Intellectual Property Financing for Canada’s Biotech Sector

Intellectual Property Financing for Canada’s Biotech Sector

The global pharmaceutical industry is transforming. Blockbuster drugs of old have fallen from patent cliffs, and been replaced by their cheaper, generic doubles. Competition has increased as mergers, alliances, and buy-outs have become commonplace.

Furthermore, market growth is slowing in places like North America and Europe, but sky-rocketing in emerging markets like Asia and India. So for Canadian companies, there are export and investment opportunities out there, it’s just a matter of adapting to the new realities of the industry.

Most notably, today’s pharma business model has changed. Companies don’t generally control products from research through testing into production like they used to. Instead, the biotech space has become more of a global marketplace of ideas, where intellectual property (IP) – whether a product on the market or still in the research and development phase – is bought and sold.

“We’ve spoken to Canadian biotech companies about what they need to succeed in today’s industry, and many of them have told us the same thing – to grow internationally, they need intellectual property financing,” says Antonio Lopes, Strategic Account Executive and Lead for Life Sciences and Healthcare, EDC. “By purchasing IPs, companies can protect themselves against the risks of failed products and poor returns on investment. It just makes sense for them to diversify and avoid putting all their eggs in one basket.”

Intellectual Property powers the pharma sector

And the purchasing and licensing of IP is what seems to be powering the movers and shakers in today’s pharmaceutical industry. Montreal’s Valeant Pharmaceuticals International, for example, was one of the first Canadian companies to employ this acquisition model with considerable success. Export Development Canada (EDC) helped Valeant in 2011 by contributing USD 175 M to a USD 1.7 B corporate facility, which was used to support a number of IP acquisitions; EDC’s first foray into this type of financing. Today Valeant is the largest pharmaceutical company in Canada, and owns the rights to more than 500 products worldwide.

But many companies in the biotech space, especially the smaller ones, don’t think it is realistic to purchase IP because they don’t have the assets to back a loan. The solution – cash-flow financing, where a lender such as EDC evaluates a company’s ability to pay back a loan not by its existing assets, but instead by projecting its expected cash flow in the future; for example, their expected revenue following the purchase of an IP.

In this way, EDC can help companies of all sizes that are looking to grow their international presence in the biotechnology and life sciences sector. And there is certainly room for growth, as worldwide demand is rising due to factors like: an aging population, increased frequency of chronic disease, an expanding global middle class, and rapidly improving medical technologies. Last year, EDC helped more than 145 companies in the Canadian life sciences and healthcare sectors conduct close to $1 B in foreign business.

Concordia Healthcare and Merus Labs

Oakville-based Concordia Healthcare Corp. is another company, like Valeant, that is growing through IP purchases. In May they acquired Donnatal®, used to treat irritable bowel syndrome and in September they acquired the US rights to Zonegran® (zonisamide), a drug used to treat partial seizures in adults with epilepsy.

Collectively EDC contributed USD 22.5 M to corporate facilities for the two products, which were led by branches of General Electric.

Toronto-based Merus Labs is also expanding its list of pharma products, as they recently purchased the European rights to Sintron, an anticoagulant to treat and prevent clotting disorders. EDC contributed USD 12 M to a USD 80 M financing facility for this acquisition.

“There is a lot of money to be made in the industry right now, particularly by buying up pharma IP,” says Lopes. “However the larger corporations, especially in the US, have gotten a head start and are buying a lot of Canadian start-ups. We hope that by offering this kind of financing, we can help Canadian companies grow and become global players in their own right, just like Valeant, Concordia, and Merus have been able to do.”

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