Where’s the money?

The 2009 Canadian Life Sciences Industry Forecast has been released. It makes disturbing reading.

The report, prepared by BIOTECanada and Pricewaterhouse Coopers, was based on interviews with 167 respondents from public and private life sciences and biotechnology businesses representing a total of approximately 5,000 employees across Canada with combined revenues of ~$2 billion.

Perhaps the gloomiest part of the document is the description of the collapse of Canada’s life sciences VC sector.

Venture Capital is now considered the 3rd most likely source of capital in the life sciences sector.  THIRD!!!

Consider also the major retraction from 2006 when almost half of respondents expected to be able to secure VC funding.

Now, if you are thinking that this decrease is simply a reflection of the global economic meltdown, you may be surprised to learn that VC investments in the US were only marginally down in 2008 (eight per cent decrease in dollar terms and a four per cent decrease in deal volume) versus 2007.  In Canada, by contrast, there was a a 38% decline in dollar terms in VC investment in 2008 vs. 2007 and the proportion of life sciences deals also shrank by 13%.

The IPO window has been closed to life sciences companies since 2007 in both the US and Canada so our nascent biotechs must be able to secure a strategic partner sooner rather than later in order to survive.  Therefore, entrepreneurs have to start with the end in mind – which companies would be likely receptors for the technology and how can it be advanced to the point a strategic partner would be interested as quickly and cheaply as possible?

At the recent Genesys Capital Partners Symposium held at MaRS on May 5, Ken Galbraith, General Partner of Ventures West, made a spirited defense of venture investing and said that the basic problem is risk avoidance.  There would be no possibility of superior returns, he said, without taking on significant risk.  To be attractive, a company has to be developing first-in-class products that will ensure market dominance for partners and superb returns for investors.