Document 6507107

The Ontario Bioscience Innovation Organization (OBIO™) is a private sector, membership-based organization that is Ontario’s leading
advocate for its human health life science sector. OBIO is engaged in advocacy to enable development and commercialization in Ontario of life
science technology through investment, strategic alliances, stakeholder engagement, thought leadership and industry promotion. Our goal is to
build a leading bioscience cluster in Ontario to deliver innovative products/services to a global market.
Vision: To create a new Ontario that is a world leader in healthcare innovation and a global location of choice for bioscience
commercialization. Mission: To advocate for the growth and development of the commercial bioscience industry in Ontario, resulting in
improved patient outcomes, increased healthcare efficiency and greater prosperity for all.
CONSULTATION ON HOW TO BETTER ENCOURAGE PRIVATE SECTOR INVESTMENT AND
MANAGEMENT OF SEED AND LARGE-SCALE VENTURE CAPITAL FUNDS
RESPONSE PROVIDED BY OBIO ON BEHALF OF ONTARIO’S HUMAN HEALTH TECHNOLOGY
AND BIOSCIENCE INDUSTRIES
July 27, 2012
OBIO Recommendation #1: Provide stability by committing to a long term plan
OBIO Recommendation #2: Manage Government’s investment via a Technology Focused Fund of
Funds that has designated amounts for health sciences and accountability timelines for
distribution.
OBIO Recommendation #3: Encourage and motivate/incentivize Private Sector Investment,
Foreign Investment and Pension Fund Investment
Introduction
Ontario's life sciences companies are engaged in the development of new therapeutics and technologies
which promise enhanced opportunities for maintenance of health, through better prevention, diagnosis
and treatment of illness. Ontario's life sciences companies continue to be challenged by the slow global
economic recovery. Restrictions in the availability of the right kind of strategic capital continue to
constrain this sector's ability to ensure Ontario's 'human capital' provides its greatest return on our
societal investment. With few exceptions the local SME industry continues to operate with insufficient
financial resources and a very narrow range of options to pursue capital, a fact that has been reported
worldwide by PWC, E&Y and others.
Response to Department of Finance Consultation July 27, 2012
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Ontario’s SMEs focus on commercialization of technology and are engaged in collaborations with both
academic institutions and industry for services, technologies and people. However, financial constraints
including funding are the main barrier preventing companies from hiring and obtaining needed skills. A
focus on competitively funded commercialization is critical to spurring the growth of new companies
that can contribute to Canada’s economy.
In recognition of both the unique challenges associated with, and varied opportunities provided by the
life sciences industry, the Ontario Bioscience Industry Organization (OBIO) was formed in 2009.
Representing the interests of small and medium size enterprises (SMEs), OBIO focuses on industry-led,
multi-stakeholder approaches to ensure the advancement of the life sciences industry sector within
Ontario. As in 2009 and 2010, a 2011 survey conducted by OBIO, polled executives on specific and
actionable recommendations for improvements to existing government funding initiatives. Chief
Executives were consistent in raising concern over the level and structure of support offered by
government programs, the inefficiencies engendered by the application processes, and the challenges to
their ongoing operations brought about by delays in disbursement.
Ontario’s human health sector (HHS) has taken action to develop a strong biotechnology cluster in
Ontario. In 2011, OBIO organized the Ontario Bioscience Economic Strategy Team (OBEST™) of over 220
volunteers to develop a province-wide strategic vision to support the growth and viability of Ontario’s
bioscience industry. The OBEST strategy was launched to stop the downturn in the human health and
biotechnology sector and take up the challenge of pivoting Ontario’s economy towards renewed
prosperity and growth. OBEST recognized the need to take action in order to ensure Ontario does not
lose the opportunity for building a globally-recognized bioscience sector that develops and exports new
products and services capable of addressing global healthcare priorities. OBEST strategies ensure our
investments in research and innovation will not be lost to other regions to realize the economic benefits
of a growing industry. The OBEST call to action brought together an army of people, from academia,
government, patient groups, financial and capital markets, and industry, who worked for six months and
5,000 person hours building a collaborative, interactive and implementable plan for the industry to
become an economic engine in Ontario. Ontario’s bioscience community is now fully engaged in the
implementation of the OBEST plan.
OBIO, through OBEST continues to work with industry leaders on the development of this strategic plan
with the goal of addressing health care costs, delivering high value jobs in the knowledge economy,
generating exports, innovation adoption, exploiting opportunities for wealth creation and improved
health care for all Ontarians. The industry continues to work with government to implement programs
that address the needs of the human health technology and bioscience sector.
Response to Department of Finance Consultation July 27, 2012
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OBIO RESPONSE ON BEHALF OF ONTARIO’S HUMAN HEALTH TECHNOLOGY AND BIOSCIENCE
INDUSTRIES
The following recommendations prepared by OBIO in consultation with industry leadership are provided
to assist the government in achieving its OBJECTIVES (listed below) for the $400 million Government has
made available to help increase private sector investments in early-stage risk capital and to support the
creation of large-scale venture capital funds led by the private sector.
GOVERNMENT OBJECTIVES


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Contribute to the development of a sustainable venture capital eco-system led
by private sector investment that includes:
 Domestic and international institutional investors; and
 Large-scale venture capital funds managed by the private sector
Increase the number of successful Canadian companies by encouraging private
sector investments in early-stage risk capital and helping to ensure highpotential innovative firms have access to financing; and,
Develop a deeper pool of experienced fund managers in Canada, including by
attracting foreign expertise and capital to Canada’s capital market
OBIO Recommendation #1: Provide stability by committing to a long term plan
Achievement of Governments objective for a sustainable venture capital eco-system and an
increased number of successful Canadian companies is strengthened by signalling government’s
long term vision to investors and high growth firms (as evidenced in other jurisdictions). OBIO
recommends that the Federal Government institute a ten year annual funding commitment of $1
billion dollars invested at a rate of $100 million per year. This will provide stability for both early
and late stage companies by ensuring a baseline funding commitment in place despite the inevitable
market fluctuations.
Implementing a long term investment program allows both innovative firms and investors to
develop programs over a long term planning horizon knowing that a committed base-line number
will be invested in the market over multiple years whatever investment mechanism the government
chooses.
Stability has many spin-off benefits. Key among these - stability will help to attract the “deeper pool
of experienced fund managers” – another Government objective. One of the barriers to attracting
top notch international talent is the uncertainty of follow-on employment opportunities for career
driven individuals relocating to Canada. Being able to provide multiple receptors within Canada for
talent will attract and keep foreign expertise thus increasing the breadth and depth of management
knowhow capable of taking full advantage of human health and bioscience technologies being
developed in Canada.
Response to Department of Finance Consultation July 27, 2012
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OBIO Recommendation #2: Manage Government’s investment via a Technology Focused Fund of
Funds that has designated amounts for health sciences, appropriate expertise, across Canada
focus and accountability timelines for distribution.
A number of existing Canadian organizations already have the resources, skills and relationships
required to invest funds into venture capital funds and as such act as ‘fund of funds’ managers.
OBIO recommends the federal government engage existing entities to manage government’s
investment by investing as a ‘lead order’ into several ‘fund of funds’. Using existing capacity rather
than trying to build the required capability from the ground up will avoid start-up delays and allow
funds to be deployed quickly. Using existing capacity also avoids waste and duplication of efforts
and ensures funds are disbursed by an experienced manager, avoiding the ‘learning curve’ of a new
organization.
While experimenting across a multiple number of models is recommended, consideration should be
given to existing ‘fund of funds’ managers including but not limited to: Business Development Bank
of Canada; Teralys Capital and North Leaf Capital. Such a fund should be nationwide and not limited
by provincial restrictions.
Recommended directives to a ‘fund of funds’ manager by the federal government include:
1. Minimum fund size for life sciences should be $250 million. This is necessary to ensure the fund
is able to do sufficient follow-ons and will be given serious consideration by other VC funds. It
will also help ensure that all segments of biotech can reasonably fall within the scope of the
investment portfolio. Investment trends in the Canadian industry are often driven by the
availability of funding favouring smaller investments in medical devices whereas biotherapeutics
requiring significant funding are difficult to finance given fund sizes. History confirms the need
for a required allocation of funds to ensure life science investment. A case in point is the less
than 1% of total capital advanced by BDC to the life science sector in 2010.
2. Participation by multi-national biotech/ pharmaceutical companies as limited partners or as
general partners in recipient VC funds is encouraged as per the Quebec successes of 2012.
3. Federal money should not be used to protect private investors (i.e. there should be no
provisions for government to take losses first or guarantee returns).
4. Recipient funds to be return-oriented with appropriate timelines for health sciences and
insulated from government influence for regional development etc.
5. Foreign VCs should be allowed to vie for the general partner role in recipient funds as long as
they establish a dedicated, Canadian-resident VC fund for this purpose and invest in Canadian
companies.
6. Compensation for general partners should be designed to properly incent the general partner
while benchmarked against practices in global jurisdictions. Funds should be accountable for
distribution in a timely manner.
Summary Rationale for government investment via a fund of funds business model
 Infrastructure already exists: No new programs need to be created however existing ones need
to innovate their processes to create an environment for success.
 All investors should share the risk
 Evergreen potential via reinvestment
 Allow follow-on investments
 Funding accessible to both private and public companies
Response to Department of Finance Consultation July 27, 2012
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High growth companies stay in Canada
Build breadth and depth of Management knowhow: Select funds based on deployment track
record and ability to build healthcare companies for the long term.
OBIO Recommendation #3: Encourage Private Sector Investment, Foreign Investment and Pension
Fund Investment
In 2012, most institutional investors have vacated the VC landscape in part due to the small Canadian
investment base. As in the past, consideration should be given to encouraging pension funds to show
leadership by investing 12% of their portfolios in Canadian healthcare fund of funds. Such a directive
equates to the 12% of Canada’s GDP spent on healthcare which determines the core functioning of
society.
Government’s focus should be on attracting growth capital using fund of funds as the business model.
This approach will attract private sector investment and allow private markets to handle foreign
investment. Positively, foreign investment will be attracted to invest alongside Canadian VCs by the
stability afforded government’s long term investment commitment.
Companies who have VC-like investment vehicles should be incentivised to invest in Canadian
companies.
Additionally, foreign investors should be encouraged to stay invested in Canada by removing existing
restrictions for non-CCPC companies allowing them to benefit equally from SR&ED. SR&ED is seen as a
strong and positive program. Opening SR&ED up to any company conducting research in Canada will
create sector jobs and attract both foreign VCs (by leveraging their dollar) and foreign multinational
research dollars to fund labs in Canada. Further harmonization of SR&ED requirements and eligibilities
should include public entities contributing to a beneficial levelling of the playing field.
Reductions to SR&ED have been described in the context of re-directing resources to other support
mechanisms such as a new SBIR-like program. While there is support for directed funding ideas, these
programs should preserve SR&ED. Further, expansion of IRAP funding programs is seen as more positive
than creating new programs. Currently, IRAP tends to fund many, small Seed projects, but the program
should be expanded, with a view to being an entry point for successful companies and projects to apply
for larger IRAP grants that would truly help build companies and allow them to advance multiple
development programs.
“Benefits to Canada” clauses (job creation, capacity building, etc.) can attract foreign investors if
government first commits a non-equity investment as part of a fund of funds providing venture returns.
In order to build the missing pieces of Canada's biotechnology ecosystem, establish sustainable local
companies and restore financial networks, Government is encouraged to augment tax incentives (such
as tax breaks on capital gains) so that Canadian and foreign investors benefit from building companies in
Canada and establishing Canadian company headquarters. Only when companies are domiciled in
Response to Department of Finance Consultation July 27, 2012
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Canada are the types of high quality jobs created here that will build the next generation of Canadian
success stories.
Respectfully Submitted,
Gail Garland
President & CEO
Ontario Bioscience Innovation Organization
101 College Street, Suite 120-C
Toronto, Ontario
M5G 1L7
In preparation of this response, OBIO Gratefully Acknowledges the Contribution of OBIO Board of
Directors, OBIO Members and OBEST Implementation Team 5: Encourage Long Term Capital. In
particular OBIO would like to recognize the contribution of:
Brian
Adam
Jolyon
Lisa
Stephen
Helen
Jeremy
Rob
Stefan
Steve
Jim
Prabah Bob
Cathy
Niclas
Grant
David
Bloom
Buckley
Burton
Crossley
Fanjoy
Findlay
Grushcow
Hall
Larson
Ottaway
Pelot
Singh
Steiner
Stiernholm
Tipler
Young
Bloom Burton
Variation Biotechnology
Bloom Burton
VitalHub
Devera Logic
Actium Research
Norton Rose
HTX
Tornado Medical Systems
GMP Capital
ArticDx
PwC
Nucleus
Trillium
RBC
Actium Research
Response to Department of Finance Consultation July 27, 2012
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