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Economic Darwinism

Ashraf Amlani - Sunday, October 31, 2010

Andrew Tait“ Now in its 24th year, the [Ernst & Young Global Biotechnology]report has become an important resource for life science companies globally who are looking into the future and emerging opportunities.” – Rosine Hage-Moussa, LifeSciences British Columbia. SBN’s event liaison, Andrew Tait, provides the insider scoop on how the BC & Canadian Biotechnology industry is faring through the global economic recession.

On October 7th, 2010, about 100 professionals from BC’s life sciences industry gathered at the Hyatt Regency in Vancouver and eagerly awaited the results of the Beyond Borders Global Biotechnology Report 2010 by Ernst and Young. Hosted by LifeSciences BC, the atmosphere was relaxed, and found people mingling before the presentation, drinking coffee and sampling the delicious breakfast fare. It seemed as though everyone in the room was optimistic that the report would reflect kindly on the health of the biotech industry, especially after the global economic crisis that began in 2008.

While the general outlook was positive for the biotech industry, the report predicted ongoing struggles. A rebound in industry profitability and financing was observed, but perhaps at the expense of steep R&D cuts and amidst the scramble to reorganize and develop new models of efficiency and sustainability. The overall performance of the sector was not bad, considering the bleakness of 2008, a year that saw company valuations plummeting and firms restructuring to survive. Globally, companies were running low on cash, and in Canada more than half of the companies had less than one year of cash left.

As bad as the 2008 numbers were, the industry was still found standing in 2009. The anticipated reduction in the number of companies was less than expected, with a demise of only 11% compared to the 25-33% forecasted. The survival index rebounded and the number of companies with less than one year of cash grew to pre-crisis levels. One observation is that the gap widened between the haves and the have-nots, with skewed funding numbers demonstrating that the top companies had increased their funding, while the bottom companies continued to decline in their amount of capital raised. The message was clear for all however, that efficiency called for the industry to do more with less. In an environment of constrained funds, strategic models for investors, big pharma, governments and insurance payers, and biotech companies are enabling increasing efficiency.

Financial performance of established biotech centres in 2009 saw that revenues on the whole were still on the decline by a few percent, the reaction to which has include a severe reduction in R&D expenditures. Interestingly, the US figures were highly influenced by the acquisition of the biotech company Genentech by the pharma company, Roche; if Genentech was still included in the biotech category, the overall financial growth of the industry would reflect a positive trend, and R&D cuts would be much less. Canadian financial performance of biotech companies broke with the global trend of decline by demonstrating a 9% growth in revenues.

Canadian financing rebounded in 2009 through way of IPOs, follow-on, and venture capital, and other means of funding. Unfortunately, venture capitalists’ purse strings have been exceptionally tight, with venture capital having its worst showing in over a decade. By cluster, venture capital investments were highest in Montréal, followed by Vancouver, Toronto, Québec City and Calgary, while total financing was led by Toronto, then Montréal, Vancouver, Calgary and Québec City. One Canadian company, Biovail, accounted for a whopping 44% of all Canadian financing. This kind of absorption of regional financing was something that also occurred with several other companies across the globe. HGS. Dendreon and Vertex accounted for 44% of US follow-on financing, while Qiagen and Elan accounted for 49% of European public company financing.

Deal making and strategic alliances have remained strong globally, especially in Canada: for the first time, there are six licensing deals with potential values of over $100 million USD. Significant deals include Cardiome (Canada) /Merck (US) for Cardiome’s atrial fibrillation drug, vernakalant ($60m USD upfront, $640m potential milestones) and Oncogenex (Canada) /Teva (Israel) for Oncogenyx’s cancer drug OGX-011 ($60m USD upfront, $370m potential milestones). While Cardiome and Oncogenex out-licensed their Canadian assets, Biovail (Canada) entered into a cooperation and licencing deal with ACADIA pharmaceutials (US) for primavaserin, a co-therapeutic drug for use with other treatments in schizophrenia and bipolar disorder ($30m USD upfront, $160 USD potential milestones).

The biotech industry has had to develop a new normal, finding ways of being more efficient by doing more with less. For most successful companies, the overarching goals are to: 1) seize funding opportunities where they exist, even if non-traditional; 2) streamline company structure; 3) ensure eventual payment/reimbursement will be made (payer acceptance); 4) collaborate creatively; and 5) differentiate assets from the competition. With the global biotech industry numbers looking up from 2008 to 2009, there is hope for the upward trend to continue.

SOURCE: Beyond Borders: Ernst & Young Global biotechnology report 2010

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