The View From Bay Street:
Life Sciences Investing in 2021
Chairman & CEO
Bloom Burton & Co.
In the third episode of our fifth season, our host Peter Brenders talks with Brian Bloom, Chairman & CEO, about the investment climate, hot sectors for healthcare investment and the future of biotech.
From the Chronicle Podcast System, this is the NPC Podcast of the National Pharmaceutical Congress for August 4, 2021. The NPC Podcast was created to discuss and consider the purpose, process, and people of the pharma industry during the year of Covid. So, let's continue the healthcare conversation by answering questions sent by listeners, just like you.
This program is presented in cooperation with Impres, Canada's next generation commercial partner. The industry is rapidly evolving and Impres is designed to help you evolve with it. Learn more about Impres tailored best in class solutions at www.impres.com.
Our guest today is Brian Bloom of the Bloom Burton Investment Group in Toronto. Brian will speak with your host Peter Brenders about the relationship between money and the life sciences. But first, here is Mitch Shannon, the CEO of Chronicle Companies.
Mitch, may I ask how your investments are performing?
MITCH SHANNON (MS):
Liona, you're certainly entitled to ask but only if you're prepared to hear me repeat the word bio-niche and swear a lot.
Honestly, you'd be far better off asking that question of today's guest, an old friend of the National Pharma Congress, Brian Bloom with Jolyon Burton and their acclaimed team the Bloom Burton and company name and reputation is known throughout the pharma sector. The annual BB conference and holiday party is almost the equal of Lollapalooza or Burning Man, except it's for investors in the life sciences, along with the executives who want to hang out with them.
Here's Mr. Bloom in conversation with Peter.
PETER BRENDERS (PB):
Welcome to the NPC Podcast. I'm Peter Brenders, your host.
In our continuing look at the purpose, process, and people in pharma in Canada, this episode takes a look at how the development of new drugs while in companies gets paid for. Specifically, we're going to talk about the public capital market.
We're delighted to have one of Canada's foremost experts and frankly, the champion for investing in Canadian Life Sciences companies, Brian Bloom, Co-Founder, Chairman and CEO of Bloom Burton and Co.
Welcome to the NPC Podcast, Brian.
BRIAN BLOOM (BB):
Thank you for having me, Peter.
Brian, I wanted to highlight to our audience the leadership Bloom Burton has in Canada for the Canadian pharma biotech Life Sciences sector, that investment area, your firm has been sort of that leading light, but I was hoping you could give our listeners a little bit of an overview on your firm and the firm you co-created. So why did you set up Bloom Burton? And what are you guys doing these days?
We're doing lots of things. And thank you very much for the opportunity. I also want to thank you for hosting this platform and for providing our listeners with so many interesting interviews and opportunities to learn about this sector.
So Bloom Burton is the only investment banking firm dedicated to health care in Canada. In health care, we include biotechnology, research and development, pharmaceuticals, generics, medical devices, and diagnostic services, and digital health. And just like RBC, and Goldman Sachs, what Bloom Burton does is we provide a range of services that help investors and that help companies grow. And specifically, we deliver services that include helping companies raise capital, advising on mergers and acquisitions and other growth initiatives, providing investment research and helping institutional investors trade stocks on the stock exchange. We also have a large consulting practice, we make direct investments through the Bloom Burton funds. And lastly, we do merchant banking, which is the creation and incubation of entirely new businesses, of which we are their owners and founders.
So it's a very large hodgepodge of services. But they work very beautifully together. Whether you're a board member of a company or the CEO of a company, or whether you're a venture capital or private equity or hedge fund public market investor, we help investors and companies get together and create great companies together.
An amazing suite of services. So last season, we heard from a venture capitalist on the VC approach to investing in companies. And I was hoping you could give us some insight on what the public markets look for. How different are the public markets from, you know, the VC perspective and investing? What's the investor mindset here?
Good question. So a venture capitalist or myself at Bloom Burton, we are all looking for, at the end of the day, the same thing, which is a company that can create value for investors. And companies create value by either growing sales or profits, or by introducing new products to the market, or by running clinical trials that end up being positive that then demonstrate that you know that they have a product that can cure or be clinically meaningful in cancer, Alzheimer's, or an unmet medical need. That is what creating value is.
And whether you're a venture capitalist or a public market investor, you're looking to make an investment and for that investment to be worth more in the future. And the way that companies do that is by hitting their milestones and creating value. And if you're a commercial stage company, it's by growing the size of your organization, you're growing your market share, something I'm sure we'll talk about, and many of your members and listeners understand. And if you're an R&D stage company, it's actually doing research and development and creating data, clinical evidence, and other things that suggest the value of your intellectual property, even if it's years from market.
Venture capitalists, though, have the challenge, and many ways the opportunity, of taking their lumps and going through the ups and downs in the private markets with private companies. So it's not in the public eye. So they're trading liquidity for the privacy of being able to grow their companies and control their company's public market investors, though, of course, have the opposite, they have liquidity, but they often own less control, less and have less of a hand in the outcome of what they're investing.
I'm thinking about like all the sectors in healthcare that you guys are looking at, you know, I've heard cancer, digital health, those are the preferred areas for investors. I mean, is there truth to that, or what are the hot sectors in healthcare?
On the investment side, which can span both private and public markets, we already talked about the concept of generating and growing value. Most value has been created over the past five years, through research through R&D stage companies that are translating this enormous amount of genomic and biological and disease biology data that has been learned over the past 10 and 20 years ever since the genome was sequenced. And all of the powerful laboratory and discovery tools that pharma and universities have deployed to learn more about disease, translating that into precision medicine products and orphan disease products that can be commercialized without Big Pharma. In other words, small companies that are able to go after a specialty patient population or an orphan patient population, where they can hold on to their innovations longer. That has been the path to the most value creation over the past five years.
So once again, research that's translated into groundbreaking data and evidence clinically, that is differentiated and creates value for patients and doctors, and payers and others in the ecosystem. And being able to tap the capital markets, raise hundreds of millions or billions of dollars to continue that research and maybe even commercialize themselves. So in short, it's been an era of the researchers and a biotech. And it certainly has left a lot of specialty pharmaceutical companies and big pharma companies behind.
Interesting. So that's, a number of questions that come up from that when I'm looking at so let's talk about some of the, those that are left behind. So what happened to medical cannabis investing, wasn't that the hot thing?
It was when I think investors and even the pharmaceutical companies themselves finally understood that besides GW Pharma, and a few few few companies that can actually bring prescription and reimbursed medicines to market you know, that the whole field of medical cannabis has turned into one where doctors recommend in patients self medicate. We consider it a consumer healthcare sector, just like vitamins and supplements and things that are kind of over the counter. It doesn't mean they're not effective. It doesn't mean that they're not part of a pharmacologic approach to treat things like sleep and pain and anxiety. It doesn't mean they're unimportant, but the commercial opportunity is certainly one for consumer healthcare companies, like you know, food and beverage companies, like OTC companies, which are in our sector.
Okay, so cannabis is just another consumer product, not really healthcare - is that that the piece I'm picking up on that one?
It is consumer healthcare, it's both.
Okay, the next question too - I'm hearing a lot about psychedelics like psilocybin the magic mushroom future, is that a new hot thing?
For good reason. So, you know, they don't really lend themselves to a broad consumer or recreational use because to actually have a therapeutic effect in a psychedelic situation, you actually need supervision and concomitant therapy, and psychotherapy and things like that. So it actually does lend itself to being more of a healthcare regulated product.
The other thing that psychedelics have that cannabis doesn't is the data even if it has been thus far in smaller trials or academic trials, the data in indications like a treatment resistant depression and addiction in some other situations is stellar. So most investors and pharma look at J&J with Spravato. Most pharma companies and investors appreciate that psychedelics deliver serious and meaningful efficacy in serious untreated diseases. And that's why they are being treated and approached seriously by the true biotech and pharma capital markets as a new drug category.
Interesting. You talked about sort of the life of spec pharma, that specialty pharma is probably not what it once was. But everything now is more on precision medicine and those niche products, I kind of thought that both were similar. So how do you separate the difference between what was spec pharma and what is sort of that new hot area of more precision medicine?
Well, first, let's define specialty pharma. It's effectively a non -Big Pharma, but whose sole purpose is to commercialize medicines, it doesn't mean that you can't do development as well. And it doesn't mean that you have broad worldwide, all situation commercialization like a big pharma. But specialty pharma obviously has the word specialty in its name. And specialty means you specialize in something, it could be a geographic specialization, like just having a salesforce in Canada, or Latin America or Europe or Asia, or it could be an indication specialization, just focusing on gastrointestinal or ocular or neuromuscular diseases, or whatever it may be. In some cases, it's both.
Canada has rare disease or pediatric, you know, you can be specialized in both a geography and both a therapeutic indication or an audience a certain kind of doctor that you call on or physician that you call on. You know, value can be created by especially pharmaceutical companies, by introducing new medicines to a region, or by better selling medicines that may already be approved, instead of to general audience to a specialty audience. Sales can be higher in the hands of specialty pharma, who focus on a few products instead of a huge catalogue of hundreds, like Big Pharma.
So without question, value can be created by specialty pharmaceutical companies, which is why it's been a great investment theme for decades. It is just being dramatically outshined now by the biotech industry's ability to invent, develop new drugs that have breakthrough effects. And it's also been the victim of, you know, Valeant’s buy and slash, and you know, the Martin Shkreli, buy a drug and jack up the price 10 times, you know, there's still a hangover from all that specialty pharma peaked and suffered from five years ago.
So let's talk a little bit about that. In terms of the markets appetite, you said. So it's been overshadowed, spec pharma, it really isn't the darling investment target anymore. It's let's come up with that new science and new inventions in that space. Does that apply to Canada? The Canadian markets? Do they follow that same pattern?
They do, and they don't. So Canadian investors and Canadian specialty pharmaceutical companies are unique because the Canadian market requires the importation of and the registration of drugs that are invented elsewhere. That and the fact that the United States used to have much higher corporate taxes, and Canada with our agreements with certain Caribbean countries, which is the basis for a lot of companies to have a very, very low if not zero corporate tax rate. You know, there was a whole trend for inversion transactions. Canadian companies existed, specifically because they were able to co-domicile in the Cayman Islands or in Barbados and in Canada, and have single digit corporate tax rates compared to the United States. That actually meant that over the past many decades, Canada had an overwhelming number that isn't really representative of the opportunity or of our population. We had a huge number of specialty pharma companies.
So we just had this huge industry of spec farmers that were operating in Canada, but also in Canada, because there there were tax reasons for them to be headquartered here. Canadian investors chase the returns wherever the momentum is, there isn't a lot of specialized healthcare money in Canada. Our Bay street compared to the US’s Wall Street has a lot of generalist money, or a lot of portfolio managers who run these huge mutual funds. They know everything about oil and gas and mining and banks, but they're very uninterested in healthcare. So when Canadian investors invest in Canadian health care company, being generalists, not specialists, they tend to gravitate towards things that they understand, like a company that manufactures things and sells things.
So moving out of research and into sales and marketing and reimbursement and commercialization. And actually generating profit is something that is more natural for a Canadian investor to invest in. However, recently over the past few years, Canadian investors have been chasing things that have been hot or hot in the United States, such as biotech, and certainly digital health. And Covid has only expanded all of our understanding of the need to transform the delivery of healthcare, from, you know, faxes and papers and pencils to in person interactions to a situation where we're leveraging more technology.
If you're advising some of these Canadian healthcare companies out there looking to raise money, I mean, what advice have you given them? Go after the Canadian public markets, go after the US markets?
It depends on the company, if the company needs a small quantum of capital, or if they're a revenue stage company, the Canadian public markets is actually a great place for them. So you could be a biotech that needs 10 million to run a phase II, that is achievable to raise from our Canadian investor audience. But if you need $100 billion to finance the development of a huge pipeline, that is not available to from Canadian investors. And again, if you're a revenue stage company, or even a profitable company, there's probably unlimited capital for you in the Canadian capital markets. So whether you're rolling up dental clinics, like dentalcorp just did, that is doable in Canada.
But again, the more you go on the biotech and research or development side of things, the more you require investors that understand the risks and rewards and intricacies of that kind of work. And that's the kind of investor that doesn't exist in Canada, or if it does, you can count them on one hand, there's a suite of venture capital funds like Lumira, Genesis, and CTI and FTQ and, and certainly there are fewer in the public market.
So let's close with some predictions. So where do you see us in a year? Is this going to be a bull or a bear healthcare market?
I think we are in the early to mid-innings of a long-term bull market that we'll see lots of volatility, and lots of interruptions, and, you know, bumps in the road along the way. But I think that we are in the middle of the Golden Age of medicine right now, for many reasons.
Again, we're leveraging all that has been learned about many diseases, using precise tools in laboratories to understand how diseases are and how we can attack them and solve them. And we have these modern modalities like oligonucleotide therapy and gene editing and gene therapy. These are the tools we have, and they are more precise than small molecules or the chemistries from the 1950s, or 1980s.
Biotech itself is in the middle of this great long term boom, and so much value has been created between let's say, 2010, and 2020. But I think we are in the third or fourth inning of that wave. There's lots of things that we don't control, like interest rates, the amount of risk capital, monetary and fiscal policy, how hot or not other sectors are, like technology that tend to compliment or suck dollars out of our industry. But generally, fundamentally, we are in a great place as a healthcare industry.
And also as the whole healthcare industry driven by payers and the fact that governments and companies and as a society, we don't have unlimited spend for health care, period, we do have choices to make. And one would think that whether it's in the United States or Canada, whether it's socialized or a market based system or blend, a dollar spent somewhere may need to be taken away from a dollar spent somewhere else in the healthcare ecosystem. So whether it's digital health, or innovation of how drugs are delivered, how things are prescribed, how care is delivered, you know, modernizing all of our healthcare delivery infrastructure, is also experiencing a big bull market right now.
We have been speaking with Brian Bloom, Chairman and CEO of Bloom Burton on the NPC Podcast. Thank you for listening.
Thanks to Brian and Peter. As they used to say about Elmer Vasco of the NHL, the crowd isn't yelling, boo. They're chanting Bloom. Actually, if you've heard his previous comments about the medical cannabis industry, perhaps those really were boos.
Any follow up questions or comments about today's conversation? If so, just message us via Twitter @2021NPC. You can also send email to firstname.lastname@example.org or phone our comment line at 647-873-6995.
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The NPC Podcast is presented in cooperation with Impres, Canada's next generation commercial partner. Check them out at www.impres.com.
I'm Mitch Shannon of Chronicle Companies. The Podcast Producer is Jeremy Visser assisted by Aria Empakeris. The announcer was Leona Verbell. The musical theme is performed with whimsy by the NPC Podcast Orchestra under the direction of Maestro Daveed Millbrook.
We'll talk again next Wednesday when our guests will be Dr. Blake Pearson. Until then, stay safe.