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Bigger not Always Better: Larial Proteomics Endures Homelessness, Proteomics Downturn, and Recession

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By Tony Fong

In a world in which instinct instructs that to become better a company must get bigger, Larial Proteomics has taken the opposite approach.

The strategy, adopted by founder and CEO Jeffrey Charuk, has so far enabled Larial to remain afloat even as other proteomic-service firms closed down or abandoned the discipline.

To be sure, Larial, a protein separations and analysis company, has had a bumpy ride since it was founded in 2001. It has had to move twice, including once when its landlord collapsed financially. It has also had to weather the bottoming out of the proteomics market, which took out many other proteomics service companies.

And most recently Larial saw its revenue fall 40 percent last year. The company blamed the lackluster performance on the global recession, which it said forced some of its clients out of business and others to pull back on their spending.

But Charuk's motto is "Survival, not success," and his goal is not to build a proteomics empire, but rather to keep Larial small and choosy about the work it does for clients.

The strategy may result in lower revenue, but it also lowers overall costs.

"When you talk about growing a business, what is it exactly you mean?" he told ProteoMonitor this week. "Grow it in profitability for sure — but grow an infrastructure and its associated liabilities? Isn't that what happened with most of the other defunct biotechs that started when we did?"

If a company generates $500 million in revenue, he said as an example, but its expenses total $505 million, "What's the point? I'd rather have a $1 million business that costs $250,000 to run."

And despite the sharp drop in revenue last year, Larial's business model allowed it to still make a profit, Charuk said, though he declined to elaborate.

Larial ended 2009 by landing a deal with Ecostyle Animal Care, a Dutch pet food company, to investigate its manufacturing process and identify any safety and health issues.

Larial, based in Toronto, remains a completely self-funded company that has never had any venture capital funding, a source of pride for Charuk and a reason why it has managed to keep its doors open, he said.

"This is the whole problem with the biotech industry: Scientists don't want any of their skin in the game," he said. "Now, investors don't want any of their skin in that game either."

He has invested in his own company, taken responsibility for it, and grown its capabilities, he said. "Better it's my financial hazard than someone else's. …There may be some financial bumps along the way but at least they're more manageable than having to deal with a large business having many vested interests."

Early History

Larial was founded in May 2001 amid the groundswell of excitement that accompanied the creation of a working draft of the human genome a year earlier. Like other proteomics service firms such as ProteEx, Oxford GlycoSciences, and Proteomic Research Services, Larial hoped to capitalize on the potential of genomics and its related research areas.

For its first three years, Larial was based out of Canadian biotech firm Cangene's operations in Mississauga, Ontario. But when Cangene decided it needed its space back to re-establish good laboratory and good manufacturing practices, Larial was forced to move out and into space in the Mississauga Technology Business Accelerator incubator. After one year there, however, it again was on the move when the incubator collapsed.

Eventually Larial settled into the MaRS Incubator in 2005, which is now its current home.

Larial's core expertise, according to its website, is in separations sciences and analytical sciences. For separations work, it uses technologies such as electrophoresis, HPLC, fast protein liquid chromatography, centrifugation, and affinity chromatography.

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Analytical technologies the company uses include mass spectrometry, ELISA, SPR biosensing, and Western immunoblotting.

While it has worked on developing its own technology, Larial's focus, Charuk said, is on "creating intellectual property for our clients."

Among the first clients Larial had was the fermentation industry, "which I consider the primordial biotechs because they use yeast to generate a product," Charuk said.

Companies such as the brewer LaBatt were interested in Larial's ability to profile the yeast proteome and to determine the vitality of the yeast cells. If the yeast doesn't act properly, the brewers will either have a "slow vat or they can have a stuck fermentation or they can have a poor fermentation," Charuk said.

One of the immediate problems Larial encountered was that for industrial fermentation applications, organismal proteomes are "extremely unstable and can't be easily analyzed," Charuk said. "Organisms like yeast respond to loss of nutrients such as sugar and amino acids by instantly autloysing themselves."

Larial addressed this by developing a proprietary reagent called FixElix, which "effectively blocked fermentation yeast autolysis, thereby immortalizing its proteome to enable reliable separation science and analysis," he said.

In the early days, Larial had to rely on a large academic client base to prove its technology and capabilities in order to woo industry clients. Once that started happening, it began shifting its focus more toward the commercial sector, but with biotechs and pharma going through their own gyrations, Larial once again had to look to the academic and government sectors for business.

These included the Structural Genomics Consortium, an effort based out of the University of Toronto devoted to determining the 3D structure of human proteins with relevance to diseases such as cancer, diabetes, and other metabolic disorders.

The company has managed to secure work from pharma and biotech firms, though, because of continued outsourcing of their proteomics and protein-analysis research. Citing confidentiality issues, Charuk declined to name any clients.

Much of the work, he said, is evaluating technologies that pharma and biotechs are interested in licensing. Larial also does biomarker work for them.

Regardless of the clients, Larial has always gone after project-related work rather than single-job assignments. "We've never encouraged single sample submissions to the company," Charuk said. "Companies come to us with a specific problem and the key is to develop an effective scientific algorithm to solve that problem. … These tend to be milestone types of contracts."

"We're not a pick-and-post type of company," Charuk added. Such companies base their business on high-volume, low-margin jobs, "and we stay away from that work because we know it's fraught with difficulty. I learned that [from] running a core facility. …[For] much of this type of work, you never produce a result. You don't produce a sample because the sample is insufficient."

One way the firm has been able to keep its costs down is by running what it calls a lean operation. It has a staff of about seven employees, about half of whom are full time. It also hires only post-docs — "We don't even hire on a technical level," Charuk said — and then trains them to be industry scientists.

The process is not easy, Charuk said, and encompasses training staffers to comply with standards and practices that may be overlooked in the academic environment but are essential in industry, such as maintaining confidentiality on work being done, and documenting their research rigorously.

The approach results in large turnover. Charuk said that that is not a problem, however, and is proud of the fact that Larial has become a launching pad for post-docs interested in moving into industry.

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Larial has a strictly defined set of procedures that new hires must follow. "It's plug and play," he said. "We can take a new post-doc freshly trained, we get them in here and within a few weeks, they've got it right. If they don't they can't stay, it's just very simple."

Being in MaRS, short for Medical and Related Science technologies, and in the Toronto area has also given Larial access to technologies it otherwise wouldn't, further holding expenses down. While the company has its own mass spectrometers, Charuk farms out its mass spec work because there isn't enough demand to maintain the equipment, he said.

Directing Web Traffic

The past year, Charuk said, has been difficult for Larial as, like other firms, it has had to deal with the economic downturn. Some of its clients ended up going out of business, and those who remained had to cancel some projects. That meant Larial had to reexamine its own business development strategy, Charuk said.

One change the company made was to its website. By putting in more keywords such as protein expression, purification, and analysis, its website has become more "Google-able [and] that allows us to run Google ads to direct potential customers to the correct landing pages. This is essential," he said.

As a result, visits to Larial's website have increased by 238 percent. Without any salespeople, getting traffic onto its website is crucial for Larial in order to attract new business.

Indeed, it was how it got the attention of Ecostyle Animal Care. The Dutch company did not respond to a request for an interview, but Charuk said that Ecostyle will be using Larial's services to evaluate the safety of its pet food products.

Pet food safety made headlines in 2007 when widespread reports of dogs and cats dying from eating melamine-contaminated food in the US led to recalls by about one dozen manufacturers, including major companies such as Purina, Hills, and Royal Canin.

Some accounts had the number of deaths in the thousands though the exact figure is unknown.

Larial's work with Ecostyle does not involve melamine, however, Charuk said. He declined to elaborate on specifics but said it involves investigating different steps along the food manufacturing process to identify potential safety issues.

"I think [Ecostyle] doesn't have the capabilities to do the type of analysis we're doing and actually document the differences different procedures," Charuk said. "For example, they can change their food processing procedure at will. The question is which one is the right one to use."

"Part of this initial investigation … is to identify the essential markers for a healthy product versus a non-healthy product," he added.

Larial also is working with zoos to monitor reproductive health in their animal populations, Charuk said, though he declined to identify them.

"Zoos don't have a lot of technical support and they're stuck in a rather difficult situation where they have a very diverse population of health problems," he said. "They can't just go to a larger supplier to buy a kit."

Going forward, Charuk said he plans to follow the same path that has kept Larial going for almost a decade.

"I don't want to get bigger because bigger mean less manageable generally," he said. While he acknowledges that being a small firm exposes it to risks that would be easier to withstand if it were bigger, he said that "the financial hazards have been there from the outset since I'm an entrepreneurial scientist. Nothing has changed except now we have sufficient capital equipment, a reliable home, and a good reputation."

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