Originally published in The Metropolitan Corporate Counsel, Inc., November 2006.
The Editor interviews Cheryl V. Reicin,Partner, Torys, LLP.
Editor: Ms. Reicin, we last spoke in September of 2004. Would you tell us something about the evolution of Torys’ life sciences practice during the past two years?
Reicin: The life sciences practice has grown dramatically. We have expanded in all the disciplines that are specific to the life sciences industry. That includes financing and mergers and acquisitions for life sciences companies, corporate and tax structuring for these companies, IP, IP litigation, licensing and regulatory. As we have grown, we have sought out the best attorneys we can find in each of these areas who have deep industry experience. Most of the professionals in our group are fulltime life sciences practitioners, but we do have another group of attorneys who spend part of their time in life sciences and the balance in general technology.
Editor: What kind of background and education do your practitioners have?
Reicin: There is considerable variation. Our IP practitioners have science backgrounds, and a number have master’s degrees and Ph.D.s. Many of our corporate lawyers have science backgrounds as well, but we also have attorneys with MBAs and prior industry experience. The group has a practical business orientation, so the MBA component has been particularly helpful.
Editor: Would you characterize the group as having a southbound practice?
Reicin: I joined Torys to continue to conduct a U.S. practice and to serve a growing demand for a strong southbound practice (Canada into the United States). There is a need for a southbound practice because of the considerable number of biotech companies in Canada and the difficulty of obtaining local funding. Let me qualify that by saying that funding in Canada may be difficult, but it is not impossible. In any event, biotech companies have an unquenchable need for funding and need to access both U.S. and Canadian funding sources.
In addition, if a life sciences company is going to be successful, it must be able to enter the U.S. market for the distribution of its products. Canadian and other non-U.S. companies, accordingly, must have a U.S. mindset. At Torys, we are fortunate to have had tax lawyers on both sides of the border. This has permitted us to come up with interesting structures to make the financing of Canadian companies more attractive. In light of the tremendous need for financing in this area, a law firm with a flair for creative financing is going to do very well.
Editor: It sounds as if this is a truly global practice.
Reicin: It is. We counsel our clients to have a global orientation from the outset. When a company is thinking about a cure for cancer, it is not a cure for cancer in Tel Aviv or Toronto. It is a global cure. We strategize with our clients about where to find financing, where to conduct clinical trials, the best site for manufacturing, the best location for a CEO and most beneficial corporate and tax jurisdiction. Every biotech enterprise, whether located in Boston, San Diego, Toronto or Israel, must think like a global company.
Editor: I gather that your clients may have a base in Toronto, but that they might come from anywhere.
Reicin: A substantial part of my practice is with U.S. and Israeli biotech and medical device companies and companies in other cities in Canada, as well as with investment banks and venture capitalists located worldwide. We also do a large portion of our work for the big pharmaceutical companies. Ours is truly a global practice.
When Torys set up its New York office it did so with the intention of establishing a full-service office, as opposed to a small representative office. I think that brands the firm to a certain extent, and it also reflects the fact that many of the firm’s clients are playing in the global arena. At least half of our life science clients have no Canadian connection whatsoever.
Editor: A practitioner in this area has to cover a pretty wide area. Would you share with us some of the dimensions of such a practice?
Reicin: As a corporate attorney, I oversee a great deal of activity – aside from patent prosecution, which is handled by a separate department; this activity includes company formation, venture capital financing, public offerings, strategic partnerships, acquisitions and mergers, and licensing. I hasten to add, we work closely with our patent prosecution colleagues. It is often important for patents to be broken down in order to make the most effective licensing techniques available. We also coordinate our work with tax experts because much of what we do involves international tax structuring.
In a practice such as mine, venture funding is of particular importance. There was a lull after 2000, but it has picked up momentum in the last few years. By the beginning of this year biotech venture capital had reached a crescendo and has now subsided again – temporarily, we hope. The nature of venture capital has changed as well. There was a time when we advised our clients not to go public too early if they wished to receive venture capital support. Today many venture capitalists have become favorably disposed to doing PIPE transactions – a PIPE transaction is a private investment in a public company – whereby a venture capitalist can obtain liquidity in the public market. The venture capitalist does a private placement and thereafter the shares are registered and may be traded publicly. Venture capitalists are also advocating reverse mergers into public companies. They are looking for liquidity.
Editor: How about acquisitions and mergers?
Reicin: At present this is a hot area. Over the last few years it has been difficult for many life science companies to go public the traditional way. Last year there were only 17 biotech IPOs in total in the United States, and we were involved in two of them. There are two reasons for this state of affairs. First, the large pharmaceutical companies need product. Many of their own drugs are now going off patent and these companies are willing to buy a biotech company at an earlier stage of its development than the pharmas would have in the past. Consequently, a young life sciences enterprise that would have gone through several rounds of financing and then been ready for a public offering is acquired before reaching that stage. Second, markets are much more discriminating. The chances of a life sciences company succeeding are slim, and investors are becoming more rational in their investment decisions. In fact, most of the money that has been made by investors in the biotech public markets has been the result of "shorting" these stocks – in other words betting against the company’s success.
Editor: And worldwide licensing?
Reicin: We represent more large pharmaceutical companies than any law firm in North America, and we handle a great deal of worldwide licensing work both to and from big pharma. Traditionally, big pharma have handled their legal work inhouse. However, the deals have become larger and more complicated, and companies are increasingly sending their sophisticated licensing transactions to the few firms with the expertise to handle them. We are getting a greater volume of this work.
Editor: Litigation is also an important aspect of the life sciences industry.
Reicin: There is a saying that if you are not being sued on your patents, it probably means your IP is not worth much. We have a group of litigators who specialize in patent lawsuits. This type of litigation is very costly, but because IP protection is essential and without it a company can be prevented from receiving further funding, it can be a "bet the company" case. I spend considerable time with our IP prosecutors and litigators in pre-litigation strategies, both offensive and defensive. It is essential that these companies have a strong anticipatory position in the present climate.
Editor: In 2004 the life sciences sector began to attract substantial investment as a consequence of renewed interest from venture capital firms, pharmaceutical houses and individual investors. What prompted this interest?
Reicin: The signal has been around for a while: the large baby boomer generation is aging, and boomers are demanding innovation to extend their lives and enjoy a quality of life. This generation has a strong desire for health technology and possesses the means to pay for new products. When the tech boom came to a halt in 2000-2001 many investors lost money, and that put a temporary damper on investment in technology. That is over now. Investors know that life sciences is a growing industry, and they also know that the big pharmaceutical companies are looking for product.
Editor: You have commented on Ontario’s adoption of U.S.-style disclosure liability laws. What impact is this having on Canadian companies?
Reicin: Companies are gearing up to comply and to make sure that they disclose in a way that resembles the disclosure required in the United States. However, I suspect that the level of disclosure for companies public only in Canada will still lag. Only once a strong plaintiff bar infiltrates Canada, will companies get really serious about disclosure. Plaintiffs’ law firms are beginning to set up shop and get focused in Canada as we speak.
Editor: Your comments on stem cell research have also received media attention. For starters, why is Canada – and Toronto in particular – so well placed to meet this particular challenge?
Reicin: Canada does not have the degree of regulation that prevails in the United States. In Canada, there is more freedom to do stem cell research, and the volume of work in this area is increasing.
I believe that stem cell research will go forward. We are hopeful that this science can be helpful in curbing diabetes, and we know it can be used to treat neurological diseases. So long as there are patient populations that need the results of this research, the dedicated scientists who work in this area will find a way to meet the ethical and political issues. Just recently a company in Massachusetts announced that it knew how to use embryonic stem cells without destroying the embryo. That is good news for everyone and, perhaps, a reflection that this movement cannot be stopped.
Editor: Where would you like this practice to be in five years?
Reicin: My goal would be to play a substantial role in every significant life sciences transaction in Canada and to continue to grow as one of the major life sciences players in North America. The practice will develop in response to growing industry needs. We just try to be proactive and stay a few steps ahead of our clients.
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