It’s an offering that may have come too soon for advisors looking for sexy investment opportunities to entice clients into private capital markets.
After gaining approval by the FDA in the US, similar investment opportunities could be extremely attractive for Canadian advisors thanks to relaxed regulations.
The FDA’s approval of “female Viagra” is highlighting sexy new investment opportunities investors can anticipate with coming changes to Ontario private equity regulations.
Sprout pharmaceutical’s Addyi was just approved in the US, thanks in large part to private investors, who contributed $50 million to help develop the drug.
“Our model has always been to raise privately,” Sprout’s CEO, Cindy Whitehead says. “I think it’s become truly one of our greatest assets.”
It’s almost an unheard of amount for a pharmaceutical, which have traditionally looked for funding through the public markets.
Sprout’s success could see this trend make its way up to Canada. Ontario especially could be poised to see growth in this area thanks to new regulations in the province expected to open up private markets to all investors. The new regulations will see all Ontarians able to invest at least $10,000 annually.
“The combination of the offering memorandum and crowdfunding exemptions being implemented by the OSC in the fall will ultimately provide much greater capital access for entrepreneurs in search of seed capital while giving everyday Ontario residents a chance to truly invest at the ground floor,” said Craig Skauge, executive vice president and a Director of Olympia Capital and president of the National Exempt Market Association. “Presumably, (that) includes companies not unlike Sprout."
While this could be a huge windfall for advisors and investors alike it also highlights the potential challenges facing advisors in this new world. With an investment like Addy, for example, there are so many external factors that could throw the potential return on the investment in doubt.
“These exemptions are meant for start-ups and won't usually get a company all the capital they'll need throughout their life cycle,” says Skauge. “What they're aimed to do is get them the capital they need in their formative stages to get to proof of concept, where capital is easier to come by. If these exemptions do what their supposed to, the historically limited access to start up financing should increase significantly.”