Biotechnology Focus August/September 2016

INSIGHTS FOR THE LIFE SCIENCE INDUSTRY

august/september 2016 VOLUME 19, NUMBER 4

Shaping Canada’s

Innovation Agenda INSIDE:

Looking for success stories in Canadian healthcare

Publication Mail Registration Number: 40052410

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FEATURES

contents

9

Looking for success stories in Canadian Healthcare How investors judge opportunities in the Canadian healthcare industry (By Wayne Schnarr)

August/September 2016 – VOLUME 19 – NUMBER 4

11

Improving the tax credit regime for life science companies

13

Looking for ways to help increase tax claim certainty and reduce administrative burden (By Elizabeth Pringle)

19

The Challenges of Patenting Medical Diagnostics in Canada Last year, the Canadian Intellectual Property Office (CIPO) announced changes to its examination of medical diagnostics methods but what do these changes mean to Canadian med tech companies?

(By Melanie Szweras and Carmela De Luca)

22

Elevating Ontario’s Innovation Ecosystem

Strengthening the province’s capacity to commercialize oncology breakthroughs (Compiled by FACIT)

26 13

Special Report: Building a better life science and biotech industry in Canada Biotechnology Focus readers put forth their Innovation Agenda priorities via our Hot Button Issue Survey (By Shawn Lawrence)

The importance of finding investors with great networks Capital needs aren’t the only thing you should be thinking about when seeking out investors (By Mark Carlson)

28 Canada’s place in the Global life science sector As Canada strives to be the best life science jurisdiction in the world, there are lessons that can be learned from our neighbor to the south (By Ella Korets-Smith, Frank Beraud, Cedric Bisson)

IN EVERY ISSUE

24 aCROSS CANADA

Genetic Discrimination: Creating a New Canadian Law (By Jeffrey Graham)

30

The Last Word Canadian biotech doesn’t stack up against the world’s best-Zymeworks front man Ali Tehrani asks why?

(By Ali Tehrani)

DEPARTMENTS 6

Research news

8

Business corner

29 Calendar of events www.biotechnologyfocus.ca

1:59 PM

August/September 2016 BIOTECHNOLOGY FOCUS 3

PUBLISHER’S note PUBLISHER/ EDITOR-IN-CHIEF SENIOR WRITER CONTRIBUTING WRITERS

Our readers lend a hand help shape Canada’s Innovation Agenda Comprehensive changes to the way the Federal Government supports science and innovation in Canada are coming with consultations on Canada’s Innovation Agenda well underway.

This issue reaches your desk with this Call to Action in mind, spotlighting what makes Canadian biotech great, and highlighting some of the areas we can become stronger.

We get things rolling with Wayne Schnarr’s roundup piece, “Looking for success stories in Canadian Healthcare.” As he explains, measuring success in Canada’s health technology sector is no easy task, and varies depending on one’s perspective. His article looks at the Canadian biotech landscape from the viewpoint of an investor and reminds us that they judge successful companies differently than government, economic development offices and the companies themselves. With the investors wish list in mind, he highlights some Canadian companies to keep an eye on.

Next, the results are in from our latest Hot Button Issue Survey. Senior writer Shawn Lawrence has poured through your responses and has written an article that paints a clear picture of what the industry wants from government. The survey was open to everyone in both the private and public sectors and at all organizational levels, from the c-level right on down. In all, 163 of you told us what you’d like to see from the Innovation Agenda.

As one of the biggest sources of government cash for private sector research and innovation in Canada, the Scientific Research and Experimental Development program (SR&ED) generated a lot of discussion, as did a call to expand the National Research Council’s Industrial Research Assistance Program (IRAP). Be sure to check out what other priorities were included in our special report.

For further reading on the SR&ED program, Elizabeth Pringle, the National Life Sciences Industry Lead for Ernst & Young LLP’s Business Tax Incentives Practices, discusses recent changes to the program itself while suggesting alternatives to strengthening the overall tax credit regime for life science companies in Canada, including looking south of the border for some inspiration Next, TO Health’s Ella Korets-Smith, Montreal In Vivo’s Frank Beraud and Teralys Capital’s Cedric Bisson cowritten piece “Canada Poised to be best in the World in Life Sciences Sector” recognizes Canada as a world class biotech hub whose greatest strength is working together to promote our successes in this arena. However, they add that there is still room to grow, and we must begin by looking to other jurisdictions for best practices especially in areas such as venture capital investment.

And finally, Ali Tehrani, no stranger to success, and perhaps the type of entrepreneur we need to hear more ideas from, asks the question why isn’t Canadian biotech with all its great science, visionary entrepreneurs and angel investors, ranked among the best in the world. In addition to posing the question, he endevors to answer it, offering three near and long-term solutions.

We have all this and more packed into this issue. We hope you enjoy it, as much as we enjoyed putting it together.

4 BIOTECHNOLOGY FOCUS August/September 2016

Terri Pavelic Shawn Lawrence Ali Tehrani

Carmela De Luca

Cedric Bisson

Ella Korets-Smith

Elizabeth Pringle

Frank Beraud

Jeffrey Graham

Mark Carlson

Melanie Szweras

Wayne Schnarr

GRAPHIC DESIGNER

Elena Pankova

CONTROLLER MARKETING MANAGER

John R. Jones Mary Malofy

CIRCULATION DIRECTOR Mary Labao circulation@promotive.net Tel: 905-841-7389

EDITORIAL ADVISORY BOARD Christine Beyaert, Roche Canada; Pierre Bourassa, IRAP, Montréal; Murray McLaughlin, Sustainable Chemistry Alliance; Ulli Krull, UTM; John Kelly, KeliRo Company Inc.; Peter Pekos, Dalton Pharma Services; Brad Thompson, Oncolytics; Robert Foldes, Viteava Pharmaceuticals Inc.; Gail Garland, OBIO; Barry Gee, CDRD; Bonnie Kuehl, Scientific Insights Consulting Group Inc.; Raphael Hofstein, MaRS Innovation; Roberto Bellini, Bellus Health; Peter van der Velden, Lumira Capital; Albert Friesen, Medicure Inc.; Ali Tehrani, Zymeworks Inc.

Biotechnology Focus is published 6 times per year by Promotive Communications Inc. 23-4 Vata Court, Aurora, Ontario L4G 4B6 Phone 905-727-3875 Fax 905-727-4428 www.biotechnologyfocus.ca E-mail: biotechnology_focus@promotive.net Subscription rate in Canada $35/year; USA $60/year; other countries $100/year. All rights reserved. No part of this publication may be reproduced without written consent. Publications Mail Registration Number: 40052410 Return undeliverable Canadian addresses to: circulation dept – 23-4 Vata Court, Aurora, Ontario L4G 4B6 National Library of Canada ISSN 1486-3138 \ All opinions expressed herein are those of the contributors and do not necessarily reflect the views of the publisher or any person or organization associated with the magazine.

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R&D news Stem Cell Scientists discover genetic switch to increase stem cell supply from cord blood

Dr. John Dick, Senior Scientist, Princess Margaret Cancer Centre (Photo Credit: UHN)

TORONTO, ON – A team of international stem cell scientists in Canada and in the Netherlands say they have jointly discovered the switch to harness the power of cord blood and potentially increase the supply of stem cells for cancer patients needing transplantation therapy to fight their disease.

The proof-of-concept findings, published online in Cell Stem Cell, provide a viable new approach to making more stem cells from cord blood, which is available through public cord blood banking, says co-principal investigator Dr. John Dick, senior scientist, Princess Margaret Cancer Centre, University Health Network (UHN), and professor, Department of Molecular Genetics, University of Toronto. The co-principal investigator on the project was stem cell scientist Dr. Gerald de Haan, scientific co-director, European Institute for the Biology of Ageing, University Medical Centre Groningen, the Netherlands.

“Stem cells are rare in cord blood and often there are not enough present in a typical collection to be useful for human transplantation. The goal is to find ways to make more of them and enable more patients to make use of blood stem cell therapy,” says Dr. Dick. “Our discovery shows a method that could be harnessed over the long term into a clinical therapy and we could take advantage of cord blood being collected in various public banks that are now growing across the country.”

Currently, patients needing stem cell transplants are matched to an adult donor with a compatible immune system through 6 BIOTECHNOLOGY FOCUS August/September 2016

international registry services. But worldwide, many thousands of patients are unable to get stem cell transplants needed to combat blood cancers such as leukemia because there is no donor match.

“About 40,000 people receive stem cell transplants each year, but that represents only about one-third of the patients who require this therapy,” says Dr. Dick. “That’s why there is a big push in research to explore cord blood as a source because it is readily available and increases the opportunity to find tissue matches. The key is to expand stem cells from cord blood to make many more samples available to meet this need.

And we’re making progress.”

Although there is much research into expanding the rare stem cells present in cord blood, the Dick-de Haan teams took a different approach. When a stem cell divides it makes a lot of progenitor cells immediately downstream that retain key properties of being able to develop into every one of the 10 mature blood cell types, but they have lost the critical ability to self-renew (keeping on replenishing the stem cell pool) that all true stem cells possess.

In the lab, analysing murine and human models of blood development, the teams discovered that microRNA (mirR-125a) is a genetic switch that is normally on in stem cells and controls self-renewal; this normally gets turned off in the progenitor cells.

“Our work shows that if we artificially throw the switch on in those downstream cells, we can endow them with stemness and they basically become stem cells and can be maintained over the long term,” says Dr. Dick.

In 2011, Dr. Dick isolated a human blood stem cell in its purest form – as a single stem cell capable of regenerating the entire blood system, providing a more detailed road map of the human blood development system, and opening the door to capturing the power of these life-producing cells to treat cancer and other debilitating diseases more effectively.

Dr. Dick is also senior scientist at the McEwen Centre for Regenerative Medicine (UHN) and director of the Cancer Stem Cell Program at the Ontario Institute for Cancer Research.

To see this story online visit http://biotechnologyfocus.ca/stemcell-scientists-discover-genetic-switchincrease-stem-cell-supply-cord-blood/

Animal cancer breakthrough could lead to human clinical trials GUELPH, ON – Cancer treatment in people could be transformed thanks to a study on treating cancer in animals led by researchers from the Ontario Veterinary College (OVC) at the University of Guelph.

Their findings in mice and companion animals such as cats are already leading to clinical trials to treat people with various forms of cancer. The researchers found that injecting oncolytic viruses (viruses that target cancer cells) intravenously into the spleen allows immune responses to be boosted much more rapidly and at much higher magnitudes than traditional vaccine methods. Typically, physicians need to wait weeks or months to administer a booster vaccine, with the down time potentially deadly.

“Normally, you have to wait until the immune response is down to administer the booster vaccine, but this means that, with severe and dangerous diseases, the response would wane,” said pathobiology professor Byram Bridle, lead author of the paper, published in the Journal of Immunology.

“You don’t want to give cancer any time to spread,” he said. “What injecting the viruses into the spleen does is it allows us to bypass the regulatory mechanism that would limit its effectiveness. When we conducted these tests in animals, we saw high success rates in treatment of cancer.”

He adds the findings apply to many types of cancer, including breast cancer, leukemia,

Prof. Byram Bridle in his lab (Photo credit: University of Guelph)

prostate cancer and osteosarcoma (bone cancer), and tumours in the brain, liver and skin.

The researchers from Guelph and McMaster University conducted the tests in mice, and in cats brought to the OVC Animal Cancer Centre. Trials on dogs should begin within the next year.

Under traditional treatment options, the tumours grew and mice died. When the researchers started injecting the viruses into the spleen, the tumours disappeared.

“By getting the vaccine to this unique location in the body, we were able to get an unprecedented immune response in minimal time,” said Bridle. “This is a fundamentally new way to treat cancer that bypasses many common side effects. These therapies are safer and more targeted.”

Bridle adds the study could help researchers in other fields, including those looking to treat virulent diseases such as dengue fever and Ebola.

“My research focuses on cancer, but certainly these findings would be applicable to other diseases. We just need to connect with people in those fields,” he said.

To see this story online visit http://biotechnologyfocus.ca/animal-cancer-breakthrough-leads-human-clinicaltrials/

CDRD adds AstraZeneca to its list of global industry partners

VANCOUVER, BC – The Centre for Drug Research and Development (CDRD) and AstraZeneca have entered into a partnership to identify new drug targets across a range of diseases for the purposes of developing new and improved therapies.

Through the collaboration, AstraZeneca will become CDRD’s newest industry partner. The partnership also gives CDRD access to approximately 250,000 compounds in AstraZeneca’s chemical compound library.

“This agreement provides unique resources that will allow CDRD to provide validation

R&D news

and screening for novel drug targets unlike any other centre in Canada,” said Gordon McCauley, CDRD’s interim president and CEO. “This will give Canada an edge towards a prosperous knowledgebased economy which is critical to ensuring our nation’s global competitiveness.”

Dr. Garry Pairaudeau, head of External Sciences at AstraZeneca adds that his company is excited to be working with CDRD through the AstraZeneca Open Innovation program.

“Canada has excellent drug discovery capabilities and a vibrant biological research community. Our hope is that this collaboration will help us advance some truly innovative research across a number of therapeutic areas,” he said.

To see this story online visit http://biotechnologyfocus.ca/cdrd-addsastrazeneca-list-global-industry-partners/

August/September 2016 BIOTECHNOLOGY FOCUS 7

BUSINESS corner

FACIT forms new biotech company for OICR-discovered first-in-class epigenetic modifiers TORONTO, ON - The Fight Against Cancer Innovation Trust (FACIT) has launched a new Ontario-based biotechnology company, Propellon Therapeutics Inc., to oversee the development and commercialization of a portfolio of first-in-class WDR5 inhibitors as a treatment for various cancers.

“OICR and FACIT share a mission to translate advancements in cancer care for the benefit of both patients and the Ontario economy,” said Jeff Courtney, chief commercial officer of FACIT. “With a focus on accelerating the development of these promising WDR5 inhibitor therapies, Propellon is well-positioned to attract investment and global pharma partners to Ontario, and increase the likelihood of successful translation and improved patient care.”

According to FACIT, epigenetic targets such as WDR5 represent an exciting class of

therapies, possessing the potential to contribute significantly in precision medicine for cancer patients. Substantial advances have been achieved with the series of proprietary small molecule WDR5 inhibitors discovered and developed by the Drug Discovery team at Ontario Institute for Cancer Research (OICR).

The WDR5 protein is critical for the formation and epigenetic activities of MLL1associated methylation complexes. Deregulation of the MLL1 complexes has been implicated in acute lymphoblastic leukemia (ALL) and acute myeloid leukemia (AML). Propellon’s series of WDR5 epigenetic modifiers target protein-protein interactions within the WDR5/MLL1 complex and thereby disrupt pro-cancer methylation activities. This unique approach may also improve clinical outcomes in patients

with solid tumours and is currently under investigation by the company and its partners.

FACIT adds that the formation of Propellon reflects a natural translation of early-stage breakthrough cancer innovations, and enables important development activities including attracting private sector investment and industry partnerships.

Propellon will continue to collaborate with the OICR Drug Discovery team and build upon its progress in preclinical development. During an initial transitional period, FACIT will provide interim corporate management.

To see this story online visit http://biotechnologyfocus.ca/facitforms-biotechnology-company-oicr-discovered-first-class-epigenetic-modifiers/

OPKO Health to buy Canadian biotech firm Transition Therapeutics

TORONTO, ON - Miami based OPKO Health says it is buying Transition Therapeutics, a Toronto-based clinical stage biotechnology company, in an all-stock transaction valued at about $60 million.

The deal encompasses the acquisition of the full clinical portfolio of Transition 8 BIOTECHNOLOGY FOCUS August/September 2016

Therapeutics’ full clinical portfolio, including a treatment for type 2 diabetes and obesity, a treatment for low testosterone and a third neuropsychiatric drug candidate that targets patients with Alzheimer’s disease and Down syndrome.

The first product is Transition’s lead meta-

bolic drug candidate TT401, a once- or twice-weekly oxyntomodulin for type 2 diabetes and obesity. Transition regained full development and commercialization rights to TT401 after Eli Lilly opted not to advance the compound into Phase 3 trials in April.

Also included in the deal is Transition’s TT701, a once-daily oral selective androgen receptor modulator for patients with androgen deficiency. The third product is ELND005, a neuropsychiatric drug candidate that is an orally administered small molecule. It has completed Phase 2 clinical studies in Alzheimer’s disease and Down syndrome patients.

The companies expect the transaction to close during the second half of 2016, subject to approval of Transition Therapeutics stockholders and other customary conditions.

To see this story online visit http://biotechnologyfocus.ca/opkohealth-buy-canadian-biotech-firmtransition-therapeutics/

| By Wayne Schnarr

Canadian Healthcare

LOOKING FOR

SUCCESS STORIES in Canadian Healthcare

There have been many success stories in Canadian healthcare.

When asking somebody to identify specific companies, the answer may start with ‘it depends’ because their perspective will affect which stories they deem to be successes.

Consider the following perspectives.

• New research institutes or revenue from IP licenses would be success stories for academic researchers, universities and hospitals.

• Governments are focused on job creation.

Long term success stories would include the generic companies, Apotex and Novopharm (acquired by Teva), and the original Canadian biotech company, Connaught Laboratories, now part of Sanofi.

• Product approvals are success stories for the Canadian companies which have reached that milestone, including Photofrin and Visudyne by QLT, 3TC by BioChem Pharma (acquired by Shire), Arctic Front by CryoCath (acquired by Medtronic) and Mozobil

by AnorMED (acquired by Genzyme; now part of Sanofi).

• Success for companies marketing products is sales reaching or exceeding expectations. Some companies with disappointing

initial sales programs have bounced back, including Theratechnologies and Cardiome Pharma. Solaraze for treating actinic keratoses was developed by Hyal Pharmaceuticals (acquired by SkyePharma in 1999) and then forgotten by most Canadians. Prior to the approval of generic versions, U.S. sales peaked at US$92 million in 2012, very respectable for a dermatology product.

Finally, in a few cases, the recovery time expires, an example being the current voluntary liquidation and dissolution of DiagnoCure.

• Several acquisitions of Canadian companies are mentioned in this article. Acquisitions are success stories if: • R&D or manufacturing facilities are left in Canada; • a new generation of entrepreneurial executives has been trained; or • investors recycle at least part of their profits into new healthcare investments.

The remainder of this article will focus on the perspective of Canadian investors. In this low interest rate environment, some investors are looking for dividends and distributions from investments with a lower risk profile.

There are seven public companies (Six services, One medical device) which I monitor for a blog (https://www.bloomburton.com/ author/wschnarr/), that have annual yields of between 2.9 per cent and eight per cent (based on July 11 share prices).

Success for most investors is capital gains from increases in share prices. Success for

investors in private companies occurs at the exit point, usually either via an acquisition or an Initial Public Offering (IPO).

Acquisition was the preferred exit for several years, both for private companies such as Gemin X Pharmaceuticals (Cephalon; 2011) and Enobia Pharma (Alexion Pharmaceuticals; 2012), and for public companies including ARIUS Research (Roche; 2008),YM BioSciences (Gilead Sciences; 2013) and Medicago (Mitsubishi Tanabe Pharma; 2013).

There have been a few recent IPOs and listings through Reverse Takeovers (RTOs) on a Canadian stock exchange, including Concordia Healthcare and Profound Medical. Some Canadian firms backed by U.S. VCs took advantage of an active U.S. IPO market and went directly to NASDAQ, including Aquinox Pharmaceuticals, Xenon Pharmaceuticals and ProNAi Therapeutics. These companies have all been successful at reaching intermediate milestones and completing major financings.

Some private companies, including Zymeworks and Clementia Pharmaceuticals, have attracted major U.S. VC investors and are on similar pathways to potential success.

‘Historical performance may not be indicative of future performance’ is a common phrase in the financial industry. However, before looking forward, look back at the five best annual share price performances in the last three years and also in the first six months of 2016 for companies starting each year with share prices of $1.00 or more.

What might be learned from looking at these success stories?

August/September 2016 BIOTECHNOLOGY FOCUS 9

Canadian Healthcare Table 1 2013

2014

2015

H1 2016

Cipher Pharmaceuticals +210%

Concordia Healthcare +484%

Medicure +116%

DelMar Pharmaceuticals +119%

Patheon +194%

Nuvo Research +225%

CRH Medical +109%

CohBar +88%

Paladin Labs +184%

Nobilis Health +218%

Prometic Life Sciences +76%

VBI Vaccines +57%

Transition Therapeutics +174%

BioSyent +182%

Aquinox Pharmaceuticals +66%

Medicure +51%

Neovasc +156%

Cipher Pharmaceuticals +116%

Trillium Therapeutics +66%

QHR Technologies +48%

• Is there a sector which is more likely to have success stories? These top performers can be categorized as Therapeutics – Development (7), Therapeutics – Commercial (6, with 2 repeats), Services (3), Medical Devices (1) and Information Technology (1). There are more successes in the two therapeutics sectors partially because there are more companies in these sectors. There are also more therapeutics companies among the worst performers every year.

• Is there a common factor among the success stories? There are companies which have matured after years of product and market development, including Cipher Pharmaceuticals, Nuvo Research and QHR Technologies. Other companies benefited from the rise of Valeant Pharmaceuticals and the acquisition of Paladin Labs, including Concordia Healthcare and BioSyent.

Many companies experienced event-based share price movements, including Patheon (privatized but now doing an IPO), Paladin Labs (acquired), NeoVasc (preclinical data), Transition Therapeutics (clinical progress) and Prometic Life Sciences (clinical data).

• Have the successes been sustainable?

Many companies have not been able to sustain their success stories, including Transition Therapeutics (clinical failure), Neovasc (slow commercialization and now a lost IP lawsuit), Cipher Pharmaceuticals (slow revenue growth) and Concordia International (impacted by the Valeant share price collapse).

Nuvo Research’s share price history has been extremely volatile. The current share prices are far below the $500+ level during 2000 (accounting for share consolidations) and the bounces over $25 in 2009. However, the share price has climbed, with some volatility, for the last three years and shareholders also received a share of Crescita in March 2016.

10 BIOTECHNOLOGY FOCUS August/September 2016

Based on this assessment, there is no simple solution to selecting future success stories. Investors must pick individual sectors, companies and technologies.

Most investors looking for large capital gains choose a Therapeutics sector. Investors willing to accept more risk choose the companies with products still in preclinical or early clinical development. Potential investors, even those with no industry, scientific or medical background, can at least have a checklist of factors, including the following: • Unmet medical need; • Large market potential; • Known mechanism of action; • Experienced management; • Clinical strategy; and • Funding from biotech specialist funds.

Most investors will not stay with one company through an entire product development program which can stretch over 10 years.

Success might be a share price double over a shorter period, which can be triggered by the expectation or announcement of later stage clinical and regulatory events. For example, Spectral Medical has announced that it expects to release primary outcome results in September from its pivotal Phase 3 EUPHRATES clinical trial of Toraymyxin™ in the treatment of septic shock, and Cynapsus Therapeutics should soon release data from its CTH-300 Phase 3 efficacy study. Potential success for earlier stage companies might be based on a core technology in a hot field Trillium Therapeutics in immuno-oncology, or superior preclinical efficacy against an established drug target – Essa Pharma in prostate cancer (early clinical results expected in 2016).

For investors who are not comfortable with

scientific or clinical risk, they may choose the market or commercial risk in the specialty pharma sector. There is less clarity on the checklist of factors for this sector after its rise and fall over the last two years. If your checklist includes prior management success, not overpaying for assets and controlled use of debt, then Knight Therapeutics has delivered a return of over 100 per cent since listing on the TSX in Q1 2014 and has not deviated from that checklist.

Celebrate the recent successes in Canadian healthcare and get ready to cheer the successes which will be coming.

(The author would like to thank David Martin, Head of Equity Research at Bloom Burton & Co, for contributing to this article.)

Wayne Schnarr is attempting to be a mostly-retired healthcare consultant after over 30 years in the biotech and financial industries. He is currently Chief Business Officer at Translatum Medicus inc. and is a member of the Industry Advisory Board at Bloom Burton & Co. The opinions expressed in this article are strictly personal and do not reflect the opinions of any current or past employers or consulting clients. This article does not consider the investment objectives, financial situation or particular needs of any particular person. Investors should obtain professional advice based on their own individual circumstances before making an investment decision.

To see this story online visit www.biotechnologyfocus.ca/looking-forsuccess-stories-in-canadian-healthcare/

| By Elizabeth Pringle

Improving the Tax Credit Regime for Life Science Companies

Tax Credits

EY’s Beyond Borders 20161 reports that, on a global basis, revenue, R&D spend, net income and total market capitalization for the biotech sectors reached historic highs in 2015. Scientific innovation in therapeutic areas such as immuno-oncology and orphan drugs continued at a very rapid pace. However, the same report also cited evidence of slowing growth in the sector as well, perhaps signalling that the growth has peaked. For the Canadian life sciences industry specifically, the Globe and Mail reported in April of 20152 that the biotech sector is “ready and eager” for growth but without adequate financing, it will go nowhere. The suggested solutions are that life science start-ups need to be allowed to use flow-through share financing or some similar tax freebie.

Some might say that the “tax freebie” mentioned above already exists in the form of the Scientific Research and Experimental Development (SR&ED) tax credit. Certainly life science companies have availed themselves of this benefit since its inception in 1985. However, let’s not forget that the 2012 federal budget dropped the tax credit rate for non-Canadian controlled corporations (nonccpcs) from 20 to 15 per cent - essentially taking away 25 per cent of the credit. The proxy rate also dropped from 65 to 55 percent and now only 80 per cent of payments to subcontractors and other third parties qualify instead of 100 per cent. Proxy and third party payments aside, CCPCs (which most startups are) were left relatively unscathed in that they still earn their federal SRED credit at a rate of 35 per cent. In 2014, Quebec cut their provincial R&D tax credit rates by 20 per cent. The more recent Ontario 2016 budget did not discriminate. The Ontario Innovation Tax Credit dropped from 10 to 8 per cent and the Ontario Research and Development Tax Credit dropped from 4.5 to 3.5 per cent. All told, these reductions in tax credit rates have a negative impact on life science companies.

Although not as generous as in the past, the tax credits still play a key role for life science companies. BioAlberta’s recent discussion paper3 hails the tax benefits of the SR&ED investment tax credit to the life sciences community. The paper makes recommendations for further simplification of the credit to reduce the administrative burden and also recommends increasing the tax credit rate; suggestions that would be positively viewed by all industries.

However, the BioAlberta paper does not cover the issue of lack of certainty associated August/September 2016 BIOTECHNOLOGY FOCUS 11

Tax Credits

with claiming SR&ED ITCs which has been a long standing issue with claimants. As early as the mid-90s, SR&ED stakeholders have raised the issue of claimants needing to rely on the tax credits but never really knowing for sure if the Canada Revenue Agency (CRA) was going to approve their claim. Granted, lack of certainty on eligibility of the work is not as big of an issue for drug development projects but it certainly can be for drug manufacturers and those in the medical device area. In those scenarios, claimants can possibly find themselves spending significant time and effort defending claims which further add to the administrative burden associated with claiming the credits.

So, what can be done to help increase certainty and reduce administrative burden? For over 15 years, the CRA provided the PreClaim Project Review service to get an opinion on the eligibility of a project. However, the opinion was non-binding so it still did not provide absolute certainty. More recently, the CRA piloted the Formal Preapproval Process (FPAP) which involved having the CRA visit the claimant on a quarterly basis to discuss the work being performed and costs being incurred in the year. The result of this “real time audit” would be the generation of an eligibility report by the CRA before the claim was actually filed. This process did provide certainty but visits by the CRA four times a year was resource-intensive for both the CRA and claimants. In March of 2016, the CRA announced two new programs that they hope will better address the certainty issue. One is the Pre-Claim Consultation (PCC) program which launched on June 29, 2016. The PCC is a free, on-demand service that tells businesses

whether their work is eligible for SR&ED tax credits. Under the PCC, the CRA will identify qualifying work, provide a written decision about the eligibility of the work and provide advice on what documentation needs to be kept. On August 2, 2016, the CRA announced its new Pre-Claim Review (PCR) pilot project.

The objective of a PCR is to give claimants assurance that the CRA will accept their entire claim as filed. The move by the CRA to develop better programs aimed at providing certainty is great news.

So what else? With the recent cuts to the tax credit rates, it is unlikely that the federal or provincial governments will be raising the tax credit rates any time soon. For years, industry has been requesting that the non-CCPCs earn a refundable credit (currently, only CCPCs receive a refundable tax credit) but the government has stood its ground on that as well.

It is interesting to note that the US offers a very specific orphan drug tax credit aimed at incentivizing companies to invest in therapies for rare diseases and conditions that would have a limited market. The Internal Revenue Service (IRS) has also provided guidance to its examiners who are auditing research credit claims involving pharmaceutical development.4 Their directive states that examiners should not challenge the amount of a taxpayer’s qualified research expenditures if two conditions are met: first that the work involves drug discovery stage and/or preclinical and clinical trials; and second, that the taxpayer provides a signed certification statement that their research expenditures included in the research credit claim only relate to qualifying research activities for each tax year under

In March of 2016, the CRA announced two new programs that they hope will better address the certainty issue. One is the Pre-Claim Consultation (PCC) program which launched on June 29, 2016.

audit. By incorporating this knowledge into their risk assessment process, the IRS makes more efficient use of their audit resources and the taxpayer minimizes their administrative burden by reducing time spent in IRS exam.

An approach like the one in the US, and even one that went beyond clinical trials and included some aspect of drug manufacturing and medical device development might allow the CRA to still manage risk, optimize the use of their own resources while simultaneously reducing the administrative burden for the life science claimant.

The CRA also announced that is going to work more closely with SR&ED stakeholders and that open communication and dialogue will continue which is more great news. The announcement and launch of these new programs demonstrates the CRA’s willingness to change to meet claimant’s needs. Perhaps now, more than ever, it is important that claimants provide input and feedback to the CRA on ways to keep improving the program for all stakeholders.

References 1. Biotechnology report. Beyond borders [2016]. ey.com/beyond borders 2. Reguly, Eric, “Why is Canada’s life sciences sector flatlining?,” The Globe and Mail, 23 Apr 2015. http://www. theglobeandmail.com/report-onbusiness/rob-magazine/why-is-canadas-life-sciences-sector-flatlining/ article24030375/ 3. BioAlberta. Sustaining Life Sciences Innovation With SR&ED Investment Tax Credits. http://www.bioalberta. com/uploads/files/White%20Papers/ BioAlberta%20-%20Sustaining%20 Life%20Sciences%20Innovation%20 With%20SRED%20Tax%20Credits.pdf 4. Maloy, Heather C. Guidance for Computing and Substantiating the Credit for Increasing Research Activities under Section 41 of the Internal Revenue Code for Activities involved in Developing New Pharmaceutical Drugs and Therapeutic Biologics, IRS 15 October 2015. https://www.irs.gov/ businesses/guidanceforcomputingsubstantiatingpharmaceuticaldrugstherapeuticbiologics Elizabeth Pringle is the National Life Sciences Industry Lead for Ernst & Young LLP’s Business Tax Incentives practice and an associate partner with the firm.

12 BIOTECHNOLOGY FOCUS August/September 2016

To see this story online visit www.biotechnologyfocus.ca/improving-thetax-credit-regime-for-life-science-companies/

Survey Results

| By Shawn Lawrence

Special Report

Building a better life science and biotech industry in Canada Biotechnology Focus Readers give their input to the “Innovation Agenda”

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s most in the Canadian life science and biotech sector already know, the Government of Canada has spent the summer months engaging with the private and public sectors across provinces, territories and municipalities to formulate a new action plan for how we as a nation can support innovation and business growth. They have embarked on this plan, called the Innovation Agenda, in the hopes of cultivating a nation of innovators that are globally competitive.

Leveraging this call to action, Biotechnology Focus decided to follow government’s lead and continue the Innovation Agenda conversation with its readers. We chose to do this via a special Hot Button Issue Survey which ran from June 24 to July 22, 2016. The survey was open to everyone in the industry, including the business sector, academics, research institutions, service providers and more. We are pleased to say that many of you, 163 people in total, seized the moment by answering all 16 of our questions. In doing so, you helped us not only paint picture of the current state of the industry, but also in understanding the direction you’d like to see the “Innovation Agenda” take.

30 per cent of the vote. On the opposite end of the scale, 16 per cent were launched in the last three years. We expected these figures to be reflected in how companies/research organizations classified themselves in their life cycle, but this wasn’t the case. In fact, approximately

When was your company/research organization established?

1992 or earlier

1992-1997

1998-2002

2003-2007

2008-2012

Snapshot of respondents One of the first question’s we posed to our readers was when was their company/research organization established? Organizations and businesses launched from 1992 or earlier led the way accounting for

2013-present

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

August/September 2016 BIOTECHNOLOGY FOCUS 13

Survey Results Where in Canada is your company/ research organization located?

In which category or categories would your company/research organization be classified?

Research & Development

Ontario

Consulting, contract research or other service provider

British Columbia

Manufacturing

Saskatchewan

Distributor, wholesaler or retailer

Manitoba

Health Service Provider

Quebec

Other (please specify)

Alberta 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Yukon

Nunavut

How would you classify your company/research organization in its lifecycle?

Northwest Territories

New Brunswick Emerging phase (radically new products with frequent changes; high technical uncertainty but broad R&D focus)

Nova Scotia

Prince Edward Island

Growth phase (gradual increase in process innovation; at least one stable, high-volume product design emerges)

Newfoundland and Labrador 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Maturity phase (mostly process innovation aimed at cost reduction, incremental product innovations)

0%

In which sub-sectors of the industry would your company/research organization be classified?

Medical technology & devices Health biotechnology & pharmaceuticals Agricultural biotechnology Industrial biotechnology and bioprocessing Natural health products and functional ingredients Environmental biotechnology Bioenergy

Health IT

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

resented accounting for 5 per cent, however, the over 100 employee crowd had the second highest figure among the survey groups at roughly 19 per cent. In this group were global biopharma’s Canadian subsidiaries, contract research and manufacturing organizations, but very few Canadian biotech companies.

In terms of geography, the majority of individuals who took the survey were from Ontario (62 per cent), with Québec (12 per cent) and British Columbia (9 per cent) a fair distance behind. Finally, in terms of which subsectors of the life sciences respondents were from, the majority were from Health Biotechnology & Pharmaceuticals (56 per cent) with Medical technology & devices up next accounting for 39 per cent.

What Biotech and Life Science businesses had to say:

Other (please specify) 0%

10%

20%

30%

40%

50%

60%

70%

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100%

45 per cent of respondents considered themselves in the emerging phase focused on radically new products with a broad R&D focus. A further 37.5 per cent reported being in the growth phase with at least one stable high volume product in the pipeline, leaving 17.5 per cent at the maturity stage.

In terms of the relative size of the companies and research organizations operating in Canada, those employing 1 to 7 employees led the way in taking the survey at approximately 46 per cent, and approximately 62 per cent of respondents were part of staffs equal to or smaller than 15 overall. Respondents from mid-sized companies and organizations with 31 to 100 employees were tremendously under rep14 BIOTECHNOLOGY FOCUS August/September 2016

Access to capital continues to be the chief struggle for Canadianbased enterprises. This was reflected in one of the questions we posed with 69 per cent of respondents saying they received or were able to raise less than $1 million in 2015. In fact, 59 per cent of those surveyed said that funding or financing opportunities were harder to come by in 2015 than in past years, while 37 per cent said they found such opportunities no different than in past years.

It should be noted that businesses aren’t the only ones feeling the financial pinch as research organizations in Canada say they too are somewhat cash strapped. In fact, when combining both the private and public sectors, the majority (54 per cent) answered our survey saying they have less than one year of cash available, while a further 33 per cent said that they had one to three years of cash available.

Survey Results In the last 12 months, how much did your company/research organization spend on R&D?

0-50k

51-100k

101-250k

251-500k

501k-1M

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

In 2015, what was the average number of people employed at your company/research organization?

1 to 7

“SR&EDs are a great tool for businesses, but could be made better” While access to capital is a concern, by most accounts, Canada still has a lot going for it. For example, the tax system is considered very competitive compared to other jurisdictions in large part thanks to the federal government’s Scientific Research and Experimental Development (SR&ED) program. When combined with provincial incentives, this has been a significant source of non-dilutive funding for many SMEs. In fact, among the initiatives and programs that currently provide assistance to Canadian based enterprises, SR&EDs led the way in our survey with 67 per cent of respondents citing it as the Canadian program that has been most crucial to their success. But as great as this program has been over the years, respondents say there is plenty of room for improvement. Amongst the responses were recommendations for not only maintaining but actually increasing this R&D subsidy. Moreover, many say it needs to return back to the way it was previously when it was even more generous to private corporations controlled by Canadian residents (CCPCs). Other suggestions included opening up SR&EDs to small publicly-traded companies with market caps of less than $100 million, as well as expanding the SR&ED credit

Which of the following initiatives have you used that you would consider most crucial to your success?

Scientific Research & Experimental Development Program (SR&ED) Industrial Research Assistance Program (IRAP)

8 to 15

Canadian Institutes of Health Research (CIHR)

16 to 30

National Sciences and Engineering Research Council (NSERC) Quebec Consortium for Drug Discovery (CQDM)

31 to 50

Ontario Centres of Excellence (OCE)

51 to 100 Sustainable Development Technology Canada (SDTC)

Over 100

Health Sciences Accelerator (Accel-Rx)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Health Technology Exchange (HTX) Investment Accelerator Fund (IAF)

Did you find funding or financing opportunities:

Atlantic Innovation Fund (AIF) Atlantic Canada Opportunities Agency (ACOA) Ontario Emerging Technologies Fund (OETF) Business Development Bank of Canada (BDC)

Harder to come by

Private Equity (PE)

Easier to come by

Initial Public Offering (IPO)

Small and Medium-sized Enterprises (SME)

The same 0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

100%

August/September 2016 BIOTECHNOLOGY FOCUS 15

Survey Results

How much capital/funding did you raise in 2015?

How many months of cash do you have available?

<1 yr Under 1M

1-3yrs

2-5M

5-10M

4-5 yrs 11-50M

5+ yrs

50M+

0%

10%

20%

30%

40%

50%

60%

70%

80%

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100%

qualification in other ways, including offering a similar tax credit for early stages of commercialization, and applying it to clinical phase manufacturing and other testing activities conducted within Canada.

“Increasing the IRAP budget and/or adopting a SBIR grant model would be a huge boost to Canadian life science and biotech SMEs” Another government program that the life science and biotech business sector relies on is the National Research Council’s Industrial Research Assistance Program (IRAP). The program provides technical and business innovation advice, financial assistance, and industry connections to other SMEs in Canada. The funding is non-repayable – meaning users don’t need to pay the money back (as long as the terms of the Contribution Agreement are adhered to, of course). Not surprisingly, approximately 46 per cent of those surveyed considered it an initiative most crucial to their success, ranking second to SR&EDs. Respondents said they have enjoyed the extra cash the program has put in their coffers, but they also feel there is still room to improve the program or even expand it. As one respondent pointed out, the Liberal government promised to deliver $100 million/year through the program last year, but only set aside $50 million towards it in the March 2016 Budget. This was disappointing to many of our readers who believe that going forward, government should follow through with its promise to increase the IRAP budget and make it more competitive with similar programs offered in other jurisdictions, such as the Small Business Innovation Research (SBIR) program in the U.S. This leads into another area of agreement amongst our readers, the need for adopting or emulating this program in Canada. Their reasoning is simple, the SBIR was created to provide early stage funding and has done a great job south of the border enabling younger and smaller firms to cross what has become known as the “Valley of Death”.

Should such grants be offered in Canada, they would be a huge boost to small businesses and start-ups, giving them a new avenue for seed and early stage funding, an area deemed too risky for the VC industry.

One last recommendation regarding both SR&EDs and the IRAP program is to make the application process for such programs simple and more business friendly, with less red tape as startups are in the business of creating products, not writing grant proposals.

16 BIOTECHNOLOGY FOCUS August/September 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Human Resource Issues Retaining, attracting and growing talent remains a challenge for Canadian biotech and life science companies. Moreover, due to the nature of the industry, many companies rely on a virtual model and outsourcing. As such, they aren’t willing or able to hire co-op students. Those that do hire, say they prefer to hire qualified workers with industry experience as opposed to those with only an educational background.

As such, there is a need to train and develop Canadian talent with translation and commercialization experience. So the question then is how can we help students cross over from academia into industry?

Many respondents pointed out that when government sets out its economic goals, that it’s always preaching job creation as a major measure of success. Our readers suggested that government should either provide tax credits to companies who create co-op positions for these students as well as offer more unique funding programs that reward companies that hire them. This approach would give

Which of the following executive positions are the most challenging for your company/research organization to fill?

Chief executive officer

Chief financial officer

Chief scientific officer Business development and sales Clinical and medical development Engineering

Manufacturing Regulatory affairs Other (please specify) 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Survey Results companies added cash to grow their employment numbers, or help students secure much needed industry experience that is in such high demand. One respondent even suggested designating a wage subsidy program for such hires.

In terms of attracting talent from other jurisdictions, our readers were very much in agreement with the Innovation Agenda’s statement that highly skilled workers, researchers and entrepreneurs should be welcomed to Canada in higher numbers and at a faster rate than in other OECD countries, which are competing for the same talent. One suggestion was expediting immigration for biotech workers in the same manner that Microsoft has done with IT professionals in Vancouver.

As for some of the other more common answers we were able to gather from the business community, many were focused on facilitating the attraction of private funding and creating an investor friendly environment.

They include: • Adopting a flow-through share vehicle • Give investors tax breaks based on amount invested into the sector • Quicker response time from Health Canada and patent offices • The creation of life science specific investment funds • Improve the terms at which government organizations such as BDC provide capital • Investment in early stage research companies • More public-private partnerships and an open door policy at federal research institutions for companies who wish to partner • Ensuring Canada SMEs have access to affordable market intelligence • Create an environment that fosters collaboration • More mentorship programs

“Med tech’s biggest priority isn’t financial; it’s addressing policy around the adoption of new technologies” Med tech businesses represented the second largest industry subsector to respond to our survey, coming in at 39 per cent. While they shared many of the same asks as their biotech and pharma peers, many of their concerns focused on policy and creating a less onerous process for adopting and scaling innovation beginning with a reduction in regulatory barriers for products and devices. They would also like to see more collaboration between provincial and federal health care bodies when it comes to approving and procuring Canadian made technologies. Moreover, they also want a unified national reimbursement strategy that is more efficient shortening the approval process. Another complaint is that the Canadian healthcare body isn’t active enough when it comes to purchasing Canadian technologies, especially those that are the product of government-financed initiatives. If made mandatory within the med tech sector, Canada could serve as a test bed for these new unproven technologies, thus, better positioning them for international buyers.

Another complaint is that under the current system, health technology companies and Health Canada never partner. As one respondent put so eloquently, “financing isn’t our issue, partnering with physicians and hospitals is.” Med tech companies would like to see this change, and the best way is creating incentives for Canadian public institutions (hospitals, universities, research centres) to adopt made in Canada technologies. On this front, respondents suggested a federal smart procurement program.

Some other suggestions included commercial proof of concept funding, commercialization innovation tax credits, a reduction of

What is your reported revenue (product, sales and services) for your fiscal year ending in 2015?

0 to 0.5M

0.5 to 1M

5 to 10M

10 to 20M

20 to 50M

>50M

No revenue

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Health Canada registration fees and programs that offer both domestic and international marketing assistance for their products.

Research Organizations By most accounts the new Canadian government has stepped up its game in its support of universities, colleges, research organizations and research institutes. For example Budget 2016 provided support for health research, genomics, regenerative medicine, brain research and drug development, while committing $800 million to support innovation networks and clusters. Furthermore, $95 million was earmarked for the research granting councils, $237 million was directed to Genome Canada, and $12 million went to the Stem Cell Network.

This type of support is indicative that government is serious about backing its world class research facilities and personnel. Moreover, respondents said that they appreciate that this government is open to discussing what comes next with the Innovation Agenda.

And this is where things get a little murky, as there is a divide within

How does Canadian science/ business policy compare with other jurisdictions?

Excellent

Above Average

Average

Below Average

Poor

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

August/September 2016 BIOTECHNOLOGY FOCUS 17

Survey Results As for some of the other more common answers we were able to

For example Budget gather from the research community, they include: 2016 provided support • Increase government focus on international partnered projects • Pick winners in terms of regions and in terms of areas of excellence for health research, • Bigger grants, less piecemeal programs Better equipment for universities and research institutes genomics, regenerative •• Open door policy between industry and Canadian research instimedicine, brain research and drug tutes development, while committing $800 Some of the other opportunities and priorities million to support innovation networks put forth: A fairly sizable contingent who took our survey chose not to list and clusters. priorities specific to the needs of their business or organization. Inthe research community on where government should be directing its funding. This was evident by the conflicting responses we got on the types of projects that should be supported, for how long this support should be provided, and what the end goal of the research being supported should be.

On the one side, we had respondents who were looking for funding strategies that encourage a return on investment on publicly-funded research. Namely, they want to see federal funding focused on translational and applied science, and commercializing the innovation as the end goal. As an example, they want to see more universityindustry partnerships and they want government to heavily incentivize academia to collaborate with CCPCs. Likewise, these respondents want improved validation of how funds are granted and to hold fund recipients to performance milestones and measures of productivity.

They place the onus on researchers to first define the need for the innovation they are developing, and they believe that funding decisions should be reviewed by senior experts with granting agencies following up with strict performance management.

On the opposing side are respondents who believe that this is already happening too often, that too many funds are tied up on development projects with a commercial end goal and that basic research funds have already declined too much. They argue that fundamental/ basic research is the foundation for future innovation, the backbone of the Canadian research landscape and as such should get first dibs when it comes to funding.

However, both sides are in agreement that the Federal government needs to change its mentality of making many small pots of money available over short periods of time to individual projects and focus instead on providing larger amounts that last over a longer term. They say this would allow researchers to complete their projects and give them a higher chance of success.

From your responses, it’s easy to see the sector has come a long way from the dark days of 2008/2009, and there’s a real sense that the current government is a much more open to working with our industry than its predecessor.

18 BIOTECHNOLOGY FOCUS August/September 2016

stead, they suggested key scientific areas of excellence or potential excellence for Canada to focus its funding efforts and compete more vigorously.

Topping this list was supporting the development of Canada’s biomanufacturing capacity via a dedicated initiative or strategy. Our readers added that there is a real opportunity to make Canada a global leader in this area, not just in health biotechnology, but also in the agbiotech and bioindustrial sectors.

Clinical trials was also cited as an area of specialization and respondents want to see more support for clinical trial initiatives nationally.

They add that many jurisdictions in Canada have already taken significant steps to streamlining research ethics boards, and clinical trial reviews. They say the infrastructure is already in place, all that’s needed is an increase of marketing activities focused on promoting Canada as the best place to conduct these studies.

As for some of the other common suggestions in terms of areas of specialization, they include: • Stems cells and regenerative medicine • Genomics and genetic research • Personalized medicine • Ag-biotech

Conclusion From your responses, it’s easy to see the sector has come a long way from the dark days of 2008/2009, and there’s a real sense that the current government is much more open to working with our industry than its predecessor.

And yet, as has been pointed out by your responses there are gaps that still need fixing. Moreover, cash is as elusive as ever for our homegrown companies and research organizations. Entrepreneurs must have the support necessary to turn ideas into businesses and innovators must have support to be innovative. Canada has what it takes to become a global leader in biotechnology. Between a skilled and culturally diverse workforce, generous tax incentives and a strong fiscal position, the Canadian industry boasts huge potential.

The Innovation Agenda promises huge changes to researchers and businesses alike. In order to deliver on that potential, however, Canadians must commit – and the Innovation Agenda is the beginning of that commitment.

We’d like to thank those of you who took the survey and for sharing your top priorities with us.

To see this story online visit www.biotechnologyfocus.ca/ building-a-better-life-science-andbiotech-industry-in-canada/

Special Report

Medical Diagnostics Patenting Faces Increased Challenges in Canada Intellectual property rights (IPR) are a key component for most if not all innovative activities.

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or biotech companies in particular, one of the pillars for building value is a sound patent strategy and robust patent position for the key assets of the company.

Uncertainty in three areas can negatively impact innovation for IPR-driven sectors: uncertainty in the courts (i.e., litigation); uncertainty in patent office examination (i.e., whether patents will be granted and for what scope); and uncertainty in the laws protecting innovations in the innovators’ home country compared with laws in other countries. Although there is little case law to judge in terms of uncertainty in the courts, recent changes in patent office examination policy with respect to medical diagnostics may have negative long term impacts on the innovative diagnostics industry in Canada.

The Canadian Intellectual Property Office (CIPO) released a Patent Notice to Examiners in the summer of 2015 announcing changes to its examination of medical diagnostic methods - guidance that had been highly anticipated since CIPO had suspended its prosecution of diagnostic claims several years earlier.

Diagnostic innovations typically relate to the discovery of a correlation between genetic alterations or level of an analyte and a disease or disorder. The correlation discovery was viewed as able to generate the most valuable IP, and particularly so for companion diagnostics (after claims to the therapeutic composition or use thereof).

Such IPRs related thereto have the ability to impact exclusivity for both the drug and the associated diagnostic.

The availability of IPRs directed to such a correlation discovery has been curtailed.

Under the current Practice Notice, if the Examiner determines that the innovation

is directed to improvements in measuring or detecting an analyte, it is more likely to be considered patentable subject matter whereas if the Examiner determines that the innovation is directed to the discovery of a correlation between an analyte and a diagnosis (without more), it is more likely to be considered unpatentable. CIPO’s Practice Notice was introduced without significant consultation and without any clear basis in Canadian law. Although CIPO’s interpretation of patentability does not have the force of law and can be challenged, the Notice has effectively cast more than a little doubt on the patent eligibility of some precision medicine claims. Furthermore, CIPO acts as the gate-keeper to get an issued patent and under the current Practice Notice, innovators have no choice but to live within this system.

The changes to examination practice also put Canadian innovators in this sector at a disadvantage in their home country compared to, for example, their European counterparts.

The United States Patent and Trademark office over the last several years has been reducing the extent of protection available for diagnostics innovation. However, such changes have been met with extensive scrutiny.

This shift in the CIPO examination procedure seems to contradict the current Canadian Government focus on innovation, at least in relation to the life sciences industry. On January 20, 2016, Prime Minister Trudeau provided a direct reference to the focus on innovation during his speech at the World Economic Forum in Davos, Switzerland. In his speech, Trudeau said “We need policies that encourage science, innovation and research. … And we need governments willing to invest in making all that happen, while recognizing the dynamic innovation that happens in the private sector”.1 This platform was backed up by the 2016 Canadian Federal Budget, which provided extensive funding commitments to scientific research, including

| By Melanie Szweras and Carmela De Luca, Partners at Bereskin & Parr LLP

funding for Genome Canada and other life science organizations as well as committing to strengthen innovative networks and clusters.2 However, the innovation agenda needs to be promoted in the government agencies that directly impact innovation in Canada, particularly innovation in the private sector. Otherwise, the government’s focus on research will not translate innovation into the Canadian market. In other words, products and services stemming from these important correlation discoveries will not be brought to market

by Canadian innovators and/or may not be readily available to Canadians.

Interestingly, there has been little objection by the Canadian innovative diagnostics community to the clear diminishment of what is patentable for medical diagnostics. The reason behind this lack of reaction is unclear, but the changes have yet to have significant effect or to be appreciated fully (the second round of examination of diagnostic patent applications under these new guidelines is just emerging). One thing is clear: unless challenged or changed by the legislation, the current patent office practice will dramatically reduce the scope and type of claims and consequently the protection available for medical diagnostic innovations. In an era where precision medicine is positioned to transform the delivery of healthcare, reducing the incentives for innovation may negatively impact the Canadian diagnostics industry and place Canada at a disadvantage vis-à-vis other countries.

References: 1. “The Canadian Opportunity”, Davos, Switzerland, January 20, 2016, http://pm.gc. ca/eng/news/2016/01/20/canadianopportunity-address-right-honourablejustin-trudeau-prime-minister-canada 2. Canadian Federal Budget 2016: Research & Innovation Investment Summary, Robert Merson, Biotechnology Focus, March 23, 2016, http://biotechnologyfocus.ca/ canadian-federal-budget-2016-researchinnovation-investment-summary/ August/September 2016 BIOTECHNOLOGY FOCUS 19

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Bolstering Canada’s Life Sciences Ecosystem.

Innovation is everywhere in our lives. Whether radical or incremental, innovation is changing all facets of life: the way we work, the way we play, how we take care of our health and engage with our governments.

Canada already has great fundamentals in the life sciences sector: strong clinical research; leading hospitals and universities;

JLABS is a success story that gives us an example of what Canada can hope to achieve.

However, in moving forward, our life sciences sector faces fierce global competition. The growth of leading life sciences regions, such as the Bay Area and Boston in the Unites States, Israel, Ireland, and Singapore, has been supported by clear, comprehensive and sustained government strategies.

Greater cohesion in innovation policies between our federal and provincial governments and between ministries would smooth the path forward for Canada’s innovators. The Innovation Agenda provides an opportunity for the federal government to lead life sciences innovation by developing a cohesive, coordinated life sciences ecosystem in Canada. This ecosystem can harness the power and energy of both our discovery and start-up companies, as well as recognize that established, multinational corporations, like Johnson & Johnson, can bring critical financial capital,

Federal government leadership is critical to establish a ‘whole of government’ approach to the life sciences sector between levels of government and across departments to ensure that innovation policies reward outcomes and results and that these innovations receive the funding they need for continued success.

With the Innovation Agenda, Canada is poised to demonstrate the shift from “resources” to “resourceful,” which can propel us to a global life sciences leader.

We hope that Canada can identify the life sciences sector as a priority for the Canadian economy and establish an ecosystem which will provide future health and prosperity for all Canadians.

Rebecca Yu Head of JLABS @ Toronto Johnson & Johnson Innovations, JLABS

© Johnson & Johnson Services, Inc. 2016

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In this new paradigm, to be resourceful means to make innovation a core value of our knowledge-based industries. This is why the federal government’s Innovation Agenda, led by Federal Minister of Innovation, Science and Economic Development, Navdeep Bains, is especially energizing. It is a bold approach towards Canada’s future and holds the potential to unlock great advances in Canada’s life sciences sector.

These are the fundamentals upon which Johnson & Johnson Innovation and Janssen Inc. were able to bring JLABS @ Toronto to Canada in 2016. Located in Toronto’s MaRS Discovery District, Johnson & Johnson Innovation | JLABS (JLABS) is a 40,000 square foot life sciences incubator focused on translating the significant discoveries made in Canada into new, important therapies for patients. JLABS provides start-up bio pharma, medical device and consumer companies with modular and scalable lab space, offices and access to external scientific, industry and capital funding experts, as well as to internal Johnson & Johnson therapeutic area experts. By providing a capital-efficient and resource-rich environment, JLABS enables life sciences companies to focus on what they do best: moving their science forward to deliver much needed therapeutics to patients.

infrastructure and expertise in research and development.

Encouraging this synergy will accelerate commercialization, helping Canadian invention grow into Canadian companies.

Governments can play a key role in this commercialization, by leveraging their power as a purchaser. These activities can set Canada on course to create a globally competitive life sciences sector, capable of attracting and retaining more significant levels of foreign direct investment and more successfully growing local entities.

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Most importantly, innovation is changing our economy. The way we produce value is changing and the federal government is preparing the Innovation Agenda to make Canada ready to lead in the fourth industrial revolution.

As Prime Minister Justin Trudeau told global leaders earlier this year at the World Economic Forum, “Canada was mostly known for its resources. I want you to know Canadians for our resourcefulness.”

emerging innovation clusters that bring together universities; emerging innovation clusters that bring togetherentrepreneurs, researchers and capital; and a renowned public health care system.

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The science behind happier, healthier lives.

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Innovation, along with research and development, is at the heart of Johnson & Johnson’s work. Because we believe new ideas can create life-changing possibility for Canadians and the world.

Oncology

Elevating Ontario’s innovation ecosystem Strengthening the province’s capacity to commercialize oncology breakthroughs

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ntario excels when it comes to the concentration and capabilities of cancer researchers developing novel therapies, diagnostic tools and other technologies. To have an impact on the lives of cancer patients, research needs to be translated out of the lab and into the market.

The strength of Ontario’s cancer research infrastructure and the leading minds that have been attracted to the province are testaments to the benefit and impact of the underlying government investment and support. One such example is the Ontario Institute for Cancer Research (OICR), which is funded by the Ontario Ministry of Research, Innovation and Science. OICR is an innovative translational research organization dedicated to research on the prevention, early detection, diagnosis and treatment of cancer that bridges the gap between academic and clinical research.

Health innovation is a high-risk and resource-intensive process, particularly for innovative breakthroughs that are too advanced for academic grants yet insufficiently advanced to prove out predicted outcomes.

Despite the available funding, capital across Canada remains scarce for supporting translational innovations, especially later-stage clinical development. Compounding this deficiency are the other inherent obstacles such as the scarcity of industry and management expertise to drive new technologies to market.

To address the need to improve and accelerate translational research, OICR created the Fight Against Cancer Innovation Trust (FACIT), to transform the most promising cancer innovations into opportunities that benefit both patients and the Ontario economy. FACIT leverages the corporate, development and commercialization experience of its management team, alongside OICR’s extensive collaborative network, expertise and research pipeline, to strengthen the province’s innovation ecosystem. Since its inception in 2014, FACIT has begun to realize

notable achievements, validating the concept and impact of the business accelerator model.

Collaborative models advance innovations FACIT’s partnership and collaboration with OICR brings much needed expertise in intellectual property (IP) management, product development, business planning, and fundraising capabilities. This reduces some of the risk inherent in early stage technology development while at the same time creating greater value for prospective partners and investors, all of which are essential for a sustainable life sciences cluster.

Ultimately, this creates unique opportunities for innovations to move out of the lab and into the market for the benefit of patients and the province. (Exhibit 1, next page).

Driving Momentum: realizing the benefits from Ontario’s innovations Over the past 24 months, FACIT has operated at an expedited pace to complete several commercialization initiatives, each with important outcomes and benefits that strengthen the province’s innovation network. Recognizing that economic returns are not the only benefit by which success is defined, FACIT’s mandate importantly seeks to build long term international collaborations with industry partners, attract capital, attract experienced management and build support networks.

Jeff Courtney, FACIT’s Chief Commercial Officer, is committed to catalyzing a sustainable innovation economy. “Our vision is to employ a multi-faceted approach to commercialization to grow local opportunities to fuel new research and breakthroughs, develop and retain talent, and expand the network of industry and investor receptors for these innovations,” says Courtney. “When we have all the key elements aligned and firing we effectively elevate our innovation ecosystem, positioning the province’s life science industry to maximize economic growth.”

22 BIOTECHNOLOGY FOCUS August/September 2016

“Our vision is to employ a multi-faceted approach to commercialization to grow local opportunities to fuel new research and breakthroughs, develop and retain talent, and expand the network of industry and investor receptors for these innovations.”

— Jeff Courtney, Chief Commercial Officer, FACIT When evaluating opportunities to advance OICR and Ontario’s innovation assets, FACIT engages strategic partners and receptors that maximize the positive impact of commercialization. Potential partners or strategies are assessed using a “Fit List” that considers whether the receptor possesses several key elements including: a) expertise aligned with industry needs, b) product development experience suited to driving technologies to the next point of value-inflection, and c) the commitment to retain and build both product and talent

Oncology Exhibit 1: FACIT+ OICR = A formula for more effective commercialization of innovations

As a translational research institute, OICR brings scientific rigor, access to hospitals and patients and a network of leading-edge oncology experts and expertise to strengthen the identification and quality of oncology innovations. As a business accelerator, FACIT brings an understanding of the market, professional management, investor connections and experience in driving breakthrough technologies forward. Together, this collaborative model propels the development of de-risked, partner-ready clinical assets.

development within the province. With the right receptors, Ontario is better positioned to benefit from re-investment to fuel future cancer discoveries, talent and, management.

The benefits of this strategy are illustrated

by Turnstone Biologics Inc. (Turnstone) and Novera Therapeutics Inc. (Novera).

FACIT created Turnstone under a unique model that unified the interests and IP from multiple research institutions and founders to form a single corporate entity. This enabled FACIT to attract a top-tier healthcare venture capital firm, Versant Ventures (Versant), to lead a Series A financing round, securing $11.3 million for Turnstone to accelerate the development of its oncolytic viral immunotherapies in the clinic. Equally important was Versant’s experience as well as interest in maintaining strong Canadian development, manufacturing and clinical trial activities for the startup. Courtney explains, “Drug development is a high-risk and capital-intensive endeavor and a committed partner such as Versant, with its vast network of resources and partnering experience, improves the likelihood of a successful outcome.”

In a second example, when commercializing a hematological cancer therapeutic developed within OICR, FACIT sought a multinational pharmaceutical partner with a vested interest in blood cancer therapies and a strong network as well as expertise in commercial drug development and regulation. Strong consideration was also given to partners that demonstrated a willingness and desire to increase their presence in Ontario. The culmination of these efforts resulted in the $450 million research collaboration, option and license agreement between Novera, a FACIT creation, and Janssen Biotech, LLC (Janssen), a Johnson & Jonhson company.

“Not to downplay the importance of the financial attributes of this partnership, but what is truly valuable is that we have the right groups at the table to ensure this molecule is advanced through development. Leveraging the expertise of a partner like Janssen is critical to success,” says David O’Neill, FACIT’s Vice President of Business Development.

These examples represent important opportunities to shape the path to market for innovations and generate long-term benefits within Ontario that will improve scientific and

commercialization competencies, as well as create a benchmark for future industry growth.

Success begets further success Cumulative and impactful commercialization achievements result in re-investment in the economy, a form of feedback looping wherein new and additional capital, resources and expertise are attracted to the province for the next generation of research and assets. This leads to sustainability and growth.

It is evident that government support has enabled the positive outcomes of translational research institutes like OICR and business accelerators like FACIT. Ontario’s maturing pool of cancer innovations are attracting significant industry and investor interest, improving the province’s track record for innovation commercialization. Continued and increased government support are needed to realize the important impact that innovation in cancer research can have on patient lives.

To see this story online visit www.biotechnologyfocus.ca/ elevatingontarios-innovation-ecosystem/ August/September 2016 BIOTECHNOLOGY FOCUS 23

Across Canada

| By Jeffrey Graham

Genetic Discrimination: Creating a New Canadian Law

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here is an important process underway that has the potential to lead to a new Canadian statute that will impact the life science sector in Canada. A number of other national governments – for example, in the U.S., Australia and a number of European countries – have already taken legislative action to address genetic discrimination. While Canadian human rights laws, insurance laws and privacy laws do contain provisions that seek to minimize unjustifiable discrimination and prevent improper access to or use of personal information, at present, no laws in Canada provide specific protection against genetic discrimination. However, in light of recent events, it appears likely Canada will join the nations that have enacted legislative action to address genetic discrimination.

Genetic testing, which involves the analysis of a person’s chromosomes, genes, or gene products (proteins) to identify the presence of specific traits, can have many benefits. It allows people to learn about their parentage and ancestral origins, and is helping scientists to map pre-historical routes of human migration. It can be used to diagnose genetic conditions (diagnostic testing) or to

identify a predisposition to a genetic disease (predictive testing). This information can help people initiate appropriate treatment early and adopt lifestyles that will minimize the possible harm of a genetic condition. It can also guide the selection of pharmacologic therapies and identify patients who are candidates for gene therapy, an approach that uses various techniques to replace, correct, suppress, or eliminate a mutated gene.

The possibility of improving outcomes and cost-effectiveness by tailoring therapy to a patient’s genetic profile has prompted consider able commercial activity and government funding in the emerging field of “personalized medicine.” Although, at present, relatively few tests for genetic conditions are widely recognized as reliable, and while a positive test result does not necessarily predict the onset or severity of an illness, it is recognized that genetic testing will continue to open up new areas of medical knowledge and new options for treatment. New tests are being developed at a rapid pace and these will increasingly become available.

At the same time, genetic information can, however, also be used for purposes other than for which it was intended, including poten-

24 BIOTECHNOLOGY FOCUS August/September 2016

tially discriminating against individuals. For example, a genetic test could reveal a person who is otherwise in good health has a higher risk of one day requiring advanced health care or being unable to work because of an inherited condition. This information could affect how decisions are made in such matters as insurance and employment, among other things.

If an applicant for insurance has a higher risk for a certain disease, then that applicant presents a higher risk to the insurer of having to make payments for health coverage or life insurance. This may affect the terms of any policy offered to the applicant. Similarly, an employer may be less willing to hire a job applicant who is genetically at high risk of developing an illness or genetic condition for fear the applicant will not be as productive

Across Canada as someone with a more favourable genetic profile.

Although the long-term ethical and legal consequences of genetic testing for employment matters, insurance contracts, and preventive medicine and treatment are not yet fully known, cases of alleged genetic discrimination have been emerging in different parts of the world, prompting calls from concerned citizens for government action here in Canada.

For example, the U.S. Council for Responsible Genetics has noted that in one reported case, genetic testing indicated that a young boy had Fragile X Syndrome, an inherited form of intellectual disability. The insurance company for the boy’s family subsequently dropped his health coverage, claiming the syndrome was a pre-existing condition. In another case, a social worker lost her job within a week of mentioning that her mother had died of Huntington’s disease and that she had a 50 per cent chance of developing it.

In the lead up to the last Canadian Federal election, the previous Government of Canada introduced the “Protection Against Genetic Discrimination Act”. However, the Bill died when the House of Commons was dissolved in June 2015.

After a new Canadian government took office last fall, a Senate Bill was introduced and passed entitled “An Act to prohibit and prevent genetic discrimination” (the “Senate Bill”). It was then introduced in the Canadian House of Commons where it is currently being deliberated. Whether the Senate Bill ultimately receives Royal Assent in its current form or in a modified form, it seems quite reasonable to expect federal legislation protecting against genetic discrimination will be enacted in Canada.

The Senate Bill proposes criminal sanctions for actions such as when one person requires another to undergo a genetic test or disclose the results of one as a condition of (a) providing goods or services to that individual; (b) entering into or continuing a contract or agreement with that individual; or (c) offering or continuing specific terms or conditions in a contract or agreement with that individual.

The rationale for the use of the criminal law power is to attempt to bolster this federal effort to extend the protection beyond the ambit of traditional federal authority as reflected in the above noted statutes.

In addition, the Bill proposes amendments to several statutes of the Government of Canada – the Canadian Human Rights Act, the Privacy Act, the Personal Information Protection and Electronic Documents Act and the Canadian Labour Code.

The proposed amendment to the Canadian

Human Rights Act would deem discrimination on the basis of a predisposition to a disability, as inferred from genetic test results, to be discrimination on the ground of disability. This Act applies to the federal government and First Nations governments, as well as to federally regulated businesses and industries, such as banks and telecommunications companies, in matters of employment and the provision of goods, services, facilities and accommodation.

The proposed amendment to the Privacy Act and the Personal Information Protection and Electronic Documents Act would specify information resulting from genetic testing is among the types of personal information protected by these Acts. The Privacy Act protects personal information collected, used and disclosed by federal government institutions listed in the Act, as well as any parent Crown corporation and any wholly owned subsidiary within the meaning of the Financial Administration Act. The Personal Information Protection and Electronic Documents Act protects personal information that is collected, used and disclosed by private sector organizations in the course of commercial activities. It also protects information on employees who work for a federally regulated business. Under these statutes, the consent of the person is generally required before the person’s personal information can be shared with third parties.

The proposed amendments to the Canada Labour Code would protect employees from being required to undergo or disclose the results of genetic tests and provide employees with other protections related to genetic testing and test results.

Various organizations, legal experts and other commentators have argued in favour of the need to pass legislation in Canada to explicitly address genetic discrimination.

At the same time, the insurance industry has noted insurance contracts are generally governed by provincial laws. Although provincial human rights codes may already provide some protection for individuals from genetic discrimination, they also include some exceptions that may allow automobile, life, accident or sickness or disability insurance providers to make distinctions based on an applicant’s age, sex, marital status, family status, or physical or mental disability. The insurance industry has argued a discriminatory practice in insurance may be justified on reasonable and bona fide grounds – in other words, if it is based on accepted and sound insurance practices and if no practical nondiscriminatory alternative exists.

The current position of the Canadian insurance industry is that while companies will not require genetic testing of applicants for insurance, they will ask whether the applicant has been genetically tested in the past, and they will require disclosure of those test results where they exist. This position is generally justified on the basis there exists a good faith obligation under most provincial laws for an insurance applicant to disclose to the insurance company all information that might have a bearing on the company’s assessment of risk. The insurance industry has expressed concern insured persons who learn, after taking a genetic test, they are at high risk for a genetic disease could knowingly take out policies for large amounts of additional coverage without insurers being aware of any increased risk. Disclosing the results of genetic testing would therefore help ensure both parties negotiating an insurance contract would have the same knowledge about the health risks of the applicant.

As is true of many areas of our lives, technology is overtaking the current regulatory regime. It is in the public interest to ensure Canadians have access to medical advances in genetic testing without the fear of negative consequences for them and their families.

This means Canada needs a better-defined Canadian legislative framework that will protect against genetic discrimination. The process to achieve that result is underway and further developments can be expected once the House of Commons resumes in the Fall.

Jeffrey Graham is a corporate partner in the Toronto office of Borden Ladner Gervais LLP. He holds B.Comm. and B.C.L./ LL.B. degrees from McGill University and graduate degrees in international legal studies from Cambridge and Columbia universities. He is a member of the Bars of D.C. and Ontario. He can be reached via email at jgraham@blg.com To see this story online visit www.biotechnologyfocus.ca/genetic-discrimination-creating-a-new-canadian-law/ August/September 2016 BIOTECHNOLOGY FOCUS 25

Investor Relations

| By Mark Carlson, Managing Director of Verdex Capital

The Importance of finding

investors with great networks

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inding an investor is a bit like finding a customer or business development partner – you have to carefully search and identify the best fit, not one with “just money”. As an entrepreneur, you must look beyond the financial needs of your company. By finding the right investor, you can surround yourself with the right people to move your company forward, and importantly, to be able to do so in a time efficient fashion.

If you are a first-time biotechnology start-up founder, you may not know exactly where these investors are, but those with the best value-add and money are likely to have invested many times in the area you are operating. They know the contracting organizations such as CROs, academic institutions, scientific collaborators, and even the service providers such as IP counsel. They can help you identify the good, the bad, and the so-so.

Life science companies have their own unique needs. The right investors will know those needs – even those that you may not have anticipated. Investors may range from 26 BIOTECHNOLOGY FOCUS August/September 2016

technically sound teams, to the best collaborators, or they could have the best scaleup expertise, regulatory advice, and related relationships to ease the challenges in moving a life science company forward – with regulatory always front and centre.

Investors can ‘check off’ all of the above if they have strong networks around them, and your company can reap the rewards of this connected network. These “right relationships” are the most critical in the early going since many early teams are filling multiple roles and do not have access to all the resources and/or knowledge about the best commercial path forward.

Here are some crucial aspects that your investors’ networks can help augment or accelerate.

Expertise The first step in the right direction is to find an investor that knows your sector. They understand not only the science and the technology behind your work, but as critically the market, the opportunities, and especially important in

the life sciences sector, the regulatory process that needs to be followed.

For example, Verdex Capital is focused on Ag Tech investments in Canada. The collective expertise on our team ranges from farming and ranching, to biology and chemistry, to life sciences, and digital technology. That expertise is based on hands-on involvement as well as academic backgrounds and business experience. We also have past experience financing companies that have highly specialized technology that needed to fulfill certain regulatory requirements in order to be brought to market.

One other form of expertise that is of importance is negotiation. Any investor worth their salt is good at negotiation typically.

They do deals, and always look for the best outcomes – always with an eye to aligning those outcomes with management and shareholders. Life sciences, in particular, is a broad area in which commercial agreements and routes to market can sometimes be murky.

Founders are not necessarily experts at this skill. Getting a licensing deal together on your

Investor Relations

own can compromise the exit opportunity or limit the potential buyers to the point where an investor does not care about how good the science is – they will not be able to make money.

Capital and Talent In Canada, the life sciences sector is one of the top industries that receives venture capital funding. According to the Canadian Venture Capital Association, 110 deals were completed in the sector in 2015, for a total of $647 million.

There are some pockets of capital available to life science companies in Canada. Some research into the Canadian investment scene will show the networks available to each venture capital firm by looking into who they have partnered with on their funds or have syndicated deals.

When researching these funding partners, it is good to note which venture capital groups have partnered with firms across Canada, but more importantly, which ones have international partners. These international venture capital partnerships may help broaden the network you have access to as a portfolio company, not just financially, but also strategically by having access to personnel you may want at the Board level, and linkages to other sources of management expertise.

Markets While it helps to have local investors who truly understand your company’s operations in context with your market geography, it is important to know if they have the network to help you identify and break into the markets where your company is most likely to find success.

These markets can be within Canada, but to become a venture grade opportunity (meaning that venture returns are suitable from the particular investment), your company and/or your product must have applicability to be marketed globally. The right investors with extensive networks can help you challenge assumptions, collaborate on strategy, and assist your company break through those markets.

In addition, biotechnology startups can find support from investors and their networks when they need to scale up their operations. Investors can provide advice on the logistics of expanding operations to different markets, from knowledge of the local business scene, to production, to local regulatory frameworks. Having a global network, especially in areas of the world where your company aims on expanding

Successful life science and Ag Tech companies don’t just appear. They are built block by block with thoughtful leadership and the input of those that have learned to navigate the business challenges in commercializing technology – which is where having access to a good network is key.

towards, would be extremely beneficial for any startup.

In 2015, our parent company AVAC Ltd. established Verdex Capital to focus specifically on Ag Tech investments in Canada. We are one of the founding partners in the Finistere Ventures II (FVII) Fund, which is a $150 million fund with a mandate of identifying and investing in game-changers in the sector. The FVII Fund was established alongside Agrium Inc., Bayer CropScience (which is Bayer’s agribusiness arm) as well as another top-tier global brand company as well as other strategic investors in agriculture.

In this partnership, we have access to a global network. Finistere Ventures is a top-tier investor based in the U.S., with extensive connections in Australia, New Zealand, and Israel.

One of the most interesting aspects of the FVII Fund partnership is that the largest investors are not all strictly financially-oriented institutions. The next closing of the fund is expected to announce additional strategic investors pertinent to the Ag Tech and life sciences sector.

Finistere also has active partnerships in place by way of its Radicle Accelerator with DuPont Pioneer as well as other Silicon Valley investors. This is unique, and Verdex Capital is hard wired to this network.

Successful life science and Ag Tech companies don’t just appear. They are built block by block with thoughtful leadership and the

input of those that have learned to navigate the business challenges in commercializing technology – which is where having access to a good network is key. Not every network will validate an opportunity as venture grade.

However, this is also part of the benefit in seeking input from expert networks. The advice you receive may signal opportunity as strong business, even though not always as a venture grade investment case. You should know this to ensure time is efficiently utilized in either building the business or striking out to raise venture capital at the right time.

Mark Carlson is the Managing Director of the Ag Tech Investment group Verdex Capital Inc., where he is responsible for all aspects of investment operations including seeking Canadian portfolio companies for their $150M Ag Tech fund Finistere Ventures, the FVII Fund. @VerdexCapital To see this story online visit www.biotechnologyfocus.ca/ the-importance-of-finding-investors-with-great-networks/ August/September 2016 BIOTECHNOLOGY FOCUS 27

Best Practices

| By Ella Korets-Smith, TO Health!

Frank Beraud, Montréal In Vivo Cedric Bisson, Teralys Capital

Canada poised to be best in world in life sciences sector Looks to Neighbours to the South for Best Practices

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hen thinking about symbols of Canadian pride, such things like hockey, maple syrup and our healthcare system spring to mind. There are many others to be sure, but a burgeoning life sciences sector that is taking root across the country is certainly one of which to be proud now, and well into the future.

We’re a humble nation, and not necessarily one to promote the achievements happening in our own backyard, but in the case of the life sciences sector, we’re world-class.

We have the talent and infrastructure in place, and the investment following quickly on its heels, to make us a verified breeding ground for start-ups. When it comes to biotechnology clusters in Canada, there are two star players – the greater Toronto and Montréal regions. Of course, Vancouver is also an emerging player. Toronto has more than 9,300 life sciences graduates annually, over a billion dollars invested in research

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funding at universities and partner hospitals, and is home to the headquarters of over 50 multinational pharmaceutical, medical device and health companies, over 800 home-grown companies and start-ups. Equally significant is the Montréal area, which offers over 40,000 jobs in the life sciences and health technologies sector, and represents over a third of the Canadian total in venture capital investment with $1.6 billion in a ten-year period. Both offer quick access to major global markets, and importantly, the corridor that connects them fosters the collaboration critical to identifying opportunities and solving challenges for the sector.

With a record this impressive, the argument can be made that we should work together to actively promote our successes in this arena, while looking to other jurisdictions for best practices for continued and sustained growth.

To that end, a panel discussion at BIO 2016 – the preeminent congress for the global biotech and pharma industry – sought to ad-

dress just this. What are the lessons Canada’s life sciences industry can learn from the California venture capital market? Despite the many successes in the Canadian market, challenges remain, particularly when it comes to risk capital. Our venture capital neighbours to the South, who have had ample success in this arena, shed light on how our market can evolve.

A robust discussion from esteemed panelists netted four key takeaways for trends and considerations in the life sciences innovation marketplace.

• Relationships in the life science sector, particularly the pharmaceutical industry, are ever evolving Today more than ever, there is an emphasized importance on early identification and engagement in opportunities that are by definition unpackaged and risky. Training entrepreneurs in the biotech industry early on and focusing on the value of early research is paramount to long-term investment and success. Furthermore, tuning in to key areas of interest beyond the immediate research community will ensure alignment of goals and foster innovation and investment. For example, oncology immunotherapy is currently of much interest to the academic, scientific, medical and venture capital worlds. The intersection of interest among the varied parties will ultimately be the drive for investment and the true measure of success.

Best Practices • Disruptive innovation platforms are necessary for success Innovation starts with ambition, but to ensure the unique technologies being born out of start-ups are commercialized and end up treating patients, we need to implement disruptive innovation platforms, finance them well, and create a culture of ambition across all parties involved. One or two successes, no matter how big or small, can create a cascade leading to many more successes within individual companies and across the sector.

• Partnerships and smart money investment can ensure long-term viability In addition to being relevant to strategic partners – whether in formal deals signed early on or via advancing key science that they eagerly track and follow – start-ups with aspirations to build full-scale companies can drive an industry need to ensure they seek strategic advice early and often, and learn to decipher and arbitrage the often contradictory input they receive.

Ongoing business development and being smart about where your financing money comes from will lend to long-term success in building successful ventures. While the days of the past may have favoured one single business model, partner or investor, today’s model of success looks to multiple, experienced partners and investors, who in addition to providing funding, are able to bring solid expertise to the table to develop and grow the business.

• Government has a role to play beyond policy Government’s role is often construed as putting in place the policy and infrastructure to foster investment in our country, and in specific sectors. Beyond this, in countries such as Canada where large private endowments are less common, government can also play a role in facilitating the attraction of private funding into the venture capital asset class (such as the VCAP program), and in creating tools to further stretch R&D dollars. For instance, Toronto and Montréal are the most tax competitive major international cities in the world, adding another attractive element for private funds to be invested here, and ultimately increasing the pool of privately held funds available to the life sciences sector.

There’s no doubting we have what it takes to create world-class technologies and build life sciences companies that will generate value, treat men and women across the world, and improve our health for years to come. Now

There’s no doubting we have what it takes to create world-class technologies and build life sciences companies that will generate value, treat men and women across the world, and improve our health for years to come. is our time to shine. Let’s learn from industries that have done it before us, and continue to build an industry where talent wants to continue innovating and funders want to continue investing. We invite each and every one of you to join us on our mission to make our life sciences companies not only the best in Canada, but the best in class and the very best in the world!

Ella Korets-Smith is Executive Director of TO Health! and Principal at EKS Business Development, an independent consulting firm passionate about creating value for Canadian biotech and medical device companies through building strong relationships.

In her 10 years in industry, Ella worked with small and large, public and private life science and medical device companies, holding positions such as Director Business Development and Director Market Development with a track record of closing deals and leading successful marketing and business development programs. Examples of her accomplishments include in-licensing a new product from Merck KGaA into Immunovaccine’s portfolio, allowing the company to raise over $7 million in financing, plan and implement Nordion’s market expansion plan including Gamma Centre of Excellence, a premier research facility focused on growing the gamma market, and completing a market entry strategy for Synergy Health, a large publically traded company, to support the largest organic growth investment case in the company’s history.

Ella has an extensive network in the GTA health sciences cluster and a growing network of international business leaders extends her reach to customers and partners in key markets in North America and around the world. Ella has an MSc in Medical Genetics from the University of Toronto and an MBA from Dalhousie University.

Frank Béraud is Chief Executive Officer of Montréal InVivo. Holding more than 25 years of experience in the life sciences sector, Mr. Béraud has particularly acquired a

solid expertise in business development. With a background in sales and marketing within multinationals in the field of clinical diagnostic, his career path has led him to assume responsibility for business development for an SME in the domain of biotechnology, in addition to working as a consultant within the industry as well as a technology transfer organization. Mr. Béraud has also worked on managing the policies and strategic development of an industrial association in the life sciences sector before joining Montréal InVivo’s team. Highly socially engaged with schools and the health community, he currently chairs on the board of a community organization working towards the social and economic reintegration of individuals in situations of homelessness in Montréal (Le Sac à Dos).

Cedric Bisson is partner at Teralys Capital, Canada’s largest innovation-focused fund of funds management organization, where he focuses on healthcare and life sciences investments. He has spent the past two decades across Canada, in Europe and the USA creating, building and advising innovative businesses, serving as founder and partner of iNovia Capital (a leading pan-Canadian VC firm), founder of MSBi Valorisation (now Aligo, seed technology transfer), associate principal at McKinsey & Company, a global management consulting firm, and more recently as board member at Grand Challenges Canada.. Mr. Bisson obtained a M.D. degree from McGill University and a J.D. (law) degree from Universite de Montréal.

To see this story online visit www.biotechnologyfocus.ca/ canada-poisedto-be-best-in-world-in-life-sciences-sectorlooks-to-neighbours-to-the-south-for-bestpractices/ August/September 2016 BIOTECHNOLOGY FOCUS 29

LAST word

| By Ali Tehrani, President and CEO at Zymeworks

Canadian biotech doesn’t rank among the best in the world – Why?

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anadian Universities train and graduate some of the top scientists in world. Likewise, Canadian entrepreneurs are just as visionary and creative as the best in Massachusetts and California.

Furthermore, angel investors in Canada are willing to back and coach start-ups through the thick and thin (as an example, Zymeworks has raised close to $50M in Angel investments). So why doesn’t Canada hold the #1 or #2 spots, or at least rank in the top 5 in the world for biotech? Right about now you are thinking this piece is about the lack of U.S. venture capital in Canada; it is not, in fact, far from it.

This piece is about how in Canada we say we want to be #1 but subliminally message that we should build it so the real #1 buys it from us. This piece is also about some small steps that will put us on track to contend for the #1 spot.

The Problem – A lack of confidence to aim towards building revenue rich Canadian biotech companies that anchor in Canada. We want our entrepreneurs to dream big, but constantly push them for an exit plan at the first opportune moment. We have enacted legislation to entice investors to invest in Canada, but not enough so that they can take the “long view” versus “a quick exit”. We have invested in infrastructure, but not enough to message our support for continuous growth at the global scale. We refuse to take steps to bring our seasoned executives back to Canada. We don’t do all we can to keep our growth-stage Canadian companies and end up losing them to other countries that incentivise them to move. We seem content with being an incubator.

The Solution – There are many near- and long-term solutions. I will elaborate on three to stimulate thought.

In the near-term I would start by identifying innovative Canadian biotech SMEs that seem to have the “it factor”; meaning those who are leaders in their field and have been continually growing because they have revenue or have been successful at securing long-term financing. I would pave the path for them to stay by updating out-dated legislation that is more harmful today than useful (e.g. the SR&ED claim caps should be increased). The objective here is to further enable our success stories to recruit more, retain more and build more.

Currently, we are primarily focused on getting start-ups off the ground

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and maintaining them for a short while until they get their feet under them.

However our support starts to diminish the more they generate revenue and in fact grow. We should reward success and not abandon it.

Next, I would make it easier for startups to be able to afford employing and bringing back seasoned Canadians executives that have left the country. Again, this can be accomplished by expanding the IRAP program, or offering an income tax break for a defined period and on a limited basis. The objective here is to address multiple roadblocks at the same time. To start, seasoned and successful executives “bring” funding with them.

They know investors, they are connected to decision makers in big Pharma, and they mitigate risks associated with investing in “first- time” entrepreneurs.

Last but not least, in terms of a longterm solution, I would in invest in Biotech parks and campuses that house our Biotech SMEs together in clusters.

Although there are some of these in different provinces, again, I would argue that their mandate is to support a small company in the very early stages. I am unable to think of a single example in Canada where 50+ employee Biotech companies operate in the same campus as five employee start-ups. And yet this is a model that would work. Moreover, the bulk of the benefit from such a campus will go to the smaller companies versus the larger ones. From mentorship, to increased exposure on the back of the success of the bigger company, to an environment that is more conducive for innovation, to one location that investors and customers need to go to, such an initiative unites and sends a clear message that we want to contend for the #1 spot.

In closing, we have all of the pieces in Canada to be a leading Biotechnology ecosystem. The path to the #1 spot does not start with more money; it starts with the right mentality, commitment and actions to be #1. Investment and funding always follows success, and importantly a plan for continued success.

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