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October 10, 2008 - Volume 7, Number 13 | |
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The Financial Crisis: Implications For Life Sciences Companies The current global financial crisis is having an enormous impact on almost every sector of the economy. Biotechnology and other life sciences companies are no exception to the consequences of the credit market carnage. It is very difficult to make any predictions about the near and medium term outlook for life sciences companies' ability to raise needed funding. However, one can be fairly certain that the environment will remain very difficult for some time. Since the short term picture may remain somewhat gloomy, companies need to appreciate the challenges and adopt strategies which are realistic and enable them to avoid potential disasters. The recent financial debacle has definitely opened everyone's eyes to the horrible mess in today's global credit markets. However, the credit "crunch" (as opposed to "crisis") has been a feature of financial markets for over a year. The Canadian venture capital market has been relatively lethargic for a significantly longer time period. Consequently, Canadian life sciences companies have faced a difficult funding environment for some time now. Nonetheless, things are clearly getting worse. Venture capital investment in Canada in the first half of 2008 was down 39% compared to the first 6 months of 2007. In the life sciences sector, the drop in investment compared to 2007 was less severe, but still significant. Just as concerning, new emerging companies looking to the venture capital market for the first time continued to have a particularly difficult time raising funds; over 80% of venture capital investment went to follow-on financings of companies in which venture capital funds have already made an investment. Venture capital investment by U.S. funds accounted for 35% of the total invested in Canada during the first half of the year, a slightly lower percentage than in 2007. However, investment by U.S. funds remains significantly higher than its historical average and it is likely that any growth in Canadian venture capital financing will come from U.S. venture capital funds. In the U.S., venture capital investment remained relatively flat in the first half of 2008 compared to 2007, although the life sciences sector witnessed a significant drop in activity. More ominously, the National Venture Capital Association ("NVCA") noted that for the first time since 1978, there were no venture-backed initial public offerings in the second quarter of 2008. This followed an exceptionally slow first quarter when only five venture-backed companies went public. The NVCA has characterized the situation as a "capital markets crisis for the start-up community". (In Canada, there was one venture-backed initial public offering during the first half of 2008.) The dramatic slow-down in exit activity for venture-backed companies has serious implications. First, exits, especially those that generate high returns for investors, correlate strongly to funds being reinvested in new companies. Secondly, if venture capital funds realize that their exits will be postponed, they are likely to reserve funds for their existing portfolio investments that would otherwise be available for investment in new companies; the venture capital funds need to maintain cash which may be required to meet cash flow needs of existing companies which cannot go public or be sold. In the public markets, life sciences companies have suffered severe losses in market capitalization along with almost everybody else. After an almost 30% drop for Toronto Stock Exchange listed life sciences companies in 2007, recent stock market plunges have taken a huge toll. In the U.S., there has been a meltdown in biotechnology and pharmaceutical public company stocks in the past few weeks, after they had held up fairly well for most of the year. According to Burrill & Associates, U.S. biotechnology financing, both for private and public firms, is on pace to generate about U.S.$10 billion, the lowest amount since 1998. As bad as some of these statistics are, they reflect activity only through the first half of 2008. Information for the third quarter is not yet available. It is reasonable to assume that the overall situation in the venture capital community has already or will worsen over the next few months. In addition, there are now fears that limited partners who provide the capital to venture capital funds will begin to renege on their commitments and simply refuse to honour capital calls. What does all this mean for life sciences companies? According to the BIOTECanada/PricewaterhouseCoopers surveys, access to financing has been consistently the number one issue for Canadian biotechnology companies. It is likely to become even more difficult for life sciences companies to raise new or follow-on funds in the months to come. Companies need to carefully assess whether they can delay or reduce the cost of their development programs to conserve as much cash as they can. Companies that do attract venture capital interest will discover that the terms offered to them will be much more onerous than they would like. Many companies will not be able to reduce their cash burn rate sufficiently or raise new funding. For these companies it is important that they evaluate their situation soberly and realistically. The one silver lining in all of this mayhem is that the M&A trend in life sciences, especially for biotechnology companies, will likely continue its upward trajectory. Big pharmaceutical companies are still looking to fill their product pipelines by acquiring or otherwise locking-up biotechnology assets. Licensing arrangements, strategic alliances or partnerships and outright sales to pharmaceutical and other strategic investors may be the most effect way for many life sciences companies to keep their products alive. If these companies wait too long to consider and pursue such opportunities, they may run out of both cash and time. The best advice for such companies may be that, until the funding environment improves, careful evaluation and assessment of possible M&A transactions should become an integral part of their ongoing strategic planning. These very difficult times may provide an opportunity for the life sciences sector, governments, the investment community and other stakeholders to take a close look at the fundamental issues with the funding of emerging companies. There are those who argue that the model currently in place is flawed and needs to be re-thought and significantly adjusted. Perhaps the current financial crisis will motivate discussion and consideration of meaningful improvements to this model with long term sustainable benefits. For more information, please see: Draft Guidance Document released for Drug Master Files Health Canada has released a draft Drug Master File (DMF) Guidance Document intended to replace the Product Master File Guidance Document (1994). This guidance document strives to provide assistance to industry and health care professionals in the preparation and filing of DMFs, to ensure that all DMFs contain the necessary information to support a drug submission. The new guidance documents incorporates the International Conference of Harmonization (ICH) guidelines and terminology. It also extends beyond pharmaceuticals, providing directions for biotechnological/biological products, veterinary drug products, and natural health products. Finally, administration requirements and procedures have been updated and clarified, making the content requirements for all types of DMFs more detailed and cross-referenced to ICH and Health Canada guidelines where applicable. Comments and feedback on this draft document must be submitted to Health Canada by November 4, 2008. However, the Court did not go so far as saying that ISPs will be relieved of liability under all circumstances. In particular, where an ISP is put on notice that certain content it hosts is defamatory, then the ISP may no longer be exempt from liability.
The draft guidance can be found online at:
The Hill Times Policy Briefing on Biotechnology The Hill Times Policy Briefing on Biotechnology of September 22, 2008 overviews events, opinions and noteworthy facts on the direction of the Biotechnology Industry in Canada, including the following: Feds' new regulatory system better on clarity, short on speed: industry: The minority Conservative government introduced a new Cabinet Directive on Streamlining Regulation on April 1, 2007 replacing the 1999 government-wide regulatory policy. Some commentators have said that there is a new level of communication between government and industry and that the noticeable change has been with clarity but not speed. A spokesman for the Treasury Board Secretariat stated that the directive applies to all departments and implementing it is a question of capacity. He also stated that the government's biotech regulatory regime is intended to protect Canadians while being responsive to innovations and a rapidly changing environment. The government's new Cabinet directive requires in-depth cost-benefit analysis and mandatory consultation with affected parties. Time to fix, modernize innovation gap, say biotechnology industry stakeholders: The Conservative government released a government strategy last year entitled Mobilizing Science and Technology to Canada's Advantage which "sent the right message", but there are opinions that Canada's biotechnology environment needs to be modernized to fix the innovation gap in skills and regulatory systems. To address the problem that Canada's overall productivity gains are below those of other trading nations with whom we compete and to encourage greater private sector investment, the government has announced changes to the Scientific Research and Experimental Development Program which would increase the expenditure limit for tax credits from $2 million to $3 million, facilitating university, business and government collaboration through an $82.4 million investment in the Networks of Centres of Excellence; and R& D investments through the Industrial Research Assistance Program. Canada must do a better job of commercializing its R&D: Canada's Industry Minister Jim Prentice delivered a speech at the Penfield Lecture to the Montreal Neurological Institute Hospital and had three main points: 1) The importance of attracting the best and brightest from around the world; 2) Universities, medical research centres and public-sector research facilities must be the focal point of world-class research; and 3) Canada must do a better job of commercializing its R&D. Some Notable and Noteworthy facts on biotechnology industry:
For more information, please see: The Diversity of Open-Pollinated Plants With the increasing prevalence of genetically modified seeds in agriculture, some critics have been concerned with the loss of diversity of open-pollinated plants. A small number of corporations now control a significant proportion of seeds used in agriculture today, with control being enhanced with "terminator seed" technologies that limit further propagation. While these seeds promise increasing crop yields and resistance to various environmental stresses, there is concern amongst some that the use of seeds adapted to narrow conditions may be more vulnerable to other stresses such as climate change. Proponents of these technologies point to safe use for over a decade. Nonetheless, a number of seed and plant organizations have emerged, both for-profit as well as charitable, with the goal of preserving open-pollinated, non-genetically modified organic seeds. For more information, please see: Recent Cases Pharmascience v. Canada; appeal of judicial review of Minister of Health; September 10, 2008 The Court of Appeal dismissed an appeal of a decision from the Trial Division where the Trial Judge dismissed the application. The Minister of Health had rejected an ANDS because it did not contain comparative bioavailability studies of one of the two active ingredients in the proposed new drug. The Trial Judge found that the Minister had committed no reviewable error when he found it necessary to for Pharmascience to provide the bioavailability characteristics of that component. The dispute in question concerns the applicability of a section of the Food and Drug Regulations, and thus the standard of review is unreasonableness. The Court held that the Minister’s decision to reject the ANDS was within the range of acceptable and rational solutions and the dismissal of the application for judicial review was not in error. The full text of the decision can be found at: Sanofi-Aventis v. Riva; application for judicial review; September 22, 2008; ramipril The Federal Court dismissed Sanofi-Aventis’ application under the NOC Regulations. Sanofi-Aventis was successful in obtaining prohibition against Pharmascience in an application in response to an NOA. In an application in response to a later sent NOA from Apotex, Sanofi-Aventis was unsuccessful. Riva then sent a NOA, alleging the same grounds on which Apotex had succeeded. Riva had cross-referenced its ANDS to that of Pharmascience. Furthermore, in another previous NOC proceeding relating to ramipril, the Federal Court found that Pharmascience and Riva were not privies on the evidence in that proceeding. Initially, the Minister of Health had refused to grant regulatory approval to Riva because it had cross-referenced to Pharmascience and Pharmascience was prohibited from obtaining regulatory approval. Before the hearing of the application, the Minister changed its view and granted the NOC. The Court decided to hear the within application, despite aspects of the relief being sought being moot due to the issuance of an NOC to Riva. However, the Court found that in the within proceeding, there was little evidence as to the relationship between Pharmascience and Riva. Combined with the previous decision of the Court that they were not privies under the evidence in that proceeding, the Court held that there was not enough evidence to establish that one party is a privy of the other. The mere fact that one party has cross-referenced a drug application to another party’s drug application is not enough. The application was dismissed. This decision is under appeal. Full text of the decision can be found at: |
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