HOT BUTTON ISSUES
Canadian Life Science // by peter van der Velden
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HOT BUTTON ISSUES
Access to capital will be defining for many Canadian biotech companies in 2010
hen I was asked to write about a venture capitalists’ view on “hot button” issues facing the Canadian biotech industry, I initially considered many of the topics that typically drive the conversations amongst our partners, peers, and the CEOs in whom we invest: What will be the next big trend?; What will be the impact of healthcare reform in the US, particularly for new and emerging technologies?; Will big pharma continue to consolidate and/or broaden its scope beyond its traditional business model to cope with the challenges of the “patent cliff’ and lack of internal productivity?; How can we help our medtech companies more successfully cross the chasm from development to commercialization?; Is the current momentum in biotech M&A sustainable?; Are there better business models we need to consider in the financing of emerging companies?; Will there be a meaningful IPO window in 2010?; Will the pace of new biologic approvals at the FDA continue to grow and will biologics continue to emerge as an ever bigger proportion of those approvals? Unfortunately, it didn’t take much evaluation to come to the realization that all of those issues are currently taking a very big back seat to one critical issue in this country. For emerging private health and life sciences companies in Canada the defining issue in 2009 was access to capital and this will continue in 2010. This issue is so prevalent that while speaking at a luncheon address to the New England-Canada Business Council in January 2010, Industry Minister Tony Clement, in following up on a discussion about a funding gap for U.S. biotech companies, stated “We don’t have a funding gap in Canada, we have a funding chasm.” Having stated that access to capital is the hot button issue for 2010, I guess I should probably support that statement with some data. Let’s first take a look at where institutional money has historically been invested in Canada. From 2004 to 2008, private Canadian life science companies attracted close to $2 billion in new capital, with the vast majority of this capital flowing to early stage companies. In fact, during this period, funding levels for early stage companies pretty much followed the 10 per cent rule relative to levels in the U.S., with the real differential coming in terms of the
Funding Gap in Canadian VC – Health and Life Sciences 2004-2008 USA(M)*
Canada(M)*
% of USA
Shortfall
Total Invested
$38,708
$1,870
4.83%
$(2,001)
Early Stage
$9,463
$1,025
10.83%
78
Late Stage
$28,958
$846
2.92%
(2,050)
Rat of Late to Early Stage
3.06
0.83
Predicted Late Stage Funding ***
$28,958
$3,135
Short fall in Late Stage Funding
12 BIOTECHNOLOGY FOCUS MARCH 2010
$2,289
