By: Wayne Schnarr
INDUSTRY INTEL
CANADA’S HEALTHCARE TECHNOLOGY SECTOR What’s Hot & What’s Not There has been a surge in activity and investor interest in the Canadian healthcare sector in 2014.The following factors, all originating outside Canada, substantially influenced this surge:
• Rationalization of the pharmaceutical and medical technology industries will probably be a continuous process. Large companies are disposing of non-core and underperforming assets which are being acquired by global and regional players, including some Canadian companies. However, the larger companies are also licensing or acquiring the assets which they need now and over the next ten years to fill their pipelines. • IPO windows for U.S. biotechnology companies have occurred in an unpredictable manner over the last two decades. The IPO window during the last two years has allowed senior private companies to complete IPOs, including those by two Vancouver companies, Aquinox Pharmaceuticals and Xenon Pharmaceuticals. The IPOs and other major financings completed during this window gave companies three to four years of cash to reach major clinical or commercial milestones. • Moving head offices to lower tax jurisdictions triggered many headlines, action by U.S. regulators and substantial share price volatility for potential targets. Montréalbased Paladin Labs was acquired by Endo, following which Endo moved its global headquarters from the U.S. to Ireland for its lower tax rates. Auxilium planned to acquire Vancouver-based QLT for a similar reason but Endo will now acquire Auxilium, using its tax advantage to make the superior bid. • The Ebola outbreak in several African countries became a factor when it was carried back to the U.S. and Spain, and the developed nations realized they needed therapeutics. Whereas the African countries and WHO could never pay market prices for a vaccine or therapeutic, U.S. biodefence programs, especially BARDA, would fund both development and stockpiling of Ebola therapeutics.
12 BIOTECHNOLOGY FOCUS December 2014/January 2015
While biotechnology was very hot in U.S. markets during 2013 with an open IPO window, numerous follow on financings and rapidly climbing valuations, the activity in Canada was strong but not hot. There were no institutionally-backed IPOs – the last one in Canada was IMRIS in late 2007. Investors profited when several senior Canadian companies were acquired or taken private, among them: Atrium Innovations, Cangene, CML HealthCare, Medicago, OPMEDIC Group, Paladin Labs and Patheon. While the NASDAQ Biotechnology Index doubled in 2013, a group of 19 Canadian therapeutics companies had an average share price increase of 41 per cent (see quarterly blogs at http://www.bloomburton.com/blog/). A single event in 2013 may have triggered the surge and defined the focus of Canadian investor interest for 2014. Endo Health Solutions announced on November 5 that it would acquire Paladin Labs in a stock and cash transaction which valued Paladin Labs shares at C$77 and the transaction at about US$1.6 billion. Under the terms of the transaction, Paladin Labs shareholders received for each Paladin share: C$1.16 in cash, 1 share of Knight Therapeutics and 1.6331 shares of Endo, the latter valued at US$104.05 based on the closing price on February 28, 2014 when the acquisition was completed. For public companies, share price increases determine which companies and sectors are hot. The hottest Canadian healthcare group throughout 2014 has been the Therapeutics – Commercial group, where companies have revenues from approved drugs, many of which were acquired. Canadian investors are still generally risk averse, preferring to accept the commercial risk of this sector rather than the scientific and clinical risk of early stage companies.
