A weak financing climate for Canadian public healthcare companies continued in the second quarter. Gross proceeds of completed equity and convertible debt financings amounted to $72.7 million (Appendix 1), bringing the total for the first half of 2010 to $308.7 million. Two issuers accounted for more than half of the activity in the second quarter: Aeterna Zentaris completed two equity financings totaling US$27.1 million and Resverlogix completed a $10 million financing.

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In the summer of 2009, the CEOs of Ontario’s SME bioscience companies came together at the open invitation of Ontario Bioscience
Industry Organization (OBIO) for a meeting hosted in Gowlings Toronto boardroom. On the agenda was a discussion of the future of Ontario’s bioscience industry and its unprecedented lack of access to capital, a worsening situation threatening the sustainability of the industry.

OBIO’s objective for the meeting was to facilitate the start of a dialogue with industry CEOs which would be ongoing, inclusive, transparent and democratic. The assembled CEOs responded to the need to develop a robust industry dialogue and an industry action plan. Out of this call to action, six dedicated CEOs (Table 1) volunteered to organize their regional colleagues into working groups for the purpose of developing ideas to stabilize and grow the bioscience industry in Ontario and identifying important government programs, which could be modified to enhance the sustainability of Ontario based biotech companies. Each group was responsible for producing a set of draft recommendations which would be presented by Working Group Leaders to OBIO.

Equicom Inc., a Toronto based investor relations firm, worked with OBIO to summarize input from the working groups: to identify the priority programs, specific recommendations for improvement and possible future areas to review. Findings were then prioritized and voted on by CEOs across the province as part of an online consultation and vote held in October 2009.
Working within extremely tight timelines in order to present recommendations to the Government of Ontario by early November 2009, a team of volunteers and industry experts worked 24/7 to analyze the data and produce a report detailing:
•     key fiscal challenges faced by companies;
•     industry recommendations for changes to existing government programs, and
•     anticipated impact of increased eligibility on the ability of bioscience enterprises to operate.

The top seven fiscal issues facing Ontario’s bioscience companies, as identified by industry CEOs, are shown in Table 2. Not surprisingly, the two top issues facing Ontario bioscience companies are: raising external finance and maintaining working capital. Also not surprising, given the top two issues, is that ‘survival’ made it into the top seven.

Based on their Working Group dialogues and further development with OBIO online consultation, CEOs identified five specific recommendations which focus on changes to three existing government programs (Table 3), all of which target short-term relief for the Ontario bioscience industry and may, if necessary, be modified within the next fiscal year.

For each of the above-mentioned government programs, CEOs identified changes to existing eligibility criteria which, if made, would benefit their companies and have a direct economic benefit for Ontario. They quantified and ranked the impact of program changes on their business using seven criteria: Gain Eligibility (qualify for the program); Extend Runway (ability to continue core operations); Add Jobs (create additional positions); Increase Investment (ability to attract capital investments); Increase Sales (increase in top line sales); Ontario Base (continue operations in Ontario), and R&D Spend (increase R&D expenditure). A summary of recommended program changes and their impact on bioscience companies is summarized in Table 4.

More than $120 million in the BIP program remained uncommitted at the end of 2009. Owing to lack of performance, the BIP program as currently structured will probably be closed. In that event, a window of opportunity would open for unspent monies remaining in the BIP program to be rapidly deployed in order to assist Ontario’s cash-starved SME bioscience companies. While the money would come from the BIP program, deployment might logically be done using a framework already in place for existing programs. Such a framework might be, for example, a modified OETF or Investment Accelerator Fund (administered via Ontario Center of Excellence) for structuring and due diligence, but with eligibility criteria tailored to meet the needs of the bioscience industry.
Since publication of OBIO’s report in early November 2009 (available at: www.obio.ca), numerous discussions have taken place with senior government officials, elected representatives and stakeholders who understand and value the contribution a strong bioscience industry can make to Ontario’s economy. Ontario CEOs have begun meeting with their MPPs, engaging them in discussion about the role of the bioscience industry as a vital engine of Ontario’s future knowledge economy. It is a good story. Let’s hope Ontario’s bioscience industry survives to tell it.

View PDF:  http://obio.ca/wp-content/uploads/2010/04/CBN19_111.pdf

Commercialization:  March 18 (view pdf)

Intellectual Property:  April 15

Business Planning:  May 13

(Download PDF / View Online)

Executive Summary
The Ontario government has recognized the importance of the emerging knowledge economy to the province’s future prosperity. The biotechnology industry is an important part of a knowledge economy. The confluence of external and internal factors has converged to create an unprecedented crisis in this sector. The combination of the recession, the high cost of research and development, decreased liquidity and absence of equity investment threatens the survival of many of our nascent companies. Many of our companies’ very survival are being challenged, specifically due to their inability to raise capital and maintain the necessary working capital to continue operations¹. A number of them have ceased operations due to the crisis.

Ontario’s biotechnology SMEs, of which 68% are privately owned, develop innovative drug therapeutics, diagnostics and medical devices. The Ontario government has shown commitment to the biotechnology sector, as part of their support for emerging technology industries. However, regulatory requirements and the lead-time between discovery and commercial revenue create unique challenges for SMEs in the bioscience sector, which are not always recognized. Both private and public biotechnology SMEs have come together to form the Ontario Bioscience Industry Organization (OBIO) with the mandate to provide input to the provincial government around actions designed to ensure the long-term commercial success of our industry, and the associated growth in R&D sector jobs and financial health.

This report provides five specific recommendations (see below) to government. The five recommendations focus on changes to existing provincial programs, all of which we believe could be modified within the next fiscal year, and target short-term relief for the Ontario industry. They are based on direct feedback from CEOs of Ontario biotechnology firms in a province-wide consultative process. The process was completed in two stages. Initially, 6 province-wide working groups enumerated CEOs’ concerns and suggestions. The second stage consisted of an online consultation and voting process involving CEOs in the industry. Finally, the report identifies several longer-term opportunities for strengthening the partnership between the Ontario biotechnology industry and government.

Specific Industry Generated Recommendations
1. Increase the 10% refundable Ontario Innovation Tax Credit (OITC) to be more in line with Quebec.
2. Establish a mechanism to monetize Tax Credits quickly, providing short-term cash flow
3. Modify the eligibility requirements of the OETF to allow for smaller funding rounds.
4. Establish a fund similar to OETF for small public companies unable to raise capital.
5. Change the eligibility requirements for BIP to:
a. Remove needs for current market activity
b. Expand the types of companies who can apply
c. Reduce the level of expenditure required

Click here to view the full report online, or click here to download the PDF version.

Excluding the US$350 million convertible debt financing by Biovail and the US$215 million equity financing by SXC Health Solutions, the rest of the sector raised $654 million, which is substantially better than the 2008 total but is still far below the annual average of almost $1.05 billion for 2005 through 2007.

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No matter where we live, we all have a stake in the bio-based economy.

The “Canadian Blueprint” is a strategy that will enable us to take full advantage of all the opportunities
biotechnology has to offer, provided all stakeholders do what is required of them.

This document is a call to action. The Canadian Blueprint is vitally important because, the fact is,
biotechnology is critical to Canada’s future prosperity and economic security.

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For further information on the Tandem Fund, please see:

http://www.tandemexpansion.com

  

ABOUT BIOTECanada www.biotech.ca

The panel presentations are archived within the “Ministry of Research and Innovation” folder at:   http://hosting.epresence.tv/UTM/1/Page/Published/99.aspx
Click on the “OBIO – OETF Launch Panel” event.  Password: OBIO