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New Invesment Advisor
On October 6, 2006, Canadian Medical Discoveries Fund (CMDF) announced the appointment
of Jove Investment Management Inc. (“Jove”) as the new Investment
Advisor to the Canadian Medical Discoveries Fund.
The new management team has been extremely active in the strategic restructuring
of the portfolio to minimize exposure to early stage investments and refocus
the portfolio on later stage businesses. With the objective of reducing investment
risk and accelerating positive performance, the portfolio has been refined from
over 60 investments earlier in 2006 to approximately 35 investments at the end
of the year.
Portfolio Realignment
The management team has been harvesting CMDF investments and creating portfolio
liquidity in order to:
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Align the majority of the portfolio with the
revised investment objective
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Free up funds for follow-on investments in
promising companies focused on the testing, production and commercialization
stages of development
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Provide liquidity and a significant cash position,
enabling the investment management team to take advantage of a changing
life science marketplace
The Manager believes that the revamped CMDF
portfolio and new investment strategy strongly position the Fund
to generate positive returns
in the coming months
and years.
Investment Objective
The Fund's primary objective is to achieve long-term capital appreciation through
investment in eligible Canadian businesses engaged in the health sciences
sector, with emphasis on the testing and development, or production and commercialization
stages of development. The health sciences sector encompasses a broad range
of scientific disciplines and industries that relate to or have an impact
on health care including, without limitation, life sciences, biotechnology,
diagnostics, medical devices, drug discovery and development, health care
delivery services and e-health.
The Fund invests in a variety of product development initiatives as well as
businesses with products, technologies or services in different stages of development.
Prospective investments by the Fund will be evaluated in terms of a number
of criteria, including the commercial potential, management experience, competitive
advantage, stage of development, capital requirements, exit opportunities and
return profile.
Investment Strategy
To achieve its objective the Fund will:
i. when appropriate investment opportunities
arise, invest the capital raised from the sale of Class A Shares in eligible
Canadian businesses engaged in
the health sciences sector, with emphasis on those businesses involved in
the testing and development, or production and commercialization stages
of development;
and
ii. pending investment in appropriate eligible Canadian businesses, invest
the remainder of the capital raised into a combination of high-quality, short-term
government and corporate debt obligations and, in particular, equity or equity
linked securities of North American biotechnology and health care related
companies or debt instruments which generate a return which is linked to
the performance
of a managed basket of North American biotechnology and health care related
companies.
The Manager has retained Jove Investment Management Inc. (“Jove”)
as portfolio advisor to the Fund to carry out the investment strategy.
Investment Opportunity
Canada has the third largest biotech industry internationally, which is considered
by some to be the fastest growing and most cost-effective for conducting
research and development. Canadian biotech companies rank third in generating
biotech
revenue, about $1.7 billion, behind the United States and the United Kingdom.
The regulatory environment is also expected to become more favourable to
companies. The Canadian Biotechnology Advisory Committee, a Government of
Canada mandate,
recommended to Industry Canada to refining the taxation regime so that it
is more responsive to the needs of small enterprises and facilitates the
financing
of commercialization efforts by small- and medium-sized enterprises.
The Fund recognizes and seeks to capitalize on opportunities that have been
or will be created by the enormous commercial potential of the health sciences
sector. For 2005, Canadian health expenditures were estimated to be $140
billion or about 9.7% of Canada’s national income gross domestic product (“GDP”).
In the United States, health care expenditure were expected to reach US$2.0
trillion or 16.2% of GDP in 2005 . Health care expenditure growth over the
past 20 years has never gone below 5%; several of those years experiencing
10% growth on a year over year basis . The Fund believes that several demographic,
technological, market, and societal factors will further increase consumption
of health science products, services and technologies, leading to an improved
investment climate. The primary drivers of this growth are: i) aging demographics;
ii) acceleration of technological advancements; and iii) maturation of the
biotechnology market.
Identifying Opportunities
The investment criteria used by the Fund to select
particular investments will consist primarily of the following:
Management:
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The Fund will seek to invest in companies where senior
management is well qualified and motivated to succeed, or where the technology
and product
is sound and management can be replaced.
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Competitive Advantage: The Fund
will seek to invest in companies with promising proprietary technologies
and/or unique business models which can provide
an
enduring competitive advantage. Investments in services companies will
be considered if significant barriers to entry exist or the business model
is sufficiently
unique to provide a competitive advantage.
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Market Opportunity: The
Fund will focus on technologies and intellectual property that have the
potential to serve the global marketplace. Portfolio
Companies should have the potential to grow to at least $300 million in value
within
4 years of the time the Fund invests.
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Return Profile: The Fund will
seek to make investments that will provide the Fund with at least a 30%
annualized return on investment.
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Revenue Model: The Fund will focus on
companies which have viable business models with realistic plans to achieve
profitability.
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Liquidity and Exit Opportunities: The Fund will focus
on companies which have the potential to provide the Fund with more than
one exit option.
Within a
2 to 4 year time frame, the Fund expects to have a liquid market
for its investment or a merger and acquisition liquidity event.
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Development
Stages: The Fund will focus on businesses involved in the Testing and
Development, or Production and Commercialization stages
of development which have significant potential for growth.
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Capital Requirements:
The Fund will participate in financings where, in the opinion of the
Fund, the investment will position the company
to reach significant
value creating milestones.
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Follow-on Financing: The Fund
will provide additional funding primarily to successful investments which
meet predetermined milestones.
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Portfolio Diversification: The Fund will
seek to invest in a broad range of companies involved in the health
science sector with the intention
of having a balanced portfolio between therapeutic companies and medical
device, diagnostic
and service companies.
Evaluating Investments
A rigorous evaluation of eligible investment opportunities is performed by
CMDF's team of experienced venture capitalists who focus exclusively in the
life sciences industry.
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| Investment Activity Summary |
2006 Divestitures:
$42.5 million |
2006 Follow-on
Investments:
$19 million |
Q1-Q2 2007
Planned Transactions:
$60+ million |
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