Survey Says: Lack of cash still an issue for Canadian Biotech

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Compiled by Shawn Lawrence

This marks our fifth Hot Button Issue where we turn to you, our readers to get a better insight into the happenings in and around the biospace. This time through we upped the number of surveys from two to three with each survey targeted to its own unique group. The categories were 1) C-Level Executive, Entrepreneurs, Biotech Companies, Contract Research Organization’s and Contract Manufacturing Organizations; 2) Academia, Research Organizations and Institutions; 3) “Other”, a broad category where we hoped to get the rest of our readership involved in the Hot Button Issue dialogue.

From your answers the consensus among all of you is that everyone from industry, to research institutions and governments and at all levels, needs to be more active in promoting our scientific achievements and explaining to the public and investor communities both the need and benefits of biotech and the life sciences.

Moreover, from your answers you all have expressed, despite your affiliations, that you share many of the same concerns, face the same challenges albeit in different parts of the research and development spectrum and most importantly are looking for solutions that will make Canada’s biotechnology sector stand out globally.

As such, the results of our latest Hot Button Issue should be taken as an opportunity for the Canadian biospace to dig deeper into the real problems, challenges and hopefully to find some solutions.

Here’s a round-up of what you had to say:

C-Level Executives, Entrepreneurs,Biotech Companies, CRO and CMO Results

We asked the biotechnology industry, everyone from C-Level Executive, Entrepreneurs, SME’s, CRO’s, CMO’s and service providers 13 questions to get an understanding of the state of the industry.

In addition to giving their feedback on the current state of the industry, they also proposed a series of recommendations.

The first question we posed to our readers was how is the business of biotech faring in Canada? The overwhelming majority in this category saw it as faring poorly. For starters, readers gave Canadian companies a failing grade in terms of commercialization and what financing does exist, is too focused on discovery research. As such, there is minimal commercial biotech in Canada beyond the multinationals.

The companies that struggle the most are our start-ups and SME’s due to an overall capital and financing shortage. Alarmingly 77.3 per cent of our reader that took the survey stated that financing is harder to come by.

“Financing an early stage life science company in Canada is harder than walking on water,” stated Robert Foldes, Mentis Partners. Theresa Kennedy, vice president communications Resverlogix Corp. expanded on this with her own colourful comments; “Considering the absolute beating it has taken it is remarkable that it is still standing. The public markets can be a lethal trap for those caught up in the grips of some hedge funds while those private companies who cannot become public will die. It’s like a scene from a Stephen King novel but with a touch more cruelty.”

The next question to our readers was how they would rate Canada’s innovation performance. The conference Board of Canada recently gave Canada a D on its innovation performance, ranking it 14th among 17 countries. Our readers seemed to agree.

“Canada is place where good ideas can be developed and more importantly the talent to make the ideas tangible, but proof of concept is dying at the commercialization stage,” stated our own editorial board member and head of the Erie Agri-Food Innovation Initiative John Kelly
“Our Innovation record is good, our invention record is abysmal. There are lots of good ideas and talent to make these ideas tangible, but no carry through because the support systems are not there,” was one response we got back while another was that it’s not from a lack of good ideas and talent, but rather an ability to capitalize.”

The driving factor of this failure according to our readers is that companies in Canada simply don’t have access to enough capital or the resources to generate it.

The fact biotech is itself a high risk sector has left the investor landscape barren.

So what types of programs, government funded, venture based or other would help to alleviate the situation? Some solutions our readers gave were Small Business Innovation Research (SBIR) grants and flow through shares (shares that are currently issued by Canadian oil and mineral exploration companies who pass the tax breaks for exploration onto their investors and thus making the industry attractive to investors).

“An SBIR program to help companies move technology through is imperative. They can help companies mature with some protection,” states Grant Tipler, head of the Life Sciences & Health Services team of the Knowledge Based Industries group at RBC Royal Bank.

Many current funding or financing opportunities have too many strings attached or are limited by certain conditions, which may not be favourable to the business long term. This is a big reason that IPO’s are not being explored by Canadian private companies, because they lead to the loss of alternative funding opportunities.

Our readers agreed that the SR&ED program has been a boom for biotech in this country, but it too is bogged down by bureaucracy.

Too much time is wasted on reviewing the funding. “I think we have to do more than just the continuation of the SR&ED Tax Credit Program, we have to expand the SR&ED program to small public companies and equalize the program provincially across Canada,” stated Tipler. Another suggested improvement made by our readers was to make the SR&ED Tax credit payable quarterly.

Our readers are also looking for a new venture capital vehicle with deep sector knowledge. Current vehicles committed to providing such funds are considered too bureaucratic and inconsistent by our readers, moreover, many of these organizations offering these funds seek to leverage their investments to meet multiple and diverse goals that are not always conducive to the biotech’s seeking them.

“The U.S. has a better understanding of the sector and specialized VC’s who understand the long cycle of products, its regulatory pathway and time it takes to get the product on the market, that’s the type of vehicle we’re looking for,” states Bojana Turic, president and CEO, PMI Labs.

Another suggestion to improve the venture capital situation was to create a reward program which encourages multinationals to invest in R&D in Canada, rewarding them for partnerships with small Canadian companies and universities. Whether it’s accomplished by rewarding investors, or providing grants that match invest funds or tax incentives, more needs to be done to make the industry attractive to investors.

On another front, the shortage of capital has had a direct effect on current job outlook for Canadian biotech. Approximately 30 per cent that took our survey called the outlook below average while another 39 per cent called the current situation poor. On top of this 65 per cent commented that the industry as a whole wasn’t doing an adequate job of recruiting and retaining its talent.

CEO’s were quick to point out that this was more than just an HR-related issue.

Specifically, because companies are struggling so intensely on surviving there is no focus on retaining talent. The lack of capital has also lead to loss of jobs on two fronts. 1) Through mergers of companies that have left people on the outside looking in, and 2) Investment issues are making it tough for companies to keep their workforce. As such job security in biotech is at an all time low.

It should be noted here, that the suggestions for improving the financing landscape for Canadian biotech have always been a recurring theme in all our Hot Button Issue surveys to date. But are these suggestions making any headway with government? We posed this question to our readers and more than 76 per cent responded that government wasn’t listening to what the life sciences field was telling it. If nothing else, industry needs government to get the message that government can be of assistance in three ways: through the aforementioned funding solutions, through supporting the development of permanent scientific infrastructure in Canada and through more friendly tax policy.

This leads into the debate on scientific infrastructure with Canadian Science Policy and how it compares with other developed countries. In this area the majority of CEO’s in their responses were looking for more direction from government. While the majority (56.2%) rated Canada’s science policies as average, more than a quarter (30.4%) felt it was poor in comparison to other developed countries. All agreed that things could be done to improve the situation beginning with the appointment of a chief Science Advisor for Canada.

Senior people in government tend to be lawyers and economists without an understanding of science. Owing to the absence of scientist in government and at the cabinet level, government just doesn’t understand the importance of the industry and the role it could play in the provincial and national economies in the very near future, or the role it is already playing.

Public sector researchers also feeling the pinch

In our third survey we posed questions to individuals involved with Academia, Research Organizations and Research Institutions to gage what they viewed as priorities in improving the sector.

The first question we posed to them was what is the state of research and innovation in Canada? Surprisingly, just 20 per cent felt research and innovation was performing at an above average clip, while 31.4 per cent of respondents felt that research and innovation was performing below average. The rest, 45.7 per cent, rated Canada’s research and innovation performance as merely average. For a country that has prided itself on its scientific achievements, these responses were somewhat discouraging.

So what was the reasoning behind these responses? Firstly, insufficient funding has forced research and development efforts into neutral. At the same time, other jurisdictions, such as the U.S. are pressing ahead. Funding is playing a major role as due to the recent economic downturn; Canada chose to hunker down while other nations forged ahead.

Not surprisingly, the most staggering number to come from our surveys was perhaps the 82.9 per cent of researchers that felt the priorities of funding agencies were out of sync with what the Canadian biotechnology and life science industry needs. Just 14.3 per cent said that found it the same as in the past but they were also quick to add that the funds available were not monetarily enough to survive on.

Additional administrative burdens in the grant application process are definitely being seen, and because of the recent economic downturn, early stage R&D and gap funding (Technology transfer stage) have already been particularly weakened in Canada.
Respondents commented that the size of grants have not kept pace with the increased cost of labour and supplies.

The suggestions for rectifying the problem ranged from increasing the average grant size, to taking funds and allocating them directly into human resource development, thus addressing recruitment challenges through training programs that give candidates with right experience and skills to work in the bio-economy.

Moreover researchers suggested that the current funding practices by government agencies are too short term, and thus recommended that for funding to truly work, funding agencies need to commit stable funding so that recipients can plan for longer term research and development, and actually have a chance at finishing what they started.

Government still not getting the message
When asked whether they felt that government recognized the important role science, technology and innovation could play in the economy of the future, 57.1% of our readers felt that government didn’t recognize it, nor is it committed to improving the situation.

Many were appreciative that commercializing research was the focus of the government’s current science and technology policy, but questioned the implementation of this policy.

“They still need to recognize the needs, as in what should be funded. Funding basic science for the sake of doing science and claiming they are supporting the industry is just not enough, especially when funds are not allocated properly.”

Canada’s efforts in establishing a sound science policy didn’t score too highly on our survey either as the majority (52.9%) called Canada’s science policy below average in comparison to other developed countries.

“We are the only G8 country without a government scientific lead,” said one respondent.

Human Resources
Like the “C-level” and “Other” survey groups, 63.6 percent stated that the Canadian biotechnology and life sector wasn’t doing an adequate job of recruiting and retaining talent.

“We recruit actively and with success, however, market conditions and investment in Canada are likely to fail in retaining talent as it is often attracted abroad by better investments, or the talent is required to relocate following de-investment from international companies closing Canadian subsidiaries or limiting their Canadian activities,” stated manager, business development Univalor, Louis Provencher.

One senior scientist perhaps summed it up best stating that Canada is not going to attract the best and brightest minds when there is little job security and even less renumeration.

“A fresh PhD graduate as a post-doc earns $40,000 per year. Smart people are not fools to choose such a career when the job prospects are very limited with no long term future.”

Non C-level and Academic Researcher Responses

For those who didn’t fall under the category of academic researcher or C-level executive surveys, this time around we offered a third option. This category included venture capitalists, life science bankers, angel investors and others. Not surprisingly, where the questions didn’t differ from the other categories, the results were quite similar.

Like the CEO category, the first question posed to this group was how the business of biotech was faring in Canada. In response 50 per cent said that business is performing below average while another 20 per cent said it was performing poorly.

Once again the lack of capital is the key issue behind the lag in business, and many survey takers indicated their feelings that while other industries are enjoying a bit of a bounce back from the economic downturn, for biotech and the life sciences, the worst is not over. Many small biotechnology companies are too busy just scampering to survive as opposed to maximizing returns to their shareholders, while the larger ones are scaling back. There is also a feeling in the industry that a short term vision of survival has set in and it is a mode the industry can’t get out of it.

However, research and innovation graded highly with these respondents with 40 per cent rating Canada’s performance as above average and 10 per cent calling it excellent. But while they graded Canada’s research capabilities well, they also felt that Canadians have limited success in getting the fruits of our research into the marketplace. Worse still, when Canadians do manage to get their products into the marketplace, often they have sold off commercial rights to their products in order to sustain themselves.

“It’s a brutal cycle,” said one respondent. “The industry is starved for equity capital because it has not generated a track record of returns.”

Like the C-level survey, to alleviate the situation or aid biotech SMEs this group called for more tax incentives to both the companies, and to investors as a means to get risk capital flowing back into the coffers of these companies.

As with the other two survey categories, we posed the question does government recognize the important role science, technology and innovation can play in the economy of the future? Approximately 60 per cent said yes, but that while they’re listening, the actions are minimal. They felt that there were many ways that government could take a role, beginning with the aforementioned investment and tax incentives and also easing the strain regulatory agencies put on cash strapped biotechs during the patent process.

We also posed two human resource related questions in this category of, the first, what is the current job outlook for Canadian biotech and second whether they felt Canadian Biotechnology and Life Science sector was doing an adequate job of recruiting and retaining talent.

In terms of job outlook, 55.6 per cent said it was below average and another 11.1 per cent gave it the lowest grade as poor. In response to the latter question 60 per cent said no.

A major priority this group wanted to get in front of government was the lack of senior management and addressing the lack of commercialization expertise by encouraging programs that focus on commercialization in academic institutions to compliment the focus on discovery. Both are considered major barriers to growth in the industry by this group.