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New Investment Advisor
On October 6, 2006, Canadian Medical Discoveries Fund (CMDF) announced the appointment of JovInvestment Management Inc. ("JovInvestment") 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 in 2006 to approximately 35 investments in 2008.
Portfolio Realignment
The management team has been harvesting CMDF investments and creating portfolio
liquidity in order to:
-
Align the majority of the portfolio with the
revised investment objective
-
Free up funds for follow-on investments in
promising companies focused on the testing, production and commercialization
stages of development
-
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 fundamental investment objective is to achieve long-term capital appreciation
through investment 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. The Fund
seeks to achieve its investment objective through a number of investment
strategies, which are described in this prospectus and which are within the
purview of the board of directors of the Fund or its investment committee or the
Manager. 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. While the Fund may, over time,
be able to invest approximately 60% of its portfolio in appropriate eligible
Canadian businesses, the Fund will invest a greater or lesser proportion of its
portfolio in eligible Canadian businesses depending on the availability of
investment opportunities.
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$2.3 trillion or approximately 16% of GDP in 2007.
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)an ageing population; ii)accelerating 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:
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.
- 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.
- 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.
- Return Profile:
The Fund will seek to make investments that will provide the Fund with at least a
30% annualized return on investment.
- Revenue Model:
The Fund will focus on companies which have viable business models with realistic
plans to achieve profitability.
- Liquidity and Exist 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.
- 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.
- Capital Requirements:
The Fund will participate in financing where, in the opinion of the Fund, the
investment will position the company to reach significant value creating
milestones.
- Follow-on Financing:
The Fund will provide additional funding primarily to successful investments which
meet predetermined milestones.
- 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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