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

Pulse of the Canadian healthcare sector (Part 2): funding continued development of early stage companies

Wayne Schnarr - seriousThe second question posed in Part 1 of this blog series was how can the continued development of these early stage companies be financed?

Ten to fifteen years ago, funding of early stage companies came primarily from the following sources.

  • There were VC groups within the major Canadian banks, which no longer exist as the banks decided this was not an appropriate use of their capital.
  • A key player in many syndicates was MDS Capital Corp., which had both a classical VC fund and managed the labor-sponsored fund CMDF. Now Lumira Capital, it is focused on exiting from its many U.S. investments but looks at new investments in later stage Canadian companies, such as the $35 million financing by Thrasos Therapeutics in October 2012.
  • Large pension funds were limited partners in some VC funds but have now generally opted for direct, lower risk and income-generating healthcare investments.
  • Retail-based funds were created as a result of government tax incentives, including the LSVC or labor-sponsored venture capital funds. Poor performance resulted in many of these funds facing redemptions which have been substantially higher than new investments for several years. The situation was compounded by some provinces (e.g. Ontario) eliminating their portion of the tax credit and now the federal tax credit will be slowly withdrawn.
  • Some investment funds were mainly funded by provincial governments, primarily in Quebec.
  • U.S. VC funds were syndicate partners in some of the larger financings.

In addition to asking who was supplying the funding, the level of funding is also important. The following information is from documents and presentations on the Canadian Venture Capital Association web site ( Another good source of information is the Life Sciences Quarterly Newsletter from Lumira Capital (


Financings ($ M)

Number of deals

Number of companies

Average $ M per company


$475 M



$2.7 M


$463 M



$3.1 M


$633 M



$8.9 M


$368 M



$6.3 M

For comparison to the 2012 numbers, I picked the numbers from 1999 and 2002 because they bracket the biotech boom (really a bubble) and 2007 because it is the last year before the financial crisis in 2008.

  • During the biotech boom, too many concept companies were given too little funding.
  • After the boom, there was still so much funding available that many of these companies survived when they should have been killed.
  • There is now a trend to fewer deals with higher funding per company. However, as most VC deals deliver the funding in tranches and we never see the development milestones, it is difficult to determine whether the funding is adequate.
  • About 10% to 15% of all VC funding needs to be for new companies in order to create a pipeline (from Yearbook 2013 of the NVCA; see below). For Canada in 2012, that would mean about $37 to $55 million for financing new Canadian healthcare companies. This amount would barely be sufficient to finance the 18 presenters at the Bloom Burton conference and is clearly insufficient to finance the best new companies across Canada.
  • Total VC funding of Canadian healthcare companies in 2012 was about 5% of the amount reported for VC funding of U.S. healthcare companies. Given the less developed state of the Canadian biotech industry and the low treasuries of Canadian VC funds, this percentage seems reasonable. However, it does raise the concern that U.S. VC funding may also be completely inadequate to fund the quality U.S. opportunities

In 2013, funding for early stage companies came primarily from three sources – governments, big pharma and high net-worth individuals. Government funding can come through groups such as MaRS Innovation, Ontario Institute for Cancer Research and Ontario Centers of Excellence – and the equivalent agencies in other provinces. It can also come through some of the new VC funds where a government contribution must be matched by industry and/or other investors.

The pharmaceutical industry is still undergoing dramatic restructuring. While they have largely dismantled their internal R&D equivalent to basic academic research, they are investing in tools and technology platforms which give them insight into the targets and diseases which they should focus on for products that may be approved a decade from now. From a product perspective, they are interested in best or first in class with a defined pathway to regulatory approval and reimbursement. The investment can be through corporate VC funds or directly by the pharma company. The investment can be made into a university, research institute or company.

The big surprise to me was the level of funding coming from high net-worth individuals. Angel funding has traditionally been supportive of local companies. It would be interesting to know if angel funding required an experienced biotech angel to lead a largely biotech-naïve angel group or is an angel syndicate comprised mostly of experienced biotech investors. With an angel syndicate, an important factor would be whether they can participate in or lead the next round of funding.

Since larger VC financings of Canadian healthcare companies will nearly always include one or more U.S. VC funds, it is important to have a look at the level of U.S. VC funding. The following information is from the Yearbook 2013 of the NVCA or National Venture Capital Association (prepared by Thomson Reuters;

  • Percentage of total VC financings in 2012
    • Biotechnology            15.4%
    • Medical device            9.4%
    • Services                     1.2%
    • All healthcare            26.0%
  • Total healthcare VC financing
    • Deals – 818
    • Companies – 649
    • Value – US$6.8 B (average US$10.5 M per company)
  • First VC financing for healthcare companies
    • Deals/Companies – 148
    • Value – US$0.7 B (average US$4.7 M per company)

My perspective on what can be done to improve the financing climate for these early stage companies will be covered in Part 3 of this blog series. In early July, my review of the performance of the public Canadian healthcare companies will be issued.

Note: I am on the Business Advisory Board for Bloom Burton & Co. As a reminder, the comments in this and following blogs are my personal views and do not necessarily reflect the views of any of my current or former clients and employers.

One response to “Pulse of the Canadian healthcare sector (Part 2): funding continued development of early stage companies

  1. Pingback: Pulse of the Canadian healthcare sector (Part 3): improving the funding for early stage companies | The Cross-Border Biotech Blog

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