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The availability of research and development and venture capital
funding is critical for Canadian life sciences companies. Without
available risk capital, Canadian entrepreneurs cannot create and
commercialize innovations.
The environment for raising venture capital funding has been
very difficult over the last several years, but we are pleased to
report some good news from 2011.
According to the Canadian Venture Capital and Private Equity
Association and Thomson Reuters, total venture capital market
activity in Canada grew to $1.5 billion in 2011, up 34 per cent
from the year before.
Specific to venture activity in biopharmaceuticals and other
life sciences sectors, financings were up 15 per cent from 2010 at
$343 million (2010 life science venture investment was up 38 per
cent from 2009).
In the United States, venture capital investment in 2011
increased to US$28.4 billion in 3,673 deals, compared to US$21.8
billion in 3,277 deals in 2010, an increase of 22 per cent in
dollars and 4 per cent in number of deals, according to the
MoneyTree" Survey Report by PricewaterhouseCoopers LLP and the
National Venture Capital Association, and based on data from
Thomson Reuters. Coming off modest growth in 2010, biotechnology
investing increased 22 per cent in dollars in 2011, but decreased 9
per cent in number of deals, with US$4.7 billion invested in 446
deals.
It is interesting to note that over the past six years, overall
venture capital investment in Canada and the United States has
moved more or less in tandem. However, the gap between average
amounts invested in Canadian companies compared to U.S. companies
eroded in 2011, with Canadian companies on average raising only 37
per cent of the amount raised by their counterparts in the United
States.
Some of the recent and more notable reported Canadian life
sciences venture deals are listed below.
While venture capital investment increased significantly in
2011, venture capital fundraising did not fare as well. New
commitments to venture capital funds were almost unchanged between
2010 and 2011 at $1 billion. In contrast, fundraising in the United
States increased by almost 32 per cent to more than US$18
billion.
As a partial response to relatively weak fundraising activity
over the past few years, the federal government's recently
released 2012 budget commits $500 million over five years to
stimulate and support venture capital activities in Canada.
Although short on details, the government's commitment
recognizes the importance of the venture capital industry to the
growth of Canada's innovation economy.
By its nature the venture capital model is dependent on
successful exit transactions. Venture returns crystallize only when
a company makes a public offering or when it is acquired.
Successful venture-backed life science IPO and M&A exits are
critical to attracting additional capital to Canadian early stage
life sciences companies.
M&A activity in the pharmaceutical and biotechnology sectors
outside Canada continued to be robust. In Canada however, there
were only a handful of notable deals in the past year, including
Alexion Pharmaceuticals Inc. US$1.1 billion purchase of Enobia
Pharma Corp and Cephalon's (NASDAQ: CEPH) $525M acquisition of
biotech Gemin X (followed in November 2011 by the acquisition of
Cephalon by Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA)). In
addition to the larger biotech deals, there were also some
significant strategic add-on medical device acquisitions involving
Canadian targets, such as OraSure Technologies' (Nasdaq: OSUR)
acquisition of Ottawa-based DNA Genotek Inc. for $50 million in
cash.
These deals represent the latest Canadian biotech buyouts by
international pharma companies at a time when biotech IPOs are few
and far between (there were zero Canadian life sciences IPOs in
2011). Overall, however, Canadian life sciences companies have been
far less involved in M&A activity than their counterparts in
the U.S. and other international markets.
In our view, conditions remain conducive to continued life
sciences M&A activity in 2012. Pressures on biomedical
companies of all sizes to reduce the costs and risks of product
development have been and will continue to be a catalyst for
mergers and acquisitions activity. Further, major pharmaceutical
firms continue to look to fill their product pipelines through the
acquisition or licensing of biotech assets. The year 2012 will
continue to see large pharmaceutical and device companies search
out attractive add-on acquisition targets in Canada and elsewhere
to help them address their strategic and competitive
challenges.
As one of Canada's largest law firms, Gowlings has been
privileged to act as legal counsel in a number of important
biotechnology and life science funding and M&A
transactions.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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