It's hailed as Canada's future, but companies say they aren't getting the cash they need
The Hamilton Spectator
(Jan 16, 2006)
If money is the lifebloold of business, Canada's biotech industry desperately needs a transfustion.
"We have $2.5 million in sales now and we could easily grow that to $10 million," said Hoogendoorn, co-founder and president of Ancaster-based Affinity Biologicals. "If our growth is to continue, we need new money and the ways of getting that are getting fewer and less attractive."
Meyer, whose Adjuvant Informatics Corporation recently made the move from his basement to a shining new office in the city's technology incubator, shares that constant worry.
"I ate a lot of Kraft Dinner when we were starting out," he said. "I think this will be our train to wealth, but right now it's just pulling out of the station, it isn't really rolling yet."
Hoogendoorn and Meyer's companies are examples of what governments at all levels hope is the future of Canada's economy -- jobs based on brains rather than muscles and smokestacks.
The field has been marked since 2001 by Hamilton's economic development department as a key sector for future growth. Experts warn, however, that Canada's chances in the industry are being hampered by a continued lack of financial backers.
Studies earlier this year by the Conference Board of Canada and Statistics Canada pointed to the size of the problem.
"Canada is not well-positioned for the future," the Conference Board reported in a recent study. "Our commercialization record has been weak; we lack focus at the national level; we have a limited ability to harness risk capital; we have a shortage of critical, highly skilled talent; and our slow regulatory approvals process may be limiting the success of our biotechnology firms.
"While a number of Canadian companies have been able to raise cash successfully, earlier-stage and smaller public companies are in a precarious position even more so than during the market decline of 2002."
The Statistics Canada study noted that of 490 biotech companies surveyed in 2003, 254 had tried to raise capital and only 178 found it, with just over half of those firms hitting their targets. The firms raised $1.7 billion. That was down sharply from 1999 when 149 companies sought money and 119 raised it, gathering $2.1 billion.
Some of the problem, said Dorothy Redfearn of the city's economic development department, is simply the nature of the biotech business where, "It takes a long time for a product to get to market so funding is difficult to attract sometimes."
Darlene Homonko, executive director of the Golden Horseshoe Biosciences Network, added there's a reluctance today to back risky ventures -- a fallout from the bursting of the high-tech bubble.
"We haven't had a lot of success stories yet that give investors much confidence," she said. "Investors are coming to deals a lot later that they used to and that's making it difficult for early stage technology to spin out and make a go of it."
Trefor Munn-Venn, author of the Conference Board report, added another problem may be this country's failure to choose a specific area of development.
"It's a matter of us saying do we want to be everything to everybody?" he said. "At some point we have to decide if there are areas where Canada has scientific and market strengths."
For Affinity Biologicals, those factors may translate into some tough choices.
Founded more than a decade ago, the company employs 22 people and produces 225 products for blood research.
"We started in our basement and it was many years before we saw any personal money from this because everything we made was reinvested in equipment," Hoogendoorn said. "This was very much a hobby for the first six years."
By 1995, the fledgling company had moved to Hamilton where Hoogendoorn wrote his first business plan and took out a bank loan to buy equipment. Last year, with a bank mortgage, he bought a site in the city's Ancaster industrial park and took on more bank debt to buy more equipment, including a custom-made freezer needed to meet American import rules.
"Meeting those standards is very expensive and creates tremendous overhead," Hoogendoorn said. "We had to take on a lot of people who aren't revenue generators. We've taken on a lot of debt for the sake of building the infrastructure we need to take the next step."
Aside from banks, money can be found with angel investors and the public markets. Either of those choices, Hoogendoorn said, means giving up some control of the company.
"Angels usually have some pretty firm rules about their exit strategies and how much control they want, while the financial markets are too caught up in whatever's sexy today," he said. "We really need some way of assisting companies like ours without giving up equity in the business."
Dan Meyer, of Adjuvant, has a partial solution. He's financing the new firm with cash from an existing business called Med-Tel Software Ltd. Started in 1997, the company handles the critical billing function for doctors, collecting upfront and monthly fees. Meyer started that firm by cashing in stock options from his former employer, taking the business from his laundry room to a spare bedroom and finally to a basement office in Hamilton.
Med-Tel has 1,000 clients today, but by 2001 Meyer said it was clear the company's growth was going to be stunted by competition and a lack of motivation for doctors to switch providers. That started the search for a business with better long-term prospects.
Meyer's friend James Paul, a Hamilton anesthetist, suggested they look at the field of pain management.
The problem was a thorny one -- balancing the effects of the cocktail of drugs patients get to control pain as they emerge from surgery. What was needed was a database, accessible from the bedside, to help make decisions and record the tools being used.
Adjuvant Informatics Corp. was born in 2001. Its product, the APS Manager (for acute pain service) not only captures and analyzes patient drug orders, doctor visits and critical incidents, it also allows information to be saved in a searchable database. It was installed in Hamilton Health Sciences hospitals in 2002 and has since been picked up by Toronto General and Sunnybrook as well as hospitals in Australia and Norway. Others in Israel, Central America, the United States and Germany are studying it.
"It's getting a lot of attention," Meyer said. "It seems like we're onto something here."
As well as the cash flow from Med-Tel, the federal research tax credits have also been important growth tools, along with space in the city's technology incubator, a loan from the Business Development Bank and a grant from the National Research Council.
So far, Meyer estimated, Adjuvant has chewed up $400,000 in capital "with no real revenue stream yet.
"Clients are just starting to trickle in. Our goal is to become the standard, like Windows, and we have a chance of doing that, but there's also a real potential of not making our goals," he said, adding the company is talking to angel investors, banks and other sources.
"With $1 million we could finance a very aggressive assault on the U.S. market," he said. "Until then, we have to be very tactical in how we market."
T.
Comments