ASKED & ANSWERED

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Compiled by Amber Lepage-Monette

THIS ISSUE’S ASKED & ANSWERED QUESTION WAS PROVIDED BY THE MEMBERS OF THE BIOPHARMA STUDENT GROUP IN THE QUEEN’S UNIVERSITY (KINGSTON, ON) MBA FOR SCIENCE & TECHNOLOGY PROGRAM AND THE PROGRAM DIRECTOR JEFF McGILL, PhD.

Q: THERE IS A GAP IN CAPITAL INTENSITY BETWEEN CANADA AND THE U.S., WHICH MAY BE RELATED TO THE CANADIAN INVESTMENT COMMUNITY’S PREFERENCE FOR INDUSTRIES REQUIRING LESS CAPITAL INVESTMENT. GIVEN THE CAPITAL-INTENSIVE NATURE OF BIOTECHNOLOGY BUSINESSES, IT WILL BE CHALLENGING FOR CANADA TO ATTAIN COMPETITIVE ADVANTAGE IN THIS RAPIDLY EXPANDING GLOBAL INDUSTRY.

What can the Canadian life science business community do to combat this problem: a) in the day-to-day operation of our business; b) in dealing with the investment community; and c) when interacting with public policy leaders?

A: Organizationally, the biotech industry is characterized as being very loosely concentrated with several thousand small-medium-sized firms engaged in highly capital-intensive research. It is these firms that will develop the breakthrough technologies that will feed most of the drug-development pipelines in the future. Unfortunately, the Canadian life science business community has lagged behind the U.S. in the evolution of a successful self-sustaining biotech industry due to persistent issues related to access to capital.

What the Canadian life science business community can do to combat this problem:

a) in the day-to-day operation of our businesses

The lack of experienced and qualified management teams is seen as a barrier to investment. In comparison to the United States, Canada has a significantly smaller pool of senior management talent that can leave large firms and provide management skills to high-quality startup companies. To combat this problem, Canadian firms must be much more aggressive in the attraction and retention of management expertise and need to be creative in accessing this talent. Engaging highly skilled advisors and mentors, as well as accessing management skills training/information from trade associations, are only a few of the avenues that biotechs need to explore when addressing the management issue. In addition, the availability of stock options and other forms of share-incentive plans remains a critical component in the recruitment arsenal of young, cash-starved companies. Canadian biotech companies must continue to explore various non-cash incentives as a means of inducing top management away from other organizations.

In addition to management, Canadian firms need to expeditiously capitalize on technological advancements via continued patent prosecution efforts and the execution of sound business strategies. A large part of Canada’s biotech success thus far can be attributed to new technologies that have been developed at many of Canada’s world-class universities. To continue with this success, Canadian firms must continue to develop solid business relationships with leading research institutes in order to capitalize on licensing opportunities that are available. Whether the science is internally generated or licensed, the final key element that organizations must achieve in their day-to-day operations is to successfully execute their business strategy.

b) in dealing with the investment community

Canadian companies must continue to organize themselves in a manner that projects and instils confidence in the investment community. This involves taking those elements that contribute to a successful company as described above and properly communicating the company’s “story” in a responsible manner. Gaining credibility and earning the confidence of the investment community is paramount to the ability to access capital. The halo effect on the biotech industry has vanished as a result of both the overall governance crises that exist in the general marketplace and the fact that some of the organizations involved in the centre of scandal have been in the biotechnology industry. Today’s investor has a renewed focus on an organization’s corporate governance track record and it will become increasingly important for Canadian biotech companies to adopt the highest standards of corporate governance in order to meet heightened investor expectations.

c) when interacting with public policy leaders

Compared to the U.S., Canada falls far behind in the development of public policy initiatives that stimulate growth in the biotech industry. Until Canada addresses these discrepancies, the life science industry in Canada will continue at a competitive disadvantage to its U.S. neighbour. When interacting with public policy leaders, Canadian life science companies must project a unified voice on those key elements that are required in order to eliminate the current competitive advantage enjoyed by the United States: 1) Implementation of fiscal measures that will provide additional stimulus to research-based industries such as expanded R&D tax credits, tax-loss selling programs, flow-through share programs similar to those seen in the oil and gas industry, and other tax-based incentives designed to promote research and development; 2) Develop public policies that stimulate the growth of the venture capital industry, particularly at the provincial level; and 3) Provide funding to umbrella organizations that are mandated to assist technology entrepreneurs related to accessing management expertise, venture financing, etc.

In summary, capital intensive industries such as the life science industry require public policy initiatives that stimulate and encourage investment. Constructive public policy initiatives coupled with strong company fundamentals and adequately funded local investment pools are the key requirements for Canada to remain competitive in the global life sciences industry.

Ronald Helmhold
Vice-president, Treasury and Financial Operations
Biomira Inc. (Edmonton, AB)

Dr. Alex McPherson, PhD
President and chief executive officer
Biomira Inc. (Edmonton, AB)