(Toronto, 29 April 2010) Canada’s biotech industry has not only survived the global economic crisis, but finished 2009 with a large increase in revenue and significantly reduced losses, due in part to significant cost-cutting measures, according to Beyond borders, Ernst & Young’s annual global biotechnology report.
The Canadian industry showed great resilience in 2009, with the revenues of publicly traded biotech companies increasing by 9%, to US$2.163 billion from US$1.979 billion in 2008. The industry also saw an astounding 90% reduction in aggregate losses from US $1.1 billion to US $70 million.
Globally, the world’s established biotech centres reached profitability for the first time in history. However, the gap between the “haves” and the “have-nots” continued to widen, posing challenges for emerging companies in accessing the capital needed for research and development (R&D). R&D spending in Canada dropped 44% to US$354 million in 2009, from US$626 million the previous year.
“This extensive cost-cutting is a double-edged sword,” says Paul Karamanoukian, Ernst & Young’s Canadian life sciences practice leader. “In the short term, the reductions have helped the industry weather the storm, but as the driver of future growth for this sector, the decline in R&D could have long-term repercussions for the industry.”
The industry also saw a decrease in the number of companies in 2009, following the trend of the past five years, during which time the total number of Canadian companies declined from 474 to 325. In 2009, the number of public companies declined from 72 to 64.
“What we’ve been witnessing is a ‘survival of the fittest’ scenario, with smaller companies either failing or merging with larger entities,” says Karamanoukian. “While the stronger remaining companies are positioned to capitalize on the growth opportunities of the economic upturn, more than half of the public companies currently have less than one year’s worth of cash.”
In addition to higher earnings and lower aggregate losses, another piece of good news was a 52% surge in the industry’s market cap last year. However, there still remains cause for concern. Despite cost-cutting measures and increased revenues, there was no appreciable movement in the industry’s survival index. Even with the market cap boost, the industry only partially made up for the ground it lost in 2008, when it lost 61% of its market value.
“The industry survived the financial crisis, but that was only half the battle,” says Karamanoukian. “It remains to be seen if the industry can fully bounce back from the setbacks of the past few years, and attract capital in 2010, which is going to be a pivotal year for Canadian biotech.”
Other key findings include the following:
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