The Cross-Border Biotech Blog

Biotechnology, Health and Business in Canada, the United States and Worldwide

Tag Archives: SIFT tax

More Highlights in Canada’s 2010 Federal Budget For Biotech, Venture Capital and Innovation Groups

My first take on the most important bits for Canadian biotech companies and investors:

1) Looks like Section 116 will stay dead this time!

2) Better for research funding, with Genome Canada, NSERC, CIHR, SSHRC coming out much better than last year.  Grease?  Meet squeaky wheel.

3) Is this the end of the SIFT/SR&ED dealsLooks that way: Yes. Right now!

“Ensure that income trust conversions into corporations are subject to the same loss utilization rules that currently apply to similar transactions involving only corporations.”

Right now = today…

“[T]hese amendments apply to transactions undertaken after 4:00 p.m. Eastern Standard Time on March 4, 2010, other than transactions that the parties are obligated to complete pursuant to the terms of an agreement in writing between the parties entered into before that time.”

4) The new SMB Innovation Commercialization Program — looks like a made-here-bought-here initiative:

“a two-year pilot initiative through which federal departments and agencies will adopt and demonstrate the use of innovative prototype products and technologies developed by small and medium-sized businesses. Budget 2010 provides $40 million over two years to support up to 20 demonstration projects. To help small and medium-sized businesses take advantage of this initiative, the Government will organize regional trade shows so that companies can showcase their innovative concepts to federal departments. Further details regarding this initiative will be announced later in the spring of 2010.”

5) Some administrative improvements to SR&ED credits:

“In addition, as announced in January 2010, the CRA will begin to report quarterly, through its website, on the time it takes to review an SR&ED claim from start to finish. A new manual for CRA reviewers will become effective on April 1, 2010. This manual will emphasize how the CRA will work closely with claimants so that they may better understand the SR&ED program requirements and process.”

Another Biotech Windfall from the SIFT Tax: Vasogen Molts for Cervus and Merges with IntelliPharmaCeutics. Shareholders Applaud.

Canadian moneyIn July, we covered the deal ConjuChem Biotechnologies Inc. (TSX: CJB) made with Colabor Income Fund (TSX: CLB.UN), where ConjuChem got $5 million and the Income Fund got a public corporate shell.  ConjuChem had $8.7 million in the bank in April, but was burning it fast (pdf).

Noting at the time that ConjuChem shareholders did not react well to the deal (they still haven’t), we wondered whether future income trusts would find biotech partners willing to try the structure again. Well, the answer is “yes.”

Vasogen Inc. (NASDAQ: VSGN; TSX: VAS), which has been trading under $0.20 since releasing its Q2 results and cutting back to one employee in July, is giving its shell to Cervus LP (TSXV: CVL.UN) unit holders in exchange for $7.5 million.  Cervus is a public LP, but it’s caught by the same Canadian tax change — the SIFT tax — as income trusts, which is what is driving these entities to seek the shells of public corporations.  Vasogen shares have doubled so far today.

What does the Vasogen deal have that the ConjuChem deal lacked? Two things: more cash and a brighter future.

  • More Cash: ConjuChem got $5 million for its shell but Vasogen is getting $7.5 million.
  • A Brighter Future: Unlike ConjuChem, which planned to use its windfall to continue its existing programs, Vasogen leveraged its cash into a deal for 14% of IntelliPharmaCeutics (IPC).

IntelliPharmaCeutics has: a lead product (a generic version of Focalin XR®) that is partnered with Par Pharmaceutical and has an ANDA filed; a generic version of Coreg CR, a high blood pressure medication, that is ready for entry into bioequivalence studies, and a platform for abuse- and alcohol-resistant drug delivery technology that can build a nongeneric product pipeline.

Now IntelliPharmaCeutics will also have extra cash and access to public markets.  Everybody wins (though I assume that if Vasogen is not successful in its conversations with NASDAQ, there will be some problems).

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