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Caprion Takes Advantage of Quebec s Largesse with $18M Capital Loan

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Caprion Pharmaceuticals has secured at least $18 million in loans from the Quebec government to supplement the $45 million it has raised in private capital markets, the Montreal-based firm said last week.

Investissement Quebec (IQ), a Quebec government agency charged with promoting economic development in the province, has extended the loan as part of an incentive program to encourage companies to spend capital in Quebec, said Lloyd Segal, Caprion’s CEO.

For every dollar Caprion spends on its Montreal protein analysis facility, up to $60 million, Caprion can borrow 28 cents from IQ, Segal said. Although the facility opened in April, the loan will extend retroactively. Additionally, IQ has agreed to give Caprion a two-year interest- and principal-free holiday once the company begins drawing on the loan.

“That’s probably a better rate than you can get on a car these days,” Segal said. “It’s an awful lot of money in support of our capital program, and it’s at extremely favorable rates.”

Caprion has already spent about $14 million on the construction of its facility and the purchase of mass spectrometry and computing equipment. When Caprion decides to draw on them, the remaining funds will pay for additional mass spectrometers, and computing hardware from Caprion’s partner Sun Microsystems, Segal added. Ultimately, if Caprion hits its milestones over the next two years, Segal said the company plans to invest about $60 million in capital infrastructure over the next 30 months.

“Since we’re fairly cash rich, we don’t need the cash today and since we have a two-year interest and principal holiday, we’ll draw that as late as we can so we can stretch that out,” Segal said.

Caprion closed its second round of financing last March, bringing the total funds it has raised in the private capital markets to about $45 million. Segal said the IQ loan was meant to reward Caprion for its fund-raising success, and push the company through today’s less sanguine economic climate. The company is currently burning about $1.5 million a month, Segal said, and had $40 million in cash as of September 30. The additional loan provides Caprion with at least enough money to survive for another two years, Segal added.

“They’re saying, ‘OK, you guys have done what most emerging companies fail to do, which is raise a significant amount of private capital, so now we’re going to put some public capital behind this to really put the turbo jets on your programs,’” Segal said. “They know that in this market companies like us aren’t going public, in fact no one’s going public.”

Critics might claim that the IQ loan provides Caprion with an unfair advantage compared to other companies currently struggling to find financing in the private markets, but Segal defended the loan, saying that many American companies pay lower taxes than their counterparts in Canada. In addition, many fledgling American biotech firms receive SBIR grants from NIH, and that the cumulative benefit of the IQ loan equals several large SBIR grants, Segal said.

“It all comes out in the wash,” he said. “When I go to Wall Street I inevitably get dinged for being a Canadian company, so I may as well take advantage of the positive things I can get out of being a Canadian company, that is, more government intervention.”

“We’re a biotech company; we take financing when we can get it,” he said. — JSM

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