Biotech and Venture Capital in the
21st Century:
Conventional Wisdom vs. Creative
Vision
November 14th 2007
Presented by: Richard J. Meadows
Managing Partner , co-founder
CTI Life Sciences Fund
Copyright Richard Meadows 2007
Biotech as perceived by the general
population.
Copyright Richard Meadows 2007
Two-in-five (40%) Canadians do
not know the meaning of the word
“biotechnology”.
Study Of Biology And Technology/Biology
Health Care Related/Cure For Disease
It’s Science/Research And Development
Genetics/DNA Alterations
Advance In Technology/Improve Life
Environmental/Nature
Improve Crops/Food
Animals/Study Of/Testing On
Enhance/Produce/Better Products
Using Live Organisms
Using Our Natural Resources
Plant/Vegetation
Use Of Chemicals/Chemistry
Other
Nothing
Don’t Know/Refused
10%
9%
7%
6%
6%
4%
3%
3%
3%
3%
1%
1%
1%
3%
1%
Source: 2007 BIOTECanada Report
Copyright Richard Meadows 2007
What is Biotech?
• Biotechnology in simple terms is the
manipulation of a living organism to
produce various services and goods.
• Recent popular examples include
recombinant DNA techniques, the
manipulation of tissue cultures and the
creation of genetically
enhanced foods.
Copyright Richard Meadows 2007
Conventional Wisdom
“We associate truth with convenience…with
what most closely accords with self
interest and personal well-being.”
John Kenneth Galbraith
Copyright Richard Meadows 2007
3 Conventional Wisdoms about Biotech
1) Canada is an inconsequential player in
biotech.
2) No one has made money in biotech.
3) There is enough money to fund good
Canadian companies in biotech.
Copyright Richard Meadows 2007
Biotech in the World Market
Copyright Richard Meadows 2007
Snapshot of the World Biotech
Market
USA Europe Asia/Pacific Canada
Sales & Revenues $72b
Annual R&D
$19b
No. Companies
>1500
No. Employees
>146000
No. Public Comp. 363
Market
Capitalization
$491b
(15.1b)
$12b
$5b
>1600
>68000
120
$3b
$0.3b
>700
12000
140
$26b
$15b
$2b (4.2)
$0.6b (1.7)
>500
7440
81
$14b
Source: Biodirectory.it (Burrill & Co 2006)
Copyright Richard Meadows 2007
Key U.S. Player: San Francisco
Biotech
• Considered by many the birthplace of the modern
•
•
•
•
•
biotech industry (Genentech founded in 1976).
Boasts over 800 companies employing more than 85,
000 people and generating $4 billion in revenue
annually.
Home to Genentech (makers of Avastin) and Amgen,
two of biotech’s biggest winners.
The City of San Francisco offers a generous 7.5 year
payroll tax exemption to biotech companies.
S.F. biotech was first in Venture Capital Investment—
recipient of 34% of total U.S. VC funding.
An average of 30 more biotech companies are
founded per year in the bay area.
Sources:Biotechnology Industry Organization, BioBay
Copyright Richard Meadows 2007
Key U.S. Player: Massachusetts
Biotech
• There are some 280 companies located in
•
•
•
•
•
Boston and Cambridge.
Currently there are some 30,000 biotech
workers.
Over the last five years employment in the
industry has increased 10% annually.
Based on the market curve there is estimated to
be more than 100,000 workers by 2010.
Currently 8% of the world’s total pipeline of new
drugs (both pharma and biotech) come from
companies headquartered in Massachusetts.
Biotech accounts for 18% of the states venture
capital investment.
Source: Massachusetts Biotechnology Council
Copyright Richard Meadows 2007
Global Phamaceutical Market
Source: Frost & Sullivan, Pharmaceutical News
Copyright Richard Meadows 2007
Don’t Discount the Cost….
“The Tufts Center for the Study of Drug
Development has announced that the average
cost of developing a new biotechnology product
is $1.2 billion… $1.2 billion estimate reflects the
costs of drugs that fail in testing and the time
costs associated with bringing a new
biopharmaceutical to market. Of this amount,
capitalized out-of-pocket preclinical cost totaled
$615 million, while similar clinical period cost
totaled $626 million”
Source: Patent Baristas
Copyright Richard Meadows 2007
Top 100 Innovative Drugs Under
Development – Biotech as Important
Source of Pipeline/Products
Source: LAZARD, R&D Dimensions 2006
Copyright Richard Meadows 2007
New Biotech Drug and Vaccine
Approvals/ New Indication
Approvals by Year
Biotechnology Industry Organization
Copyright Richard Meadows 2007
Funneling Compounds from the
Laboratory to the Market
Copyright Richard Meadows 2007
Source: NewsEdge,PhRMA
Value Creation vs. Value Capture
The Real Curves
$
Value
Capture
Value Building
Curve
Value Recognition
Curve
Discovery
Cost of Development
Grants
$
100k
Preclinical
$5-25m
Phase I
$10-20m
Phase II Phase III
$20-50m
Seed
Series A
Series B
Series C
1M
5 – 10M
10 – 20M
20-30M
$100m+
Mezz/Publ
30M+
Copyright Richard Meadows 2007 Source:D.Ho BDC Health Ventures
Conventional Wisdom #1
Canada is an inconsequential player in
biotechnology…
Copyright Richard Meadows 2007
Overview of the Canadian Markets
Copyright Richard Meadows 2007
North American Biotech Companies
by State and Province
Copyright Richard Meadows 2007 Source: Ernst & Young 2006
The Canadian Market
The Statistics
Number of companies
Revenue
R&D Expenditure
Number of public comp.
Number of IPOs
Market Capitalization
2006
2005
532
$4.2b
$1.7b
81
2
$15.1b
490
$3.8b
$1.5b
82
4
$15.3b
Source: Statistics Canada 2007, Ernst & Young 2007
Copyright Richard Meadows 2007
Canada’s Relative Position in the
World Biotech Market.
USA Europe Asia/Pacific Canada
Sales & Revenue
by Company
$48m
Market Capitalization
By Company
$1.35b
Sales & Revenue
By Employee
$7.5m
$4.3m
$216m
$107m
$493,000 $176,000
Copyright Richard Meadows 2007
$250,000
$4m
$173m
$268,000
Source: Burrill& Co 2007
Distribution of Companies by
Province
Province
Quebec
Ontario
British Columbia
Alberta
Manitoba
Saskatchewan
Atlantic
Number of Firms
181
144
93
51
19
18
25
Copyright Richard Meadows 2007
%
34%
27%
17%
9%
4%
3%
5%
Source: Statistics Canada 2007
Distribution of Biotech Firms
by Sector
Source: Ernst & Young 2006
Copyright Richard Meadows 2007
Overview of British Columbia’s
Biotech Industry
• Seen as the seventh largest biotech
market in North America based on
number of companies in the province.
• Home to >90 biotech companies with
over 1,500 employees.
• B.C. is home to three of the most
successful biotechnology companies,
Angiotech, Anormed and Aspreva
Pharmaceuticals.
Sources: biospace.com, BC Biotech,
Ernst & Young 2003 Biotechnology report,
Copyright Richard Meadows 2007
Overview of the Ontario Biotech
Industry
• Ontario is home to over 140 biotech companies
•
•
and employs more than 8,000 people.
Based on the number of companies located in
Ontario, it is the fourth largest biotech sector
(province/state) in North America.
Ontario public biotech companies created over
2,500 jobs and reinvested over $291 million in
R&D during 2005.
Sources: Biotechnology Council of Ontario
Copyright Richard Meadows 2007
Overview of the Quebec Biotech
Industry
• Ranked third largest biotech market in North
•
•
•
America.
Home to approximately 180 companies and over
4,500 jobs in biotech.
Biotech has planted itself firmly in the province
with the help of a solid research infrastructure
with the Biotechnology Research Institute, McGill
University, and Gernome Innovation Quebec.
Quebec is Canada’s main stage player in venture
capital management with 48% of the country’s
investments in venture capital (CDN $10.6
billion)
Sources: Bio Quebec, Investissement Quebec,
Copyright Richard Meadows 2007
Canada – Biotech
A pipeline which seems to be
stalled
Number of companies financed
120
100
80
60
in the 90s, the number
of early stage
financings is decreasing
• In spite of the number
40
20
0
600
• After a sharp increase
96
97
98
99
'00
'01
'02
'03
'04
'05
'06
Total amount invested (Can$M)
500
400
300
200
Total
100
0
96
97
98
99
'00
'01
'02
'03
'04
'05
'06
Early Stage
Late Stage
of early stage
financings, there is no
increase in the number
of late stage financings
– The pipeline is still
too young…
– … or it is not
progressing
Copyright Richard Meadows 2007 Source: Thompson Financial
R&D Among the G7 Countries in
Biotech
Source: KPMG’s Guide to International Business Costs, 2006 Ed.
Copyright Richard Meadows 2007
Conventional Wisdom #2
No one has made money in
biotech…
Copyright Richard Meadows 2007
Medical technology has delivered
superior returns to investors for a
decade….
Total Shareholder Return
Medical Devices
Financial Services
Steel
Pharmaceuticals
S&P 500
Ind. Conglom
Cons. Pkg. Goods
Biotechnology
Auto Components
Tire and Rubber
Multi- Utilities
1997-2006
16%
12%
10%
7%
6%
5%
3%
-3%
-4%
-7%
-11%
Copyright Richard Meadows 2007
Source: Boston Consulting Group
US: Performance is Largely Due to First
Quartile. The Money is Directed to
Performing Managers
Copyright Richard Meadows 2007
Source: Giles Durufle
Private Market Valuations on the
Rise
80
Flat Round
Down Round
Up Round
70
60
50
40
30
20
10
0
Life Sciences Life All 05
All 06
Non Life
Science All
06
Non Life All Life Science
05
All 04
Sources: n=791 Life Science Co. in the Bay Areas Who Raised Money in 2006: Fenwick&West LLP
Copyright Richard Meadows 2007
Short Term Gains
• The largest one day gainer of 2006, due to
•
clinical results was Accorda. Postive phase 3
results for their drug Fampridine-SR (multiple
sclerosis) shot their shares up 283% in one day!
As the sector matures there are a large number
of programs reaching late stages increasing the
number of opportunities for high returns.
Copyright Richard Meadows 2007
Source: Signals Magazine
Conventional Wisdom #3
There is enough money to fund good
Canadian companies in biotech…
Copyright Richard Meadows 2007
U.S. – Biotech
The pipeline is progressing
450
Number of companies financed
• The number of early
stage companies
financed remains
constant
400
350
300
250
200
150
100
• The pipeline is
50
0
96
97
98
99
'00
'01
'02
'03
'04
'05
progressing
'06
Total amount invested (US$M)
3500
3000
• The growth in the total
2500
2000
1500
1000
500
0
96
97
98
99
'00 '01 '02
'03 '04 '05
'06
Total
Early Stage
Copyright Richard Meadows 2007
amount invested is
partly explained by the
progress of the
pipeline
Source: Thompson Financial
Canada – Biotech
The size of the rounds is much smaller
Compared to the US, in 2002-06 :
than in the US
• Canadian GDP is 9%
Average size of the rounds (‘000 Can$)
Early Stage
10,000
•
US
Canada
7,500
•
5,000
•
2,500
The number of early stage
rounds is 55%, whereas the
number of late stage is only 15%
The size of early stage rounds is
60 % and the late stage 33 %
Total amount invested: 10%
(33% ES, 5% LS)
0
96
97
98
99 '00 '01 '02 '03 '04 '05 '06
Late Stage
Number of companies Canada vs US
120%
30,000
25,000
ES
90%
20,000
X1.6
15,000
60%
LS
10,000
30%
5,000
33%
14%
0%
0
96 97 98 99 '00 '01 '02 '03 '04 '05 '06
96 97 98 99 '00 '01 '02 '03 '04 '05 '06
Copyright Richard Meadows 2007
Overall Canada VC is not yet performing
asset class. However, the pooled first
quartile is above the indices by 5%
Copyright Richard Meadows 2007
Source: Giles Durufle
Where does this leave us?
Copyright Richard Meadows 2007
The Changing Investment Paradigm
1995/1998
$15-30 mm
3-5 years
IPO
$150 MM
2-4
2005
Capital Invested
$40-80 mm
Average length
5 - 8 years
Exit Form
M&A > IPO
Average IPO price
$200 MM
Number of syndicate members 5-7
Source : JSB Partners
Copyright Richard Meadows 2007
Investment Strategy
Picking the "right" Value Inflection
Points
Size of round: $25-50M
Pre-Money $50-100M+
Post-Money: $75-150M
Bump Up: ≈ 3-5 x
Size of round: $1-5M
Pre-Money $5-10M
Post-Money: $6-15 M
Size of round: $5-15M
Pre-Money $10-20M
Post-Money: $15-35M
Bump Up: ≈ 2-3 x
Copyright Richard Meadows 2007
Problems with Canadian VC’s
Copyright Richard Meadows 2007
Source: Giles Durufle for CVCA
Raison D'être of CTI Life
Sciences Fund
"Where broad Operational and VC experience come
together to create and realize shareholder value in
Canadian Life Sciences Companies with pre-clinical
and clinical drugs and enabling technologies”.
Copyright Richard Meadows 2007
CTI Life Sciences Fund Overview
Emphasis on Quebec & Canadian life sciences companies
with pre-clinical, clinical drugs and enabling
technologies.
• An investment team that combines Operational and VC
experience.
• A unique pro-active exit strategy
Through active post investment management.
 Leveraging relationships with top advisors and US VC investors to
position companies for successful exits.
 M&A’s vs. I.P.O’s.

• First Close: CAD $71 million, June 20 2006.
• Target size: CAD $100 million, Achieved March 1 2007
Copyright Richard Meadows 2007
CTI Life Sciences Fund – People
Jean-François Leprince -Managing Partner
Accomplished leader with 30 years of multifunctional, multigeographical experience in the pharmaceutical industry
Richard Meadows-Managing Partner
VC experience in two multi-billion dollar private equity funds
along with 15+ years Business Development experience in the
pharmaceutical industry
Ken Pastor General Partner’s Representative
20 years experience in the financial market
Shermaine Tilley – Principal
20 years experience in the biotech industry, including
investment management, consulting, tech transfer and
strong academic experience
Copyright Richard Meadows 2007
Acknowledgements
Analysis and Presentation:
Matthew B. Meadows
Source Material:
Gilles Durufle,2007 BIOTECanada Report, Datamonitor,
Frost & Sullivan, Pharmaceutical News, Patent Baristas,
NewsEdge,PhRMA, D.Ho BDC Health Ventures,
Thompson Financial, Food and Drug Administration,
Biotechnology Industry Organization, BioBay,
Massachusetts Biotechnology Council, biospace.com, BC
Biotech, Ernst & Young 2003 Biotechnology report,
StatsCan-2001 Biotechnology Use and Development
Survey, Biotech Ontario, Bio Quebec, Investissement
Quebec, JSB Partners, Biodirectory.it,CVCA, Boston
Consulting Group, Biotechnology Council of Ontario,
Brurrill & Co, Statscan 2007, Signals Magazine and The
Wall Street Journal.
Copyright Richard Meadows 2007