Biotechnology venture capital fund highlights S&T-heavy pre-election Budget

Quebec Budget

The Parti Quebecois’ pre-election Budget provided multifaceted support to the ongoing implementation of Quebec’s science and innovation policy, with several new and extended initiatives focused on remaining innovation gaps, specific sectors and the high tech business environment. Nanotechnology and biophotonics were among the existing and emerging technologies singled out for further development. But the biotechnology sector received the most attention with a $100-million investment towards the creation of a new development fund and an extension of the Bio-Lever program.

The political and bureaucratic landscape has changed considerably since the introduction of Quebec’s science and innovation policy two years ago, but the province’s pursuit of its S&T objectives has been remarkably consistent. With the main planks now in place, the latest measures further develop the provincial system of innovation by ensuring that the objectives of previous investments are realized.

It should be noted that implementation of the Budget measures is not a foregone conclusion as they have not been adopted by the National Assembly. An election was called on March 12, the day after the Budget was tabled, and there’s the chance that a change in government could scuttle any new investments and initiatives. Observers say that such a scenario, while possible, is unlikely.

“This Budget confirms our direction with the policy we launched two years ago. It’s maintaining the trend and adding new measures,” says Marc Ferland, assistant DM at the Ministry of Finance, Economy and Research (MFER) with responsibility for promotion and liaison related to research, science and technology. “The measures are now closer to operations and customized to support the whole direction provided by the new policy.”

The Budget amply demonstrates that biotechnology continues to command the lion’s share of provincial attention and investment, and comes at a time when the sector is in financial crisis. The investment chill for biotechnology has prompted the creation of a Biotechnology Development Fund to provide small biotech firms moving into the proof-of-concept phase.

The government is seeding the fund with $100 million through the Société Innovatech du Grand Montréal and Société générale de financement du Quebéc (SGF) and hopes to attract at least $200 million more from Canadian and foreign private equity sources. The Fonds de Solidarité FTQ (Solidarity Fund) has committed $50 million to the fund, which will be a limited partnership managed by a private corporation. That leaves another $150 million to be raised before the fund becomes operational.

“The fund is for biotech companies in expansion stage. They need a financing bridge until the capital market can take over,” says Ferland, adding that there are many Quebec-based biotech firms in desperate need of this type of follow-on financing. “There’s also a cultural problem which is the distance between Quebec firms and aggressive capital risk markets.”

The Biotechnology Development Fund will provide financings of between $15 million and $25 million, with the first $200 million to be invested starting in October and the remaining $100 million next April.

Last year, a report prepared for government by Groupe Secor emphasized the need for a biotechnology fund. Its findings were incorporated into government’s Towards Full Employment strategy, which was tabled in the National Assembly last December.

“There are about 50 companies at this stage of financing or will be in the next three years,” says Hubert Manseau, president and CEO of Innovatech. “Nearly 30% of all Canadian biotech companies are in Quebec and it’s been a huge success. But if we don’t fund their expansion all of this will have been for nothing. The fund manager will have free play to invest which is the only way to go if you want to attract foreign venture capital.”

Innovatech will play a coordinating role with the other players in establishing the fund. It was chosen due to its reputation as a neutral player in this stage of financing. (In a separate Budget measure, Innovatech received an additional $100 million in capital stock. When added to the $50 million it received for the Biotechnology Fund, its capitalization is now $500 million).

Biotechnology was also also the focus of $50 million in renewed funding for the Bio-Lever loan program, which received an initial $100 million last year. The government has set aside $7 million next year and $5.5 million in FY04-05 as a loan loss provision for the program. The new funding was welcomed by the biotech association, BIOQuébec, which says it will facilitate second and third rounds of financing for investments in the $10-60 million range.

NANOTECHNOLOGY MOVES FORWARD

The emerging field of nanotechnology was also addressed in the Budget, with $1.5 million to develop a comprehensive plan that could lead to the creation of a new institute. The decision to allocate funding for a further study of Quebec nanotechnology acknowledges the need for a comprehensive strategic plan given nanotechnology’s growing pervasiveness in virtually all sectors. The plan will be developed in conjunction with Nano-Québec and the Regional Development Council of Montreal and follows up on a recommendation from the Conseil de la science et de la technologie for such a strategic approach. To date, the government has invested more than $100 million in nanotechnology, mostly for equipment.

“We need to develop technologies, support industries and provide links between universities and enterprises,” says MEFR’s Ferland. “But the government said it’s not clear enough yet. We have to pick niches and that’s where we are now. The Budget sends a signal that we’re ready to move forward in considering a new institute. The government will follow up with larger investments.”

The idea for a new strategic plan is being viewed positively by the Canadian NanoBusiness Alliance (CNBA). But CNBA president Dr Neil Gordon says a coordinated approach with the federal government will eventually be required.

“The Quebec approach is the right way to do it. The government has wisely chosen to provide funding to crack some of these issues related to transforming nanoscience into commercial activities ... But what we see in the US is state governments working hand in hand with the federal level.”

CNBA is preparing a position paper to educate the federal government on the need to fund a national nanotechnology initiative. Gordon suggests Ottawa and Quebec City should coordinate efforts to foster a series of nanotech hubs across Canada including Montreal, Toronto and Edmonton.

NOI EXPANDS RESEARCH

The National Optics Institute (NOI) also figured prominently in the Budget, with $3.6 million over three years to expand the scope of its research into biophotonics. The funding will allow for the hiring of up to 60 new researchers in biophotonics, which combines photonics with life sciences and agri-food technologies.

Complementing NOI’s new funding is a $15-million investment in new public research facilities at Laval Univ and the Univ of Sherbrooke in partnership with Québec Biophotonique. The funds will be available through the province’s infrastructure financing program and paid for through debt financing.

“We’re helping both sides of the line — optics and end-of-process facility,” says Ferland. “These are research centres in clinical environments which is unique to Quebec. If new equipment is required, NOI could build the prototypes.”

OTHER BUDGET MEASURES

In addition to NOI, the Budget also provided a $50-million line of credit for research infrastructure, once again provided through debt financing. The projects to receive the financing have already been identified but have not been made public.

Business incubation was given an $11-million boost over the next two years, providing stable financing for the 20 pre-incubators and incubators established throughout the province.

Regional innovation received another $5 million as the province continues to sign new agreements, with 14 already signed and another 36 pending. The funding goes towards research, technology development and technology transfer.

KNOWLEDGE DISSEMINATION

The Towards Full Employment strategy received $33.8 million over two years ($8.7 million in FY03-04) to assist companies in accelerating knowledge dissemination, implementing best practices and hiring specialized resources. No details were provided on how the funding would be allocated.

The strategy also addresses export development, which will receive $60.7 million in assistance over the next three years — $9.6 million in FY03-04, $23.8 million in FY04-05 and $27.3 million in FY05-06.

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