Canada’s Growing Hotbed For Biotechnology Investing

April 24, 2018 | By: Jon Jackson

“There is a reason Sanderling has a dominant portion of its portfolio companies located in Canada; all based on good technology, knowledgeable drug development and sound economics.”

When Robert McNeil founded Sanderling Ventures in 1979 he didn’t immediately have his sights set on Canada. After all, biotech investing in the country lagged that of our neighbour in the United States. It wasn’t until an opportunity to invest in Gemin X Pharmaceuticals in the early 2000s, that McNeil got a sense of the strong technology and development capabilities of Canadian biotech.

Michael Dixon, Managing Director, Sanderling Ventures loves telling this story. “I joined Gemin X in July of 2000. We closed that first financing with Sanderling on December 24, at 5:00 in the afternoon. I remember that because I hadn’t done any Christmas shopping at the time and I was in deep doodoo, as you might imagine.”

It was during that funding round that McNeil and Sanderling made their first investment in Canada. Sanderling was introduced to the opportunity through some of their limited partners that came to them from Canada. According to Dixon, McNeil looked at the novel technology behind Gemin X and said, “This is a company I want to invest in.”

Sanderling Ventures Montréal Team (Left To Right): Pierre Beauparlant (Managing Director), Michael Dixon (Managing Director) and Louise Proulx (Venture Partner).

Dixon credits Sanderling’s active involvement to the success of Gemin X.

“(When Sanderling invests) they take on the role of Executive Chairman, sometimes CEO or CFO. We’re very active in running our companies and participating in them. Bob McNeil guided the company in those early days, through the entire drug development process, which nobody on the team at that time had ever done before. In addition to that, Sanderling would eventually invest $30M in Gemin X. And, more importantly, they facilitated through their network of other venture capital firms, including some of their own LPs, an additional investment in the company of another $30M.”

Sanderling was responsible for bringing $60M into Gemin X between 2000 and 2011, explains Dixon

“Sanderling benefited from the Gemin X experience through those ten years and they came to appreciate the value and the pool of expertise we have here in Canada in research and development. The very attractive and cost-effectiveness of doing business here in Canada, compared to the Bay Area or Boston, is also compelling. The Canadian dollar is often a great value compared to the U.S. dollar, which is an additional benefit of doing business here. Of course, the investment tax credits, while not a key reason to invest, also help to reduce costs at the early stage of development. That was the introduction of Sanderling to Canada”

Sanderling is known to be an early-stage investor. They have an interest in discovering innovative technologies such as therapeutics, small molecules, biologics, devices and iHealth. Sanderling takes these technologies out of universities or hospital networks, or sometimes revives technologies that have been shelved by big pharma. Sanderling then forms a company around the technology and implements active management around the asset.

Active management often sees Sanderling assuming the role of the CEO and other senior operating roles. Sanderling will work with their investments on a day to day basis and helps navigate through the obstacles of drug development, as well as financing, legal and patenting.

Canada Is Under-Ventured

Sanderling is very active in the Canadian life sciences sector and Dixon expands on some notable movements in the space.

“There is a real wealth of technologies available here that are perhaps underserved by the venture community. In other words, the ratio of new technologies to venture capital in Canada is significantly lower than the ratio of new technologies to venture capital in the United States. I heard the phrase, it’s an ‘under-ventured’ community. There’s a great opportunity to look for assets of interest, forming a syndicate of both Canadian VCs and U.S. VCs and developing the asset here in Canada.”

Sanderling’s founder, Bob McNeil, agrees.

“Most of the companies that are newly started in our latest fund are located in Canada, indeed I believe three quarters of these seed companies are in Canada. We really believe that there’s a highly talented drug development capability here and we’re working hard mining this opportunity.”

One of the more recent stories coming out of Sanderling from Canada is from their investment in DalCor Pharmaceuticals, a phase III cardiovascular asset, in-licensed from big pharma based on ground breaking research at the Montréal Heart institute. DalCor’s series B in 2016 was the largest life sciences funding that year, according to CVCA’s 2016 Canadian Market Overview.

Looking forward, Sanderling is extremely positive about the biotechnology sector and articulates the benefits of starting companies in Canada.

“It’s 2018 and we have more than surpassed all of our achievements that were laid out to be accomplished by 2023,” says Dixon. “Sanderling really has made a huge investment in Canada, as was the original vision when Sanderling VII was formed, and we’ve surpassed all those goals.”

Building on that sentiment, McNeil is ready to establish and cultivate additional companies in Canada; advancing the value of its portfolio and the Canadian economy at the same time.

Fred Middleton, Managing Director, Sanderling Ventures, was the third member of the management team for Genentech. Fred looks upon Montreal and says, ‘When we started Genentech, we had no more than you have here in Montreal. In fact, we had less. We had three universities. You have more than that. You have a great infrastructure of drug development. We had none of that. There is no reason why you can’t grow significant companies with global presence here in Canada. No reason.

Biotech is one area where you could grow important, sustainable companies in Canada and we would like to do that. It is a long road with plenty of challenges. While I cannot make assurances, we do see all the elements for the possibility of important success here. We’re going to continue our execution of this strategy.”

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