Survey says: Canada's Biotech Sector in Need of More Government Participation

---

By Shawn Lawrence

What are the hot-button issues the
Canadian biotechnology industry is
facing? In what areas is Canada lagging behind other countries when it comes to the biotechnology field? Moreover, what is it that the biotechnology industry needs from government in order to succeed and most importantly, is government listening to what the industry is trying to tell it?

These were just some of the questions we asked biotech company CEO’s, consultants, researchers and others across the country in terms of how they felt about the current state of the Canadian Biotechnology sector.

From the analysis of our survey, the feedback isn’t encouraging. Just 44% of those polled felt government was listening to their concerns but upon taking away the numbers of those that felt government is listening but aren’t doing enough to help, the actual number falls to just 11%. Even more disturbing, this means that the majority (56%) feels that government isn’t listening to them at all.

The fault doesn’t just lie with government says many of the respondents. Generally the Canadian biotechnology industry as a whole has not been successful in drawing attention to its potential, and while some individual companies have been able to procure support by lobbying as a single entity, the industry as a whole has not been forceful or visible enough to get its concerns across to government. The industry itself is also lacking in another key area according to our respondents: direction. Essentially respondents want to see government working with industry to set a unified, long-term strategy moving forward, focusing on areas where Canada is strong.

Erik Wiersma, an associate with Alba Biologics Group states, “Government support should be focused on selected parts of the biotech industry where Canada already has a significant global advantage and where the industry is within striking distance of launching economically viable new products or services.” Gabriela Prada, the associate director of The Conference Board of Canada Technology said much of the same; “We need to create a health innovation strategy for Canada and at the same time align Canada’s innovation and healthcare policies,” she said.

Whether this means giving government more power to scrutinize over proposed projects on the academic side depends upon the perspective of the respondent. The general consensus is that government needs to use better review panels including international experts from a variety of disciplines.

In terms of the areas in which the Canadian industry is lagging behind, the survey uncovered many of the same complaints that were featured in reports like Ernst & Young’s Beyond Borders report on Canadian Biotech and the Canadian Biotalent report.

Respondents in unison felt that strengthening research and development, making the road to commercialization easier and improving the talent level of the workforce are all areas that must become a priority in order for the industry to succeed. On top of expressing their concerns with these trends, respondents also offered some solutions as to what they think can help bring Canadian biotech back up to par.

Beginning with the strengthening of the sectors workforce, respondents called for more funding to universities for graduate education, more graduate stipends, and more biotechnology training at both the secondary and post secondary levels. Cash rewards in the form of grants and scholarships were also encouraged. Likewise respondents also suggested implementing new training/mentorship programs for entrepreneurs and C-suite executives as senior managers in the life science industry. This includes getting successful people in the industry to share their experiences and help develop the leadership skills of others not as experienced in the field. Lastly, those polled felt that financial assistance was needed to ensure Canadian companies remain competitive with other countries in hiring qualified personal.

Another area cited in by the responses to the survey is the need to improve upon the current tax system. Specifically, while SR&ED’s have proven to be a promising initiative, the program has not kept pace with inflation. Respondents felt by improving the value of SR&ED’s and changing the SR&ED rules to eliminate the private company requirements for refundable credits, government will not only help Canadian biotech companies from a financial standpoint but also facilitate access for foreign investors wanting to put dollars into Canadian companies.

Flow-through shares were also mentioned in the responses. Issued by Canadian companies in the energy and mining sectors to raise funds for exploration, flow through shares have the potential to give biotech investors the same juicy tax breaks and opportunities for lucrative returns that they have given investors in the energy and mining industries.

In the end though, the need for greater funding (grants, tax incentives, etc.) for all stages of product/corporate development was a concern brought forward by respondents from both industry and academia. As one respondent pointed out, the recent increase to the CIHR (Canadian Institutes of Health Research) budget by the Conservative government was $37M, even though $300M had been requested to keep up with current budget allotments. Others that filled out the survey also mentioned similar stories.

On the industry side, Arius Research Inc. president and CEO David Young feels there is something inherently wrong with the current funding system.

“The key to correcting this funding shortage is to disperse the capital directly into the capital markets, rather than getting government bureaucracies to do it,” states Young.

“BDC venture capital funds for example have proven thus far to be disastrous. They’re run by a quasi government agency and they have not had a good track record. I feel this capital would have been better served if it had been dispersed into the hands of VC (venture capital) funds of special life science investors or towards a long-term vision rather than a government bureaucracy.

We’re trying to let the capital markets do it’s job but we don’t have the capital and there’s no reason for the capital to be here so you have to kind of fuel this internally for a while before anyone comes up with the cash.”

Another way government can help alleviate the funding shortage according to Sam Ruttonsha is to set up a $200 million federal/provincial venture capital fund, which does not require private sector funding.

“The venture capital industry is not funding development stage biomedical companies, particularly early stage ones, largely because prior efforts in this direction have not been successful. Government has recognized this funding gap, but the solutions they have devised in the past have been either to provide funding through those same VC firms or to state that they support new venture funds as long as they can raise matching dollars from private sources. In the first instance, the funds still don’t reach the companies that need them, while in the second instance, the new venture funds don’t get established because of the difficulty of matching dollars. If there was a government funded venture capital entity in place with an appropriate mandate and managed by people that were well versed in the field, then funding would be available,” he explained.

If starting a biotech company isn’t hard enough, taking a biotech company to its end goal, commercialization has to become challenge in itself. In 2007, no Canadian company commercialized a new product in Canada and the trend today has seen more and more Canadian companies being forced to sell early, long before seeing their projects through to higher valuation. Not surprisingly, many respondents noted this trend in their responses and put supporting later stage biotech companies as they advance products through clinical development to commercialization as a priority.

Suggestions in this area include a possible reimbursement fund for companies whose products are developed and manufactured in Canada. Yet there are those like David Young who questions if that is enough to fix the problem.

“Last year, there was only one IPO and the year before there were not that many either. So the incredible lack of capital depth is basically crushing the life out of the sector and affecting what companies do as they travel the road to commercialization,” he said.

Young feels government has to do something much more dramatic and innovative. In this area Dr. Young has a plethora of ideas.

“Canada has one of the best health cares systems in the world and yet participants in clinical trials are very low. Since clinical trials are one of the single biggest costs in developing a drug, and the fact we already have the infrastructure – the government can set up a division of administrative health or a clinical trials division, that basically charges Ontario headquarters one price and everyone else, the market price for the services. We’re already footing the bill for this health care system. Why not turn it into a profit center for the economy? Certainly big pharma does a lot of clinical research in Canada so it’s not as if there’s a lack of expertise here. Couple this with the fact that Canada’s patient population is very diverse, we sample from everybody around the world.

I think that’s the kind of thing that’s a Canadian strength,” he states.

As good as idea as it is, Young also believes that none of it can be accomplished without the support of government.

“If you look at what makes a successful biotech sector or cluster, rarely has there not been a significant amount of government involvement. To this end I think the government has undervalued or not realized the value of what job creation could be like and the revenues that biotechnology can generate from home grown companies. I think it’s one thing to have companies do research and I think it’s another where companies are quartered and are basically paying taxes and employing people. I think that common goal, if that is the common goal, should actually be very high on governments development agenda,” he said.