What is a Labour Sponsored Investment Fund (LSIF)?
A LSIF (or Labour Sponsored Venture Capital Corporation) is an investment fund structured similar to a mutual fund that has a specific mandate to invest in small and medium sized Canadian businesses. Both the federal and several provincial governments offer tax credits to investors of a LSIF.
What's a Research Oriented Investment Fund (ROIF)?
The Government of Ontario has demonstrated its commitment to research and development through the provision of an additional tax credit to labour-sponsored venture capital investment funds that qualify as ROIFs. To qualify as a ROIF, a labour-sponsored fund must hold at least 50% of its investments in businesses that, generally, incur at least 50% of their expenses as research and experimental development. Ontario resident purchasers of Class A Shares of the Fund will qualify for an additional five per cent non-refundable provincial tax credit, giving these purchasers a total provincial tax credit of 20 per cent to a maximum of $1,000 per year based on an annual investment of $5,000.
What is a Life Sciences company?
Life Sciences is an umbrella term that embraces biotechnology companies involved in: human therapeutics, disease diagnostics; drug delivery toolkits, bioinformatics, genomics and proteomics; medical devices companies; contract research organizations and other contract health care services; and companies offering health care management.
How can I purchase shares of CMDF?
Individuals interested in purchasing shares or receiving the prospectuses of
the Canadian Medical Discoveries Funds should contact their investment advisor
or:
Fairway Asset Management: Telephone: (866) 299-7929 e-mail: info@cmdf.com
What is the type of company and range of the size of investment that the CMDF funds will make in a company?
CMDF and CMDF II invest predominantly in the growing biotechnology industry that
constitutes the major part of the life sciences sector. CMDF typically provides
equity financing in the range of $250,000 to $5.0 million. No more than 10%
of the capital raised can be invested outside of Canada. The selection of early
stage investments are influenced by the following criteria:
- The credibility of the principal investigators;
- the uniqueness of the discovery;
- the protectability of the intellectual property under development; and
- the commercial potential of the discovery.
What is the significance of the average age of CMDF investments?
The average age of the portfolio investments reflects the addition of follow-on financings as companies achieve their milestones as well as new investments that have occurred as the fund raises money.
Why does CMDF make follow-on investments in a company?
Because the road to commercialization of a new therapeutic product is long, venture investing in biotechnology is typically geared to companies achieving their stated milestones. Therefore, an investment in a biotechnology company is divided into tranches of financing depending on where the company is in their development cycle.
Why is Venture Capital such an important asset class in Canada?
Venture capital, as an asset class, has historically compared very favourably
in its rate of return versus other asset classes. Also, although venture capital
does possess inherent risks since investments are made in private, early-stage
companies, holding an alternative asset class in a portfolio can help reduce
overall portfolio risk.
Venture capital plays an important economic role in job creation through the provision of start-up and follow-on financing for promising new companies. For example, in the biotechnology industry in Canada, greater access to venture capital has been one of the reasons why the number of biotechnology companies has almost doubled over the last five years.
How does Medical Discovery Management Corp., the
manager of the CMDF Funds, minimize the risk of portfolio companies that fail?
Our expert management teams are responsible for due diligence. The teams are
very selective in the deals they choose to make, since they have access to such
a wide range of qualified investment opportunities. In the biotechnology sector
companies fail for a number of reasons: their lead product may fail to demonstrate
significant benefits in human clinical trials; they may be unable to protect
their intellectual property and gain market exclusivity; new discoveries render
their technologies obsolete, etc. Biotechnology discoveries are occurring almost
daily and this means that the technology risks of a potential venture investment
are far more uncontrollable than the commercial risks of technology development.
To minimize the technology risks, the CMDF funds have access to expert scientists
who review the technology in detail. These experts look for technologies that
have a multitude of uses (platform) so that the value of the technology is
not diminished if one product area that it generates does not prove to
be successful.
Biotechnology platforms can hold tremendous value. Since the CMDF funds's management
teams are composed of experts in the life sciences field, with extensive industry
connections and market knowledge, the manager can often find interested buyers
for specific technology components of a company. CMDF investments are generally
only in those companies that have a broad, sound platform to maximize the ability
to find successful exits and minimize the initial investment risk.
What causes fluctuations in the NAV?
While the private companies in CMDF's portfolio are valued at cost and remain relatively stable, a significant percentage of the Fund's value is in public companies that are re-priced every day according to the closing market prices. Therefore, this portion of the Fund's portfolio is subject to market volatility.
Why is the MER higher than for mutual funds?
Venture capital investment in eligible Canadian health businesses requires a
greater commitment to investment analysis than investments in most other securities.
The biotechnology industry is complex and requires a great deal of research
and due diligence to identify the potential risks and rewards of an investment.
In addition, the cost to determine the value of the CMDF funds' assets for
which no published market exists will be greater than valuation costs for mutual
funds that invest primarily in listed securities. Consequently, the operating
expenses of the CMDF funds will likely be substantially higher than those of
many mutual funds and other pooled investment vehicles.
For more information, please refer to the CMDF Fund’s Prospectus, Financial
Statements and/or Management Reports of Fund Performance.
What is the Fund's rollover program?
If you invested in CMDF prior to March 1st, 1999 you will be able to
rollover (i.e., redeem and re-invest) your assets in CMDF and earn additional
tax credits. The process involves the completion of one simple form
that the Fund’s administrator, Felcom Data Services will have
sent to your investment advisor. If you are a CMDF unit holder please
contact your investment advisor. If you are an investment advisor, blank
forms are also available at www.felcom.ca
. For further information, call 1-(866)-511-5548.
