| by Tony Pullen
Canadian Health Care Market Special Report
Revisiting the Canadian Healthcare market, 2014-2016
The Fire Marshall’s Report: a search through the embers In memory of my dear friend and colleague Dr. Ezra Lwowski, my biotech mentor and muse for thirty years.
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ince 2014 I have written two commentaries on the state of Canadian public life science companies. By way of introduction to new readers, I have been involved in the investment business my entire career and back in the mid 80s, I became intrigued by the life science space which was nascent at the time in Canada, for all the right reasons. I was compelled by the idea that we were at the dawn of a new age of discovery, and, as an investment banker, the likely demand for capital to support this emerging sector. That was back in 1985. My last commentary for Biotechnology Focus was two years ago. It was a sequel to a piece I had written the previous year about the hope that the post 2009 resurgence in U.S. biotechnology stocks could spill over into Canada. My conclusion then was that expectation was “much ado about nothing”. That hope had been driven by the dramatic 150 per cent surge in the Nasdaq Biotech Index (NBI) between late 2011 to year-end 2013. For most of the previous decade, the index had been largely range bound in the aftermath of the great human genome inspired rush into the sector after 2000. At that time, both retail and institutional investors piled in to anything resembling a biotech stock determined not to miss out on the potential of this next great industry of the future. From year-end 2013 to its peak in July 2015, the
index almost doubled again as conviction and capital poured into the space. That NBI peak of 4162 was four times the level it launched from in 2012, and 10 times its level after the “tech wreck”. During that same period, even the S&P Healthcare Index, dominated by the big pharmaceutical companies, advanced 75 per cent from year-end 2012 to 2014. That index has been unchanged since. Unfortunately, an index to measure the sector in Canada doesn’t exist, as most healthcare companies in Canada are individually too small. The closest comparable, the S&P/TSX Healthcare Index, merely mimicked the rise and near demise of now beleaguered Valeant Pharma, which in spite of its collapse still remains its largest constituent. The other life science participants in the index are Prometic Life Sciences and Knight Therapeutics, along with two, hardly relevant, retirement home companies, Chartwell and Extendicare. The former represent the only other $2- billion dollar plus survivors of the conflagration. Presumably, they will soon be joined by Canopy Growth with its $2 billion market cap, courtesy of its recent merger with its next largest competitor, and it’s new, cheeky, stock symbol WEED. Unfortunately, the S&P/TSX designates marijuana producers as “Life Science” companies, but more on this later. Last year I chose not to report on developments in the sector in 2015 because frankly,
I felt I had answered the original question-namely the potential for a “biotech boom” in Canada. Unlike 2014, when the Valeant inspired interest in specialty pharma, the shortlived inversion mania, the Ebola crisis and the excitement about CAR-T technology caused a resurgence of prospects for Canadian life science companies, 2015 became a year of extreme crosswinds. Certainly the U.S. biotech sector raced into 2015 with the tailwind of a record year of fund raising, share price performance, partnering and M&A activity. During each of the intervening years, despite persistent volatility, the U.S. capital markets managed to raise approximately $5 billion for the sector, twice the amount of 2014, despite the frequent opening and closing of the financing “window”. Merger and acquisition activity, both attempted and consummated, reached into the hundreds of billions and the FDA played its part by approving a record breaking 45 new drugs in 2015. This surpassed the previous record of 41 during 2014, which in turn was 52 per cent higher than 2013. All this exuberance began to subside after the July peak in the Nasdaq Biotech Index at 4162, but not before some eye popping IPOs April/May 2017 BIOTECHNOLOGY FOCUS 13