A path to be replicated
For Tehrani, the nearly US$60 million raised in the IPO was proof that his “rational” approach to drug development had entered the mainstream of the pharmaceutical industry. He then raised over US$300 million in additional follow-on rounds, further confirming the growing value of the company.
Unfortunately, it’s a path too few Canadian VC-backed businesses have followed. Between 2013 and 2018, only 11 of these companies were acquired for over $200 million, and only 18 of them successfully completed an IPO.
As Canada’s most active venture capital investor, BDC Capital has been tackling the issue by evolving its direct investment strategy to ensure later stage companies have access to uninterrupted growth financing. The Bank is also modifying its indirect investment strategy to help create larger private sector funds that can write bigger cheques.
Zymeworks is a case in point. BDC Capital’s Healthcare Venture Fund led a US$61.5 million round of mezzanine financing to support Zymeworks in 2016. BDC’s healthcare investment team has since formed a new healthcare venture fund with a focus on precision medicine, called Amplitude, where they continue to build and grow globally competitive companies like Zymeworks.
Staying focused on the bigger dream
Tehrani readily admits Zymeworks has had its fair share of growing pains, citing lean middle years and one point when the company’s bank account dwindled to $300.
“We were waiting on a financing round and a tax cheque from the government, hoping it would not be delayed,” he recalled. “It would have been easy for us to give up and scale down, but we stayed focused on the bigger dream, and did what we had to do to survive and get the deal done.”
It would have been easy for us to give up and scale down, but we stayed focused on the bigger dream...
Throughout the lean years, the company built its technology platforms, courted customers, and evolved its business model. “We wanted to build a business model that was not binary, that is, dependent on one product’s success,” Tehrani explains.
There were two potential revenues streams: One from licensing Zymeworks’ technology, the other from developing drugs in its own pipeline. “If one worked, our investors would be happy. If both worked, they would be ecstatic,” he says.
Pharma deals continue to grow after IPO
By 2011, all of Tehrani’s hard work started paying off when Zymeworks announced its first research collaboration with industry giant Merck & Co. Since then, larger deals on even more favorable terms and deal structures have followed.
“It got everyone’s attention that we continue to strike such high-value deals with the largest pharmaceutical companies in the world,” Tehrani says.
To date, the company has signed deals with nine pharmaceutical companies, some being the largest in the world. These partnerships include 46 potential shots on goal, totaling nearly US$8 billion in potential future revenue for Zymeworks.
The company has also continued to advance its own cancer-fighting drugs through the clinical trial process. The two drugs presently in clinical trials both have blockbuster potential.
A talent for explaining big ideas
The Iranian-born Tehrani earned his bachelor’s and master’s degrees in biochemistry in the United States, then moved to Vancouver to attend the University of British Columbia as a Ph.D. candidate in 1997, falling in love with the city and his studies.
Don’t let anyone shoot down your idea because they are scared or envious, but if they ask questions, listen and consider.
Tehrani soon realized his skills complemented those of his fellow graduate students. “I am not afraid to talk to anyone… A lot of the really good scientists were the exact opposite and just wanted to do science,” he explains. “It seemed like a winning combination. I might not have the scary, crazy ideas, but I know how to understand and represent the folks who do.”
As he completed his doctorate in microbiology and immunology, Tehrani saw the need to bring a computational approach to biotech problems. Tehrani teamed up with fellow lab-mate Anthony Fejes to brainstorm ideas. Based on concept alone, a trio of angel investors contributed $120,000 for Tehrani and Fejes to start Zymeworks.
Don’t get in your own way
Tehrani credits his team and investors for much of the company’s success and believes entrepreneurs can get in their own way. “You are your own worst enemy when you think of a thousand reasons not to do something. Don’t let anyone shoot down your idea because they are scared or envious, but if they ask questions, listen and consider.”
Although Tehrani relishes his company’s current position, he says getting there was not easy. “It is challenging to motivate a team and keep it together when nobody knows or cares who you are. You can’t sugarcoat the truth and you have to show a willingness to do something.”
“If you are successful, inevitably everyone will be taken care of—investors, employees, and customers. I don’t see us as successful yet. Success will be when we send patients home to their loved ones.”