Small mercies for biotechnology industry

Opinion

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This article was published 24/06/2009 (5941 days ago), so information in it may no longer be current.

Winnipeg biotech firm, Miraculins Inc., closed a private placement of new equity late last week totalling $400,000.

Last month, a sister company, Kane Biotech, closed a $250,000 offering. Both included warrants giving investors the opportunity to buy additional shares at approximately twice the price at a later date.

In the grand scheme of things, such modest amounts of new equity would not be cause for much attention. But considering the state of affairs of the biotechnology industry in Manitoba and across the country, they probably were more significant than it may have seemed on first blush.

In Ernst & Young’s recently released annual report on the global biotech industry, called Beyond Borders, a bleak picture is painted of the state of health of the industry, particularly in Canada.

"For the Canadian industry," the report states, "this is now a time of reckoning. Without new approaches and solution, the next few years could cripple the sector."

The report notes 57 per cent of Canadian public biotech companies have less than one year’s worth of cash. Since access to financing from the equity markets has been virtually non-existent in Canada since midway through 2007, the humble achievements of Miraculins and Kane are even more noteworthy.

Private venture capital has rarely been a financing option for growing Manitoba companies, making the small provincial sector particularly imperilled.

Richard Yeghiayan, a senior E & Y manager from Boston who is part of the firm’s biotechnology group, was in Winnipeg Tuesday presenting some of the findings of the report to a small gathering of members of the Life Science Association of Manitoba (LSAM).

"There has been success stories in Canada in the past," Yeghiayan said. "The Canadian market has the opportunity to achieve success again. It just has to focus on truly innovative companies and success will come."

That’s easy for him to say. The financing model for biotech adheres to the principal of rewards being commensurate with risk. For it to work, there needs to be many different technologies explored and a large amount of risk taken for there to be the opportunity of reward.

Dawson Reimer, LSAM’s president and vice-president of operations at Medicure, is all too familiar with the difficult financing climate for biotech.

"These days there are profitable, traditional-sector companies that are trading below cash," he said. "So it’s a challenge for biotech."

However, he pointed out the attractiveness of biotech for investors is the long-term upside potential of returns in the order of magnitude of 30, 40 or 50 times.

"But they (biotech companies) are not the ones getting the money," he said. "Hope is a tough thing to sell these days."

So tough, in fact, that the annual Business of Science conference has effectively been cancelled for this year. The annual two-day conference has occurred every fall in Winnipeg for the last seven years. As well as providing professional development opportunities and the presence of industry stars from elsewhere, it served to highlight and promote the activities in the province.

Some say the conference was cancelled because of the general scarcity of resources and the fact the industry is too busy "hunkering down."

Others say it was necessary because of the recent resignation of LSAM’s executive director, Brian Kelcey, prompting the need for the organization to rethink its strategic direction.

Yeghiayan said it might take another 12 months before the equity markets are once again a reliable source of financing for the biotech industry.

In the meantime, the future of the likes of Miraculins and Kane hang in the balance.

martin.cash@freepress.mb.ca

Biotech in Canada

61 per cent -- the decline in market capitalization of Canadian biotech companies from 2007 to 2008

62 per cent -- the decline in the number of public financings of Canadian biotech firms between 2007 and 2008

100 per cent -- the decline in the number of biotech IPOs (initial public offerings) in Canada between 2007 and 2008

54.9 per cent -- the decline in total financings in the Canadian biotech industry between 2007 and 2008

-- Source -- Beyond Borders: Global biotechnology report 2009 and Ernst & Young