Cangene doubles profits, hits record sales during downturn

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John Langstaff: ‘We don’t think we need to worry about life after bio-defence.’ (PHIL HOSSACK / WINNIPEG FREE PRESS ARCHIVES)

WINNIPEG-BASED Cangene doubled its profits and generated record sales in the worst economy in memory and says it believes there is still plenty of growth left in its lucrative bio-defence work.

Much of the sales and profit growth for the year ending July 31 came from bio-defence products it sells to the U.S. government -- specifically botulism antitoxin and anthrax immune globulin.

The company's revenue increased by 44 per cent to $238.8 million and profits doubled to $60 million for the year.

Investors jumped enthusiastically on the Cangene bandwagon Thursday, sending the stock up more than 40 per cent to $6.39 in one of its heaviest trading periods in months.

So far, it has only shipped about one-third of the $500-million-plus bio-defence order it has with the U.S. strategic national stockpile, with the remainder expected to be delivered over the next couple of years.

But John Langstaff, Cangene's CEO, said that will not necessarily be the end of the revenue potential for those products.

"The message we are trying to get out there is that we don't think we need to worry about life after bio-defence," he said. "We view bio-defence as similar to Lockheed-Martin's relationship with U.S. military in aerospace -- it is a long-term business endeavour."

Douglas Loe, an analyst with Versant Partners in Toronto, has a $10 target on the stock, even though he says it is "a jump ball" as to whether or not the company will be able to extend the current U.S. bio-defence contracts past 2011, when most of the existing orders are to be delivered.

"There is lots of arm-waving and vague allusions," Loe said, referring to the company's expectations the contracts will be extended.

But Langstaff said there is plenty of reason to believe that will be the case. He said not only does Cangene have the capacity to deliver even more than the current order, it had to demonstrate it had that capacity in the first place.

In addition to the botulism and anthrax products and vaccinia immune globulin, which counteracts negative reactions to the smallpox vaccine, the company is negotiating its largest research and development contract ever for the development of a therapeutic to treat acute radiation syndrome.

When negotiations are complete, it will be a five-year project Langstaff said could also result in licensing of a compound and potential future sales.

In addition to its record-breaking top and bottom lines, the company sports a balance sheet free of debt.

It is in the process of undertaking preliminary regulatory filings that might eventually lead to a stock listing on a U.S. exchange.

"We could probably borrow funds from our banks, but if we wanted to do a significant acquisition we might want to raise money on the public market," Langstaff said.

The company bought a small Vancouver firm called Twinstrand Therapeutics in July and earlier this month paid $7 million up front for the U.S. commercial rights for HepaGam B, used in the treatment of hepatitis B.

Cangene had done most of the research and development work for that compound for Apotex Inc. Cangene will also pay royalties until 2016 to the Mississauga pharmaceutical company, which owns about 50 per cent of Cangene's shares.

Cangene develops most of its compounds using purified human plasma, sometimes extracting antibodies that can be used as therapeutic treatments.

It is doing work in that regard focused on the H1N1 virus.

Langstaff said the company is seeking funding support to continue that work, but he does not believe it will be available for the current round of immunization work.

martin.cash@freepress.mb.ca

Cangene Corp.

$238.8 million -- annual sales for year ending July 31, 44 per cent better than the previous year

$59.9 million -- profit for the year, a 102 per cent increase.

700 -- total employees, including 550 in Winnipeg

$0 -- total debt outstanding

49 per cent -- amount of Cangene's shares owned by Apotex owner Barry Sherman

Republished from the Winnipeg Free Press print edition October 23, 2009 B4