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Overheard at BioFinance

April 14, 2010

BioFinance

What's happening in financing for bio companies?

BioFinance – the annual Ontario biotech jamboree – was held at the Toronto Marriot Hotel from April 6-8, 2010.

The mood was noticeably brighter than last year on account of signs of activity in the M&A field (e.g. Fate Therapeutics had just announced it’s acquisition of Ottawa stem cell startup Verio Therapeutics) and some early stage venture activity (no kidding!).

Here’s a sampling from the sessions, expert panels and company presentations for you to enjoy…

  • Pharmaceutical sales are down 1.5% y/y in the US but have increased over 12% y/y in emerging markets such as Latin America and Asia (ex-Japan).
  • 12% of the world’s population accounts for 67% of drug sales (US, EU5 and Japan).
  • Among the world’s emerging economies, India and Brazil seemed poised for the greatest sustained growth.
  • Patients are expected to play an increasing role in the management of their disease (patients are now accessing online medical information at the same or greater rate as their physicians).
  • Regulatory reform is expected to favour outcomes-based compensation for health care providers rather than straight fee-for-service.
  • 20% of NCI-sponsored oncology trials in the US are abandoned due to low enrollment. Patient adherence in US trials is also unacceptably low across the board (69%) – note: this creates a wonderful opportunity for Canada to become the preferred clinical trials site in North America.
  • Bear markets favour investments in strong operating companies whereas bull markets prefer frothy, “science story” deals.  We are definitely in the former camp right now.
  • US venture capitalists are currently favouring innovative NCE deals – less interested in drug delivery, devices and specialty pharma.
  • The Canadian life sciences VC industry is in especially rough shape.  Only two or three companies are capable of making investments at present and if limited partners don’t step up soon we may not have any active firms.
  • From the US VC perspective, it’s much better to have a TSX listing and analyst coverage than be a small cap on NASDAQ without a following. TSX-Venture Exchange listing is viewed as unattractive.
  • The likelihood of getting a pharma/device class action suit heard in Quebec and Ontario has been greatly reduced – judges want to hear the specifics from each claimant on a case-by-case basis and will now award much greater costs to the defendant than before if they win.

The pitch

When making an initial pitch to a VC always bear in mind these key points:

  • Get a referral from another VC, an industry leader or government (e.g. DFAIT in US)
  • Ask for an amount that is in the VC firm’s sweet spot (check their past investments)
  • Ask for enough money to reach a major value inflection point (not just a calendar date)
  • Provide your information in a clear and succinct way (telephone directory-sized business plans will not help you)
  • Never ask the VC to sign a confidentiality agreement in the first instance
  • A face-to-face meeting is much preferred

Canada’s biotech future

Canada has received a “D” rating for innovation since the early 1980s.  We badly need:

  • Access to early-stage risk capital on a competitive basis (SBIR-like program)
  • Management mentorship
  • Bold new ideas

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John McCulloch @ MaRS

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John provides assistance to life sciences entrepreneurs in business strategy, management, intellectual property, financing and licensing.

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