Canada's biotech industry reports best year, but challenges remain
MONTREAL, April 16 /CNW/ - Canadian biotech companies had a banner
financing year in 2006, raising $1.8 billion in capital (all figures in $US),
setting a new industry record. Capital raised in 2006 topped the previous
record of $1.3 billion raised in 2003, according to Beyond Borders: Global
Biotechnology Report 2007, Ernst & Young LLP's 21st-anniversary report,
released today, on the biotechnology industry.
In 2006, Canadian public company revenue grew to $3.2 billion, a 22%
increase over 2005. Net losses decreased by 43% as Canadian companies strive
towards profitability. The report sees that 2006 marked a sizable decrease in
the number of companies in imminent financial danger - 25% of public companies
had less than one year of cash in 2006, down from 45% a year earlier, and half
of Canadian public companies are now sustainable without needing to raise
capital in the near term.
"Mature Canadian biotechs are raising record-breaking amounts of capital,
growing revenues by double digit rates, while the industry is moving in the
direction of aggregate profitability," said Rod Budd, author of the Canadian
chapter of the global report and leader of Ernst & Young's Life Sciences
practice in Canada. "All of these successes translate into dramatic
improvements in fundraising and financial performance for these companies."
Globally, product success, record financing totals, unprecedented deal
activity and impressive financial results mark historic industry advances:
"The industry in the U.S. has never been stronger, and we're seeing its
success story spreading to other parts of the world," said Glen Giovannetti,
Ernst & Young's Global Biotechnology leader. "Time will determine whether
these trends will be sustained, but there's reason for optimism."
More good news for the industry is that pipelines are maturing, with more
products making it to late-stage clinical trials. Canadian biotechs have often
gone public prematurely and then struggled to survive; this welcome maturation
is leading companies to delay their public offerings. "By remaining private
longer, some companies going public are only a few years away from product
approvals and revenues. This makes them much more attractive to the public
markets and better positioned to command significantly higher values from
pharmaceutical and large biotech partners. Companies are also maintaining more
control over their products, which should result in much higher long-term
revenues," said Mr. Budd.
Private companies in the U.S. and Europe were acquired for significant
premiums in 2006, some even crossing the 100% threshold; Canadian public and
private companies have not benefited from this trend. The report finds that
pipelines of many companies are simply too "early stage" to attract interest
from large foreign buyers.
"Fundamental drivers point to big pharma continuing to look for
significant acquisitions in the years ahead, so Canadian companies must think
strategically about positioning themselves for M&A exits," said Mr. Budd.
"Companies will need to identify market trends over their expected exit
horizon, find buyers where there may be a strategic fit, and develop their
business plans with these trends and buyers in mind."
Furthermore, financing for less mature public companies and most private
companies, especially those that require seed and early-stage funding,
continues to be a significant challenge. With the growing number of products
in late-stage clinical trials and products expecting regulatory approval in
2007, a number of positive results could increase investor interest in the
sector and create a substantial increase in market values. There is a danger,
however, if a number of clinical failures occur in 2007: it could have a
devastating impact on access to the capital of early-stage private and public
companies. "The Canadian biotech industry desperately needs new sources of
early stage and seed funding. Encouraging seed funding for start-up companies
and making adjustments to the current tax credit system could prove to be the
much-needed boost the sector craves," said Mr. Budd.
Other Canadian highlights from the report include:
- Total research and development spending increased four percent and is
approaching the $900 million mark.
- There was a two percent decline in market capitalization in 2006 -
from $13.2 billion to $12.9 billion - showing a lacklustre
performance compared to other industries.
- For the first time, Canada had two equity financings of over
C$100 million in a single year.
- Global public company revenues grew by robust double-digit rates and
crossed the $70 billion threshold for the first time. Double-digit
revenue growth was achieved in Canada (22%), the U.S. (14%) and in
- Net losses of publicly traded companies fell by 37% in Europe and 43%
in Canada, creating momentum toward profitability. While the U.S.
sector saw increased net losses, this was due primarily to large
transaction-related charges in a year of unprecedented deal activity;
in the absence of these, the U.S. industry would have been profitable
in aggregate for the first time, and the global industry would have
had its lowest net-loss ever.
- Canadian companies were very active in acquiring U.S. and other
foreign companies; this trend was driven, in part, by the
strengthening of the Canadian dollar in recent years, which has made
foreign targets considerably more affordable for Canadian buyers,
while making Canadian targets more expensive to foreign acquirers.
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