Montreal, QC – 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 LLPs 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, says Rod Budd, author of the Canadian chapter of the global report and leader of Ernst & Youngs 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 US has never been stronger, and were seeing its success story spreading to other parts of the world, says Glen Giovannetti, Ernst & Youngs Global Biotechnology leader. Time will determine whether these trends will be sustained, but theres 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.
Private companies in the US 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, says 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 report also said that total research and development spending in Canada increased 4% last year and is approaching the $900-million mark.