Biotechnology Focus March 2011 by Promotive Communications

MARCH 2011

INSIGHTS FOR THE LIFE SCIENCE INDUSTRY

VOLUME 14, NUMBER 3

HOT BUTTON ISSUES

INSIDE:

ALL THE CRITICAL TOPICS:

Publication Mail Registration Number: 40052410

FLOW THROUGH SHARES, SR&ED TAX CREDITS AND CANADA’S CURRENT JOB CLIMATE

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contents MARCH 2011 – VOLUME 14 – NUMBER 3

HOT BUTTON ISSUES

SPECIAL SECTIONs

10 AND THE SURVEY SAYS

Readers respond and share their views on the industry’s hot button issues. (Compiled by Shawn Lawrence)

INNOVATION AND SR&ED TAX CREDITS SR&ED’s impact on our country’s bottom line. HOT (By Chris Bodnar)

BUTTON ISSUES

16 AT AN INFLECTION POINT

Lumira Capital CEO Peter Van Der Velden reacts to PricewaterhousCoopers recent report on the state of the industry in Canada. (By Peter Van Der Velden)

20 Flow-through shares,

DEPARTMENTS 6

Research news

Business corner

a made in Canada solution Now is the time to expand the flow-through shares program to Canada’s biotechnology industry. (By David Allan)

26 Calendar of events

22 Hiring trends in Life Sciences A current job analysis of the industry, who’s hiring, who isn’t and why. (By Paula Strasberg and Hebert Hess)

9 Business CORNER

BC company charged with breach of business agreement www.bioscienceworld.ca

28 The Last Word

BioTalent Executive Director Colette Rivet discusses how we can build on our bio-economy capacity. (By Colette Rivet)

MARCH 2011 BIOTECHNOLOGY FOCUS 3

PuBLISHER’S NOTE PUBLISHER/ EDITOR-IN-CHIEF STAFF WRITERS

Terri Pavelic Shawn Lawrence Christopher Rogers

Stay positive,

CONTRIBUTING WRITERS

Colette Rivet David Allan Herbert Hess

don’t be afraid to fail!

recently had the chance to attend the LSO President’s Awards gala. The night was a special one in so many ways, but was punctuated by Dr. Cal Stiller’s reception of the LSO Lifetime Achievement Award. His empowering speech left the room with the feeling of hope and visions of what the future holds for the biotechnology industry in Canada. Stiller spoke not only of the successes he has had in life but also of his failures. “I try to adopt Babe Ruth’s motto: Don’t let the fear of striking out get in your way.” He gave the example of three great speeches given in the 20th century by famous leaders, Churchill, Kennedy and Nixon, each of whom experienced both success and failure. Stiller said that our goal in life should be to leave the world a better place, and that takes a lifetime of trying. “Not only succeeding but trying,” he said. Stiller is an optimist and he wanted to leave the audience with that same sense of optimism, even in the face of what he called, “Deficits facing the government that would appear to be an obstacle to any great and audacious solution that would depend on them.” “Lives don’t begin and end with a project,” Stiller said. “We are lives, not projects.” Stiller’s words are timely. We cannot be afraid to forge ahead - continue to innovate, and better the country and the world through biotechnology. Companies recently featured in the pages of Biotechnology Focus such as Verisante show that breakthroughs in life science can happen and be commercially successful in Canada. This month’s Hot Button Issue is all about the solutions to the obstacles the industry is facing. We still face a lack of capital, and jobs in the industry are becoming scarce, but just as Stiller said in his speech, “…understand the road to success and learn from your past successes and failures then rise in the morning, with the faith that you can succeed.” To Stiller failure is always a possibility but in attempting something that is uncommon and transformational, even in failure, your goal is still noble and great. All is not lost either. Stiller said that in 1970, when Nixon declared his war on cancer, the results were not as expected. Cancer is still prevalent and we have not conquered it, but the benefits to science and in-particular biotechnology as a result of the attempt have been transformational. Solutions, can come in many forms. Some of the articles in this issue of Biotechnology Focus focus on access to capital, ﬂow-through shares, and SR&ED credits. But, it does help to be optimistic like Stiller, and in that regard we should all reﬂect on his closing words, and never loose sight of our potential and great successes: “…there is a solution to the valley of death. The economy will strengthen and deficits will end. And so, it is time to collectively welcome the night when regrets will not be tolerated but rather, we will dream dreams of great and glorious futures. Of nobel schemes and roads to success. To rise tomorrow with hope, enthusiasm, a plan, and with the courage to fail. And in the end - to make this province and this country a much better place. A better place because of what Biotechnology has and will contribute.”

Chris Bodnar

Paula Strasberg Peter Van Der Veldeni NATIONAL ACCOUNT MANAGER GRAPHIC DESIGNER CONTROLLER

Patricia Bush Elena Pankova John R. Jones

MARKETING MANAGER

Mary Malofy

CIRCULATION DIRECTOR

James Zammit

subscriptions@circlink.ca Tel 289-997-0711 Fax 289 997 8260 EDITORIAL ADVISORY BOARD najla guthrie, KGK Synergize; Pierre Bourassa, IRAP, Montréal; Brad guthrie, Alberta Advanced Education and Technology; carol Reynolds, Genome Prairie; ulli Krull, UTM; John Kelly, Erie Innovation and Commercialization; Peter Pekos, Dalton Pharma Services; Brad thompson, Oncolytics; darrell ethell, CanReg; John hylton, John H. Hylton & Associates; Robert foldes, Mentis Partners; colette Rivet, BioTalent; grant tipler, RBC; Randal R.goodfellow, P.Ag., Senior Vice President, Corporate Relations, Ensyn; Bob h. sotiriadis, LLB,a partner with Leger Robic Richard; dale Patterson, Genome Canada; darcy Pawlik, Syngenta Seeds Canada Inc; gail garland, OBIO; Barry gee, LifeSciences British Columbia Biotechnology Focus is published 10 times per year by Promotive Communications Inc. 24-4 Vata Court, Aurora, Ontario L4G 4B6 Phone 905-727-3875 Fax 905-727-4428 www.bioscienceworld.ca E-mail: biotechnology_focus@promotive.net Subscription rate in Canada $35/year; USA $60/year; other countries $100/year. All rights reserved. No part of this publication may be reproduced without written consent. Publications Mail Registration Number: 40052410 Return undeliverable Canadian addresses to: circulation dept – 24-4 Vata Court, Aurora, Ontario L4G 4B6 National Library of Canada ISSN 1486-3138 \ All opinions expressed herein are those of the contributors and do not necessarily reﬂect the views of the publisher or any person or organization associated with the magazine.

If you would like to order hard copy or electronic reprints of articles, contact Sandra Service 905-727-3875 x221 reprints@promotive.net

4 BIOTECHNOLOGY FOCUS MARCH 2011

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R & D NEWS

Schafer Group

Greener chemical reaction for pharmaceutical production awarded $50,000 in development funding from GreenCentre Canada

A key chemical process used by the pharmaceutical industry has the potential to become less expensive and more energy efficient, thanks to a green chemistry discovery at the University of British Columbia. Dr. Laurel Schafer, a professor of chemistry at UBC, has created a method and a compound that affects a crucial chemical reaction in drug production. Current methods of producing this reaction are costly because they are energy-intensive and require multiple steps that generate waste. Dr. Schafer’s technology reduces extra steps, is energy-efficient and reduces waste byproducts. It also uses less expen-

sive reagents, substances that react with other substances to produce chemical products. Recognizing the green promise in Dr. Schafer’s work, GreenCentre Canada has awarded Dr. Schafer $50,000 in proof of principle funding to pursue further development of her technology. GreenCentre’s funding will enable Dr. Schafer and her team to develop a variety of compounds, and to test their effectiveness in the production of real-world drugs. To date, GreenCentre has awarded more than $200,000 in Proof of Principle funding to eight researchers at seven universities across Canada. Funded projects include energy-efficient compounds for removing CO2 from industrial gas emissions, the development of organic superconducting polymers and a green method for removing harmful metals from industrial wastewater. GreenCentre expects to award up to 25 funding grants annually in support of technologies that have strong commercialization potential but require further basic research or testing before they can be reassessed for market value.

New nano-cellulose production method created in Canada Canadian scientists have produced an adaptable high-grade nanocrystalline cellulose (NCC) using a novel environment-friendly extraction process, which can be scaled-up for industrial applications. The National Research Council’s (NRC) Biotechnology Research Institute, in Montréal, sought a new method of separating this nanomaterial from standard cellulose. An older method using sulphuric acid was expensive, caused environmental problems, and was hard to adapt to industrial-scale production. So the institute developed a procedure that uses an oxidizer to produce a higher quality fibre called ‘carboxylated NCC’.

6 BIOTECHNOLOGY FOCUS MAR CH 2011

The technology is being used by Bio Vision Technology Inc based in Nova Scotia, which is supplying NCC to research institutions and companies exploring highvalue applications. These could include automotive panels, aircraft parts, paint, adhesives, resins, bandages and gauze. Stephen Allen, Bio Vision’s technology vice-president, said feedstock for NCC could be agricultural and forestry industry waste, adding that NRC’s approach is less expensive, cleaner, simpler and more amenable to scale up. What’s more, the final product is more uniform – each fibre is about 150 nanometres long and five nanometres wide – and therefore better suited for industrial applications.

Clinical Trials & Patents Aegera Therapeutics Inc. (Montreal, QC) releases encouraging survival data from the Phase 1 portion of its Phase 1-2 study of the novel targeted therapeutic, AEG35156, given in combination with sorafenib in patients with advanced hepatocellular carcinoma (primary liver cancer). The study, entitled “A Phase 1-2, Open-Label Study of The X-Linked Inhibitor of Apoptosis (XIAP) Antisense AEG35156 in Combination with Sorafenib in Patients With Advanced Hepatocellular Carcinoma,” is being conducted exclusively in Hong Kong. The interim data, derived from the analysis of the 13 patients treated in the Phase 1 portion of this trial indicates that AEG35156 not only appears to be well tolerated when given in combination with sorafenib, but may also prolong progression-free and overall survival when compared to historical data where patients were treated with sorafenib alone. Median progression-free survival of the Phase 1 patients was about four months and overall survival about 10 months. This data compares favorably with the median progression-free survival of 2.8 months and overall survival of 6.5 months noted in the sorafenib Phase 3 registration trial performed in the Asia Pacific region in a similar patient population.

Oncolytics Biotech Inc. (Calgary, AB) receives a No Objection Letter from Health Canada to conduct its Phase 3 trial examining REOLYSIN in combination with paclitaxel and carboplatin in patients with platinumrefractory head and neck cancers. This is the same trial that was agreed to by U.S. Food and Drug Administration (FDA), under the Special Protocol Assessment (SPA) process, the U.K. Medicines and Healthcare products Regulatory Agency (MHRA) and the Belgian Federal Agency for Medicines and Health Products (FAMHP). As previously disclosed, the randomized, two-arm, double-blind, multicentre, two-stage, adaptive Phase 3 trial will assess the intravenous administration of REOLYSIN with the chemotherapy combination of paclitaxel and carboplatin versus the chemotherapy alone in patients with metastatic or recurrent squamous cell carcinoma of the head and neck, or squamous cell cancer of the nasopharynx, who have progressed on or after prior platinum-based chemotherapy. All patients will receive treatment every three weeks (21 day cycles) with paclitaxel and carboplatin and will also receive, on a blinded basis, either intravenous placebo or intravenous REOLYSIN.

R & D NEWS Funds will help bring made-in-Canada bioactive paper to market

A research network developing Canadianinvented bioactive paper that can detect and ward off life-threatening bacteria and viruses such as E-coli and SARS has received $7.5 million from the federal government to help bring its products to market. The investment in the NSERC-Sentinel Bioactive Paper Strategic Network, led from McMaster University, was one of four funding recipients announced by the Honourable Gary Goodyear, Minister of State (Science and Technology). He was joined by Suzanne Fortier, president of the Natural

Sciences and Engineering Research Council of Canada (NSERC), at an event in Burnaby, BC, to award funds from the Strategic Network Grants Program. “This funding will help us transition several research developments in bioactive paper into marketable products,” said Robert Pelton, scientific director of Sentinel and professor of chemical engineering at McMaster. “This paper has generated enormous interest and Sentinel is working with industry partners towards pilot scale production of the sensors.” Bioactive paper uses chemical or biological impregnated paper to provide fast, easy and inexpensive detection of pathogens and/or toxins in food, water and air. For example, John Brennan, professor of bioanalytical chemistry at McMaster, has developed a toxin-detecting dipstick that can be used in the field to identify banned

organophosphates used on agricultural crops in some developing countries. Currently, it can take several days to ship crop samples to labs for testing by which time the product can be shipped. The Sentinel Bioactive Paper Network includes 28 researchers from 10 universities and five industrial partners, working in partnership with NSERC, the National Research Council, and Ontario Centres of Excellence. More than 50 graduate students, postdoctoral fellows and undergraduate students are involved in Sentinel research. Strategic Network Grants fund largescale, multidisciplinary research projects in targeted research areas that require a network approach and involve collaboration between academic researchers and Canadian-based organizations. The program seeks applicants who are established researchers with a solid track record in collaborative research, student training and grants management, and who demonstrate the leadership and other skills necessary for managing a complex, interdisciplinary, multi-institutional project.

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BUSINESS CORNER

Canadian Intellectual Property Office launches a PCT-patent prosecution highway program On Jan. 31, 2011, the Canadian Intellectual Property Office (CIPO) launched a new PCT-Patent Prosecution Highway (PCTPPH) pilot program. This patent prosecution highway (PPH) program is the latest addition to similar programs already in places with patent offices of many other countries, including the United States, Germany, Japan, South Korea, Finland, Denmark and Spain. The PCT PPH pilot project will last for two years. As with other PPH initiatives, the objective of the PCT-PPH pilot project is to allow applicants to obtain their Canadian patent more rapidly and more efficiently by significantly accelerating examination. However, this pilot is limited to PCT work products established by CIPO as the International Searching Authority (ISA) and/or the International Preliminary Examining Authority (IPEA), that is, the written opinion of the ISA, the written opinion of the IPEA or the international preliminary examination report.

CIPO applications entering national phase can benefit from this new PCTPPH pilot program. Where claims have been found allowable at the PCT level, the applicant can make a PCT-PPH request to CIPO for accelerated examination of a corresponding national phase application. CIPO will process requests for advanced prosecution under the PCT-PPH project free of charge but regular fees for requesting examination will continue to apply. CIPO’s goal is to provide a first action (allowance or first substantive report) for qualifying requests within 90 days. Typically, first actions can take from 18 to 33 months, depending on the field of the invention. On a related note, CIPO also announced recently the PPH pilot project with the United States Patent and Trademark Office (USPTO), will be replaced by a PPH agreement for an indeterminate period. The requirements and procedures of this agreement remain the same.

Theralase receives approval for product sales in Europe

Theralase Technologies Inc. has been granted notified body approval to place the CE mark on its TLC-1000 series of products, clearing the way for sale of its laser products throughout all 30 member states of the European Union (EU). CE approval is a mandatory approval stage in the sale of products to EU countries. It serves as a declaration that the product meets EU consumer safety, health and environmental requirements. “By possessing CE approval, in addition to our Health Canada, FDA and certain Latin American and Asian approvals, we are now able to sell our medical lasers to over 63 per cent of the world market (as measured by GDP). This presents a great opportunity for Theralase to expand our revenue generation capability beyond our present markets,” stated Roger Dumoulin-White, president and CEO of Theralase Technologies Inc.

Dealmakers Viterra Inc. (Calgary, AB) has priced a private placement of US$400 million aggregate principal amount of 5.95% senior notes due 2020. The notes, which will be guaranteed by certain of Viterra’s subsidiaries, were issued at a price of 99.481%, will pay interest semi-annually on Feb. 1 and Aug. 1 of each year beginning February 2011, and will mature on Aug. 1, 2020. The private placement of the notes is expected to close on or about Aug. 4, 2020, subject to the satisfaction of customary conditions. Proceeds from the private placement of the notes will be used to reduce borrowings under Viterra’s Global Credit Facility and for general corporate purposes.

n Advitech Inc. (Quebec City, QC) announces its intention to complete a non-brokered private placement with AgeChem Venture Fund, LP and Avrio Ventures Limited Partnership, each an insider of the corporation, for a total gross proceeds of $1,500,000. As part of the private placement, each of

8 BIOTECHNOLOGY FOCUS MARCH 2011

AgeChem and Avrio will acquire from the corporation a total of 15,000,000 units of Advitech at a price of $0.05 per unit for respective aggregate amounts of $750,000. Each unit will be composed of one common share of Advitech and one common share purchase warrant. Each warrant will entitle its holder to purchase one common share at a price of $0.10 until the date that is 24 months after the date of issuance of the warrants. The corporation will use the proceeds of the private placement for its working capital and general corporate purposes. Amorfix Life Sciences Ltd. (Toronto, ON) enters into a licensing agreement granting Biogen Idec exclusive worldwide rights to Amorfix’s lead amyotrophic lateral sclerosis (ALS) monoclonal antibodies. The antibodies have shown efficacy in animal models of ALS and Biogen Idec will now, at its expense, complete the development and prepare for clinical trials. Under the agreement, Biogen Idec will

receive exclusive worldwide license to develop and commercialize Amorfix’s Disease Specific Eptiopes (DSETM) anitbodies for ALS while Amorfix retains all rights for vaccines and diagnostics. Amorfix will receive an up-front payment of US$1 million and is eligible to receive milestone payments and royalties on sales. Other terms of the deal were not disclosed. Medicure Inc. (Winnipeg, MB) reaches an agreement with the lender under its secured debt financing agreement dated Sept. 17, 2007 to a further deferral of required payments of approximately US$2.3 million currently owing and an additional $2 million due as of July 15, 2010 (together approximately US$4.3 million) until July 23, 2010. The company is in discussions with the lender regarding its payment obligations in an effort to reach a mutally satisfactory resolution thereof in conjunction with any transaction that may result from the ongoing strategic review process, as previously announced on Jan. 13, 2010.

BUSINESS CORNER Med Biogene Inc. charged with breach of business agreement Vancouver-based life sciences company Med Biogene Inc. (MBI) has been charged in the Supreme Court for the County of NY with breach of agreement, violation of a confidentiality agreement and misuse of proprietary information, among other wrongdoings. The charges, brought by Signal Genetics LLC and its subsidiary Respira Health LLC, stem from MBI’s alleged breach of its agreement to grant Signal a not less than ten-year exclusive, worldwide license to use MBI’s LungExpress DX technology. Signal Genetics and Respira are providers of detailed personalized diagnostic results that assist cancer patients and their physicians in determining the best course of treatment. MBI’s LungExpress DX technology is a product complementary to Signal’s own products. On Jan. 28, 2011, the parties entered into a term sheet to grant an exclusive license to Signal. Under the provisions of the term sheet, MBI agreed not to negotiate or even discuss a similar transaction or a sale of MBI with another party during a period of exclusivity that would end on Feb. 4, 2011. MBI also agreed to continue to maintain the confidentiality of the information Signal had provided to MBI. The complaint alleges that MBI breached the agreement almost immediately after executing the term sheet and now apparently has reached an agreement with another company to grant it a license in breach of MBI’s obligations to Signal. The complaint requests judgment requiring MBI to grant Signal an exclusive, worldwide license to use MBI’s technology on terms set forth in the term sheet; damages of an amount to be determined; and further relief.

Québec creates seed fund for biotechnology The government of Québec has announced the creation of a seed fund for the biotechnology sector. The fund, called AmorChem, consists of $41.25 million from Investissement Quebec, FIER Partners and the FTQ’s solidarity fund. There’s also an $8.25 million investment from the private sector, of which $6.8 million has come from pharmaceutical giant Merck.

Late last year, the government announced the creation of Real Ventures, a $50 million fund that will invest in high-tech startups, and last month, Cycle Capital was launched with $41.5 million dedicated to develop new companies in the clean tech sector. The government hopes the investments will boost Quebec’s sagging venture-capital industry.

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MARCH 2011 BIOTECHNOLOGY FOCUS AM 9 2/9/11 10:00:13

HOT BUTTON ISSUES

Canadian Life Science //Compiled by Shawn Lawrence

Survey says:

We’re not out of the woods yet,

assistance. The sector’s main challenge is obviously still lack of capital. There are fewer and fewer investors willing to take a chance on our industry champions. Moreover there is a lack of comfort at the most senior levels of equity investors, and those that still remember that Canadian biotech is a complex field with a large graveyard of failures. Not all is bad with our SME’s, especially if you are a private company, the tax system is considered good with such programs like SR&ED’s. But even SR&ED’s alone aren’t strong enough to offset all the financial obstacles SME’s face and for public companies. For them, there is no SR&ED policy in place even though such a policy would help greatly. An interesting yet controversial notion raised by several responses to our surveys centred on the idea of implementing private health care. Specifically, Canada’s inability to export its new and improved goods and services is matched by its inability to implement its own homegrown technologies. Moreover if we refuse to use our own ideas domestically, how are we supposed to sell our ideas globally? In theory, privatizing health care would encourage the implementation of our own homegrown technologies, while at the same continued on page 12

into commercial products. As one reader explained, innovation is not the problem, it’s the process of commercialization and the ability to generate value from our innovations that causes us problems. This, he adds, is why we don’t rank very high on the innovation scale. It’s interesting to note that on the industry side, there was a definite feeling that Canada doesn’t make use of its own innovations. The potential for making a huge impact is there, but the results are lacklustre. By most accounts Canada is providing substantial funding in terms of grants to its innovators and this is perhaps why we’re scientifically innovative. But when we asked our readers how the business of biotech is faring in Canada, their response is that it is anemic. Overall, biotech is surviving here, but our SME’s much like in 2009, continue to feel the biggest pinch. Even big pharma has scaled back its operations in Canada. As far as financing goes, while times have improved since 2008 and 2009, it’s still a difficult task to find capital. With fewer biotech companies and difficulties to access cash, the outlook isn’t great and many of our readers suggest that companies are best served looking elsewhere to foreign markets for

his marks our sixth Hot Button our the happenings in and around the biotech and life science sector. Entering 2011, all signs were positive with biotech seemingly rebounding from the lows of 2009. Financing was returning to more normal levels and the companies that had weathered the storm appeared to be healthier than ever. However, it turns out the optimism that the worst was over was a bit premature. Based on the results of our latest Hot Button Issue survey, capital is as elusive as ever for our homegrown companies. Fear and caution as opposed to excitement and growth permeates through the sector. HOT Issue where we turn to you, BUTTON readers, to get feedback on ISSUES

C-Level Executives, Entrepreneurs, Biotech Companies, Contract Research Organization’s and other service provider perspective: In terms of innovation, Canada continues to enjoy rave reviews as a nation of brilliant scientists conducting groundbreaking research. While we go above and beyond in terms of coming up with great ideas, there’s a catch, we’re not very good at turning these ideas

C-Level Executives, Entrepreneurs, SME’s, CRO’s, CMO’s, Service Providers 1. Do you feel that government is listening to what the life sciences field is telling it?

2. How does Canadian Science Policy compare with other developed countries?

Yes: 19% No: 81%

Canadian Science Policy is: Excellent 3% Above Average 10% Average 47% Below Average 34% Poor 6%

3. What is the current job outlook for Canadian biotech? Excellent 0% Above Average 6% Average: 31% Below Average 33% Poor 30%

6% 3% 10%

19% 81%

10 BIOTECHNOLOGY FOCUS MARCH 2011

5. Do you find financing opportunities: Harder to come by: 77.5% Easier to come by: 3% The Same: 19.5%

Yes 23% No 77%

6% 3%

30%

34% 33%

19.5%

23% 31%

47%

4. Do you feel that the Canadian Biotechnology and Life Science sector is doing an adequate job of recruiting and retaining talent?

77%

77.5%

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federal/state average – helps create a cost-effective business environment. All of which make Ontario an ideal business location. That’s why the world works here.

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HOT HOT BUTTON BUTTON ISSUES ISSUES

Canadian Life Science

continued from page 10 translational research time create a market for our products. Many of our respondents want to see a dialogue • Give investors tax breaks based on amount invested across the country on how to adopt and • SBIR grants to ease the risk of technology implement innovative technologies as well as investors a multi-payer system that allows patients to pay out of pocket not only for “unnecessary procedures”, but also for necessary ones. The academic research HOT Another question we posed to our reader’s perspective : BUTTON ISSUES government was listening to was whether The business side of biotech isn’t the only HOT what the industry was trying to tell it. More one feeling the pinch of tightened purse BUTTON thanISSUES 80 per cent said no, while those that said strings. While many exceptional researchers yes, added that while government is listening, continue to be well supported and make a they are very slow in taking action. global impact in many areas, scientists at the No matter what the solution is to what ails early stages of their careers aren’t getting their Canadian biotech, there is no denying that piece of the proverbial financial pie. industry is in need of some positive momenIn all, 83 per cent of those who took our tum. It should be noted also that industry is survey said that they found granting oppornot looking to government to solve its prob- tunities harder to come by. lems entirely, but there are many ways govOne reader explained it as such: “The ernment can help. Here are some of the more downsizing of key government programs common answers we were able to gather: such as NRC and the changing of the funding • As much of a commitment to support model for NSERC, has made it harder for recommercialization as is given to discovery, searchers with a lower publication output to “reward your winners” get funding. Researchers at small universities • Adopt a flow-through share like vehicle have very small teams, therefore lower over• Open up SR&ED to small publicly traded all output than researchers at larger schools. companies The previous NSERC model was the envy of • Fast track clinical trials based on data from many other countries and this current model other jurisdictions is likely to ensure that research is eventually • Quicker response time of Health Canada conducted at only the larger schools.” and patent offices As another respondent explains, “the worry • Favourable reimbursement for Canadian is that we’ll start to lose a lot of scientists with innovations solid research but who have not yet reached • Provide incentives for universities to com- “rock star” status. Many young students are 6% 3% mercialize IP seeing the writing on the wall 6% and are leaving • Be open to facilitating capital formations, 10% the sciences for more lucrative and less stress30% 19% grants for companies conducting clinical ful careers in business, law or medicine.” 34% 31% studies, The reality is that outstanding researchers 81% R&D grants for universities for 47%

and research is going unfunded. Making matters more difficult is the fact that Life science companies through no fault of their own aren’t willing or able to hire co-op students because of the current economic climate. Related to this, 61 per cent said that they felt the Canadian Biotechnology and Life Science sector isn’t doing an adequate job of recruiting and retaining talent. In addition to raising their concerns several respondents suggested ways that government can help. Here are some of the more common answers we were able to gather: • Providing tax credits to companies that give these opportunities to students • Bigger grants, less piecemeal programs • Strategies for the development of strong partnerships between academia and industry • Strategies to enhance networking and collaborations among scientists across the country • Better equipment for universities for the purpose of training the next generation’s workforce Most importantly, if government truly wants research and innovation spun out of universities this message must be transferred to granting panels.

For more Best Practices information visit our COMMERCIALIZATION Web Portal at 19.5% 3% www.bioscienceworld.ca 23% 77.5%

77%

33%

Academia, Research Organizations and Research Institutions 1. What is the state of research and innovation in Canada? Excellent: 12% Above Average: 8% Average: 34% Below Average: 38% Poor: 8%

2. Do you feel that government recognizes the important role science, technology and innovation can play in the economy of the future?

3. Do you find granting and financing opportunities: Harder to come by: 83% The same: 14% Easier to come by: 3%

Yes: 51% No: 49%

8% 12% 38%

14%

8% 51%

34%

12 BIOTECHNOLOGY FOCUS MARCH 2011

49%

4. How does Canadian science policy compare with other developed countries? Excellent: 4% Above Average: 8% Average: 58% Below Average: 25% Poor: 4%

5. Do you feel that the Canadian Biotechnology and Life Science sector is doing an adequate job of recruiting and retaining talent? Yes: 39% No: 61%

4% 4% 25%

8% 61%

83%

58%

39%

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HOT BUTTON ISSUES

Canadian Life Science // By Chris Bodnar

Innovation and SR&ED tax credits

HOT BUTTON ISSUES

ver the past few years, Canada’s global innovation ranking has been called into question. The Conservative government, concerned with Canada’s poor results, has commissioned an expert panel to review Canada’s ranking and related innovation funding and support programs and to make recommendations for improvement. According to the Conference Board, Canada ranks 14th in a list of 17 peer countries. However, Canada’s funding of innovation ranks second among these countries. Canada’s pharmaceutical/biotech industry’s innovation performance mimics Canada’s overall ranking among the OECD countries. If Canada is providing substantial funding, why don’t we rank higher on the innovation scale and what can we expect from government programs to fund Innovation? The conference board defines innovation as “the ability to turn knowledge into new and improved goods and services.” In addition to this brief definition, I would add that the definition also includes the ability to export these new and improved goods and services. This is based on the fact that exports are one of the key criteria used to rank a country’s innovation performance. So why doesn’t Canada rank higher? Some comments have been made that our resource industries, which comprise a large portion of our GDP, have preserved their existing commercial production methods and have not advanced new processes. Others suggest having too small a domestic market to reach critical growth along with the difficulty in establishing a viable business in foreign markets as possible causes. These are excuses. The real questions are “What is needed to be done to improve innovation?”, and secondly, “What role does government funding play in this area?” When we look at countries that are successful, there seems to be both a consolidated vision and focus on innovation. The US does this in a number of industry areas, but countries like Switzerland have excelled in select areas of concentration, such as pharmaceuticals. Vision comes from leadership. Focus is the single minded effort of an organization to achieve its vision. Who, then, is responsible for setting the framework for innovation leadership and vision? In his recent State of the Union address, the U.S. 14 BIOTECHNOLOGY FOCUS MARCH 2011

President urged investment in various sectors to increase innovation. The government can go a long way to establishing a vision and call to action. Many other government leaders in other countries are delivering the same message. To implement innovation requires resources, including funding. In Canada, the largest component of the $7 billion in annual funding for innovation is the Scientific Research and Experimental Development (SR&ED) program, which is now providing annual funding of approximately $4 billion. Other funding comes from targeted government grants. A 1997 study published by Finance Canada and Revenue Canada concluded that the federal SR&ED credit generates $1.38 in incremental R&D spending per dollar of foregone tax revenue. A further study in 2007 (Parsons and Phillips) concluded SR&ED tax credits generate a net economic benefit. Apart from positive econometric studies, funding of this nature can be greatly accelerated with the right framework in place as well as vision and leadership. There is currently a large push in the US to increase their R&D tax credit program. The Information Technology and Innovation Foundation have prepared a report on the significant limitations on the current U.S. R&D tax credit. In addition, draft legislation has been pending to increase the credit. In the UK, Lord Richard Dyson submitted a report which is currently being considered by the Tory government. In the report he is urging the government to increase the tax relief for small and medium sized businesses developing new and improved products and processes. France introduced a new R&D tax credit program in 2009 which provided for refundable credits for virtually all French companies of 30 per cent (and in some cases up to 50 per cent) of qualified expenditures. By definition, SR&ED tax credits in Canada fund two main areas: basic and applied research and experimental development. However, experimental development is where most claims are made under the SR&ED program. To make a claim under this category, a business needs to be creating or improving a new product or process. Extrapolating the SR&ED tax credit program funding of roughly $4 billion for experimental development each year, Canadian companies are creating or improving

Canadian Life Science

France introduced a new R&D tax credit program in 2009 which provided for refundable credits for virtually all French companies of 30 per cent (and in some cases up to 50 per cent) of qualified expenditures.

HOT BUTTON ISSUES

In terms of why SR&ED is important and how it fosters innovation, the following comments are provided; 1. Tax credits are a fair and more objective manner of distributing funds to business as opposed to government grants. My experience is that grants tend to provide little certainty to business that funding with be received. Grants tend to be underfunded for the applications received with a small percentage of applicants actually receiving funding leaving the decision to the government to decide who should receive funding. HOT 2. The SR&ED tax credit program is doing exacting what it is intended; focusing BUTTON companies on developing new products and processes. ISSUES

products or processes at a total cost of approximately $17 billion. There is one statistic that I believe is very important to keep in mind when discussing SR&ED tax credits in Canada: each year roughly 25,000 companies claim for SR&ED. Of the $4 billion given out each year, roughly 1,500 or 6 per cent of the companies making claims, receive roughly $3.2 billion or 80 per cent of the SR&ED funding. The remaining 23,500 companies receive $800 million of the SR&ED funding. This statistic is comparable with the claims made in the US and other countries giving out R&D tax credit funding. The other important point to keep in mind is that governments provide incentives in part to deal with economic inequities. Small companies have a difficult time obtaining bank loans to finance receivables let alone product or process development. Small companies have to finance innovation from profits whereas large companies have access to capital markets. Thus, it is important to keep in mind that these two groups face different issues and receive substantially different levels of government funding.

3. If the government wants a practical simple solution to trimming the SR&ED funding, eliminate the 18-month filing requirement and reduce it to six months. This time frame is when corporate tax returns need to be filed. Further, if a company does not see the value in filing early to receive funding or tax savings, then it either does not require funds or its business processes need improvement. 4. Our firm’s experience is that Canadian companies, especially small and medium sized businesses, will opt to develop their own product or process as opposed to purchasing the technology, which is a more prevalent course of action in the U.S. 5. There is very little statistical information provided by the conference board on how small business supports and contributes to innovation. Generally all statistical information is sampled from large business. It is also interesting to note the expert panel reviewing innovation and the SR&ED program have no small business representation on the panel. 6. Virtually every country in the OECD, ( U.S., UK, France, Australia, Japan and Ireland) is moving, or recently has moved, to increase their R&D tax credit program. Apparently Germany is set to bring in a R&D tax credit program soon. R&D tax credits are the choice to assist innovation in OECD countries. Further, India and China have R&D tax credit programs. 7. From working in other countries our firm has come to appreciate how competent Canadian firms are at developing new products and processes on time. I have heard this comment from engineers and other professionals who have worked in other countries like the US and UK. If we have a weakness I think marketing, selling and other commercialization issues need to be addressed.

My specific recommendations to foster innovation and obtain the largest return from the SR&ED tax credit program are as follows; 1. Create more industry clusters within defined geographical areas. When we think about successful innovation clusters, areas such as Silicon Valley always come to mind. France has set up approximately six clusters around the country to foster innovation, aided by a very generous R&D tax credit. 2. Create trade associations within these clusters provide more leadership and provide them with some funding to assist in the marketing and selling of products in foreign markets. 3. Have one or two large companies carrying out significant R&D anchor the cluster. 4. More export guarantees and assistance in this area would help. 5. Keep the SR&ED program intact especially for small businesses, to compensate for inequities in access to financing.

8. The comment we receive most from our clients is that SR&ED funding helps them undertake technically risky projects that they would not otherwise undertake, as well as being able to hire more skilled labour.

To say that the SR&ED tax credit program is not working is suggesting that simply funding an initiative will accomplish an objective. Without vision and leadership any funding method or vehicle will not achieve as strong results as when accompanied with such vision and leadership under a clear framework. Given virtually all other countries are implementing and improving their R&D tax credit program, it would be a step backward to reduce or impair the SR&ED program. The SR&ED program is achieving what it set out to do, providing assistance to fund technically risky development. What is required are strategies to improve and assist in the commercialization of these innovations within the global technology marketplace.

For more information on Canada’s SR&ED Program, visit www.bioscienceworld.ca MARCH 2011 BIOTECHNOLOGY FOCUS 15

HOT BUTTON ISSUES

Canadian Life Science // By Peter van Der Velden

At an Inflection

Point:

The Challenges and Opportunities in the Canadian Life Science Sector Demand Leadership

Figure 1: Capital Formation in Canada, 1991 to 2009 $ 4,500,000,000 $ 4,000,000,000 $ 3,500,000,000 Public Pensions

$ 3,000,000,000

LSIF Other

$ 2,500,000,000 Public Pensions

$ 2,000,000,000

Insurance Companies General Partners Foreign Sources

$ 1,500,000,000

Endowments Corpora ons

$ 1,000,000,000

Corporate Pensions $ 500,000,000

Corporate Pensions

06 20 07

20 00 20 01 20 02 20 03 20 04 20 05

$ 0 19

Regarding the venture capital question, I recently spoke at a conference on the state of the VC industry in Canada where numerous participants argued one or both of two hypotheses – namely that the “VC model is broken” and that information and communication technology (“ICT”) is a much better sector to invest in than life sciences or medical technology. As a 22-year veteran of the industry, I had to take umbrage with both of these statements as they simply are not true and are not anchored by facts or data. Rather than espousing my view of the VC model, let me share some insights from a recent publication by two preeminent scholars of venture capital and private equity. Steven Kaplan from the University of Chicago’s Booth School of Business and Josh Lerner from Harvard Business School refute the notion that the VC model is broken:

That’s not to say that during the past 10 years Canada hasn’t also had a unique set of issues and problems. However, if you peel the onion, the Canadian issues really aren’t that difficult to understand. Among other factors, in this country we had too many VC managers and operating CEOs without deep domain expertise or operating experience; a lack of focus within VC firms leading to the pursuit of generalist strategies; a bias to regional investment strategies and economic development mandates as opposed to best-in-class investing; an overabundance of companies pursuing incremental rather than innovative technologies; an oversupply of capital often managed by relatively inexperienced managers; and a lack of financial accountability and alignment (i.e. tax-driven widows’ and orphans’ money rather than capital from sophisticated investors). continued on page 18

ricewaterhouseCoopers, in their recently released report on the state of the life sciences industry in Canada, nailed it when they described the industry as being at an “Inflection Point.” As a result, I fundamentally believe that the actions, or perhaps inactions, of stakeholders this year will define the Canadian industry for at least the next ten years. Poised for growth or positioned for failure, the choice is ours. While there are many issues I could tackle in the context of this inflection point, the PwC report highlighted respondents’ belief that raising capital would be the single biggest challenge in the coming two years, and that raising capital would be the key issue for the Canadian industry to overcome if it is to emerge as a global competitor. I will look to tackle this topic by addressing two challenges/opportunities: 1. How best to rebuild the venture capital engine in this country, and 2. How to engage effectively the largest corporate beneficiaries of healthcare spending in Canada (big pharmaceutical, biotechnology, and medical device firms) in the innovation economy.

We see little that makes us believe that the VC model has changed or is broken. As far as we can tell, we are leaving a period with slightly above average capital and slightly below average returns for a period of well below average capital. We would not be surprised to see this followed, perhaps quickly, by a period of above average returns.1

19 91 19 92 19 93 19 94 19 95

HOT BUTTON ISSUES

16 BIOTECHNOLOGY FOCUS MARCH 2011

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GSK Biotechnology Focus March 2011 ad.indd 1 (K ZPaL! )SLLK! n/a

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HOT BUTTON ISSUES

Canadian Life Science continued from page 16

Virtually all of these issues have been addressed in more mature markets like the U.S., where limited partners, venture capitalists, and the companies they finance have lived through numerous investment cycles. If we want to revive the industry in Canada, then perhaps we should strive to better understand the behaviours, strategies, team profiles, and structures of the top VC firms around the world and model those before we look to implement programs that will fundamentally distort the venture capital market once again. For those who have heard the Lumira story, you will know that we lived through a HOT significant BUTTONchange process that focused on adopting best practices to be best-in-class. This process, while extremely painful to execute, ISSUES has rewarded our investors with a 38 per cent IRR on capital invested since our transition began five years ago. It can be done. It just takes the will, leadership, and a commitment to excellence. Now let’s address the second VC myth: ICT investments outperform life sciences investments. Again, there is no data to support this oft espoused view. In fact, Lerner cites data that shows that with the exception of the “bubble years” of 1996 to 2000, healthcare investments have outperformed ICT investments. Separate data shows that from 2007 to 2009, in terms of liquidity, M&A exits from venture-backed life science companies have accounted for 42 per cent of cash distributions to limited partners ($8 billion) despite representing just 26 per cent of all VC dollars invested. More importantly, virtually all the drivers that have supported the outperformance of the life science sector remain entrenched or have improved in the past 24 months, but that is fodder for another article. Unfortunately, simply debunking these commonly held views is not enough to reengage the corporate and institutional investors that have withdrawn from the VC asset class over the past eight years. Figure 1 shows that in recent years institutional investors such as pension plans and corporate investors have virtually abandoned the asset class. So where to turn? In mining, tax policy – specifically flow-through shares – has been boon for the industry, but unfortunately seems to come with no accountability or management alignment and does nothing to address the structural issues described earlier. Despite the emergence of a viable commodities industry that no longer needs this support, the government continues to subsidize investment in this sector to the tune of hundreds of millions per year. The venture capital arena has also seen tax policy as an enabler of significant capital formation, pre-

Figure 2: Annual and Cumulative R&D Expenditure Deficit

18 BIOTECHNOLOGY FOCUS MARCH 2011

dominantly through the labour-sponsored investment fund program from 1995 to 2005, but without accountability, alignment (managers rarely invested any significant amounts in their own funds), and other market-driven control mechanisms, investment best practices often did not prevail and abuses were not uncommon. As an alternative to these prior approaches, I would like to see a focus on reengaging sophisticated institutional investors (pension funds, endowments, and trusts) that have the investment infrastructure and evaluation processes required to identify objectively and support bestin-class managers. Furthermore, these groups have the capabilities and clout to enforce industry best practices and ensure alignment along the venture investment continuum – from limited partner to venture capital firm to investee company. At the same time I would like to explore how we put in place incentives that encourage the for-profit players in the Canadian healthcare system to more actively participate in building and supporting the local innovation economy. Many of the largest pharmaceutical, biotechnology, and medical device firms in this country are simply sales organizations for foreign multinationals and often do not actively pursue research, development, and commercialization in Canada. Given the diversity of these stakeholder groups it is clear that to engage each will require a distinctly different approach.

Proposal 1: To encourage institutional investment in venture capital funds, the federal and provincial government could offer pension plans, endowments, and trusts a guaranteed rate of return (for example 2 per cent) on investments in venture capital funds, with the caveat that the institutional investor and the government agency split the investment return above the threshold rate. Enacted over a finite period of two to three years, an initiative like this could catalyze over $1 billion of capital formation in Canada. Under this structure, investment decisions would be made and funds would be managed by the private sector, and it would give venture capital managers and institutional investors the opportunity to build new relationships. Pension funds, endowments, and trusts would continued on page 24 Figure 3: Pharmaceutical Company Revenue and R&D Expenditure in Canada

TOH NOTTUB SEUSSI

Reply Card #4856

HOT BUTTON ISSUES

Canadian Life Science // by David Allan

CANADA’S CAPITAL MARKETS INFRASTRUCTURE – HOT BUTTON ISSUES

THE ENVY OF THE WORLD

anada is the envy of the world as a financial market for natural resource companies and the Toronto Stock Exchange’s commitment to the highest regulatory standards assures investors worldwide. Fifty years ago, when most needed by the natural resource industry and well prior to this past decade’s explosion in demand for natural resources, an exceptionally foresightful public policy determination by the Canadian government to foster and promote the exploration for, and development of, natural resources led to the introduction of the “Flow-Through Share” scheme. This mechanism permitted mining and oil-and-gas companies to credit investors with the operating losses they generated as a consequence of the extremely long cycle from discovery through development to the commercialization of the metallurgical or gaseous mineral. The consequence of this brilliant public policy, initiated and maintained during an extremely long period of stable commodity prices, is credited with junior mining companies now accounting for greater than 60 per cent of all exploration expenditures in Canada and with total exploration expenditures rising over eight-fold over the 10 years ending 2007 to $2.6 billion annually. So successful has this program been that it was enhanced in the year 2000 by adding a layer of SuperFlow-Throughs” (Mineral Exploration Tax Credit) and continues today notwithstanding the soaring commodity prices that probably make

Bill Downey – “Which Is Shining More – Copper or Gold?” KITCO.COM - July 28, 2009.

20 BIOTECHNOLOGY FOCUS MARCH 2011

programmes of this nature unnecessary for that industry. Indeed, this program was so successful it was recently extended to companies developing renewable energy processes. The Canadian life-sciences industry is very similar to the natural resources industry in the decade-long cycle between discovery, development and, ultimately, commercialization and is also very similar in perhaps being at the very stage that the natural resource industry was those many years ago when it became the focus of the public policy initiatives that encouraged and caused investors to support small and medium-sized enterprises in the exploitation of our natural resources. Further, the life sciences have very much the prospect of being the critical engine of employment and growth as our natural resources diminish - the very meat that feeds good public governance. Where natural resources are the consequence of happy geographical good fortune we enjoy a National Resource – that of scientific medical discoveries – that exists not as a happy accident but as a consequence of current public policy at the federal and provincial levels. This, National Resource results from a monumental investment of billions of dollars that Canadian taxpayers have funneled into the discovery of new molecules and new medicines through the support for basic research at universities across this nation. Tragically, what is missing, is the “demand side” for these discoveries that result from those billions of dollars of “Supply-side” research.1 The

Canadian mining exploration and flow-through financing

Canadian Life Science

“supply side” of innovation and scientific discovery is extremely well looked after and has been for many years. However, just as a mineral deposit unexploited is valueless so equally is a medical discovery unexploited valueless. The mechanism for converting discovery into value – value both for Society that has paid for it and patients who urgently look forward to the consequence of discovery – is exploitation or development. More urgently, unlike passive natural resources, scientific discovery is a wasting asset so that every moment during which a discovery that has already been paid for by Society is undeveloped the greater the prospect that that expensive discovery will be as valuable as the dust. There are no programs in Canada of particular consequence or merit that support development of the National Resource of Science.2 This paper proposes that the genius that is the Flow-Through Share program be applied to the National Resource of Science for precisely the same reasons that it was applied to the natural resource sector at the time that it was created. Those reasons are that we have these valuable assets sitting unexploited and that their successful exploitation would lead to substantial economic activity, domestic employment and replacement of imports. There can be no more compelling reasons for public policy than these. While governments struggle with the appropriate public policies for science and innovation they often, and regretfully, are seduced into the business of direct investment by creating funds and grants where existing and highly efficient capital markets are sufficient for all these activities if the proper tax policies are employed to encourage investment. By, in part, usurping the early-stage capital provision process and, in another part, not introducing policies specifically favouring investment in targeted sectors of the capital markets to promote the financing of high-risk companies the Government of Canada and many of the provincial governments are, instead, making investment decisions attempting to pick the winners. Such activity is very unlikely of success because of the huge risks in this business and duplicative and redundant because informed investors already exist who may be mobilized rapidly, efficiently and inexpensively through wise and sound tax policies. The application of the Flow-Through Share program to companies involved in the development of our National Resource would lead directly to a rapid and massive expansion of a capital market of depth and consequence for life-science, or “biotech”, companies in Canada.

Life sciences venture capital activity

HOT BUTTON ISSUES

Currently, in market’s contrast to the capital markets appetite for companies exploiting the natural resources, the capital markets for biotech’s are shallow and insufficient for the provision of the quantity of capital that even now is required to convert the asset of existing discoveries into products useful for human health. HOT In the specific exampleBUTTON of our company, YM BioSciences, probably the most ISSUES actively-traded Canadian biotech stock, 50 per cent of our pre-public capital (approximately $35 million) came from Europe; our IPO was on the London Stock Exchange (with a sympathy listing in Toronto only because our head office was here even if none of the IPO investors were) and we were the only biotech IPO in Canada for 18 months on either side of our successful issue – a 36-month wasteland! Since our IPO in 2002 we have completed a total of nine financings and acquisitions totaling approximately $225 million in value of which only one acquisition was Canadian and it, together with Canadian institutional participation in our financings, accounts for approximately $25 million of our total. Fully 95 per cent of the daily trading in YM shares is in New York.

The mechanism for converting discovery into value – value both for Society that has paid for it and patients who urgently look forward to the consequence of discovery – is exploitation or development.

continued on page 27

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MARCH 2011 BIOTECHNOLOGY FOCUS 21

HOT BUTTON ISSUES

Canadian Life Science //

By: Paula Strasberg, Ph.D., Herbert Hess, M.Sc.

CURRENT JOB ANALYSIS: CANADIAN BIOTECH

The Canadian Biotechnology industry represents only a portion of Life Sciences disciplines in Canada. It employs about one third the number HOT of BUTTON people in the pharmaceutical area and about one quarter the number ISSUES of people in the medical and assistive devices sector. Nevertheless, the Ontario and Québec regions are home to the third and fourth of the largest North American biotechnology sectors. However, the economic environment has been challenging for the last few years, a fact well known to readers of this publication. Access to capital remains the foremost concern of most biotech companies. Whereas Canada has an amazing pool of innovative, talented, and educated researchers, the lack of commercialization has affected the health of many companies. Acquisitions are another story. Recently Roche purchased Genentech and Sanofi Aventis is poised to acquire Genzyme. Since a major economic indicator is employment, a study was done in order to delineate the current job situation in the Canadian biotechnology sector. Data for this research study was obtained with the aid of the online version of Contact Canada (Biotechnology edition, http://www. contactcanada.com), an up-to-date and dynamic picture of most Biotechnology and related service companies in Canada. This data was collected between Feb. 1 and 15th, 2011, and reflects the situation as it existed at that time (In fact, this website today may reflect slightly different numbers). This publication (Contact Canada) makes a clear distinction between actual biotech and actual service companies. Biotech and service companies were examined separately. We looked at the companies (excluding the Contact Canada categories for Academia, Government, Hospitals, and Non-Profit) by province and for each

company, and looked at each company’s career section on its web page to find and categorize the positions. In Table 1, we list the number of biotechnology and service companies in Canada from 2008 to 2011, and by province for 2011 only. The numbers for 2008 to 2010 came from the print versions of Biotechnology (Contact Canada), as the online version reflects the actual companies at this current time only. The conclusion here is that there has been a decreasing trend in the number of both types of companies in Canada. Note that the number of biotechnology companies in ON, QC, BC and AB combined (254/303) represent 84 per cent of the total biotech companies in Canada, so companies in these provinces were used for our further studies. Table 1 also illustrates the categories used by Contact Canada – as mentioned, we looked only at “Public, Private, Subsidiary, Other” categories, not at university, government, hospital, or non profit categories – when assessing the numbers of open positions ( Table 2 below). For the study in Table 2, jobs in the “Public, Private, Subsidiary, Other” category were separated into seven different functions: (1) R & D, (2) Engineering, (3) Q/A and Regulatory Affairs, (4) Operations/Manufacturing/ Clinical Trials, (5) Financial/ Legal/ HR/ Administration (abbrev = FHLA), (6) Information Technology, and (7) Sales/Marketing. From Table 2 it can be seen that only 10 to 23 per cent of all companies listed jobs on their websites. These jobs totaled approximately 550 jobs across the country. Positions listed exclude entry level positions. It is important to point out that there were four categories of companies, only one of which (4) was suitable for our study. (1) Companies that had no websites on Contact Canada were omit-

table 1: COMPANIES IN THE CANADIAN BIOTECHNOLOGY SECTOR FEBRUARY 2011

Biotechnology Companies Private/Public Subsidiary, Other

Service Companies Government Hospital, University

Non Profit

Year

Location

Total

2008 2009 2010

Canada Canada Canada

652 396 400

2011FEB

Canada

360

303

ON QC BC AB SK MB NS NB,NF,PEI

130 86 59 30 18 14 12 21

102 71 53 28 10 12 10 17

17 11 6 2 6 2 2 4

11 4 0 0 2 0 0 0

Private/Public Subsidiary, Other

Government Hospital, University

Non Profit

477

809 620 607

Companies taken from ContactCanada Biotechnology on-line February 2011 22 BIOTECHNOLOGY FOCUS MARCH 2011

Total

534

279 118 39 18 19 17 25 19

HOT BUTTON ISSUES

Canadian Life Science

ted – they were either too small to include or including them would have required calls to CEOs or HR departments, a task too labour intensive to carry out repeatedly until someone actually replied. (2) Companies not listing jobs (either representing a hidden job market, simply asking for resumes in the absence of real positions, or advertising positions on external job boards but not on their own web sites (too difficult to track)) were also left out. (3) Companies which are part of the sector but did not choose to be listed in Contact Canada. (4) Companies listed in Contact Canada on line and displaying career opportunities on their web sites served as the source for our input data. (Companies have been known to list phantom jobs in order to look productive but there was no way of assessing this.) Another modifier was the fact that several very large engineering and IT firms had chosen to be listed in the service part of the biotechnology directory – their positions numbered in the hundreds across Canada, but were in information technology or engineering – construction, oil and gas, and a variety of non-biotechnology endeavours. These opportunities were omitted as they would have skewed the findings in a confusing and non-illustrative manner. Having said this, the top three categories where positions were found in the services companies (Table II) were FHLA (Financial, HR, Legal, Administration), Operations/Manufacturing, and Sales/Marketing. These represented 26 per cent, 24 per cent, and 17 per cent respectively of the total jobs. For the biotech companies the top three areas where positions existed were Operations/Manufacturing/Trials, Sales/ Marketing, and Research and Development, representing 34 per cent, 18 per cent and 18 per cent respectively of the total opportunities. A previous survey on employment in the sector by one of the authors (Herbert Hess) was presented as part of a keynote address at MaRS at the start of Biotechnology Week September, 2010 (Presentation entitled

“How the Life Science Job Market Has Changed and What to Do About It”). At that time results indicated that companies in both categories wanted more students to be trained in later stages of the research and development cycle rather than only at the early basic research and development stage. Based on this study, the top job categories in the service company arena corroborate these earlier survey findings. In the biotechnology category, operations/manufacturing/clinical trials, R&D was weighted equally with sales/marketing, both of which were pretty much only half of the jobs in operations/manufacturing/trials. This is interesting as a survey can tend to be somewhat subjective, compared HOT to the tallying of published numbers. BUTTON One of the ideas for revitalizing the sector is to createISSUES a fund where the Government guarantees the rate of return to investors. The fund, not the government, decides who receives money. By guaranteeing the rate of return to investors, the risk profile would change. Canada’s Biotechnology industry requires $1 to 1.5 billion, per year of private investment to sustain the existing sector in the long-run (www.biotech. ca/uploads/biotecanada%20prebudget%20submission%202011.pdf). This may be one way of assisting junior biotech companies that require a tremendous amount of time and capital to reach profitability. Another idea is to let foreign companies invest in the sector, the downside being that they would expect to take the intellectual property back home. This could become quite complex. Due to the cash crunch, many companies have folded and a lot more may follow if the funding does not return to this sector.

For more Careers information visit our COMMERCIALIZATION Web Portal at www.bioscienceworld.ca

table 2: BIOTECHNOLOGY SECTOR JOBS FEB 2011

Service Companies Total #

R&D

Eng

QA/Reg

Op/Mfg Trials

FHLA

S&M

% Cos. w/jobs

BC AB ON QC

14 80 160 40

0 13 17 11

0 1 9 0

1 2 14 1

7 22 35 8

0 23 39 13

0 2 23 3

6 17 23 4

12 23 13 10

Total jobs % of All jobs

294 100

41 14

10 3

18 6

72 24

75 26

28 10

50 17

Biotechnology Companies BC AB ON QC

43 19 123 80

11 7 17 13

2 0 2 8

4 3 16 7

7 1 61 20

7 1 14 10

3 2 0 2

9 5 13 20

Total jobs % Total jobs

265 100

48 18

12 4

30 11

89 34

32 12

7 3

47 18

18 14 19 14

FHLA=Finance, HR, Legal, Administration Companies taken from ContactCanada Biotechnology on-line Feb 2011 Jobs taken from company websites MARCH 2011 BIOTECHNOLOGY FOCUS 23

HOT BUTTON ISSUES

Canadian Life Science

continued from page 18

To further this country’s innovation agenda, we also need to engage more effectively the pharmaceutical, biotechnology, and medical device firms that market and sell products to Canadians. First, some background: In 1988, in exchange for market exclusivity, the pharmaceutical industry agreed to invest 10 per cent of Canadian sales revenues in research and development in Canada, and an agency known as the Patent Medicines

have the opportunity to participate in an asset class that has the potential to generate significant returns with very limited risk. Such a program would in fact have the potential to achieve a triple bottom line: real profits from fund performance, real tax revenues from a growing high-value labour force, and the generation of a sustainable innovation economy HOT in Canada. BUTTON ISSUES

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Pricing Review Board (PMPRB) was established, in part, to monitor compliance with this objective. From 1988 to 1997, the R&D to sales ratio for Rx&D member companies grew from 6.5 per cent to 12.9 per cent, and R&D expenditures consistently grew year over year. Unfortunately, in 2003 the industry began to fall short of the 10 per cent ratio, and it has not recovered since. In 2009, the R&D investment deficit relative to the target was $433 million, and the cumulative deficit from 2003 had risen to $1.6 billion (Figure 2). During the same period, Rx&D companies enjoyed substantial revenue growth (Figure 3). It appears that the parent companies of some Canadian subsidiaries are seeking to maximize shareholder value by investing in high-growth economies to gain market access. However, compliance varies between firms. Companies like the sanofi-aventis Group and GlaxoSmithKline consistently meet or exceed the 10 per cent threshold, while some other companies reporting to the PMPRB invest less than 2 per cent of sales per year. In fact, if you remove compliant firms from the count, the 10 most non-compliant firms generated a deficit in excess of $600 million in 2009 alone.

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Proposal 2: Change the PMPRB guidelines so that direct investments in innovative Canadian pharmaceutical, biotechnology, and medical device companies and VC funds domiciled in Canada that invest in the sector qualify as R&D for measurement purposes. Furthermore, government could consider strategies that provide favoured formulary access and pricing to compliant firms while subjecting non-complaint firms to price reductions or an innovation tax on existing and new products as long as they fall below the R&D threshold. Engaging the leading pharmaceutical, biotechnology and medical device firms more deeply in the Canadian innovation economy will likely require better coordination among the provincial and federal health and innovation ministries. The key here is one standard for all, with an enforcement process that does not exist today. Like the first proposal, the goal here is to create a truly win-win scenario. Under this proposal, multinational pharmaceutical firms would be given more ways to achieve the 10 per cent target that are directly aligned with building a domestic innovation economy. Big

Canadian Life Science

We are truly at an inflection point. The solutions outlined herein and those proposed by some others are achievable with leadership, hard work, and a commitment to bettering this country. pharma would be investing in businesses and VC funds that have the potential to generate significant returns, and by doing so they would be supporting and building the innovative products they so desperately need to replace the $100 billion of revenues derived from products coming off patent over the next three years. Non-compliant players would be more incented to act like market leaders, and could no longer coattail on the investments of their peers. A 10 per cent commitment to R&D spending is not a high bar relative to other OECD countries, and it is an objective for which even the new chairman of Rx&D is publicly advocating. For governments, laggards will actually drive down healthcare costs and provide funding to support initiatives such as the OETF and OVCF programs

in Ontario that are designed to support and invest in innovative companies in the country. Finally, for operating companies and VC firms dedicated to the sector, there will be a substantial pool of new capital from aligned and value-added partners. This solution would be potentially accretive to all players in the healthcare innovation economy, and similar initiatives are at work in other jurisdictions around the world. We are truly at an inflection point. The solutions outlined herein and those proposed by some others are achievable with leadership, hard work, and a commitment to bettering this country. These strategies have the potential to allow Canada to emerge as the global healthcare leader it is truly positioned to be. Failure to act, failure to provide leader-

HOT BUTTON ISSUES

ship, and failure to think and act on behalf of future generations of Canadians will result in this country squandering literally billions of taxpayer dollars and immeasurable amounts of human capital. During a dinner I recently attended, a former Prime Minister said “achievement occurs when challenge meets leadership.” We clearly have the challenge. The question is do we have the leadership to HOT accept the challenge? BUTTON

References

ISSUES

1. http://www.wamda.com/web/uploads/ resources/It_Aint_Broke_-_Steve_Kaplan_ and_Josh_Lerner.pdf Peter van der Velden is the President and CEO of Lumira Capital, Canada’s largest life science and medical technology investor.

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CALENDAR

MARCH 2011 March 11 Stem Cell Talks 2011 Symposium Venue: Toronto, ON Web: www.marsdd.com/events/

March 13-18 PITTCON Conference & Expo Venue: Atlanta, GA Tel: 1-800-825-3221 Fax: (412) 825-3224 Email: info@pittcon.org Web: www.pittcon.org

March 14-15 Bio-Europe Spring 2011 Venue: Milan, Italy Web: www.ebdgroup.com/bes/ index.php

APRIL 2011 April 6-8 ACETECH Symposium Venue: Whistler, BC Tel: (604) 683-5852 Fax: (604) 683-3879 Web: www.acetech.org

April 11-12 Pharma Strategic Forum: New Alliances, Collaboration, and Open Innovation Venue: Toronto, ON Web: http://www.conferenceboard. ca/conf/11-0070/agenda.aspx

April 30-May 3 ACRP 2011 Conference & Expo Venue: Seattle, WA Web: www.acrp2011.com

MAY 2011 May 4-6 BioPartnering India Venue: Bangalore, India Web: http://www.techvision.com/ bpi/

May 8-11 World Congress on Industrial Biotechnology and Bioprocessing Venue: Toronto, ON Tel: (202) 962-6630 Email: worldcongress@bio.org Web: www.bio.org/worldcongress

26 BIOTECHNOLOGY FOCUS MARCH 2011

May 24-27 Canadian Society for Pharmaceutical Sciences Symposium Venue: Montreal, QC Tel: (780) 492-0950 Fax: (780) 492-0951 Email: bberekoff@cspscanada.org Web: www.cspscanada.org

Company & Advertiser Index COMPANY

Page

Advitech Inc............................................. 8.................................. AgeChem Venture Fund.......................... 8..................................

May 31-June 1

Amorfix Life Sciences Ltd......................... 8..................................

BioFinance Venue: Toronto, ON Tel. 1-866-342-4933 Fax: 1-866-342-4934 Email: mstinson@biofinance.ca Web: www.biofinance.ca

Aegera Therapeutics Inc.......................... 6..................................

JUNE 2011 June 19-23 Drug Information Association 47th Annual Meeting Venue: Chicago, IL Web: www.diahome.org

June 27-30 BIO International Convention Venue: Washington, DC Tel: (202) 962-9200 Fax: (202) 488-6301 Email: info@bio.org Web: www.convention.bio.org

SEPTEMBER 2011 September 17-23 National Biotech Week Web: www.biotech.ca

OCTOBER 2011 October 5-6 BioContact Quebec Venue: Québec, QC Web: www.biocontact.ca

Avrio Ventures......................................... 9.................................. Bereskin & Parr............................................. 9.............................4852 Biogen Idec................................................... 8...................................... Biomed..........................................................19............................4856 Biopharmacopae Design.............................................................. International Inc...................................... 9.................................. BioTalent Canada......................................... 2.............................4849 BioTransfer.................................................. 25............................4858 Bio Vision Technology Inc........................ 6.................................. Brady.............................................................. 7............................. 4851 Glaxo Smith & Kline.....................................17............................4855 Eppendorf.................................................... 32............................4860 Lawson Health Research Institute...........21............................4857 McMaster University................................ 7.................................. Med Biogene Inc...................................... 9.................................. Medicure Inc............................................ 8.................................. Metrohm....................................................... 5.............................4850 Mississauga Economic . .............................11............................4853 National Rearch Council...............................................................

NOVEMBER 2011

Biotechnology Research Institute............ 6..................................

November 16-19 Medica-World Forum for Medicine Venue: Dusseldorf, Germany Web: www.medica.de

November 28-30 Canada Renewable Fuels Summit Venue: Calgary, AB Web: www.greenfuels.org

OICR................................................................13............................4854 Oncolytics Biotech Inc............................. 6.................................. POI..................................................................31............................4859 Theralase Technologies Inc...................... 8.................................. University of British Columbia................. 6.................................. Viterra Inc................................................ 8..................................

Canadian Life Science

HOT BUTTON ISSUES

continued from page 21

References:

The absence of interest, evidenced by the absence of specific programs, in encouragWhere natural ing investment in biotechnology in Canada’s resources are the conestablished capital markets is tragic and acsequence of happy counts for our story above. geographical good The introduction of three straightforward, fortune we enjoy a simple and inexpensive programs would reNational Resource sult in the achievement of the two overriding – that of scientific objectives – reversing the “supply-side” immedical discoveries balance in our public policy for our National – that exists not as a Resource and in creating a vigorous capital happy accident but market. The first of the programs that should as a consequence of be implemented immediately is extending current public policy the existing Flow-Through Share scheme to at the federal and the life sciences; the second is to use persuaprovincial levels. sion, influence, economic encouragement or directive to Canadian pension funds to invest in the sector where the very long cycle that these funds have for their liabilities closely match the very long, 10-15 year, cycle that the development of scientific discovery requires. The third would be for tax policy to be as innovative as the innovations that governments call upon us to produce - and that could be achieved by recognition of the greater risk that National Resource investors take when compared to natural resource investors. One mechanism to balance the excess risk would be for capital losses to be deductible against income generally. We call on governments to be no less innovative than they call upon us to be. Indeed, Canadian legislators should be embarrassed that it was not us but President Obama who most recently took the lead proposing to permanently scrap capital gains taxes on investments in small business. We should be leading in innovative tax structures as we have done for 50 years in having created the world’s finest structure for mining finance because our National Resource is renewable and our intellectual capital will be here long after our diminished and wasting natural resources.

1. In recent history the Canadian Foundation for Innovation $3.7 billion endowment fund allocated 0.17 per cent of its expenditures to fund business disciplines. 2. At the same time the less than 3% of Canada Research Chairs were in Management Studies. Scientific Research and Experimental Development (SR&ED) Tax Incentive Program is thought to be a valuable program. Without access to risk capital pre-commercial technology companies are left out and SR&ED is of value only to large, taxable companies. Flow-through shares create capital for companies - SR&ED returns a portion of capital to companies that already have it Mr. Allan has been Chairman of YM Biosciences’ Board of Directors since 1994, and was Chief Executive Officer of the company from 1998 – 2010. In addition, Mr. Allan is a Director of Synthemed Inc. (medical devices) USA and DiaMedica Inc. (diabetes therapeutics) Canada. In 1992 he founded the Knowledge-Based Industries Group of a Canadian investment banking firm, organized as the first in Canada involved in financing, analyzing and creating strategic alliances for life sciences and information technology companies, where he was Executive Director until 1998. Mr. Allan was formerly a governor of The Toronto Stock Exchange, a member of the Awards Selection Committee for the Networks of Centres of Excellence in Canada, working group Chair of the Ontario Biotechnology Advisory Board and a member of the Board of Trustees for the Ontario College of Art and Design. Mr. Allan is currently a member of BIOTECanada’s Emerging Companies Advisory Board.

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THE LAST WORD

By Colette Rivet

Building

our bio-economy capacity

Colette Rivet, Executive Director, BioTalent Canada

o realize the enormous economic potential of the bio-economy— in terms of job creation, GDP and competitiveness— Canada has to continue to create stronger connections between companies seeking workers and individuals seeking work. It has to raise awareness of the bio-economy so that young people see opportunities for themselves in it, and so workers in traditional industries recognize the field is much wider for them than they are used to thinking. And perhaps most importantly, Canada has to not only make the necessary linkages but also back them up with a support structure that bridges identified gaps and builds capacity. BioTalent Canada is striving to create that support structure and build that capacity—for example, by facilitating the transfer of skills from traditional sectors (e.g., manufacturing) into the bio-economy, and through initiatives such as the BioSkills Recognition Program, which helps employers identify and access industry-recognized BioReady™ talent.

We have the skills: let’s use them For nearly a decade, we’ve been hearing concerns about the decline of traditional manufacturing. In Canada, thousands of jobs have disappeared. There is a sense in some circles that the world has changed too much for this country to remain competitive in the manufacturing arena. Yet bio-economy companies across Canada are actively looking for skilled workers with manufacturing experience. Regardless of company specifics and the uniquenesses of a given product, good manufacturing practices apply. The jobs have not vanished; many simply have migrated to new kinds of businesses. In other words, right now, today, opportunities are available to Canadian manufacturing workers. And unlike reskilling people to learn how to work in wholly different industries—which can be time-consuming and expensive—individuals can make the easier transition from one kind of manufacturing situation to another. 28 BIOTECHNOLOGY FOCUS MARCH 2011

The challenge is to create pathways for workers to follow. BioTalent Canada recently launched a new biomanufacturing skills transfer initiative to do just that—creating linkages between workers, organizations supporting those workers and bio-economy firms, and providing tools and resources to help workers and prospective employers gauge the alignment between existing skills and bio-economy work requirements. This forging of connections is critical not only in biomanufacturing but in fact throughout the bio-economy. Employers, educators, policymakers and job seekers need to be brought into each others’ networks so that awareness of opportunities can rise and capitalizing on those opportunities can happen faster. It’s a matter of building the capacity of the bio-economy as an economic engine.

Linking employers to talent Over the past year, BioTalent Canada has focused many of its efforts on doing just that. In 2010, the organization launched a new BioSkills Recognition Program that identifies job candidates as BioReady™—meaning they have the abilities and experience to work within the bio-economy. Importantly, it’s not BioTalent Canada that defines and determines this readiness: the BioReady criteria were developed by industry with BioTalent Canada support, and it is panels of industry experts – the Competency Committee - who review candidate ePortfolios and determine whether or not they have what the bioeconomy workplace requires. continued on page 30

F e a

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THE LAST WORD continued from page 28 Associated with this screening process are mechanisms to help job seekers upgrade their skills when further development is necessary; and to help employers quickly locate and access BioReady talent. Workers can create a BioTalent ePortfolio—a kind of resume that summarizes their experience and skills—and submit it for review. In 2011, BioTalent Canada will introduce a new feature called BioSkills Match™, which will allow companies to rapidly search a database of qualified candidates and find those who most closely meet their needs.

Broadening the talent base What BioTalent Canada’s biomanufacturing skills transfer initiative and BioSkills Recognition Program have in common is their focus not only on connecting employers with workers but also on providing supports to build workforce capacity where it is lacking. This has a yet-still

The promise of high-quality and accessible health care is one of the things that makes Canada great – and it is a source of competitive advantage for our country. bigger picture dimension to it. Canada is not likely to produce all the bio-economy talent it needs on its own, and certainly not through exclusively traditional channels. The bio-economy workforce is under-populated by Aboriginal Peoples, for example. And at present it is not taking advantage of all of the skills of internationally educated professionals (IEPs) coming to—or already living in—Canada, or the transferable skills of those in other sectors. To access these human resources, Canada needs both to build up—encouraging the participation of underrepresented groups in the sciences and related bio-economy fields—and also reach out—to attract and transition IEPs into the bio-economy. The first requires awareness-raising and active enticement, generating interest in the bio-economy earlier in the education process. Programs such as the Sanofi-Aventis BioTalent Challenge (SABC)—a national bio-science competition that has seen some truly remarkable work emerge from Canadian high schools—are key. Teenagers working with bio-economy mentors have, through the SABC, shed light into the mechanics of cancer, have identified solutions for making crops hardier and tackled the effects of diseases like Alzheimer’s. This is anything but simple science, and the more successful the competition becomes—and the higher profile its winners can be given—the more young people may see the possibilities for themselves in bioeconomy careers. This is why BioTalent Canada has been a longtime supporter of the SABC through the Government of Canada’s Sector Council Program. 30 BIOTECHNOLOGY FOCUS MARCH 2011

Building real-world experience Getting young people involved in science is one part of the equation. The other is giving them exposure to the bio-economy work environment. Many employers report that university graduates have the theoretical foundation but lack the practical experience to make them ‘ready for action’ on being hired. It’s that old conundrum: employers want someone with experience, but until a graduate has actually been hired, how can he or she possibly get that experience? BioTalent Canada operated two programs in 2010 (ongoing this year) to address this gap. The first, BioTalent HeadStart, allows students enrolled in any post-secondary program with relevance to the business of a bio-economy company—could be science, could be marketing, could be website development—volunteer their time in support of a specific project in exchange for practical experience. It’s a win-win in that companies gain access to short-term capacity to execute against their business objectives and students get a taste of what it’s like to work in the sector. The other program is Career Focus, which subsidizes the hiring of graduates for a maximum of 12 months. This eases the financial burden on employers of acclimatizing and orienting grads to the bio-economy work situation and provides graduates with an entrée into the field they might not otherwise get. The Career Focus model clearly seems to be effective, given that nearly 100 percent of all graduates who have completed the program to date have been hired on full-time at the end of their term. As far as reaching out to IEPs goes, many of the same principles involved in the BioSkills Recognition program pertain. Employers often struggle with knowing how to weigh international candidates’ skills, education and experience. BioSkills Recognition Program and the BioReady designation provide an industry-approved mechanism for this and, as mentioned previously, the supports to help candidates not fully prepared for the Canadian context to upgrade their skills—through online learning modules, for example.

A new engine of the economy Biotechnology has been with us for decades, but in the past few years it has evolved from a specific type of science-based commercial enterprise into something larger: a new kind of economy with tremendous potential to contribute wholesale to Canada’s prosperity. The bio-economy creates jobs. More than developing particular solutions for particular industries, today it is about reinventing the ways nearly every sector of the economy approaches its daily business. With the right HR supports in place, the bio-economy will continue to be an environment in which Canadian companies become future-ready, growth-oriented and internationally competitive.

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