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.

• First and foremost, as entrepreneurs our duty is to create shareholder wealth with products and services the marketplace demands.  This cannot be substituted with or diverted by any government funding program.
• Quebec:  Tax holidays for key employees; tax exemption for new products developed in Quebec
  • Quebec’s SR&ED tax credit regime is a differentiator, especially when combined with the Investment Quebec loan guarantee program
  • Ontario:   Emerging Technology Fund has the potential to be very helpful if bioscience companies could access it.
  • Federal:  Amendment of Section 116 tax code, should increase access to capital by non-residents and in particular venture capital and private equity funds.  This will help put Canadian companies on an even footing to compete globally

As a Quebec/Ontario CEO what are the strengths of your sector?

• In Quebec the creation of Teralys Capital is seen as beneficial as long as the venture captil funds that it finances invest in the life science sector
• In Ontario the formation of OBIO to represent the CEOs of the industry helps move the agenda of the bioscience industry forward so companies can get beyond life-support

What advantages do other jurisdictions (i.e. USA) have?

• The US government procurement policy is very nurturing to small business and innovative early-stage businesses.   The SBIR program is a massive engine that fuels hundreds of life science start-ups per year.
• US companies do not go public as early and are better capitalized when they do
• Germany has invested heavily for the last decade in the biotechnology and has a strong industry with over 400 health-related biotech companies

What opportunities does the Quebec-Ontario biocorridor represent?

• Encourage mergers and acquisitions to leverage strengths and build stronger companies
• As a biocluster Quebec and Ontario become one of the largest clusters in North America and increase their marketing strength to outside investors
• Increase understanding in both provinces of the amount of money and time required to take a product to commercialization
• Expand the value proposition that bioscience offers to the economy of both provinces and to Canada

What single action can we take to build the Quebec-Ontario biocluster?

• Ontario spends $46B on healthcare – challenge is making the spend more effective
• Ontario, as both a healthcare payer and provider should be:
  • A funder of life science companies that can help improve the effectiveness and efficiency of our $46B healthcare spend
  • A lead customer and early adopter of these products and services

• Provide more grant money to life science companies
• Make public companies eligible for SR&ED
• Flow through share programs used successfully in mining represent a model for a program that could be both feasible from a public funds perspective and compelling to industry
• Flow through shares to biotech companies
• Re-engage Canadian investors in this sector
• More events like this evening’s dinner to encourage discussion and create natural opportunities for mentoring.

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