Encouraging Trend Line is in Great Opposition to a Historical Struggle this City and Country has Faced at Multiple Levels
Andrew is a former biotechnology equities analyst and a serial entrepreneur. Mr. Rae has partnered with many leading biopharmaceutical companies globally, including Ionis, Alexion and AstraZeneca, and has invested in numerous start-ups.
A New Hope: Addressing Historical Capital Markets Inefficiencies and Value Creation in the Canadian Healthcare Arena
A new hope exists. The emergence of new technologies such as AI has allowed our Canadian economy to scale and ‘leapfrog’ well-known historical structural deficits in the healthcare arena. A toxic immigration policy in the US has led global players to seek alternatives to an “American zip code” and instead adopt an orientation towards states which remain “close” or “semi-integrated” with the US economy (we fit that bill). A pandemic has focused all eyes on the security of our nation as it pertains to therapeutics, diagnostics, and manufacturing. A surprising sprouting of some very novel biopharmaceutical companies and entrepreneurs, perhaps due to inflow of more than modest sophisticated foreign capital and the rise of a few bona fide Canadian VCs provide a ray of light through the grey clouds which have hovered over this industry. Sectoral rotation is occurring, with the demise of traditional resource industries.
Lest we forget. It was not always this way. This encouraging trend line is in great opposition to a historical struggle this city and country has faced at multiple levels. A lack of capital markets acumen was perpetuated by very few sophisticated Canadian institutional healthcare investors as well as the limited devotion of “big bank” resources to this sector because ROI was elsewhere, particularly in resources. As a result, much more sophisticated capital market mechanisms were put in place for non-healthcare industries. Tax and border barriers led to little foreign direct investment given easier investment in other ecosystems. Critical mass issues were legion and related to human capital and infrastructure. The lack of well-trained senior executives in areas such a regulatory, finance, and business development who had “been there, done that” and the near absence of the ‘fully integrated’ aspects of the biopharmaceutical business (typical later stages of enormous internal value creation) were rampant, including in the manufacturing arena. Furthermore, asymmetries based on federal and provincial government policies were based on the willingness of government to support “ersatz” venture capital and establish very costly incubators with little to no ROI. Focus on rewarding early private developers with SR&ED tax incentives failed to understand the inherent importance of incentivizing a fully integrated industry where fruits of early labors could remain in Canada and be monetized by Canadians not foreign entities. Consequently, very few biopharmaceutical firms created exciting ROI. Only a handful of examples of success existed – but never enough at a single juncture to achieve a “tipping point” in the eyes of the investment community. Little veneration and a paucity of serial entrepreneurs was also observed. Acquisition or demise of key ‘tenants’ led to the outflow of already meager core competencies and key assets in biopharmaceutical arena, including US/international management teams which returned home, leading to lack of “cross-pollination” between Canadian managers and these sophisticated international managers, or new company creation by said participants. Pharmaceutical ‘branch plant’ creation, a direct response to the lack of reimbursement of novel therapeutics and failure to invest in innovation further stymied growth. Canada missed out on decades of truly novel R&D and as a result, our country did not develop the inherent competencies which have led to the emergence of a potent US biotechnology industry which has created billions of dollars in value, both through IPOs of biotechnology companies and sales of bona fide drugs (think gene therapies, CAR Ts, CRISPR, monoclonal antibodies, antisense, etc.). Historically low R&D investment commitment relative to many other developed nations was also on shocking display. As for “Paradise Down South”, easy access of Canadian human capital to the US market under prior immigration policies were very friendly to inducing a “brain drain”.
