Q2 Venture Capital Numbers Do Not Look So Rosy in Canada

When Q2’s venture capital investment numbers came out for U.S. investment, healthcare/biotech investments were on top, beating out even IT investments in that period and generating some optimism.

Dow Jones has released the worldwide Q2 venture capital numbers (H/T @startupcfo, and things do not look so rosy here in Canada:

• The overall number of VC deals in 1H 2009 Canada was off 30% from 2008 levels, and the average raise was down as well, resulting in a nearly 50% drop in total investment from 2008 levels. That’s over $130 million less invested in 2009.
• Unlike in the U.S., there was no silver lining for biotech in Canada.  Whereas IT investment was about 1/3 off its 2008 levels, healthcare/bio was off a whopping 62%, raising only $18 million total in the first 6 months of 2009!

One caveat is that things are not quite as bad as they seem on the biotech front, since quarter-to-quarter volatility is normally very high.  In fact, Allostera closed a $17 million A round in July which practically doubles the YTD number from 1H levels, and I don’t expect we’ve seen the end of Q3 biotech VC activity.

Bottom Line: Even if a few banner deals pull the statistics up for Q3, BIOTECanada’s numbers will not improve without OVCF, OETF and Teralys making some sustained commitments to the biotech sector.  No time like the present, folks.

New Data Shows 70% of Canada’s Biotech Companies Have Under 12 Months’ Cash. BIOTECanada’s New Ask: Government Loans.

A Canwest story today highlights new BIOTECanada data showing 70% of survey respondents have under 1 year of cash, up from 50% in January.  FierceBiotech picked it up as well, guaranteeing a full dose of international attention.  

Even though the remaining 30% of respondents likely include some with big recent successes — Bioniche, Allostera and Zymeworks — and some with creative approaches — ConjuChem, Neuromed, etc. — the top-line number is grim indeed.  Plus, as Kasia Majewski points out:

“Most firms have found away to extend their cash, but they’ve done that by massive layoffs, by shutting done operations to the bare bones. So essentially the lights are on but there’s one guy home.”

Given that there has been no systemic cash infusion, it’s not surprising that the number of firms in trouble has gone up since January. 

On the other hand:

There is a bolus of fund-of-funds and direct capital waiting to be deployed, including:

• The Ontario Emerging Technologies Fund, which is getting ramped up,
• The Ontario Venture Capital Fund, which has plenty of dry powder,
• Teralys Capital, which opened its doors with $700 million this week, and 
• Some NRC-IRAP money that is starting to trickle out.

Plus, Lumira Capital’s Q2 newsletter (pdf) points to the new BDC money, Alberta Investment Management Corp’s PE plans and the new Alberta Enterprise Corporation as potential additional sources of funding in the medium term.

BIOTECanada bottom line:

In the winter, the organization was focused on tax initiatives.  Yesterday, though, the focus was entirely on

“negotiations with Industry Canada to obtain a loan program for Canada’s biotech sector that can hold the industry over until capital markets rebound. … [Specifically,] government loans to be repaid after a two- year period at six per cent interest.”

Maybe it’s the new money looming on the horizon, or the seeming lack of traction for the tax policy asks, but the focus has definitely shifted.

My bottom line:

Even the new loan program advocated by BIOTECanada will not help if the other government funding doesn’t make it to biotech companies and VCs. We’ve been keeping an OVCF scoreboard that still shows a goose-egg for biotech investments.  It may be early days for these new capital sources, but the hour is late for Canadian biotech companies.

Allostera’s $17m Deal Shows Canadian Venture Capital Funding is Available, Even as LPs Hold Back in the U.S.

Allostera Pharma Inc. anounced today that it closed a $17 million Series A round today, funded by four Canadian VCs: iNovia Capital, Genesys Capital, BDC Venture Capital with GO Capital, and Fonds Bio-Innovation s.e.c.

The company is a spin-out of a University of Montreal-affiliated hospital and it has a platform to make peptide drugs that inhibit receptor signalling allosterically (i.e., without inhibiting ligand binding).  The lead product, in early stage trials, is an IL23-receptor inhibitor.

That’s a pretty healthy A round, coming as it does on the same day as Private Equity Analyst released U.S. data showing that U.S. VCs “raised $5.1 billion across 52 funds, down 63% from the $13.6 brought in by 115 funds last year.”

On the third hand, there’s Excel Venture Management’s new $125 million Boston-based fund, which will “focus (sic) its investments on healthcare information technology, services, diagnostics, medical devices, and life sciences platforms with applicability to adjacent industries such as energy, chemicals, defense, and agriculture.”