ehrman who represents the company, said ID's executive team has been visionary and "has assembled the company block by block for years."

But he added, "Timing has a lot to do with the success of a rain dance."

Clever strategy and well-timed breaks sometimes aren't enough, Patrick said. Chiron, the leading flu-vaccine provider, was credited for being astute when, as vaccine prices climbed, it bought a British vaccine plant. Now it's under fire for creating the national shortage by failing to prevent bacterial contamination at that very plant.

Patrick is a longtime admirer of California-based Chiron, and used to call his company "Chiron Light."

"It's been bizarre to have them go through a problem, and have it benefit us," he said. "It's a hard business."

Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com

Copyright © 2004 The Seattle Times Company

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