At first glance, Aspreva Pharmaceuticals looks like your typical venture-backed biotech IPO. The company-which develops drugs in underserved areas, such as in autoimmune diseases-launched an IPO in March and raised nearly $80 million, making it the largest VC-backed life sciences IPO in the first quarter. The company boasts a number of well-known venture investors, too, including Axiom Venture Partners, InterWest Partners, The Sprout Group and Vivo Ventures, among others. Together, the venture firms funded the company with $57 million in financing. All in all, a typical looking VC-backed IPO.
But Aspreva sports something that other recent VC-backed biotech IPOs like EyeTech Pharmaceuticals, CoTherix and Favrille don’t have-a Canadian address.
The Victoria, B.C.-based Aspreva turned heads when it launched its IPO on the U.S. exchange. Not only was it a VC-backed company, but also it was from Canada, which can count the number of VC-funded life science IPOs on one hand. And since its offering, Aspreva has not disappointed. The company debuted at $11 per share, and in mid-May it was consistently trading at around $14 a share.
Aspreva (which trades on U.S. and Canadian exchanges-Nasdaq: ASPV and TSX: ASV) was preceded to the public market by Calgary-based SemBioSys Genetics Inc. (TSX: SBS), which is developing drugs and personal care products based on protein-based technologies. SemBioSys, which raised about $12 million from the Business Development Bank of Canada and other investors, went public late last year in a $14 million offering. Similar to Aspreva, SemBioSys was also trading above its offering price in mid-May. Their success on the aftermarket has many observers asking, “What other life science companies in Canada are worth backing?”
Before Aspreva and SemBioSys, only two VC-backed, Canadian life science companies went public in 2004: Adaltis and MethylGene. But Ron Patterson expects more such exits, because more life science startups are seeking capital as the market takes off. Patterson, a senior partner with Toronto-based MMV Financial, a venture financing firm, says that medical device companies in Canada will soon start emerging at a rapid pace as financing becomes more available. And, he says, IPOs are poised to become a more frequent occurrence for Canadian life sciences companies.
“We are slowly starting to see the IPO market open,” he says. “We’ll see three to four IPOs a year now.”
Of course, it didn’t happen overnight. The Canadian government has done its part to bolster the biotech industry through R&D tax incentives. Biotech firms get immediate full write-off for expenditures in R&D capital equipment and appreciable tax credits until they become a profitable company. Incentives typically equal nearly 19 cents of tax relief for every Canadian dollar of R&D expenditure.
And life science companies have received plenty of venture investing. VCs invested about $360 million in 116 life sciences companies in Canada last year (see chart, this page). So roughly one-fourth of all investments last year was in life sciences, according to research firm Thomson Macdonald. In comparison, VCs invested about $350 million in 115 life sciences companies in 2003. Growth is deliberate and steady.
“Investors in Canada are looking for biotech companies that can quickly move a product from the lab to the marketplace,” Patterson says.