Roberto Bellini is president and CEO of Montreal-based biotech company Bellus Health Inc.
Five years ago I predicted that Canada would have at least one fully integrated biopharmaceutical company by 2025. At that time, the 10 largest publicly-listed drug developers in Canada had a combined market capitalization of approximately $3-billion. Today, the dream of a Canadian biotech champion that will have a sustainable flywheel of drug discovery, development and commercialization doesn’t seem so far away.
The flurry of Canadian financings in 2020 – including the landmark IPOs of AbCellera Biologics (ABCL-Q) and Repare Therapeutics (RPTX-Q) , which raised more than $1-billion combined – highlights the incredible progress our biotech ecosystem has made in five years. The market capitalization of the 10 largest Canadian biotech companies now exceeds $28-billion. I’m even more convinced Canada will have a Gilead Sciences of the North – a Canadian equivalent of the California-based company that grew from petri dish to industry giant – within five years. But our biotech industry still has a relatively small footprint, and there are many important challenges ahead.
Canada has long been blessed with globally recognized expertise in biological sciences. But it takes more than technology to achieve biotech success. The other important ingredients are entrepreneurs and capital, and in those areas we’ve been playing catchup. But there are signs of change. There is a new generation of entrepreneurs that aspire to build integrated biotechs, including commercial operations. Nine out of Canada’s top 10 biotech companies control the global rights to their lead product, compared with just two in 2015.
Notwithstanding our progress, when comparing our top 10 players with their U.S. counterparts by market capitalization, we have just one large cap (more than US$10-billion; Abcellera) versus 17 in the United States; one mid-cap (US$2-billion to US$10-billiion; Zymeworks) versus 65 in the U.S.; and three small-to-medium caps (US$500-million to $2-billion; Aurinia, Repare and Trillium) versus 104 in the U.S.
Even applying a 10-times factor to adjust for the relative sizes of our countries, it’s clear that we are punching well below our weight. The lack of depth in our ecosystem is evident, but just as evident is the significant opportunity to continue developing our companies and sector.
While our biotech companies have grown, an important group of investors has largely not participated in their growth or the ecosystem more broadly: Canadian institutional investors. Canada is blessed with some of the largest pension- and labour-sponsored funds in the world, and only a select few have a biotech investment strategy and regularly allocate capital to the sector.
The lack of attention paid to this asset class is holding back our ability to develop companies both at the private and public level, but just as crucial is excluding Canadians from the attractive returns our industry produces. Most of the investors capturing these returns are south of the border. Except one, all of the 10 largest biotech companies in Canada are listed on a U.S. stock exchange and controlled by U.S. investors. There is no trend toward greater Canadian ownership, either, with the most recent IPOs listing solely on a U.S. exchange and several dual-listed biotech companies abandoning their Canadian listings.
It’s difficult to assess the impact of government policy in the past 10 years on the sector. Initiatives to catalyze the renewal of Canadian VCs investing in biotech through the federal government’s VCAP (Venture Capital Action Plan) and VCCI (Venture Capital Catalyst Initiative) programs have produced results. Notwithstanding the excellent returns those funds have delivered, overall acceleration of the size and number of Canada’s small coterie of biotech VCs hasn’t occurred as expected.
It would make sense for the government to continue supporting our VC community, even if it comes at the cost of dialing back programs such as SRED (Scientific Research & Experimental Development) tax credits or IRAP (Industrial Research Assistance Program) that often help small companies fund research and development, but don’t really help them grow. A more ambitious federal approach to developing companies in all sectors through the Strategic Innovation Fund had no biotech-directed funds through its first phase of company selection. Three important disbursements to biotech companies totalling $375-million have been part of the government’s pandemic response. The government has recognized the sector’s importance this year during the pandemic; hopefully, this will also lead to a more consistent prioritization of the sector long term.
Canadian biotech companies are playing a very real role in helping address the pandemic. Vancouver’s Acuitas contributed key technology to the Pfizer vaccine. The Eli Lily-sold antibody Bamlanivimab, which was used to treat former New Jersey governor Chris Christie and is approved in the U.S. and Canada to treat COVID-19, was developed by Vancouver’s Abcellera. The pandemic is showcasing Canada’s biotech talents today, but the growing ecosystem of high-quality companies has been years in the making.
For biotech in Canada, there has never been a better time for science graduates and professors to start a company. Investors should be thinking about allocating or increasing their allocation to the sector. Governments should prioritize their support to biotech and make it a focus of its post-COVID economic rebuild. We’ve made so much progress, but additional efforts are needed to realize the sustainable biotech ecosystem Canada seeks and a Gilead of the North.
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