Bio Business: Describe the current biotech climate in Canada.

Baum: It’s episodic. We’re going through a period of what I would call relative stability. I think we’ve come out of a period of activity, where companies were either doing poorly or very well and getting acquired. The current crop of companies is relatively stable. I still think it’s unfortunate that the biotech equity markets in Canada are challenging. The retail investor and, in fact, institutional investor are both focused on the resources. So in that regard it’s still very, very challenging. The lack of venture capital and early-stage financing exacerbates the problem of public markets—companies have to go public earlier because it’s the only way they have to raise cash.

Dennis: The one thing that has always worried me about Canada is that people say we are lagging behind in innovation. That’s not exactly what I would say; it depends on what they mean by innovation. There are a lot of new ideas around and good research in universities and government labs. The real problem is commercialization.We are really lacking the ability to take good ideas and commercialize them. What tends to happen is that we develop a good idea, and take it to the states—the Americans then commercialize it and sell it back to us at a high price.We’re missing out.

Bio Business: How can we get around the funding barrier and inspire Canadian investors to back biotech?

Brenders: This year, our joint study with Pricewaterhouse- Coopers indicated that the next round of financing is a larger tranche than we’ve seen in previous years: 40% are looking for over $20 million. That tells me there are more mature companies, seeking greater funds to get to milestones and that they are likely going global to get that financing. The sadness in any of this is that they have to go out of the country to find that financing, and that our Canadian investment community isn’t stepping up like other countries do. But our companies are closer to positive profitability— it’s only a couple years away. I think we will see a lot of investors looking out at a lot of successful companies in 2010 and kicking themselves for not getting involved in 2007. By then we will see profitability and tremendous valuation growth, and many people will have missed the boat.

We need to start highlighting our successes [to inspire Canadian investors]. The more we highlight the growth and successes of a lot of companies—both public and private—[the more] opportunities we will stimulate.

The other piece I’ve been pointing out to investors is how far the money can go, [due to things like] SR&D tax credits, and recognition of LLCs. The U.S. community is ecstatic about [the latter]. That should be noise for a lot of people too. U.S. investors are excited to put their money in Canada—shouldn’t that be a bit of a wake up call?

Nascimento: Events like NBW certainly help biotech in Canada. The Ottawa Life Sciences Council with their Top 10 program did a roadshow we participated in last year—we found it very useful. In fact, we met two of the three VCs that ended up participating in our financing on that tour. I think Canadian companies have to get out there and showcase what they have a little bit more. Don’t be afraid to get out there in front of international investors.

We’ve had the opportunity to listen to other companies.There are a lot of promising life sciences companies out there and I’m hopeful there will be some good news stories to further leverage the opportunities for companies that are right now just at the blue sky basic research stage. Hopefully they will pave the road.

Bio Business: Is it inevitable that a Canadian company will have to look south (or overseas) for required funding? Is there increasing interest from U.S. VCs?

Baum: I think the Canadian industry is perceived as credible outside our borders. Increasingly people just look at the company, [not necessarily] where it is located. That being said, for a company like us, the challenge is ‘are we big enough?’ U.S. investors’ concern is much less ‘are you Canadian?’ and much more ‘what’s your market capital, what’s your liquidity?’ Ultimately if a Canadian company is going to be successful [in the U.S. or internationally], they will have to get listed in the U.S. or Europe. That’s simply because we don’t have the specialists with the level of interest in biotech in Canada that they do in the States.

[And if you want U.S. investment], you have to spend the time, visit the institutions, the banks and analysts and try to get known.We’re not so far away that that’s difficult to do; it’s just a matter of spending the time and effort.

Brenders: We’re appearing more on foreign investors radar screens. Hosting BioVenture Forum East in Montreal this year had tremendous resonance. There were 60 U.S. VCs there and they were wowed to see the breadth of our technology. Historically, [Canada] hasn’t been on their radar.

We now see a lot of successes getting large amounts of funding from U.S. investors—and as international investors become more comfortable with Canadian companies and doing business in Canada, our companies and technology will [increasingly remain located] in Canada. The SR&ED tax credits, which offer credits for work done in Canada, also help to keep the business here. Even if at some point a company is acquired, often a lot of scientists come back to work here or stay and work here on new companies. In that sense, the serial entrepreneur could be a good thing.

Dennis: The problem is that in Canada we tend to be somewhat risk adverse. The timeframe of moving from an idea to an actual product is long—seven to ten years is a long time for any investor to have the money tied up. But you can find that money easier in the States. There have been a lot of times when we’ve been down there when they’ve said, ‘we’re willing to put a lot of money into your company, but only if you move to St. Louis.’

Greenfield: You can’t, as a Canadian firm, survive without going into the U.S. For a Manitoba firm, Minneapolis is closer than Toronto or Calgary, and has more people. Chicago is similar. Geography dictates that we look at the largest market, and that’s the reality of the U.S. Americans are very accepting of Canadian technology—if the technology is sound, and the price is right, we [Nordevco] believe we can be competitive on quality and our approach.

Huet: It’s harder than [ever] to raise cash, and for a company like Victhom, the market is clearly in the U.S. More and more we have to turn to our [southern] neighbors to raise the necessary capital for us to continue our R&D. Of course the competition in the U.S. is difficult.You need top technology in order to compete.U.S. investors want to see good technology…[no matter] which country it’s coming from. In Canada, we have good scientists and we have a good image…and it’s cheaper for U.S. people to invest in Canada than to invest in the U.S. However, what we do see is that VCs would like to invest in companies that are closer to them. It’s not a written [rule], but you can see that they prefer to invest in companies in their own backyard. Fortunately [for many of them] Canada is not far. That’s the reason we have access to U.S. capital.

Nascimento: There is a greater interest of the U.S. VCs to invest in Canadian companies. [It used to be] a challenge.We’re seeing this [increased interest] because some of the hurdles with respect to investments are being removed, and quite simply, because of the source of great opportunities that exists up here. U.S. VCs were so impressed by how far we were able to go with so little financial resources…that was one thing that attracted them. Government programs up here allow companies to move forward quickly without a lot of resources. There is a pool of opportunity up here that just needs to be mined.We need to add value, create value, and extract value from these opportunities.

Bio Business: Describe the changes in our tax environment.

Brenders: The government has gone as far as to say they are looking to modernize, or improve the SR&ED system, beyond simply administration. They’re hearing us and hearing the community to make substantive changes.

Right now, [BIOTECanada] is staying focused on three changes: Increase the refundable R&D expenditure limit from $2 million (which was set in pre-NAFTA 1985) to $10 million to reflect the cost and breadth of research done in Canada today. Remove the current Canadian-controlled private corporations restriction (for refundable credits while maintaining the eligibility)— there’s no reason for it, especially as companies go global looking for global investors. [We need to] make it internationally competitive for companies to do their work in Canada, irrespective of ownership. Finally, adjust the taxable capital threshold—as companies get larger, bring that threshold up from $10 million (again, set over 20 years ago) to a more realistic $50 million.

We’re expecting the government to engage in some formal consultation later this year, and our hope is that we will see some movement in the 2008 budget.

Bio Business: What are the main HR challenges in Canada’s biotech industry, and how can they be overcome?

Brenders: It’s always a challenge to continue to bring more highskilled talent into the country. In our recent (PwC/BIOTECanada) report, we saw that access to experienced senior management continues to be a concern—it’s sometimes more of a regional challenge—but there are certain jobs that are tougher to fill than others. One that jumps up all the time is a global regulatory affairs person. [But] it takes time, and as our success continues to grow, I think those challenges should [be reduced].

Rivet: The main barrier to success is [developing] job-ready graduates— they need experience. That’s our biggest challenge. For our industry, you have be in school a while and you have to be taking science. The sooner we can get to kids and encourage them not to drop their sciences, the better.We’re also in discussions with colleges and universities to find ways of getting experience for their grads, looking at competencies and curriculums. Our Career Focus program has been great. Industry really got on board. By hiring someone under that program, companies have given that person the experience they need. That addresses our biggest challenge and opens doors for these people. When the program started last January, we had 19 companies involved and 39 people were placed. This year so far, we have 12 companies involved and 34 people placed. But the program is ending March 31, 2008, and the government is thinking twice about running it again. That’s a shame.

We’re also creating resources for the industry—things like how to do practical assessments.We’re developing our industry models and competency and career profiles (four in particular: CEO; VP manufacturing; IP Officer and regulatory affairs associate).We’ve also identified NOCs (National Occupational Classification)— for example, the government uses these job descriptions for immigration and for surveys.We identified at least 48 NOCs that are currently not listed. Little wonder people aren’t aware of our shortage of people, or that the skills aren’t there.

Bio Business: Is the public perception of biotech in Canada changing?

Brenders: Every year we survey Canadians—we see some movement in terms of moving the needle in that area. As Canadians get more engaged, and as public officials get more engaged, we start to see changes in policy. And when policy changes (like LLCs and a recognition of SR&ED changes) that’s our true success. It shows that the government and our policymakers are responding to what the public perceives as important. And that’s where your ultimate measure comes in. We’ve had more success in the last two years than we’ve seen in some time in terms of policy changes.

Dennis: There seems to be a pulling away from accepting knowledge and innovation in Canada, and it bothers me a lot. We’ve suffered from this anti-GMO stuff, from terrible misinformation, and a general lack of public knowledge, and I don’t think our media do a good job of promoting technology like this very well. The amount of time the media devotes to talking about science is limited. Having said that, I’m tremendously optimistic. Everyone is talking about the gloom and doom of climate change, but I think ultimately, technology can solve problems like that. I think we should be much more optimistic about science and technology, I think it can save the world.