Biotech Firms Raise Record Capital

Canadian biotech companies raised a record $1.8 billion US last year, up 79 per cent from 2005 and breaking the previous record of $1.3 billion US, according to Ernst & Young LLP's Global Biotechnology Report released Monday.

"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 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."

B.C. remains, along with Ontario and Alberta, a top centre for biotech and the only province with public biotech companies that are, in aggregate, profitable.

But despite the numbers, which broke the previous record of $1.3 billion US set in 2003 and almost doubled the $1 billion raised in 2005, the sector was a clear laggard in market capitalization. It dropped two per cent to $12.9 billion US in 2006, down from $13.2 billion US the year earlier. At the same time, the TSX Composite index increased by almost 19 per cent, with the diversified metals and mining index up more than 61 per cent and the TSX capped energy index up more than 26 per cent.

Private biotech companies in B.C. raised almost $72 million US, the second-highest amount of venture capital after Quebec. B.C.'s public companies raised almost $625 million US, up from $133 million last year. However, more than $500 million this year was attributable to convertible debt raised by QLT.

B.C. also accounted for Canada's two mega deals of the year: Vancouver's Angiotech Pharmaceutical's acquisition of American Medical Instrument Holdings in March 2006 and the Massachusetts-based Genzyme's acquisition of Langley's AnorMED.

Despite the buoyant figures, early-stage companies are still struggling to attract capital, a shift that reflects venture capitalists' preferences for companies that are farther along in development and closer to having products on the market.

"If you go back five or so years ago there were a lot of companies starting out, out of the university -- you could almost say coming out too early -- there was money available and venture capitalists were putting money into them," said Dennis Bettiol, Life Sciences partner at Ernst & Young's Vancouver office. "Over the past couple of years, that has slowed down. The new companies that want to start up -- it is clearly more difficult, not impossible."

Bettiol said B.C. is following the trend that is seeing companies in the later stages of development, and positive trial results coming out this year could make the sector more attractive for investors. On the flip side, any bad results could make it even more difficult to raise capital.

"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," the report said. "This would make financing for most biotech companies easier to obtain.

"However, the danger is that if a number of clinical failures occur in 2007, it could have a devastating impact on the access to capital of early-stage private and public companies."

The report also noted that the past year saw a decrease in the number of companies in imminent financial danger. In 2006, 25 per cent of public companies had less than one year's worth of cash, compared to 45 per cent a year earlier, leaving half of Canadian public companies sustainable without having to raise capital in the near term.

gshaw@png.canwest.com

A B.C. PERSPECTIVE:

- Revenues for Canadian public companies grew 22 per cent in 2006, climbing to $3.2 billion; in B.C. revenues were up 29 per cent.

- Net losses among Canadian biotechs decreased by 43 per cent.

- The number of public biotech companies in B.C. remained unchanged in 2006 at 16.

- B.C. public biotechs saw a decline in cash and short term investments of 20 per cent, a decline attributed to a number of cash acquisition that were made by B.C. companies in 2006.

- That lack of cash and short term investments was seen in a 12 per cent drop in research and development spending in B.C. in 2006.

- B.C. has 75 private biotech companies, coming third behind Ontario which has 143 companies and Quebec with 137.

- In venture funding of private companies, B.C. had the second largest amount in Canada for 2006, at $72 million US, more than half of which was raised by Xenon Pharmaceuticals. That marks a drop from $105 million US the year earlier.