Investing in Biotech:
The role of life sciences
in Canada's economy
Release date: Feb.11, 2011
Hosts: Calum Semple, Rozanne Kibel
Guests: Gord Jans, Peter Brenders (BIOTECanada)
Running time: 23:06 minutes
In this episode of Strategy Talks, PwC's Calum Semple and Rozanne Kibel interview Peter Brenders, president and CEO of Ottawa-based BIOTECanada, and Gord Jans, national leader of the Life Sciences and Pharmaceuticals practice at PwC. They discuss findings from the PwC Life Science's report, Inflection Point, and how important biotechnology is to Canada's economy.
Announcer: Welcome to Strategy Talks, the business podcast series by PricewaterhouseCoopers Canada. Hosted by Helen Mallovy Hicks, National Leader of PwC’s Valuations, Forensics & Disputes Practice, and Calum Semple, an Operations and Consulting Partner. This interview series, featuring new topics and guests every episode, is designed to valuable insight into some of today’s hottest issues affecting your business.
Calum: Hello. Helen isn’t able to be here today. But I have with me, Rozanne Kibel, a director in our Corporate Finance practice, who is going to be joining me as a guest host for the podcast.
While years of scientific achievements are well known in the Canadian life sciences industry, the commercialization of the science is becoming more of a challenge. PwC has just released its fourth annual life sciences forecast in conjunction with BIOTECanada.
Joining us via telephone today to speak more about the report’s finding is Gord Jans, the national leader of PwC’s Life Sciences and Pharmaceuticals industry practice, and Peter Brenders, President and CEO of BIOTECanada, based in Ottawa.
Gord: Thanks Calum. Great to be here.
Peter: Hi Calum. Thanks for having us.
Rozanne: Gord, the name of the report is Inflection Point. Could you elaborate what is meant by that?
Gord: Yes, sure Rozanne. It’s a good question. As you might recall, in our 2009 report we had indicated that there really was at that time an urgent need to support capital raising for the industry. And while the world has improved a bit, funding has recovered in part, it’s still pretty far below historic norms. I think the latest data that I’ve seen is funding in 2010 was roughly half of what it used to be back in sort of 2006-2007 timeframe. So companies are really struggling still with capital raising; it’s the lifeblood of the industry, and we see other countries being more active trying to sustain and grow their sectors. Because this is a global business we really feel it’s a great opportunity for Canada to seize their support for the sector and it could go, I guess, one of two ways. Either it moves ahead as we all hope, or there’s an issue I think of too as to critical mass. And we’ve had some turn over in our company base in the last couple of years as well.
Rozanne: If we happen to take away the capital raising concerns and you said there was all the money in the world, what do you think the challenges would be in that situation?
Gord: That’s a great question. Peter, you can jump in as well, I think. The way we see it, and certainly what our forecasts have told us over the last number of years is that there’s a big challenge as well in terms of commercializing the technology successfully and so one of the key sort of success factors is having actually more success stories for companies in our sector. And so, the science is great, but commercializing it sometimes has proven to be a challenge. I think there needs to be a lot more support provided in terms of the mentoring and teaming and collaborating quite frankly, across the different stakeholder groups to help support our companies as best as we can.
Peter: I think that’s a good point if I may just jump in a little bit on this. I think Gord is absolutely right. It’s recognizing the successes; can we get more successes? If we had that magical world, Rozanne, where the money wasn’t the question, we’re still going to be faced with two other questions. One is people; will we have the people that we can attract to this country to build these global companies? We have great technologies in our universities that we want to spin out. We just don’t have the capital to turn them into companies that will turn them into products. And then the second one will be the operating environment. Is Canada globally competitive? I think we’re very strong as a nation in a lot of other areas, but as we commercialize these technologies as companies bring these products through the market, Canada needs to be a business environment that recognizes that and keeps the incentives in play. Things like R&D tax credits are very important for Canada’s global competitiveness. Gord mentioned it right at the front. A lot of countries are doing a lot of things to take these knowledge-based jobs and that’ll be the next challenge.
Rozanne: I think it probably would be helpful, Peter, if you could give us a sense of the size of the industry and how important it is to Canada. And that could give a segue in to why it is so important that the government should support the sector.
Peter: A good point of a way to frame it in terms of size. A lot of people don’t know in terms of the breadth of biotechnology and life sciences and how many of our industries it touches. Our estimate is that biotechnology represents almost 7% of our GDP, over eighty billion dollars of Canada’s economy today. It’s not just healthcare biotechnology, but it’s industrial biotechnology, it’s agricultural biotechnology, it’s reinvigorating old industries. It’s taking bio mass and turning it into new products, other sources for petroleum-based chemicals.
When you look at sort of the importance of it and how much it enables of our broader industry, we realize that, we all know innovation. Everyone talks of innovation and how important it is to create an economic wealth. Well, life sciences is key. It’s key to the innovation economy, it’s key to these jobs; which makes it also important to Canada’s economy.
We have a globally-competitive development, which is probably 660-odd companies developing life sciences biotechnologies, if you will, within Canada operating there in all its forms and aspects. Well, those are competitive edges for Canada to have those companies grow and to globally develop products.
We have a vested interest as a nation in terms of seeing the success of this next generation economy, and not only just the jobs but also the products that come out of that. Especially in a nation, when we look at our healthcare, where so much of our healthcare relies on new innovation as well. We’d just be much better off, one would think, if these are made-in-Canada solutions.
Rozanne: If you just look at the general manufacturing, there’s been a large movement over a number of years to low cost countries. But if we can keep the brain jobs in Canada, you can be competitive in the thought leadership and the thought knowledge sector as opposed to the actual manufacturing sector, which we struggle with just because of our size compared to the rest of the world.
Gord: That’s a great point Rozanne. I think one of the interesting things again that maybe people don’t fully realize, is that when you look at it from a manufacturing perspective I think life sciences has actually a unique opportunity to reinvigorate the manufacturing sector a little bit from a Canadian perspective, because there’s a whole new set of technologies that are out there these days and it’s only going to grow and continue, and that’s the area of biologics. And biologics is a very complex manufacturing process. It’s actually very time-sensitive as well, so you need to actually have those plants very close to where the markets are. And obviously the world’s biggest market is in the U.S. So Canada is actually really well suited to take advantage of complex biologic manufacturing. And once you’ve created a plant it’s incredibly hard to move because of all the regulatory approvals and procedures that need to be put in place, so it’s really a very lucrative investment from a long-term return perspective, if we can get that right.
Calum: Gord, a question to you. From a government support perspective what do you see as the most significant change versus the prior report?
Gord: Well, I think probably the most significant change is actually how strong the message is coming through this time from our respondents about how much desire they have to actually get that support. It’s always been a factor, government support. But I think what’s happened, or what we’ve seen with the data, suggests this time around that people are actually essentially putting their hand up and saying we really need a greater support for a stronger environment here in Canada. They really, truly believe - and this has always been the case - that the government has a big influence on their success of their business and also the industry in general. And the ask is varied, but the main thing that people are looking for is favourable tax incentives and incentives that create risk capital. So they’re not really asking for a handout from the government; they are asking for an environment, based on the tax system, that incents other people to contribute capital to the sector.
Peter: You know, I agree with Gord’s assessment out there, but I can’t help but wonder if what might be a little different we’re seeing this time coming out of the recession, and what might be the frustration we’re seeing among the companies in Canada. Is this what they’re seeing around the world? Gord, you alluded to it earlier where we’re seeing a lot of global competition, we’re seeing a lot of programs, we’re seeing a lot of announcements from basically every jurisdiction in the world that is investing in biotechnology. That is investing and putting lead programs in. Everything from the billion dollar tax credit program out of the U.S., to four hundred and eighty-odd million dollars in Norway, to several hundred million dollars in every other jurisdiction that comes up there, we see a lot of interest happening. And Canada has some programs for sure but I think you can’t help but wonder as a company when you’re looking for capital, to see leadership in terms of new incentives new programs elsewhere wondering when are we going to step up.
Calum: To probe on that just a little bit further, we’ve talked about in the same industry what we’re seeing in other jurisdictions. What about in Canada in other industries? Are we seeing examples in other industries where these kinds of incentives are being made available, or is this a general problem across multiple industries in Canada? Do either of you know?
Peter: Well, one of them in particular that stands out for our industry is the incentive we see in oil and gas – the resources industry – and their ability to access things called Flow-Through Shares. That’s a particular sensitive interest for the biotech life sciences industry. Our companies are looking for a level playing field. They would like to see the government extend the Flow-Through Share Program to the life sciences companies, to the biotech companies that have that level playing field, and being able to access capital in Canada. It is a very good program and it took many of our junior mining companies to global players. We think it can extend to the same way in taking Canada’s junior biotech to global players as well. There’s a lot of research and exploration that has to go on in the biotech industry. It’s very high risk. A lot of parallels. And when we saw in the budget last year, seeing the government move the program from traditional energy to alternative energies, then it seems to be a natural step to take it to the new renewable energies of bio-based than the broader bio-based products and technologies.
Calum: And what would you see as the next steps that industry needs to take to try and make that happen, or would you perceive that the ball is very much in the government’s court now?
Gord: Well, there’s actually been quite a bit of activity already on that front, Calum. So this is an initiative that BioTech Canada led sort of in the summer or fall timeframe. It’s something actually that PwC supported as well on a couple of different fronts, but there’s been quite a bit of dialogue and discussion from an industry perspective. I think it’s fair to say that, as an industry at large, there’s a fair bit of consensus on this particular point, and so I think the next steps really, at least from my perspective, seem to be squarely on the side of the government to respond and hopefully to react in a favourable way.
Peter, any sort of comments on current status?
Peter: Well, it’s certainly a message that we’ve been feeding in. It’s not just BioTech Canada, but all the regional biotechnology and life sciences associations across Canada have been feeding in information to the federal government in terms of trying to expand the Flow-Through Share Program to Canada’s next generation economy – biotech companies. But what’s really helping out is the work that PwC’s been doing on this too. I mean, your assessment that came out in September of last year that talked about how this program expanded to biotechnology it could generate over a billion dollars of economic activity for our country, is a pretty compelling case. And I think our next steps are continuing to drive the message to our government, to our elected officials, to show that we have a program - a made-in-Canada solution - that can apply to Canada’s biotech companies.
Rozanne: So, Gord, if we have a look at the survey and the report that was produced from it, where are we now? What do you see as the outlook and the challenges?
Gord: Certainly, raising capital has always been the biggest issue facing the industry. What we did this time around is we actually, because we do ask how much capital our people expect to raise in their next round, and we actually added up the numbers. And it was interesting to see that the business respondents that we surveyed – and, remember in total, we had a hundred respondents to our survey, of which less than a hundred obviously were business respondents – but that group of people said that they would be seeking more than a billion dollars of new capital in their next financing round.
Peter: The other side to look at it too is where we’re seeing coming out of the report, where as much as there is a continuing need for new capital to continue to grow our companies, we’re still seeing successes. And coming out of a very difficult recession for a lot of companies that scaled back their operations it’s comforting to know, to see companies be able to close some deals. To see AquaNOx get into a 25 million dollar venture round, Protox get its 35 million dollars in private equity. To see Thallion do a strategic alliance for a 150 million dollars, to continue to see these successes coming out, we think there’s momentum, but as the report talks about – as PwC talks about – there is an inflection point too, is to see the success continue to grow, can we see it grow domestically? And that is a bit of a challenge for us.
Gord: That’s a good point Peter. And even just more recently, the other day, Intellipharmaceuticsannounced a public raise, right? Another twelve million for them. So there are a number of companies that are able to attract the capital, which is great for them. I think what we’d like to see is more stories like that. So there’s definitely been success stories, but I think as a general comment we’d like to see a lot more success stories.
Peter: Well, my caveat, I throw back to the government on that one is, don’t rest on your laurels and think all is rosy and great because once our companies get the money then the challenge is are they still going to do their work here. What are we doing in terms of R&D tax credits to make sure that they’re globally competitive? Are we putting cash in the hands of companies to keep the jobs here.
Flow-Through Shares, which would be a great tool, incents work happening in the domestic environment. Those are the tools that we still need to have in place to make sure that it’s not just having the company get the money, but getting the company to do the jobs in Canada.
Gord: Absolutely. And create value here for the shareholders, and for the investors.
Rozanne: If you wanted to look at another side to the coin, attracting capital is one way to, not ensure, but it certainly breathes life into the industry. But a new top challenge that came out in this particular report was the availability of expertise. So how do we make sure we... is it a bit of chicken and egg making sure we have the expertise in the people? Do you need the companies to make sure you attract those people or is it something we can do to ensure the expertise will remain in Canada to grow the industry?
Gord: Just a little plug for some work that Peter and his team have done in the past, and there’s a great report they issued, I think in 2009 Peter? The Moose & Mountains? And that report gives you sort of a three-pronged strategy document for where to go from here, at that time. And one of those three is supporting the human capital side of it. So there’s a lot of great material in there as a starting point. It’s actually something that we talked about a couple of years ago when we did our seminars talking about our 2009 report. I think that the concepts are there. There’s not a lot of new ideas as to how to make this even better. It’s actually more of an issue of implementing it.
Calum: I’d like to ask you both one last question and then we’ll have to wrap this interesting conversation up.
We’ve spoken a lot about capital. Rozanne just raised a very interesting point around expertise and people. Do either of you have any comments around the ties that exist between this industry and all of our universities and educational institutions? Do we do enough? Is there more there that can be done there to encourage our young, up and coming talent to move into this industry, and if they do move into this industry, to stay in this country and contribute and work here rather than go abroad somewhere?
Peter: You’re right. We do need to grow big talent to come in that area but a lot of that stuff ... Biotechnology is very specialized. A lot of these companies are very specialized folks. Like a chief scientific officer at some of these companies will be, if they’re spinning out of our Canadian universities, we’ll have that talent. They’ll form that company. Where do we get our global CEOs from? Some are domestic, some are international. I mean, there’s 9,000 biotechnology companies currently operating throughout the world. Canada has a big footprint for sure. We will grow talent, but how do you get kids today to be interested in biotechnology and to grow there? Well, part of that comes from the environment too. Kids are pretty bright. They see what’s going on. They see what messages are coming out of our governments.
If our governments start to say ‘you know what, life science is important to Canada’s future, we want to be a nation beyond moose and mountains; we want to be more than rocks and crops’, kids will pay attention. They’ll see that. Well, they’re not hearing that right now, and so part of our message – what we’re seeing coming out of things like the PwC forecast – is that there is great potential for our companies. And that’s a message we need to take to our schools and get people excited. But at the end of the day, we’re still going to need jobs for them. We’re still going to need companies here. We’re going to need an operating environment that allows companies to grow. We’re going to need tools around people in terms of bringing in expatriates, bring them back. Make sure that they have those jobs. But you can’t teach a lot of this sort of stuff. All we can do is get the basic, but at the end of the day we’re still going to need companies and an operating environment for this.
Gord: I think one thing you are seeing is a number of the universities have changed their curriculum to some degree in a helpful way. So you’ve got a number of schools who are combining science with business, and these are programs in Toronto, in London, in Montreal and other places where you’re sort of taking that science knowledge base and fusing with it a little bit of business knowledge, economics knowledge. And I think what you’re seeing in terms of the grads coming out of those programs are people that are better suited for today’s environment. But, as Peter said, the issue is where are those folks going to work? We want them to work and have jobs here in this country. The last thing we want is them feeling like they have to move to Singapore, or somewhere else, to sort of pursue their passion.
Peter: And in a day in Ottawa when it’s minus 18 degrees, San Diego’s looking awfully attractive. So we need to help manage that.
Calum: And on that note, I’d like to bring this conversation to a close, otherwise I’m sure it’s a discussion we could easily continue for some time to come.
I’d like to thank today both Gord Jans, the national leader of PwC’s Life Sciences and Pharmaceuticals industry practice, and Peter Brenders, President & CEO of BIOTECanada, who’ve been our guest speakers. And also to my guest co-presenter here, Rozanne. Thank you all for your time and insights. It’s been most interesting.
To our listeners, to download the report Inflection Point – Canadian Life Sciences Industry Forecast 2011, please visit our website at pwc.com/ca/lsreport.
This concludes this episode of Strategy Talks. Thank you for listening. We hope you’ll join us again soon for another episode. To download or subscribe to this podcast series, or to find more information, please visit pwc.com/ca/strategytalks. The information in this podcast is provided with the understanding that the authors and publishers are not herein engaged in rendering legal accounting, tax, or other professional advice or services. The audience should discuss with professional advisors how the information may apply to their specific situation. Copyright 2011, PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP, an Ontario Limited Liability Partnership, or, as the context requires, the PricewaterhouseCoopers global network, or other member firms of the network, each of which is a separate and independent legal entity.
Announcer: This concludes this episode of strategy talks. Thank you for listening. We hope you will join us again soon for another episode. To download or to subscribe to this podcast series, or to find more information, please visit pwc.com/ca/strategytalks. The information in this podcast is provided with the understanding that the authors and publishers are not here and engaged in rendering legal accounting, tax or other professional advice or services. The audience should discuss with professional advisors how the information may apply to their specific situation. Copyright 2009 PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP, an Ontario Limited liability partnership or as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each is which a separate and independent legal entity.