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Biotech Capital Markets – Who are the players? Part 20 of Valuation and Other Biotech Mysteries

[Ed. This is the twentieth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

I am starting the final part of this blog series with a description of the main players in the capital market – what do they do, who do they interact with and how do they generate revenue. These blogs will be written for the person who has little or no knowledge of capital markets. For simplicity, I am only going to deal with equities (stocks) in the public market.

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Financings by Public Canadian Healthcare Companies in H1 2012

Public Canadian healthcare companies raised over $1 billion in equity and convertible debt financings in the first half of 2012. Before anybody wonders whether another biotech boom has suddenly appeared, a closer look at the details shows a different reality.

Large equity and convertible debt financings by profitable Canadian healthcare service companies in the first half of 2012 totaled $1,048 million. These are profitable companies, three of which do monthly distributions to shareholders. These companies fit the current risk profile of many investors, who are looking for profits, value and yield.

  • SXC Health Solutions                                      $541.8 million
  • Chartwell Seniors Housing REIT                $339.3 million (equity and convertible debt)
  • HealthLease Properties REIT                      $110.0 million (IPO)
  • Leisureworld Senior Care                             $  56.4 million

The total for the rest of the sector was about $288 million for equity and convertible debt deals closed in H1 2012. A financing over $10 million indicates that a company, especially one developing a novel therapeutic, may have a chance to plan its future, as opposed to just survive. This list includes:

  • YM BioSciences                            $80.5 M
  • Novadaq Technologies              $40.3 M
  • Oncolytics Biotech                      $21.3 M
  • Bioniche Life Sciences               $20.0 M (debt)
  • BELLUS Health                              $17.3 M (includes plan of arrangement proceeds)
  • Merus Labs                                     $17.3 M (equity plus debt)

Removing these large financings leaves about $127 million for the remaining over 100 companies in the sector to share. A small amount of additional funding came from exercise of warrants, government grants and milestone payments from partners.

The financing numbers in this post were compiled from the Q2 2012 Canadian Healthcare Review (pdf), co-authored by myself and Ross Marshall, Senior Vice President, The Equicom Group Inc., a wholly-owned subsidiary of TMX Group Inc. 

The Biotech Partnering Process – Questioning The Deal Structure: Part 19 of Valuation and Other Biotech Mysteries

[Ed. This is the nineteenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

The deal structure as outlined in Part 18 of this blog series is not meant to be a perfect, detailed model, or even realistic. However, this is a model which can be easily used to change assumptions and see what the impact is on the cash flow and NPV. Here are two examples.

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The Partnering Process – Deal Structure: Part 18 of Valuation and Other Biotech Mysteries

[Ed. This is the eighteenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

Assuming that a partnering deal is signed, what are the usual financial components?

  • Up-front cash usually has no conditions and is a non-dilutive financing. Big pharma generally does not want equity as it just clutters up their balance sheets and is an even bigger problem if the partnership gets terminated.
  • Clinical and regulatory milestone payments are fairly standard. The basic milestones are the initial U.S. and E.U. approvals but may include approvals of additional indications if they increase the market potential.
  • Sales milestone payments have become more common in the last decade. If the pharma partner does not believe the market potential, milestones can be included for reaching certain annual or cumulative sales milestones.
  • Royalties on sales are generally no longer a simple X% on net sales. They can be tiered, increasing after annual or cumulative sales milestones are reached.
  • If there is an R&D program, who conducts it and who pays for it?
  • Who executes and pays for the clinical and regulatory programs?
  • Some companies would like to retain or have an option on some sales and marketing rights in specific territories. These rights may cease to exist if there is a change of control at the smaller company.

The only way to learn about deal structures is to create a fictional deal, make the spread sheet and start looking at the impact of structural changes on the product NPV. The following assumptions have been used to create the attached Excel workbook. Read more of this post

The Partnering Process – Before Crunching The Numbers: Part 17 of Valuation and Other Biotech Mysteries

[Ed. This is the seventeenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

Assuming that all interested potential partners know that you have a specific asset for sale, how does a licensing deal get completed?

Sellers should place themselves in the chair of the person at the potential licensing partner. From the potential partner’s perspective, there are four basic criteria which would need to be met before licensing a product or technology. Read more of this post

Some Partnering Basics: Part 16 of Valuation and Other Biotech Mysteries

[Ed. This is the sixteenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

If partnering is basically the process of selling an asset, the first step is to let people know more about the asset which is for sale. Three initial questions to be answered are:

  • What companies do you talk to;
  • Who do you talk to at these companies; and
  • What do you tell them?

The answer to the first question is easy – you talk to all companies which may have an interest in commercializing your asset. The list of companies should be easy to prepare by looking at information sources already discussed in this blog series, including:

  • Annual reports and pipeline reviews by pharma and biotech companies;
  • Searching for all companies running clinical trials in the therapeutic fields targeted by your asset; and
  • Subscription newsletters and databases.

The people who need to be targeted are those who are both directly and indirectly involved in the partnering process. Since you can never predict which initial contact will lead to the deal, you have to target all potential contacts at all potential partners. Read more of this post

Partner, Sell, or Go it alone: Part 15 of Valuation and Other Biotech Mysteries

[Ed. This is the fifteenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

This is a discussion that the management and board of a company need to start as the company is being formed and continue throughout the development of a new drug product. The decision on any specific drug product is probably as unique as that drug product and can change along with the market in which that drug will compete. There is a fourth option – stop all product development – which also needs to be assessed at each review. In this blog, we will assume that the information is positive and the product merits further development.

There are many interested parties in this decision, each of which may have different objectives. Read more of this post

Some Top-Line Numbers From 2011 For Public Canadian Healthcare Companies

The numbers have been crunched in preparation for the 2011 Canadian Healthcare Annual Review, which I co-author with Ross Marshall, Senior Vice President at The Equicom Group. Prior to its publication later this month, we are going to give you a look at some of the top-line numbers.

The biggest concern in the sector is financing, both in Canada and globally. Two groups of numbers are shown below for our universe of public Canadian healthcare companies (132 companies to start 2011) – total equity and convertible debt financings by the group, and financings by development stage companies only (shown in millions of dollars). The 2011 total for the development stage companies is about the same at it was for the prior two years but is less than half of the average raised in 2005-2007.

Another major concern for both companies and shareholders is share price performance. We monitor share prices of a group of companies which started 2011 with a share price of $0.10 or higher and also look at two sub-groups. There were 104 companies in this group to start 2011 but only 97 companies actively trading as healthcare companies at the end.

The Equicom 2011 Canadian Healthcare Annual Review will look more closely at these numbers and the events from 2011, and discuss the results of its recent investor survey.

Assessing Potential Market Share for a New Drug: Part 14 of Valuation and Other Biotech Mysteries

[Ed. This is the fourteenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

In the previous post, we looked at epidemiology and pricing to estimate the market size for a new drug. As we continue to look at the potential rewards from successful drug development, we need to consider market share.

A new drug product which is being assessed will probably share its market with:

  • currently approved drugs;
  • some drugs currently at the same or later stage of development; and
  • some drugs which are at an earlier stage of development. 

An assessment of market share is not static and should be continuously updated as new information becomes available. Until all of the Phase 3 data is available on a new drug, market share assessments are really guesstimates. Phase 3 data from two new drugs which were compared to either a placebo or an older standard of care, but not to each other, might not be sufficient to allow a winner to be selected. A major pharma licensing deal with a product that is two years behind might change your ranking of that drug. Read more of this post

Potential Rewards from Successful Drug Development: Part 13 of Valuation and Other Biotech Mysteries

[Ed. This is the thirteenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

Finally we have reached the point of looking at the potential rewards from successful drug development. The potential reward can be estimated using the following step-wise analysis. Read more of this post

Valuation and Other Biotech Mysteries – Part 11: Changes in Pharmaceutical Industry Product Portfolios and Strategies

[Ed. This is the eleventh part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

As described in the prior post, the modern pharmaceutical industry has evolved from the patent medicine companies selling herb and alcohol combinations into an industry developing complex and personalized medicines such as gene and cell therapy. The first blockbuster drug, Tagamet (cimetidine), developed by Smith, Kline & French (SK&F) is a great base for a case study of various industry strategies. Read more of this post

Valuation and Other Biotech Mysteries – Part 10: Some Pharmaceutical Industry History

[Ed. This is the tenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

Very few novel drug development companies have made, or are likely to make, the transition to profitable and sustainable entities which market their own drugs in competition with pharma companies. Most companies have chosen to license their products to larger pharma companies, generally during the clinical development program. In addition, all drug development companies are potential acquisition targets. Since the larger pharma companies play such an important role in the fate of the smaller companies, it is important to understand both the history and current status of the pharmaceutical industry. Read more of this post

Valuation and Other Biotech Mysteries – Part 9: Retail Investors

[Ed. This is the ninth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

In addition to the private institutional VCs, there are the retail investors who are willing to take similar risks with both private and public companies. I will focus on Canadian retail investors in this post.

Retail investors who invest in private companies usually do so through a fund which offers tax incentives. I have discussed flow-through funds, which are not currently available to biotech companies, in a previous series of posts. Historically, the largest investment vehicle has been the LSIFs or labour-sponsored investment funds, which are now being referred to as RVC funds or retail venture capital funds. There are a number of fund managers and the tax incentives vary by province.

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Valuation and Other Biotech Mysteries – Part 8: The Current State of Healthcare Venture Capital

[Ed. This is the eighth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

The world of healthcare VCs has changed dramatically in the two decades which I have spent in capital markets. VCs are impacted by changes in the broader capital markets, changes in healthcare capital markets and changes in the industries on which they focus. Read more of this post

Valuation and Other Biotech Mysteries – Part 7: Funding the Cost of Developing a New Drug

[Ed. This is the seventh part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

Assuming that the average direct cost of developing a new drug through regulatory approval will be at least $200 million, how and where do small companies get that funding? While these companies should access all potential sources of funding including government agencies and disease associations, the major sources of funding will likely be capital markets and pharma partners. Read more of this post

Valuation and other biotech mysteries – Part 6: The cost of developing a new drug

[Ed. This is the sixth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

The Tufts Center for the Study of Drug Development has been the source of the most comprehensive studies of new drug developments, including costs, success rates and strategies. Their estimates include the cost of the failures and the lost income from simply investing in government bonds. Neither of these factors is relevant to our current discussion although the former is critical to the success of the industry.

The clinical development pathways for both Theratechnologies Inc. (TSX:TH) (NASDAQ: THER) and Oncolytics Biotech (TSX:ONC)(NASDAQ:ONCY) have been outlined in previous parts of this blog series  and it is appropriate to look at the expenses for these companies. The expenses of Cardiome Pharma Corp. (NASDAQ: CRME) (TSX: COM) in their development of both intravenous and oral forms of vernakalant are also shown below. The information for all three companies was found from their annual financial statements at in about 30 minutes.

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Valuation and other biotech mysteries – Part 5: More strategy and structure for Phase 3 clinical trials

[Ed. This is the fifth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

In the previous case study, we looked back at Theratechnologies and theFDA approval of EGRIFTA™ (tesamorelin for injection). Now let’s look at a product still in Phase 3, REOLYSIN®, a formulation of the reovirus being developed for the treatment of cancer by Oncolytics Biotech (TSX:ONC)(NASDAQ:ONCY). Read more of this post

Pharma / Biotech R&D Budgets – A Proposal For Measuring Performance

During the BioFinance 2011 conference held in Toronto last week, one presenter showed a slide that outlined the number of new chemical entities (NCEs) approved by the FDA over a number of years. Since this slide was used in the context of the increase in global industry R&D budgets, it was meant to show that the huge increase in R&D budgets had not produced an appropriate increase in NCEs approved at the FDA. Is this the correct way in which R&D performance should be measured?

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Valuation and other biotech mysteries – Part 4: Strategy and structure for Phase 3 clinical trials

[Ed. This is the fourth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

Very few independent Canadian biotech companies have successfully completed the development of a novel drug – so my first comment is congratulations to Theratechnologies. Now, let’s study what they did so we can learn how to assess other companies attempting the same feat. To repeat, my approach is to start at the end – regulatory approval – and study the pathway to that endpoint.

The FDA approval states that EGRIFTA™ (tesamorelin for injection) is indicated for the reduction of excess abdominal fat in HIV-infected patients with lipodystrophy. This approval is based primarily on proof of safety and efficacy from the Phase 3 trials. In order to determine their Phase 3 clinical strategy, Theratechnologies ran Phase 2 trials for a variety of indications, including COPD, sleep disorders, HIV-lipodystrophy, hip fractures, type 2 diabetes and flu vaccinations. They chose HIV-lipodystrophy as the best entry point for the commercialization of tesamorelin and may have considered the following factors in choosing this strategy.

  • Relative strength of the Phase 2 data for the various indications
  • Probability of success in Phase 3
  • Ability to recruit patients for the Phase 3 trials
  • Easily defined and measured clinical endpoints
  • Market potential for each indication
  • Interest of potential commercial partners for each indication

These are typical strategy and structure questions which help assess the risks and rewards about any pending or ongoing Phase 3 clinical trial program. We will look at quantifying potential rewards and more complete assessment of risks later in the series.

Here is a list of some clinical and regulatory events which occurred during the Phase 3 trials and subsequent regulatory review of tesamorelin (pulled from various AIFs in about 20 minutes).






Announced Phase 3 clinical strategy



FDA approval to start first Phase 3 trial


First patient enrolled in first Phase 3 trial



Patient enrolment completed in first Phase 3 trial


SPA for second Phase 3 trial


Last patient in first trial completed 3 months of treatment


Positive 3-month data from first Phase 3 trial



Started patient enrolment in second Phase 3 trial


52-week treatment completed in last patient in first Phase 1 trial


Completed enrolment in second Phase 3 trial


Positive 52-week data from first Phase 3 trial



26-week treatment completed in last patient in second Phase 3 trial


Positive 26-week data from second Phase 3 trial


EMD Serono licensed U.S. rights to tesamorelin


Positive 52-week data from second Phase 3 trial



Filed New Drug Application (NDA)


Announced that the FDA will schedule an advisory committee meeting



Announced that FDA will reschedule advisory committee meeting due to administrative delay at FDA

May 25

Briefing documents for advisory committee released

May 27

Advisory committee meeting; 16 – 0 vote in favour of recommending FDA approve tesamorelin


EGRIFTA (tesamorelin for injection) approved by the FDA for the treatment of HIV-lipodystrophy

By looking at this list, we can create a general list of Phase 3 questions. It is unlikely that any company will answer all or even most of these questions, so other sources such as analyst reports are useful.

  • How many Phase 3 clinical trials will be needed?
  • How many patients will have to be enrolled in these trials?
  • Will the trials be run concurrently or consecutively?
  • How long do you expect patient enrolment to take?
  • What is the timing of the interim analyses at which an independent board will assess continuance of the trials?
  • How long do you have to treat and follow the final patient before you can compile the final data?
  • What delay do you expect from the time top-line final data is released until an NDA (or BLA) can be filed?
  • Will the NDA be subject to accelerated or standard review timelines?
  • What will the cost of these clinical trials be, exclusive of ongoing corporate expenses?

The most complete outline of the clinical trial structure is contained in the Investigators Brochure and Clinical Trial Protocol but these are confidential company documents. The best current disclosure on trial structure is usually found at This searchable database can be used to find the structure of a specific clinical trial, all clinical trials for specific medical conditions, the drugs being tested in those trials (competition information) and much more.

For the biotech investor, run a historic price chart for TSX:TH, plot all of the events in the table above and see what effect, if any, there was on the share price. If you did this for several companies that took products through Phase 3, whether successful or not, you may be able to spot some trends on what events you think impact share prices. Remember that share prices will also be impacted by other factors including company financings, announcements from competitors, sector trends and global financial events.

Valuation and other biotech mysteries – Part 3: What are you valuing?

[Ed. This is the third part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

Most likely you will be valuing a company, a product or a technology. The valuation of the stream of expenses and revenues for the development and commercialization of a product or a service is the simplest situation. If you are valuing a company, you are valuing its portfolio of products and technologies. In most cases, the current and potential future value of a single product, which is usually the lead product, probably accounts for the majority of the value of a biotech company.

Valuing a technology can be more difficult. Many companies claim to have a platform technology, which can be used to develop multiple products, potentially with multiple partners in multiple therapeutic areas. When a technology has a portfolio of products and partners, there is diversification and reduction of risk. If you want to take a simple and conservative approach to the valuation of a technology, do a valuation of the most important product in that portfolio, which is often the most advanced product. There are situations where technologies get ‘hot’ and valuation of only the lead product is not a useful valuation tool – we will look at ‘hot’ technologies later on in this series.

Therefore, you are probably valuing a product and I am going to assume it is a novel drug. In order to generate substantial revenues, that drug will have to be approved by the U.S. regulatory agency (Food and Drug Administration or FDA) since the U.S. is still the largest single pharma market. The U.S. and EU markets still account for about 75% of worldwide pharma sales.

The approval will be for one or more specific therapeutic uses of the drug, each specific therapeutic use being defined by the disease and the patient population. When you start the valuation of a product, two of the first questions will be ‘What specific therapeutic uses will be approved by the FDA’ and ‘What is the pathway to that regulatory approval’.

For those blog readers who have not looked at these questions before, one of the best teaching tools is a case study. The first case study will be Theratechnologies (TSX:TH) and the recent FDA approval of its lead drug EGRIFTA™ (tesamorelin for injection). At this point, I want to highlight two important sources of information (remember – get information and ask questions).

Valuation and other Biotech Mysteries Part 2: Some Basic Mathematics

[Please note that this blog series has not been pre-written. The subject of the next post in the series will be determined by where the current post leaves off and any questions that readers send me or leave as comments on the posts.]

When you create a valuation spreadsheet, you are plugging in numbers representing revenues and expenses which are going to occur over several years. When you do the basic addition and subtraction in this spreadsheet, you hopefully end up with a positive number because, if the number is negative, you are valuing something that is not economically viable.

However, we all know that a dollar received now is worth more than a dollar received ten years from now. This is extremely relevant for a biotech company because most expenses occur before any of the revenues. You need to adjust all future revenues and expenses so they are calculated in current dollars and the sum is called the ‘net present value’ or NPV. The key factor in this calculation is the discount rate or ‘risk-free cost of capital’. At this time, I would use a discount rate of 8% in doing an NPV analysis. You can get more detailed information from statistics textbooks or entering NPV in your web browser or spreadsheet help function.

While we all generally accept that a current dollar is worth more than a future dollar, you actually have to do the calculation to see the impact of time on the value of your money. The table below shows the NPV of a guaranteed $100 payment received now or from one to ten years from now, using discount rates of 8% and 20%.


Discount Rate





































I used the term ‘risk-free’ above because it does not take into account the risks associated with biotech, which can be large and numerous. There is a continuous need to understand and balance the risks and potential rewards. In the next few parts of this series, we will continue looking at valuation of the potential rewards before we move onto looking at the risk side of the equation.

Valuation and Other Biotech Mysteries – Part 1

I have been doing valuations in various forms since 1981 when I started my MBA at York University. There are major differences between those initial valuations and the ones that I have been doing as a biotech stock analyst over much of the last 20 years. Those initial valuations were for assets or profitable companies, much easier than valuing biotech companies with products which may never get to market and for which potential peak sales are ten or more years away. There are some advantages to doing valuations now – the amount of easily available information and the ability to rapidly create and modify financial models.

When I taught the valuation section of a licensing course, I ranked the importance of three aspects of valuation as follows.

  • The least important aspect of the valuation is the spreadsheet. Almost everybody has access to a computer and can create a spreadsheet, plug in some numbers and get a valuation of that company using standard formulae.
  • The assumptions which are used to generate the input numbers for the spreadsheet are more important because poor or flawed assumptions on factors such as success rates, market potential and event timing will result in poor quality valuations.
  • The most important aspect of valuations is how you use them to make decisions. Decisions in which valuations are important include the structure of licensing deals and the prices paid to acquire products or companies. Valuations can sometimes be useful in making decisions about biotech stock purchases or sales.

This series of articles is going to focus on information and questions. Information shapes assumptions, and better assumptions lead to better financial models and hopefully better decisions. There are numerous information sources, including many free and easily accessible databases. Asking the right questions allows you to obtain useful information and also to see what information is missing.

This series is titled ‘Valuation and other biotech mysteries’ because many people view biotech as a mysterious black box into which you throw a lot of money, wait a decade and see whether any products or returns on your investment emerge from the black box. Asking the right questions and accessing useful information removes some of the mystery and allows you to understand and balance, but not eliminate, the risks of the development process for drugs, devices and diagnostics.

When you create a valuation spreadsheet, the column headings usually define the period over which the valuation is being calculated. The first important question is ‘what events will occur and when will they likely be happening during his period?’ The next several parts of this series will look at the events which occur during the product development and regulatory approval processes.

Stability at the Top: A Look at Top Biotech VC Deals from 2007-2010

FierceBiotech published the top 15 biotech VC deals of 2010 last week, measured by dollars invested. Since they noted an overall uptick in investments in 2010, it seemed like a worthwhile time to look back. Here’s what U.S. VC investment in biopharma and medical devices looked like from 2007 to 2010 (normalized to 2007 levels):

Not unexpectedly, a huge decline between 2007 and 2009, though not as big as the overall decline in VC investments. Here’s the really interesting part — the average amount invested (±1σ) among the top 15 deals each year:

Remarkably stable. Even during a period of steeply declining investment there will be standouts that generate real excitement, proving that as FierceBiotech said in 2008 “[g]ood science will attract funding in any market.”

It’s not a surprise that good ideas always get some funding, but why do the top investees always attract the same amount?  The price of admission to the top 15 between 2007 and 2010 has ranged only between $39 and $42 million.

It must be that (once a concept reaches a certain stage) the amount of money needed to really propel a life sciences company to success is constant — apparently an average of $50 – $60 million — and recognizing that, VCs will fund their best prospects to that level even at the expense of other investments.  So the next time you’re contemplating a $10 million C round, keep in mind that you’re more than two standard deviations off the mean investment made when VCs really mean it. It’s an interesting idea the other way too: Pacific Biosciences, which IPO’d in the middle of its range at $16/share last October, was the top deal twice in four years (including the +2.4σ variant of $109m in 2010). It’s currently trading at $15.74, giving it  a market cap of $831.43 million, just over double the reported $370 million of VC that it raised prior to the IPO.

Check out FierceBiotech’s list of the top VC investments from 2010, 2009, 2008 and 2007 and apply your own 20:20 hindsight to your heart’s content. Also, keep your fingers crossed that a 3% increase stops feeling like such a victory when we see the 2011 data.

Canadian Biotech and Healthcare Licensing Trends in 2010

I was fortunate this week to host the Canadian Healthcare Licensing Association‘s (CHLA’s) annual holiday get-together on behalf of Ogilvy Renault at our Toronto office (we hosted a parallel CHLA event in Montreal earlier this week). I presented a short slide deck on licensing trends in 2010, with data drawn from our Monday Biotech Deal Reviews and from Wayne Schnarr’s quarterly reports. For your viewing enjoyment,the slideshare version is below. You can also download a pdf of the presentation here.

Biotech’s Murky IPO Window Increases M&A Attractiveness

A recent press release from Burrill & Company points out that only 1 of 8 U.S. biotech IPOs in 2010 is currently trading above its IPO price. IMRIS was the last Canadian biotech IPO, completed in November 2007 at $6.00, and it is currently trading at $5.50 after dipping under $2 in late 2008. Facing these difficult public markets and limited treasuries, it is not surprising to see Canadian VCs opting to sell companies in their portfolios, including the recent sales of two companies with revenues. Toronto’s Visualsonics was sold to U.S.-based SonoSite for about 2.4 times Visualsonics’ trailing 12-month sales of $30 M. Montreal’s Resonant Medical was sold to Swedish company Elekta for about 3 times expected 2010/2011 revenue of $10 M.

Friday Science Review: May 21, 2010

A slightly different FSR this week with a spotlight on Global Health, right on the heels of the recent Grand Challenges Canada announcement.  An interesting report in Nature Biotechnology, led by Drs. Abdallah Daar and Peter Singer at the McLaughlin-Rotman Centre for Global Health, mapped the collaborations between health biotech companies in developing countries.  The study is a first for tracking “South-South” partnerships and they offer some interesting insights:

South-South collaborations have become a widely chosen path for health biotech companies:

  • About a quarter (27%), participate in collaborations with another developing country and many (21%) are involved in multiple initiatives.
  • South-North collaborations with developed countries are still more common (53%).
  • The most active countries with the highest percentage of firms engaged in South-South collaborations are Cuba (~75%) and South Africa (~45%), followed by Egypt, Brazil, India, and China.
  • These leading developing countries in health biotech make up the majority of the linkages (see figure below)
  • Many of the collaborations are within their own regions such that they are establishing free trade zones to encourage trade with one another.

South-South Collaboration Network

Some of the motivations for companies in developing to collaborate include:

  • Minimizing risk and cost by sharing the burden with a partner.
  • Expanding their potential markets with an easier or facilitated access to a foreign market.
  • Gaining specific knowledge or skills, particularly since there are many specialized skills and technologies involved in biotech research that may not be available locally.

The nature of the collaborations, however, is mainly end-stage commercialization agreements rather than R&D.

  • Distribution agreements (72%) and marketing activities (34%) account for the majority of the collaborations with only 13% involving R&D and 9% involving clinical trials activities.
  • Innovation based knowledge sharing would likely have greater long-term benefits and future policies should encourage more of these types of collaborations.

To further promote such initiatives, Government organizations and other third parties can, and should, play a larger role to cultivate joint ventures since the majority of the South-South collaborations were initiated by the participating companies themselves.  It is important to realize that  South-South collaborations in the biotech sector are just as valuable as North-South collaborations to sustain a growing culture that addresses global health issues.

Also note that this study follows a pair of Nature Biotechnology publications last year by the same group at MRC – one explores “South-North” health biotech collaborations and the other focuses on Canadian biotech collaborations with developing countries.

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Biotech Trends Update — Social Media for Biotechs: Building Momentum Toward Critical Mass

In December, I wrote a post listing the top 3 reasons biotech companies should use social media and noted that we would be following adoption and use of social media by biotechs as one of our Trends in 2010.

The 2010 Dose of Digital Dosie Awards held voting for finalists this week, including for Best Facebook Page, Best YouTube Channel, Best Twitter Feed and Best Blog (in a number of categories).  The pharma and healthcare social media wiki that Dose of Digital maintains is a growing list, but still doesn’t include very many biotech companies. 

So, why haven’t we seen more social media among biotechs? 

Is it fear of FDA admonishment?  This blog post/video clip from Future of Pharma spends some time blaming the FDA’s evolving social media policy.  If the FDA were the problem, though, pharma companies wouldn’t be moving into social networking either.  But they are.

Is it fear of creating reporting obligations because of casual mentions of adverse events?  Looking at one community shows that a significant number of reportable adverse events could be unearthed; but Dose of Digital doesn’t view this as a risk or an excuse for avoiding social media, and explains why here.

The real answer is simpler: the value of a social network is the network.  Until a critical mass of biotechs seed a social media presence, most other companies will not realize sufficient value in being online themselves.

The critical mass is starting to build: Michael Gilman, the Founder/CEO of Stromedix is on Twitter, as is Richard Pops, the CEO of Alkermes.  On Twitter, they interact with investors, journalists and patient communities; which points out that it’s not just a critical mass of other biotechs that creates social media value. 

For example, the HIV Vaccine Trials Network (HVTN), at Fred Hutchinson Cancer Research Center in Seattle, is running a series of ads on Facebook to recruit patients to its trials; one of their sites is using Craigslist and individual patients are reporting about their experiences with the trials on blogs and on Facebook.  The Canadian Breast Cancer Foundation and the McGill University Health Centre are also using social media for outreach.

My bottom line: social media will be an increasingly common tool for biotech companies in business development, corporate communications, patient recruitment and for employee recruitment and development.  The sooner you start the more expertise you’ll have.

Biotech Bailout: How Much Does it Cost Government to Attract Biotech Jobs?

Governments want to create jobs.  Not just any jobs, “creativity-oriented jobs” and “knowledge economy jobs.”  But what does it cost government to create one of these jobs?  We don’t really know, but on this blog we’ve been tracking data points all year to try to get some sense of how to invest effectively to attract the workers who will keep our economy competitive into the next century.

This week, a report from Florida’s legislature created what appears to be a new high-water mark: $1.4 million for each new biotech job.  $759 million investment in eight biotech campuses over the last six years, with about equal amounts coming from other levels of government, resulting in a total of 1,100 jobs.  However, as the report points out, not that much time has elapsed.  This also seems like a count of only the most direct jobs, and these have a high leverage ratio, each one supporting 5-7 additional jobs.

One valuable conclusion from the report: creating a cluster takes a multifaceted approach.  The biotech campuses were of limited help because early stage capital was not available.

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Photo of meat grinder from flickr user gpiper under a Creative Commons license.

Biotech Trends in 2010: Top Three Reasons Why Biotech Companies Should Use Social Media

Tech startups use social media avidly [rabidly?], but biotech companies? Not so much.  Biotech companies should be blogging, tweeting and linking in like mad, though.  Here’s why:

  1. Your customers (pharma companies) do it.  More and more pharma companies are active in social media. Take a look at this article in the December issue of Life Science Leader (h/t @FiercePharma) or read the Dose of Digital blog any day of the week and you’ll be directed to interesting information about how products are being developed, tested and marketed. These are things you need to keep in mind as you move through your own product development process. Also, lots of pharma folks are on LinkedIn, so if you are as well, you’ll maximize your ability to reach out through personal connections when you’re building a constituency for your partnering deals.  Here’s my Twitter list of BioPharma news and analysis.
  2. Your investors do it.  Check out this Twitter List of Canadian VCs, Angel investors and other funders.  Look at what they’re talking about, and you’ll see you don’t have to tell people what you ate for lunch (or disclose your latest lab results) to convey that you’re doing something interesting that other people are interested in.  Check out the CVCA’s blog, Capital Rants or the Maple Leaf Angels blog.  In Toronto? Stop in at the MaRS blog or the R.I.C. blog to see where investors will be and what they’re thinking about.
  3. Your peers (other startups) do it.  If you’re not participating in online conversations, you’re missing a world of good advice and perspectives.  Click over to Rick Segal’s blog or  StartupCFO, Mark MacLeod’s Blog. It doesn’t really matter that these guys aren’t involved in biotech. Lots of startups are facing similar issues to yours — funding, staffing, etc. and getting out of the biotech bubble from time to time can be a good thing.  Plus, being at a startup is isolating, particularly in biotech with its strong incentives to run a virtual company, so go online to find peers, mentors and other resources.

If this all sounds reasonable, but you’re still skeptical, or not interested, then find someone in your organization who’s excited about it, regardless of their actual job, and set him/her loose.  [Not totally loose, of course. Common sense is critical online because it’s hard to hit “undo” on the web, and appropriate confidentiality remains key to biotech ventures.  But all your people have common sense and discretion, right?]

We’ll be keeping an eye out for biotechs and other bioscience companies that are making good use of social media as part of our Biotech Trends series this coming year.  Other suggestions for 2010 biotech trends?  Let us know

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Gairdner Breakfast: Nobel and Gairdner Winners Discuss Biotech and Pharma’s Pipeline Problems

As part of the  Gairdner Foundation’s 50th anniversary celebrations this week, there was a breakfast panel this morning with a lot of brainpower (even for MaRS). Cal Stiller lead a discussion by David Baltimore, Phillip Sharp and Corey Goodman who between them have three Gairdner awards and two Nobel prizes.

These top-notch scientists also have truly impressive corporate expertise: Board members of Amgen, Biogen and Limerick BioPharma. They turned their attention to “unclogging the pipeline.”

David Baltimore discussed reasons we’ve seen fewer approvals:

  1. Higher regulatory safety barrier.
  2. Low-hanging fruit is gone. A lot of targets are for diseases that are not fatal in the short term, which (see #1) creates a high safety barrier. Also, he says the molecular targets are harder.

Baltimore also identified potential areas of success: a subject area (immunotherapy) and a structural area (UCLA medical center’s translational research institute).

Phillip Sharp talked about the changing structure of early stage and translational funding.

  • VC is re-thinking their model, but pharmas are reaching out earlier in the pipeline with incubators and academic outreach; and there is more public funding available to move products further along the pipeline.
  • Trends he identifies: personalized medicine (patient-driven with $1000 genome); and a huge role for engineers and incremental improvements.

Corey Goodman starts with some stats:

  • current success rate is closer to 1 in 25, not the 1 in 10 number still cited from the 1990’s
  • cost of a new drug (R&D dollars divided by successful approvals) around $3 billion.

Nevertheless, Goodman sees upside due to huge unmet medical needs, deficient pipelines and vast academic output.

Panel discussion:

Will healthcare reform plans interfere with the United States’ (hidden) subsidization of global drug development through high prices?

  • Baltimore points to $80 billion pharma deal that avoided price controls, but says prices are unsustainable.
  • Sharp agrees that costs can’t be a bigger part of GDP, but it’s a big bucket even at current levels and there is room for efficiencies that don’t impact reimbursement.
  • Goodman says importation can’t be prevented long-term based on a safety argument, so we’ll have to deal with pricing more globally [regardless of U.S. health reform efforts].

Aren’t early-stage acquisitions still (and permanently) the outliers?

  • Baltimore thinks there will be a number of early-stage transformative technolgies that yeild early successes, but VC and other early funders need to be more stringent and keep an eye on the long term potential of even very early stage products.
  • Sharp thinks that academia is not well-suited to disciplined discovery, and if the policy goal is to develop more products, we’ll need structural changes in academia.

The panel wrapped up on an optimistic note.  Not surprising — how can you not feel good in Gairdner season? Speaking of Gairdner season, don’t forget to check out this year’s winners.

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