1. Second chance; New technology, and a new leader,give a boost to ConjuChem Inc.'s fortunes
Canadian Business
Monday, September 29, 2003
Section: Technology
Byline: Sarah Staples
Oh, to have plunked a chunk of change down on ConjuChem Inc. lastwinter. Back then, the Montreal biotech
firm's future > was uncertain to say the least; its shares (TSX: CJC) were worth a measly 31ó, less than a quarter of
the company's cash on hand. Even two months ago, exhortations to invest in ConjuChem di dn'texactly endear
David Dean, a biotech analystwith Sprott Securities in Toronto, to buy-sidecustomers. "I had people callingme
retarded, phoningmy sales guys to tell them that," says Dean,who recently upgraded his pick froma "speculative
buy" to justplain "buy." Adds a vindicated Dean: "It was hell then, but I'm sittingpretty now."
And how. An investment of, say,$10,000 in ConjuChem shares in March was worth nearly $130,000 in early
September. Analysts arefrantically initiating--or reinitiating--coverageof the now-hot stock,which nearly tripled in
valueto about $4 duringthe pastmonth alone.And in this fall'ssizzlingfollow-on market, ConjuChem is rumored
to be closeto pullingthe trigger on yet another round of equity financing,its second in less than six months.
Dean, whose firmhas an investment-banking relationship with ConjuChem that includes shareownership,credits
the firm's spectacular reversal of fortune to its new interimleader, biotech industry veteran Jacques Lapointe
(above). "He would have had multipleopportunities to do whatever he wanted, and ConjuChem is what he's
chosen," says Dean. "I think it brings a ton of credibility to the name."
ConjuChem was founded in 1997 with the purchaseof blood-related intellectual property from San Francisco-
based RedCell Inc.The assets were improved and refined, and eventually yielded a new technology for designing
less toxic,longer-lastingversions of proven drugs. The technology--Drug Affinity Complex, or DAC--is deceptively
simple:scientists join drugmolecules to a "linker" molecule, and this to a chemical bond called a "reactive
chemistry." Insidethe human body, the reactive portion seeks out and attaches itself to albumin,a protein that
makes up as much as 75% of blood plasma and is found abundantly throughout tissueand fluids.The resultis a
triple-combination drugthat features almostthe same potency and desired pharmaceutical effects as the original,
plus the advantages of albumin:it is distributed more evenly and predictably throughout the body, and remains
there for days instead of hours.
That led to a nifty business proposition:ConjuChemwould rescue experimental -stage drugs written off as unsafe
or too costly to develop, redesign them and give them a second chanceat commercial success.Investors loved the
plan.They poured about $65 million into thecompany, including$25 million in grossproceeds from an IPO on the
Toronto Stock Exchange in November 2000.And they licked their lips when then-CEO Robert (Duffy) DuFresne
signed up tier-one research partners that included British pharmaceutical giantGlaxoSmithKline."Of the
companies that went public in the 2000 field,itwas the darlingof all of them," recalls Dean."Everybody had a
'buy' on ConjuChem back in those days."
But enthusiasmfizzled after the firsttwo "rescued" drugs failed dismally in clinical trials.DAC:TI, designed to treat
blood clots associated with kidney dialysis,was modeled on a Glaxo anticoagulantknown as argatroban (Novastan)
that in the original formlasted only 30 minutes in the body and had been blamed for provokinglife-threatening
hemorrhages. ConjuChem's DAC form of argatroban sailed through initial safety tests, but didn't work as itwas
designed to duringa later PhaseII/III clinical trial.Thesame was true of DAC:Opioid, a painkiller derived from a
natural opioid peptide,or protein fragment, dubbed Dynorphin A. Initial testingon humans proved that the drug,
for patients with shingles or post-surgical pain fromhysterectomy and knee replacement operations,remained in
the body 10,000 times longer than the natural protein.Ultimately, though, it proved ineffective in dullingpain.
After test results for the two drugs were made public in July 2002,DuFresne left the firm,and deals with Glaxo and
others were abandoned.ConjuChem's market cap quickly fell froma high of more than $215 million to about $10
million.Its shares,which had already been under pressuresincethe tech bubble burst,plummeted 85% in a

2. month, and stayed there. "The stock went 'no bid,'" says Dean."For months, nobody wanted to buy it." The board
responded by appointingan executive management committee consistingof Lapointe, chief financial officer
Lennie Ryer and scientific leader Dr.Jean-Paul Castaigne,but the arrangement foundered. With littleprospect of
attractinga decent CEO, Lapointe agreed to step in as an "active chairman"lastNovember.
A former president and chief operating officer of BioChem Pharma Inc.,Lapointe had planned to settle into
comfortable semiretirement consistingof charity work,angel investingand appointments on the boards of several
Canadian biotechs,amongthem ConjuChem--in which he had taken a "sizable"position in 2001,when the stock
was at $6.50. He had made a fortune on Shire PharmaceuticalsGroup's $5.6-billion acquisition of BioChem that
year, the largestsuch deal in Canadian biotech history.Before that, as CEO of Glaxo's Canadian and British
subsidiaries,hehad overseen a staff of 15,000.And before that, he'd spent nearly two decades at Johnson &
Johnson. "The intention was not to go back to full-time leadership of an organization,"he says.
Still,where the Street perceived only weakness and failure,Lapointe sawreasons for hope. Although ConjuChem's
drugs hadn't worked, he believed in the underlyingtechnology. And fortunately, the company had $30 million
worth of convertibledebentures, courtesy of a deal that had closed weeks before the clinical failures cameto light.
In a difficultmarket,"money in the bank was a luxury most biotech companies probably didn'thave at the time,"
says Lapointe.
The new leader immediately cut staff to conserve capital,trimmingoperatinglosses by one-third. But the main
problem, as he sawit, was a flawed corporate strategy: ConjuChem's business model called for itto boostthe
number of promisingexperimental drugs it could offer by findingpartners to help pay the enormous costof
research.Collaboratorsfunded early rounds of testing for a drug they wished to engineer, and could negotiate a
licenceto take the compound forward. It was a "breadth" approach that yielded many DAC drugs. Too many, in
fact.
"DAC was being combined with a lot of peptides in different diseaseareas,with the hope that the odds would play
in our favor," recallsLapointe."But this was at the expense of a 'depth' strategy, where you really understand the
technology and know how to manipulateit in order to achieve a certain result.Even in the lasteightor nine
months, we've considerably deepened our knowledge of what works and what doesn't with DAC."
Lapointe's team also continued developingone of the survivingcandidates,DAC:GLP-1, designed to lower aberrant
blood-sugar levels in patients with Type II diabetes. At first,batches had to be recalled after human testing proved
the drug's formulation was unstable.
But the formula was remixed and testing resumed a few months before Lapointe assumed full control as interim
president and CEO on July 15. He next revealed positivepreliminary results for the diabetes drug and landed $12
million in stopgap fundingthrough a privateplacement, followed by the releaseon Aug. 21 of more detailed da ta
from the PhaseI/II clinical trial.
The stock surged to $4.15 by month's end. And itcontinues to trade heavily in anticipation of the next major
milestone: a PhaseII clinical programfor up to 450 diabetic patients beginningin October. Indications arethat
second-round results,due in the firsthalf of 2004,will be positive,too. Whereas commercially availableforms of
insulin control diabetes by indiscriminately loweringtheamount of glucosein the blood, DAC:GLP-1, which is
based on a natural hormone, induces the pancreas to secrete insulin only when a patient's blood sugar is
abnormally high.The drug has so far proven to extend the hormone's positiveeffects from five minutes to as long
as a week. And if the results of DAC:GLP-1's animal testingcan be duplicated in humans,itwon't justcontrol
glucose;it may guide levels back to "normal," and possibly even reverse the courseof the disease.
Lapointe is betting a blockbuster partnership deal for the Canadian drugwith a major pharmaceutical c ompany
won't be far behind. But it's a critical timefor ConjuChem. Lapointe needs to take DAC:GLP-1 pastPhaseII if he's
going to continue buildingthe company's credibility.He'll stay on as CEO longenough to make a deal happen, he
says,without offering specifics.

3. Meantime, with a market cap of $140 million and shares roundingthe$4 mark, the company looks poised to
capitalizeon its second chance. If the Street is right,Lapointe himself has turned out to be justwhat the doctor
ordered.