www.pwc.com/ca/lifesciences
The missing
ingredient
Canadian Life Sciences
Industry Forecast 2013
Contents
1Preface
2
Key findings
3
Survey respondent profile
4
Outlook & challenges
10 Access to capital
14 Government partnership
16 3 Ps – Products, profits & places
20 Liquidity – Mergers, acquisitions & strategic alliances
23 What’s next for the sector?
26Contributors
Preface
Over the past two years, the Canadian life sciences industry has endured despite significant global economic uncertainty.
The data gathered from this year’s respondents provides evidence of a sector that is showing positive signs of maturity.
Yet it again highlights access to capital as the missing ingredient that will continue to constrain the sector’s success.
The innovative industry leaders who form our respondents, the survivors of a protracted period of capital shortage,
provide evidence of this maturity as they are: focusing more on their product development and current businesses;
looking for more partnering transactions than before; asking for larger amounts of capital to align with their product
development milestones; and the majority are starting to earn profits.
The industry must remain at the leading edge of innovation, but it won’t happen in isolation. Canada has made
progress in securing important building blocks for a growing bioeconomy. The need for coordinated actions from all
parties remains. By working together, industry and governments can set in place a competitive market framework
that will attract investment and allow the Canadian life sciences industry to play a significant role in the long-term
health and prosperity of Canadians.
PwC’s fifth Canadian Life Sciences Industry Forecast, presented in collaboration with BIOTECanada, is designed to
understand the challenges and concerns of the Canadian life sciences industry, explore new trends and communicate
recurring themes. The online survey, conducted in October 2012, was completed by 69 respondents from corporate,
academic, government and other organizations in the industry. The information gathered and contained within
this report builds on findings from previous reports and provides an overview of current industry issues and trends,
augmenting the dialogue on pertinent industry issues.
Prabh (Bob) Singh
Andrew Casey
National Leader, Pharmaceuticals and Life Sciences
President and CEO
PwCBIOTECanada
Key findings
There are a number of key findings from the forecast that can be used by industry and
government to shape the future for the Canadian life sciences sector.
1. Outlook & challenges
Short-term confidence has declined slightly due to the difficulty of raising capital.
Respondents have progressed in the product development life cycle and need in excess of
CA$1 billion of capital to achieve further growth.
2. Access to capital
Access to capital remains challenging, with Canadian organizations increasingly looking for
partnerships and licensing strategies to fund operations.
3. Government partnership
A majority of respondents are asking the government to facilitate access to risk capital and
ensure existing capital programs and incentives are broadly applicable to support the life
sciences sector.
4. 3 Ps – Products, profits & places
Respondents to our survey are more mature companies with more than half of the
respondents indicating current profitability. About 79% of respondents will use new capital
in their operations for growth displacing research and development (R&D) as the number
one choice for the first time. Over three quarters of our respondents indicate that they do not
plan to relocate any portion of their business activities outside of Canada.
5. Liquidity – Mergers, acquisitions & strategic alliances
The Canadian life sciences sector continues to evolve with pharmaceutical companies facing
continuing pressure from a number of blockbuster drugs coming off patent, low R&D
productivity, changes in healthcare reform and the advent of personalized medicine.
Companies have adapted by altering their business models and are seeking licensing or
mergers and acquisitions (M&A) as a solution to their growth challenges.
2 Canadian Life Sciences Industry Forecast 2013
A total of 69 respondents primarily from corporations
in the industry contributed to this year’s Canadian life
sciences industry survey. The respondents represent a total
of approximately 1800 employees across Canada and have
revenues of approximately CA $0.6 billion.
Survey respondent profile
All regions of Canada were represented in this year’s survey,
with 48% of companies’ head offices based in Ontario, 28% in
Western Canada (Manitoba, Saskatchewan, Alberta and
British Columbia), 17% in Quebec, 4% in Atlantic Canada and
3% in other international locations.
Of the life sciences organizations surveyed, 84% have less
than 100 full-time employees and 16% state that they have five
or fewer full-time employees.
Over half (55%) of survey respondents consisted of chief
executive officers or presidents of the organization, 20% were
chief financial officers, and the remainder included various
positions such as chief operating officer, business development
and regulatory affairs.
Of the companies which disclosed whether they generated
revenues, more than half reported that they currently generate
revenues. About 47% of revenue generating companies
reported revenues of less than CA$5 million annually.
Companies that were privately held accounted for 66% of all
respondents, while 32% were public companies (Figure 1).
The respondents surveyed cover a breadth of products and
services with the largest area of focus being therapeutics
(28%), followed by branded pharmaceuticals (26%), medical
devices (17%) and diagnostics (12%).
Figure 1: Respondent business
Life sciences/
biotechnology –
public 32%
Life sciences/
biotechnology –
private 66%
Research or academic
institute 1%
Provider of financial
capital 1%
Canadian Life Sciences Industry Forecast 2013 3
Outlook & challenges
41% of Canadian
respondents are moderately to
extremely confident about the
industry’s long-term outlook.
4 Canadian Life Sciences Industry Forecast 2013
The Canadian life sciences sector continues to show
determination and resiliency even though, like other sectors of
the Canadian economy, it’s faced significant challenges as a
result of the global economic slowdown. Nevertheless, the
fundamentals remain strong. The business respondents to our
survey, similar to the 2011 respondents, are seeking in excess
of CA$1 billion of capital and there’s a strong view that
governments need to help stimulate capital formation.
Compared to global pharmaceutical and life sciences CEOs
who participated in PwC’s 16th Annual Global CEO Survey,
respondents to our survey were much less confident than their
global counterparts. Forty nine percent of global
pharmaceutical and life sciences CEOs are very confident that
their organizations will be able to generate higher revenues
over the short term, and 46% are very confident of being able
to do so over the next three years1.
1 PwC. (2012). 16th Annual Global CEO Survey. http://www.pwc.com/gx/en/ceo-survey/index.jhtml.
Retrieved February 22, 2013.
In Canada, respondents’ short-term confidence has declined
slightly from our 2011 report: 67% of respondents are
somewhat to not at all confident in the short-term outlook for
the Canadian industry versus 63% in 2011. When asked about
the industry’s long-term outlook, 59% of respondents continue
to indicate they are somewhat to not at all confident versus
41% who are moderately to extremely confident. The decrease
in short-term confidence from our respondents is consistent
with the expectation of low economic growth in Canada and
United States in the near term. The long-term outlook is
similar to 2011 results. It is interesting to note that more of our
respondents are focused on their current business (as seen in
Figure 14). As they achieve successes, we anticipate that the
longer term confidence in the industry should strengthen.
Canadian Life Sciences Industry Forecast 2013 5
Not surprisingly, 58% of respondents have indicated that the
most challenging factor for their organizations over the next
two years will be the raising of capital (Figure 2). Attracting a
licensing or strategic partner has become an even more
important issue – 54% of respondents indicated it as a
challenging factor compared to 43% in 2011. It’s also
interesting to note that an increasing number of respondents
believe product development will be the third most
challenging issue that they’ll face in the next two years – 42%
compared to 31% in 2011. This change is positive and suggests
that respondents’ companies have moved to a later stage in the
product development life cycle. This factor seems to be even
more prevalent in Quebec, where 61% respondents have
indicated that product development will be the most
challenging factor for their organization.
The focus on attracting and retaining key employees noted in
2011 has dropped from 39% in 2011 to 28%, suggesting that
respondents believe they currently have the talent needed to
move forward on achieving their key business objectives.
Figure 2: Which of the following issues do you feel will be the most
challenging over the next two years for your organization? (respondents
were asked to select top 3 choices)
58%
60%
54%
Raising capital
54%
Attracting a licensing or strategic partner
43%
Consistent with all of the previous PwC Canadian life science
forecast reports, the biggest challenge for the Canadian life
sciences industry to become a stronger global competitor
continues to be the ability to access capital (87% of
respondents as per Figure 3). The industry faces additional
challenges including access to strategic partners (54%), and
the development of experienced entrepreneurs (33%).
Respondents continue to express the need for the
synchronization of various government initiatives within
Canada to further support their ability to compete in a
changing global market.
As seen in Figure 4, the top-rated critical success factor for the
industry continues to be access to capital. In the current year,
respondents now identify tax incentives that encourage
investment by providers of capital as the second highest critical
success factor. Access to experienced talent pool has jumped
back into the top three, slightly ahead of access to strategic
partners. More success stories from Canadian life sciences
businesses dipped slightly in the respondents’ rankings, but
clearly this is important in order to gain interest from investors
and from the government as the industry moves through this
difficult global economic cycle. Quebec respondents ranked
success stories as the second most critical success factor for the
industry, as it’s essential in attracting competing dollars within
a global organization and in the open market.
Figure 3: What do you believe are the key challenges for the Canadian
life sciences and biotech industry to become a stronger global competitor?
(respondents were asked to select top 3 choices)
87%
84%
78%
Ability to access capital
54%
46%
47%
Ability to access strategic partners
22%
42%
Product development
Managing the regulatory process
21%
Attracting and retaining key employees
Development of experienced entrepreneurs
31%
31%
32%
31%
28%
39%
25%
6 Canadian Life Sciences Industry Forecast 2013
2013
2011
2009
33%
32%
41%
Synchronization of various
government initiatives
33%
26%
17%
Availability of expertise within Canada
22%
33%
26%
2013
2011
2009
Accessing capital is a critical success factor,
but also an increasing challenge.
The decrease in the importance of Canadian venture capital to 23% is
alarming when combined with respondents’ desire to access capital from
any source. Respondents are frustrated with the lack of Canadian venture
capital since the beginning of this difficult economic cycle (i.e. late
2007). If future capital is only available from non-domestic sources, over
time Canadian technologies, and the companies that have developed
them, will migrate to markets that better support and value the
innovation and jobs created in this sector. This will further limit the
opportunity for successes in Canada. Policy makers must collaborate with
Canadian venture capitalists to identify the most appropriate types of
incentives required to reinvigorate interest in this industry in the short
term among institutional investors and pension funds. Of equal
importance is the need for Canadian venture capitalists to better support
Canadian life sciences innovation.
“The Canadian life sciences
sector desperately needs
new success stories to
increase the venture or
strategic capital available
to fuel new product
development initiatives.”
Survey respondent
If Canada is to capture a larger piece of the global bioeconomy pie, it must
maintain its competitive position globally. Other leading nations are
moving aggressively to position their life sciences industries at the
forefront of the next generation of economic growth. The allocation of
the CA$400 million recently announced by the federal government as
part of the Venture Capital Action Plan, to help increase private sector
investments in early-stage risk capital and support the creation of
large-scale venture capital funds led by the private sector, will play an
important role in how Canada keeps pace.
For a sample of recent Canadian successes, refer to the data on pages eight
and nine and recent commercial events on page 25.
Figure 4: Which of the following are critical success factors for the
Canadian life sciences and biotech industry now? (respondents were asked
to select top 3 choices)
Access to capital from any source
Tax incentives that encourage investment
by providers of capital
41%
24%
More success stories from existing
Canadian life sciences businesses
Increased Canadian venture capital
Positive financial markets
36%
38%
33%
30%
40%
Access to experienced talent pool
Access to strategic partners
75%
73%
30%
30%
28%
29%
33%
26%
23%
35%
33%
17%
18%
33%
2013
2011
2009
Canadian Life Sciences Industry Forecast 2013 7
Recent notable deals involving
Canadian companies
CANADA
CANADA
Financing
Bellus Health
CA$17 million
Share offering
CANADA
CANADA
Financing
Trimel CA$13
million Share
offering
CANADA
Financing
Novadaq CA$40
million Share
offering
M&A
Pharmascience
and Rivex
Pharma CA$8
million
CANADA
Financing
Financing
Oncolytics CA$21
million Share
offering
CANADA
Financing
YM Biosciences
CA$80 million
Share offering
CANADA
M&A
Valeant &
Afexa CA$85
million
Medicago
and Pharma
Partner CA$15
million Loan
CANADA
Financing
CANADA
Resverlogix
CA$25 million
Debt offering
USA
M&A
USA
M&A
Cephalon &
GeminX US$525
million
8 Canadian Life Sciences Industry Forecast 2013
CANADA
Financing
OncoGenex
Pharmaceuticals
US$50 million
Share offering
CANADA
Financing
Aeterna
Zentaris US$16
million Share
offering
M&A
USA
Methylgene
CA$26 million
Share offering
Financing
Bioniche CA$20
million Royalty
financing
Alexion & Enobia
US$1080 million
Financing
CANADA
Gilead & YM
Biosciences
US$510 million
SWITZERLAND
Strategic alliance
Genentech and
Xenon
CHINA
Strategic alliance
Medicago and
Philip Morris
Canadian Life Sciences Industry Forecast 2013 9
Access to
capital
Life sciences companies of all sizes
are interconnected. Through this
unique ecosystem companies rely on
one another.
10 Canadian Life Sciences Industry Forecast 2013
While gaining access to capital remains at the forefront,
Canadian organizations are increasingly looking to
partnerships and licensing strategies for funding (Figure 2 and
Figure 3). The survey results reveal that while 58% of
respondents view access to capital as the greatest near term
challenge, 54% believe attracting a licensing or strategic
partner will also be difficult (up significantly from 43% in
2011). Since 2009, biotechnology companies faced increasing
competition for strategic partners, with partnering deals in
2012 trending 10-15% below that of 20112 with very few late
stage partnering deals involving companies in Canada.
Redistribution of partnering dollars to academia and nonprofit organizations, coupled with financial pressures on
pharmaceutical companies, has materially changed the
landscape in the types of deals pharmaceutical companies are
willing to complete. As a result, respondents consistently
report that the most critical factor to success in the Canadian
life sciences industry is the ability to access capital from any
source that will allow companies to further develop products
and provide proof of efficacy data- a key milestone for
investors and partnering companies (Figure 4).
The survey results reveal that 64% of respondents cited
unfavourable industry and market conditions as the top
challenge to successfully raising capital for Canadian life
sciences businesses (Figure 5). This is down significantly from
80% in 2011, indicating that capital market challenges have
eased as companies recover and investors begin to invest in
growth again. The greater challenge now appears to be
investors’ understanding of the value proposition (Figure 5),
as they now place greater emphasis on proof of efficacy in
products in humans. The threshold for value creation has
markedly increased, posing a greater challenge for emerging
companies seeking funding. In addition, the cost to reach
these milestones has also increased significantly due to greater
regulatory requirements.
Figure 5: What do you perceive to be the top three challenges to
successfully raising capital for a Canadian life sciences and biotech
business? (respondents were asked to select top 3 choices)
Figure 6: Approximately how much funding will you be seeking in your
next round of financing?
35%
64%
Unfavourable industry/market conditions
for raising capital
80%
CA$0 - 5 Million
34%
44%
64%
15%
62%
Investors' inability to understand
the value proposition
CA$5 - 10 Million
49%
18%
17%
31%
33%
52%
Too many business risks for the investors
CA$10 - 25 Million
56%
34%
23%
38%
Investors have other more attractive options,
e.g. flow-through shares
51%
63%
NA
2013
2011
2009
CA$25 - 100 Million
15%
9%
12%
CA$100 Million +
2%
4%
4%
2 The Burrill Report, Vol. 2 Issue 9. September 2102. Partnering Dollars Decline for Biotechs.
2013
2011
2009
Canadian Life Sciences Industry Forecast 2013 11
Access to capital continues to be one of the most
significant priorities for respondents. With the
contraction of traditional capital sources, the
Canadian life sciences industry is challenging
itself by looking for new ways to access the CA$1
billion of new capital it will need.
Respondents seeking up to CA$5 million and those seeking CA$10
million to CA$25 million continue to be the most sought out
financing ranges (Figure 6). These amounts should allow
companies to achieve either proof of concept with less than CA$5
million or proof of efficacy with CA$10 million to CA$25 million;
both key milestones for raising additional capital. It’s also
interesting to note the increase in the respondents seeking funding
in the CA$25 million to CA$100 million category, suggesting a
further maturation of Canadian life sciences companies with
products in late stage clinical trials in the near future.
Figure 7: From what sources do you expect to get this funding?
(respondents were asked to select top 3 choices)
79%
84%
Strategic partners
35%
30%
44%
Using an average for each funding category (e.g. CA$7.5 million
for the CA$5 million to CA$10 million category), we estimate that
respondents are seeking in excess of CA$1 billion of new capital.
In Figure 7, respondents report the top three sources of funding
are from strategic partners (79%), private equity (44%) and
venture capital (42%), which indicates that public markets
remain soft for companies in the life sciences sector. In Quebec,
46% of respondents are seeking funding through a combination
of private equity and debt financing to bridge the gap.
Figure 7 also reveals that the number of respondents expecting
funding from private equity has increased to 44% from 29% in
2011, reflecting the recovery in Canadian private equity deal
activity since 2008. Over the last 24 months, the Canadian
market has seen 32 private equity transactions for a total
consideration of CA$197 million, compared to 23 transactions
worth CA$126 million in the two years from 2008 to 20103.
29%
20%
20%
Private equity funds
42%
42%
Venture capitalists
19%
27%
29%
37%
Government - federal and provincial
16%
24%
29%
25%
18%
17%
Angel investors
25%
24%
Debt financing
14%
14%
23%
22%
12%
20%
Secondary public offering
12%
18%
11%
Mergers and acquisitions
NA
12 Canadian Life Sciences Industry Forecast 2013
2013
2011
2009
2007
3 Captial IQ
The recent emergence of molecule development funds such as TVM Life
Science Ventures VII4 has resulted in an inflow of capital to fund
molecules or technologies instead of companies with diversified
portfolios, which we anticipate may facilitate strategic partnering at later
stages in technological development.
In addition to conventional methods of funding, there’s been growing
support from government and the investment community5 for new
alternatives to access capital that are less cost prohibitive for emerging
companies, such as equity-based crowdfunding6. As recently as
November 2012, reports of provincial support for crowdfunding
initiatives from the province of Ontario provide an encouraging outlook
for companies seeking funding outside of public markets. The province of
Quebec is also exploring how crowdfunding can be used to propel the
Quebec economy. Driven by public investors looking to get a head start on
the newest emerging technology, Canadian governments are asking
securities regulators to approve crowdfunding to prevent early stage
Canadian innovators from heading south of the border to the US, where
this investment structure is more proactively supported.
“We need to find ways
to support our biotechs
through subsequent
funding rounds sufficient
to ensure that they
remain competitive
internationally and can
keep our innovation in
Canada until it becomes
profitable.”
Survey respondent
4 Investment Quebec, July 2012, Trelays Capital and Eli Lilly Invest in a New $150M Fund.
5 The Financial Post. November 29, 2012. Ontario minister Duguid indicating support for equity-based
crowdfunding.
6 Crowdfunding is the practice of funding a project or venture by raising many
small amounts of money from a large number of people, typically via the Internet.
http://oxforddictionaries.com/definition/english/crowdfunding. Retrieved January 23, 2013.
Canadian Life Sciences Industry Forecast 2013 13
Government
partnership
Government
support is critical
to encourage much
needed investments
in the sector.
Industry and
government need to
work collaboratively
to create the policy
framework that will
support an innovative
life sciences sector.
14 Canadian Life Sciences Industry Forecast 2013
The challenge of access to capital is in many ways linked with the way
government policies and incentives are designed and implemented to
spur investment, innovation and long-term growth in our economy.
Ranked highly among other challenges facing the sector for which
government is directly responsible, is also the lack of synchronisation of
various government programs (Figure 3). Common tools used by
legislators to create incentives for deployment of capital in new and
emerging technologies include favourable tax incentives and research
grants and funding.
When asked what they would like government to focus on as the key
actions to support the competitiveness of the sector, the message was
clear and consistent with prior years. Respondents have ranked programs
to encourage availability of risk capital, increasing favourable tax
incentives, and more research grants as the top three government actions
(Figure 8). This is not surprising given the rising need for capital as the
sector matures and products progress through various trial phases. There
also appears to be a clear call to have all levels of government
synchronize their incentive programs and in so doing promote access to
capital, particularly in light of increased global competition for
investment in this sector.
Tax measures that encourage and reward investment in the Canadian life sciences
industry are identified as one of the most important initiatives governments can undertake.
Globally, there’s been a clear trend among emerging and
established economies that have announced significant
programs, which in whole or in part were designed to increase
economic support of the life sciences sector. Specifically,
countries such as Australia, France, Norway, United Kingdom,
China, India and Singapore have adapted their policies to
promote investment in the life sciences sector, which they
acknowledge will have a direct positive influence on innovation
and job creation. In Canada, the need for such policies becomes
even more important when attempting to foster growth in an
industry that is at its roots Canadian owned and operated (84%
of private company respondents indicated that they are
Canadian Controlled Private Companies (CCPC), up from 82%
in 2011) and driven by scientists and researchers from
Canadian academic institutions.
The level of Canadian federal and provincial tax incentives
and credits awarded for investments in R&D by life science
companies have remained stagnant over the last few years. In
fact, though the 2012 federal budget proposed changes to
reduce the Scientific Research and Experimental Development
(SR&ED) tax credit for large corporations from 20% to 15%,
the 35% refundable tax credit for CCPCs meeting the required
size tests on their first CA$3 million of SR&ED expenditures
remained untouched as a key source of capital for smaller
Canadian life sciences companies.
The introduction of new incentives similar to the British
Columbia Small Business Venture Capital Program tax credit,
and more direct funding by government as proposed by the
Jenkins report, may address part of the industry’s capital
needs. The most recent Quebec budget in which the R&D wage
credit was increased from 17.5% to 27.5% for companies with
more than CA$75 million in assets, is an example of measures
aimed to increase research spending by larger companies in
Quebec. As mentioned earlier, the recent announcement that
the federal government has made available CA$400 million to
reinvigorate the venture capital industry in Canada will also
hopefully have a positive impact for life science companies
seeking capital. The key to effectiveness of such programs will
be through focused initiatives in this sector.
In contrast to the importance of government involvement in
promoting access to capital and funding, improvement to the
regulatory process has continued on a downward trend over
the last few years (Figure 8). However, it’s also interesting to
note that when respondents were asked whether they would
support initiatives to change the traditional drug development
model to a live licensing7 concept over 50% supported change.
In past reports the majority were undecided. This suggests a
growing sentiment among respondents that there needs to be
a shift in the regulatory and approval process to bring
products to market faster, within the confines of patient safety.
Figure 8: What do you believe are the most important actions that government
can take to improve Canada’s ability to compete globally in the life sciences
and biotech industry? (respondents were asked to select top 3 choices)
87%
78%
75%
Create incentives for risk capital
NA
54%
63%
62%
67%
Create more favourable tax incentives
Research grants to companies
Improve speed of the regulatory process
51%
49%
38%
51%
28%
37%
37%
40%
2013
2011
2009
2007
7 Live licensing refers to the issuance of a license to market a product on a limited basis once it has
demonstrated sufficient efficacy, value and safety in an initial trial population, as opposed to the traditional
license granted after a lengthy regulatory approval process.
Canadian Life Sciences Industry Forecast 2013 15
3 Ps – Products, profits & places
Committed to Canada. 78% of survey
respondents have no plans to relocate
outside of Canada in the next two years.
16 Canadian Life Sciences Industry Forecast 2013
More than half of the respondents’ companies are currently profitable
with 50% of these companies generating profits of up to CA$5 million.
About 75% of companies not currently earning profits believe it will take
over three years to generate a profit. These results have remained
relatively consistent over the past few years.
Further evidence of the long timeline to generate revenues and profits
comes from the Canadian Life Sciences Database which indicates that
93% of current products are in the preclinical to phase II stage of
development (Figure 9). The length of time needed to become revenue
producing and ultimately profitable is a key reason why survey
respondents have identified access to capital as one of the top challenges
for the Canadian life sciences industry.
Figure 9: Number of biotechnology therapeutic products in
Canada’s pipeline (Source: Biotech Gate Life Sciences Statistics 2011 & 2012)
22
Phase III
Phase II
Phase I
Discovery and preclinical
30
26
72
76
79
72
72
73
149
154
141
2012
2011
2010
Canadian Life Sciences Industry Forecast 2013 17
Of our survey respondents, 78% have no plans to relocate some
or all of their business outside of Canada in the next two years;
this represents an increase from 70% in our 2011 survey.
Of the 22% of respondents planning to relocate, two-thirds
plan to head south to the US which is comparable to the
findings in 2011. Primarily, they plan to relocate their sales
department (13%), R&D (13%), manufacturing (13%) and
head office (13%). The number of survey respondents
indicating that they planned to relocate their entire operations
decreased to 7% from 14% in our 2011 survey. Reasons for
planning to move include access to capital, a larger customer
market, proximity to strategic partners and access to an
experienced talent pool (Figure 10). Better government
incentives decreased significantly as a reason quoted for
relocation (from 38% in 2011 to 7% in 2013).
18 Canadian Life Sciences Industry Forecast 2013
As noted in Figure 11, working capital and operations was
selected by 79% of respondents as the most likely use of
capital, up from 62% in the prior survey. This is an interesting
development, since it’s the first time in our survey’s history
that a category has ranked higher than R&D. When this
observation is combined with the increase in the likelihood of
using funds for manufacturing and marketing, it would
suggest a continued maturation of the Canadian sector.
R&D has continued to rank in the top three uses of capital at
75% currently, compared to 74% in the prior survey (Figure 11).
About 55% of respondents say that they plan on increasing their
R&D spending in Canada in the next year, down from 67% in
2011. A majority of respondents (68%) state that more than half
their R&D is performed in Canada; however this represents a
significant decline from the 87% reported in 2011.
Build it here. The life sciences industry is continuing
to grow and mature in Canada. Working capital and
operations becomes the number one use of capital
displacing R&D for the first time.
Figure 10: What are your main reasons for relocating your business?
(respondents were asked to select top 3 choices)
79%
53%
48%
44%
Access to larger customer markets
53%
29%
75%
74%
R&D
Manufacturing
24%
Proximity to strategic partners
62%
Working capital/operations
53%
52%
64%
Access to capital
Figure 11: What is the most likely use of funds from your round of funding?
(respondents were asked to select top 3 choices)
42%
39%
32%
14%
4%
35%
47%
45%
44%
Access to experienced talent pool
7%
Better government initiatives
38%
2%
Marketing/sales
32%
20%
25%
2013
2011
2009
Hiring key management expertise
33%
11%
2013
2011
2009
Canadian Life Sciences Industry Forecast 2013 19
Liquidity – Mergers,
acquisitions & strategic
alliances
20 Canadian Life Sciences Industry Forecast 2013
Figure 12 shows that 87% of respondents believe being
acquired or participating in a merger is the most likely
scenario for success. In addition to M&A, 80% of respondents
believe that co-development or partnerships are also a likely
option, up from 70% in 2011 (Figure 12). In Quebec, 92% of
respondents have actually ranked co-development or
partnerships as the most likely scenario for success.
These findings are reflective of the current economic
conditions, as access to both public and private capital is
limited and the public markets have not rewarded companies
with increased valuations based on positive clinical news. In
the US, the top ten deals of 2012 accounted for more than half
of the total value in transactions as pharmaceuticals
companies competed to build their pipeline by investing in
emerging technologies. From a long-term perspective,
building or maintaining a sustainable business continues to
retract as a scenario for success, down to 29% of respondents
compared to 33% in 2011, as does going public; a reflection of
the current financing environment and public company
valuations. The survey results continue to suggest that the
Canadian industry must address the need for large levels of
investment from both public and private sectors in order to
achieve the critical mass and scale required to effectively
compete on the global stage. This requires the government
and industry to work collaboratively to create an environment
suitable to retain operations in Canada and to create a
sustainable thriving industry.
8 Capital IQ
Figure 13 shows 76% of respondents believe valuation issues
are the main barrier to M&A in the industry. Valuation issues
were also the most highly rated choice in previous years,
largely owing to the perceived valuation difference among
shareholders and management versus partnering companies.
In addition, higher investor scrutiny and sensitivity to negative
or neutral events have resulted in sustained market volatility,
making valuation challenging for emerging companies
seeking investment dollars. In mergers between emerging
companies, funding remains the key issue, as it’s now
necessary to fund two clinical pipelines instead of one. The
total number of announced M&A deals in North America in Q4
2012 was 31, compared to 24 in Q3 2012 and 26 in Q2 2012,
bringing the number of announced deals year to date (YTD) to
141, similar to 2011 levels. Disclosed deal value YTD was
CA$57 billion. Canada continues to represent approximately
10% of the total deals by volume8.
Canadian Life Sciences Industry Forecast 2013 21
Trends in 2012 include deals in emerging markets; deals in biosimilars with both branded and generic companies coming together;
and pharmaceutical companies starting to license platform technologies again with some blockbuster early stage deals.
According to PwC’s Corporate Finance group, the North American life sciences sector continues to evolve in response to the
changes in the pharmaceutical industry. The industry today is seeing a number of key blockbuster drugs coming off patent, low
R&D productivity, changes in healthcare reform and the advent of personalized medicine. This has resulted in companies
altering their business models or seeking licensing or M&A as a solution to their growth issues.
Figure 12: What do you consider to be the most likely scenario for the typical
successful Canadian life sciences or biotech business?
(respondents were asked to select top 3 choices)
Being acquired/merger
66%
Co-development/partnerships
48%
87%
90%
Figure 13: What do you see as the most significant barriers to mergers and
acquisitions in the life sciences industry? (respondents were asked to select top
3 choices)
Valuation issues
80%
80%
70%
Funding
NA
Licensing or selling IP
46%
71%
71%
Lack of interest on the part of large firms
64%
Build or maintain a sustainable business
Going public
29%
33%
22%
38%
12%
25%
28%
22 Canadian Life Sciences Industry Forecast 2013
44%
47%
29%
30%
2013
2011
2009
2007
62%
54%
52%
51%
41%
27%
32%
36%
Conflicting management personalities
76%
71%
34%
47%
49%
2013
2011
2009
2007
What’s next for the sector?
Part of the answer to this question may be evident from the
data in Figure 14. Respondents indicate that the first and most
important action industry can take to improve Canada’s ability
to compete globally is to first focus on success in their current
businesses. Next, respondents suggest that a relatively equal
level of focus is required on increasing the volume of inlicensing and out-licensing of intellectual property (IP), the
effective lobbying government and the recruitment of
experienced senior management. In contrast, 70% of Quebec
respondents view effective lobbying as the most important
action the industry should undertake.
The 2013 survey data in Figures 7 and 12 demonstrates the
respondents’ strong focus on establishing strategic
partnerships as a means of accessing much needed capital,
which is consistent with their message that capital continues
to be the missing ingredient in their recipe for success. This
view is shared with global pharmaceutical and life sciences
CEOs, of whom 34% have indicated that they’ve entered into
new strategic alliances or joint ventures in the past year and
17% of whom believe this will present one of the main
opportunities to grow their businesses in the coming year9.
Accordingly, the Canadian life science industry needs to
position itself for successful partnering by thinking more like
potential investors and understanding the needs and wants of
its partners. Similar to large multinational pharmaceutical
companies, the industry must be able to provide leading
real-world data on the outcomes that its medicines or therapies
will deliver10. Canadian companies could also position
themselves for successful partnering by hiring management
teams that possess a strong understanding of customer and
consumer needs, and have experience partnering products
with large pharmaceutical or medical device companies. Close
to half (46%) of the respondents recognize the importance of
the consumer or patient in their decision making process.
Furthermore, employees that have had global experience in
creating a data package with strong IP and clinical results that
demonstrate a clear regulatory pathway to commercialisation
and reimbursement, should increase the likelihood of
partnering and M&A successes. A number of recent deals
involving Canadian life sciences companies with late stage
assets (e.g. YM Biosciences, Enobia, and Gemin X) serve as an
example of the value that can be generated for investors by
management teams that are able to identify and develop
mutually beneficial partnering or M&A arrangements.
9 PwC. 2012. 16th Annual Global CEO Survey. http://www.pwc.com/gx/en/ceo-survey/index.jhtml.
Retrieved February 22, 2013.
10 PwC. 2011. From Vision to Decision: Pharma 2020. www.pwc.com/pharma2020.
Retrieved January 23, 2013.
Canadian Life Sciences Industry Forecast 2013 23
Now is the time to position Canada’s life sciences industry as
central to the emerging global bioeconomy and enable the
industry to take advantage of global population growth and
economic development. A healthy and innovative life sciences
sector will play a central role in enabling Canada to maintain a
competitive and relevant position in this new global
bioeconomy. However, we acknowledge that this will also
require a reengineering of traditional industries, such as the
manufacturing sector more broadly, so they can support the
needs of this emerging bioeconomy. We are confident that
Canadian life sciences technology and ingenuity can propel the
sector beyond simply remaining competitive. Rather, with the
right partnerships and strategic investments we anticipate that
Canadian life sciences companies can become world leaders,
within a sustainable and thriving life sciences industry.
Figure 14: What do you believe are the most important actions that the industry
can take to improve Canada´s ability to compete globally in the life sciences
industry? (respondents were asked to select top 3 choices)
Continued focus on success in
current business
48%
36%
65%
65%
41%
37%
38%
Increase volume of in-licensing and
out-licensing of IP
NA
39%
42%
47%
49%
Recruit experienced senior management
39%
Effective lobbying to government
40%
41%
53%
28%
29%
35%
27%
Implement mergers or acquisitions
23%
Concentrate business in regional clusters
Support local, regional or
national industry associations
Active involvement in mentoring programs
24 Canadian Life Sciences Industry Forecast 2013
36%
21%
27%
15%
27%
19%
25%
12%
11%
17%
24%
2013
2011
2009
2007
Recent commercial events
Organization
Activity
DiagnoCure
US FDA approval for PROGENS PCA3 test
Miraculins
PreVu Non-Invasive Skin Cholesterol Point of Care Test CE
marked with distribution agreements in Canada
Paladin Labs
Announced Health Canada approval of Oralair™, a sublingual
grass pollen immunotherapy tablet
Cipher Pharmaceuticals
US FDA approval for Absorica
Covalon Technologies
US FDA approval for IV Clear
Covalon Technologies
US FDA approval for SurgiClear
Tekmira Pharmaceuticals
US FDA approval for Marqibo11
Medicago Inc
Commercial agreement with Philip Morris Products for
influenza vaccines
11 Equicom Canadian Healthcare Review, Q1-Q3 2012.
Canadian Life Sciences Industry Forecast 2013 25
Contributors
PwC Bob Singh
Ernesto Basso
Keshia Claxton
Shivalika Handa
Ahmed Jadoon
Gord Jans
Nitin Kaushal
Miriam Pozza
Lisa Simeoni
Naveli Gupta
Sharlene Sansone
PwC Alumni
Jacqueline Rullo
BIOTECanada
Andrew Casey
Cate McCready
Nadine Lunt
Interviewees
We would like to thank all of the survey respondents for
completing the survey and sharing their point of view.
PwC Pharmaceuticals and Life Sciences practice
We measure success by our ability to create the value that our
clients, people and the wider investing public are looking for.
We have extensive experience working with organizations across
the industry, including: proprietary and generic drug
manufacturers, specialty drug makers, medical device and
diagnostics suppliers, biotechnology companies, wholesalers,
pharmacy benefit managers, contract research organizations, and
industry associations. We also author numerous thought
leadership publications on emerging industry issues. For
additional information, please visit
www.pwc.com/ca/life sciences.
BIOTECanada
BIOTECanada is dedicated to the sustainable commercial
development of biotechnology innovations in Canada. It is the
national industry-funded association with over 250 member
companies representing the broad spectrum of biotech
constituents including emerging and established firms in the
health, industrial, and agricultural sectors, as well as
academic and research institutions and other related
organizations.
BIOTECanada is the national non-profit association dedicated
to building the bio-based economy in Canada. From cleaner
energy to sustainable agriculture; from greener
manufacturing to life-saving health therapies, Canadian
biotech firms are discovering ways to revolutionalize the
economy and improve our lives, everyday.
We are the voice of Canadian biotechnology to governments,
investors, stakeholders, and the public.
For additional information regarding this report, please contact:
Prabh (Bob) Singh
National Leader, Pharmaceuticals and Life Sciences
PwC
905 897 4519
26 Canadian Life Sciences Industry Forecast 2013
Andrew Casey
President and CEO
BIOTECanada
613 230 5585 ext 229
© 2013 PricewaterhouseCoopers LLP. All rights reserved. “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, wich is a member
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