State of the Industry 2004 State of the Industry 2004
2004 State of the Industry report. Every year,
Welcome to the BIOTECanada surveys our members for the latest information on revenues, issues they face in commercializing products, and business plans for 2004.
Section I: Introduction by Macdonald & Associates - Canada’s Venture Capital Industry and Life Sciences in 2004 Agricultural Overview Section II: Corporate Member Survey State of the Association Financial Status of Members A Typical BIOTECanada Member Hurdles to Commercialization Strategic Decisions
Canada has an exciting biotech story to tell. Thanks to worldleading bioscience research coupled with a strong financing and venture capital base, Canada’s biotechnology sector has expanded rapidly in the last decade. We now have over 4501 Canadian biotechs leading the world in areas such as vaccines, stem cell research, and plant biotechnology. In 2003, $1.9 billion was invested into the Canadian biotech sector, the majority of which went to public companies leaving $242.4M (1.5%) going to private biotechnology companies. On the research and development side, Canadian biotechnology firms have demonstrated their commitment to R&D by undertaking an investment of $2.8 billion in 2003, an increase of 115% over expenditures of $1.3 billion in R&D in 2001.2 Canada’s leading role in the production of genetically modified crops makes us the third largest biotech crop producer behind the United States and Argentina. In fact, between 1996 and 2003, the global area of genetically modified crops increased 40 times to almost 70 million hectares.3 Canada’s therapeutics companies have 540 products under development or on the market (22% of which are in Phase II or Phase III trials).4 In order for companies to sustain themselves through the lengthy product development cycle, a significant amount of financing is required. Once commercialized, companies can then begin recovering the high R&D costs. Ernst & Young’s report on the Canadian biotech industry (Resurgence: Global Biotechnology Report 2004 -The Americas Perspective) concludes that amid the very successful companies - those able to raise needed funds - the earlier-stage and smaller public companies in Canada continue to need cash resources to drive their product development programs. Macdonald & Associates has built the most comprehensive database available on Canadian venture capital transactions and have provided an overview of the venture capital industry. BIOTECanada acknowledges and appreciates the continued support of its membership, specifically those who participated in our survey.
Canada’s Venture Capital Industry and Canada’s Venture Capital Industry and Life Sciences in 2004:2004:Overview An An Overview Life Sciences in
by Macdonald & Associates Limited
Contact BIOTECanada 420-130 Albert St. Ottawa, ON, K1P5G4 Tel: (613) 230-5585 Fax: (613) 563-8850 info@biotech.ca www.biotech.ca
Since 2000, over $2.6B venture capital and private equity has been invested into Canadian Life Sciences (LS) firms, with biopharmaceuticals garnering over 68% of the funding. Quebec has received close to 44% of all LS funding over the past 4 years, with Ontario recording 27% and British Columbia 22%. With economic growth and productivity linked so closely with science and innovation, are LS firms attracting adequate venture funding? Only 18% of all monies invested in Canada since Q1 of 2000 were directed to the Life Sciences sector. Q3 venture capital statistics recently released by Macdonald & Associates reported that activity in Canada’s venture capital (VC) industry as a whole grew in the third quarter of 2004. With a total of $498 million invested across all sectors, disbursements were up by 21% over the $411 million invested over the same period in 2003. Compared to the second quarter of 2004, when $381 million was invested, Q3 experienced an increase of 31%. In aggregate, $1.3B investment has been invested in 446 companies in 2004.
page 2 Activity in the Life Sciences sector started out with promise in the first quarter of 2004, posting total disbursements of $178 million. A steady decline of investments in the sector saw Q2 investments at $56 million and Q3 at $41 million. Third quarter disbursements were directed to 28 firms compared to 31 firms in Q1 and 40 firms in Q2. Life Sciences investments in the third quarter of 2004 represented only 8% of all venture capital dollars invested in that period, compared to 43% in Q1 and 15% in Q2. Follow-on investments continue to play an important role in the LS sector as evidenced by only 24 of 101 companies securing first time funding for the first 3 quarters of 2004.
State of the industry 2004 State of the industry 2004
00 300
$ invested (millions)
Dollars Invested in Life Sciences by Sub-Sector
00 250 00 200 00 150 00 100 00 50 0
Q 1’ 00 ’00 ’00 ’00 ’01 ’01 ’01 ’01 ’02 ’02 ’02 ’02 ’03 ’03 ’03 ’03 ’04 ’04 ’04 2 3 3 4 1 1 2 4 1 3 2 4 3 2 1 2 4 3 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Healthcare Biopharmaceuticals
Medical Devices & Equipment
Medical/Biotech Software & Information Services
While Quebec has traditionally led the way in financings, the leadership position in 2004 has shifted from quarter to $ Invested and # of Companies in Life Sciences quarter. While 54% of Q1 dollars were 1000 invested in BC, Q2 saw Quebec regain its leadership position with 66% of investment Follow-on $826MM dollars and Ontario was the leader in Q3 New 800 with 55%. In aggregate, Quebec continues to secure the majority of the funding, $651MM posting $115 million for the first three 600 quarters of 2004 or 42%. $479MM The trend continues to see $440MM $408MM Biopharmaceuticals capturing the atten400 tion of the VC and PE markets. Private Independent venture capital firms were the 174 147 148 Co’s most active investors in the life sciences $178MM 136 200 111 Co’s Co’s Co’s sector in the third quarter, with 37%, or Co’s 31 $56MM 42 $41MM $15 million, going to 7 companies. Co’s 28 Co’s Co’s The Retail investors, who in Q3 ac1999 2000 2001 2002 2003 Q1’04 Q2’04 Q3’04 counted for 27% of dollars invested in LS, provided 12 companies with $11 million. The third most active group in Q3 was foreign investors that account for 20% or $8 million of the Q3 LS funding. The picture changes when looking at 2004 YTD figures, as foreign VC’s invested over $83 million in Q1, accounting for an overall 34% of all dollars to LS in 2004. Retail investors captured 27% with over $74 million and Private Independents with $40 million or 15%. The disappointment for the life sciences sector comes from a second consecutive quarter of decline in life sciences activity, with only $41 million going to 28 companies in Q3 2004, or a mere 8% of capital invested. By contrast, the life sciences sector led all others in the whole of 2003, accounting for one-quarter of capital invested.
Amount invested in Life Sciences by Province
2% 3% 66% 1% 11% 16% 1% 2% 19% 55% 41% Q1, 2004 $178 Million Q2, 2004 $58 Million Q3, 2004 $41 Million 6% 1% 2 11%
ATL QC ON MB SK AB BC
54%
Since the company was founded in 1985, Macdonald & Associates Limited (M&A) has built the most comprehensive database on venture capital and private equity activity in Canada. Its extensive network of contacts has made the firm a focal point for information on Canadian venture deals and dealmakers and produced a data resource that covers virtually all of the players in Canada and increasingly those from the US that are now investing north of the border. BIOTECanada 2004
page 3
Agriculture Biotechnology Agriculture Biotechnology
State of the industry 2004 State of the industry 2004
Currently, there are 54 GM crops in Table 1. The six principal countries that grew 99% Canada including insect-resistant corn, virus-reof the GM crop area in 2003 sistant squash and herbicide-tolerant rice.5 AccordCountry Millions of Percent of ing to a study by the International Service for the hectares global total Acquisition of Agri-biotech Applications (ISAAA), USA 42.8 63% Canada has 4.4 million hectares of GM crops Argentina 13.9 21% planted, making it the third largest biotech crop Canada 4.4 6% producer behind the United States and Argentina.6 Brazil 3.0 4% Seven million farmers in 18 countries — China 2.8 4% including more than 85% resource-poor farmSouth Africa 0.4 1% ers in the developing world — now plant biotech crops, up from 6 million in 16 countries in 2002. Source: ISAAA Almost one-third of the global biotech crop area was grown in developing countries, up from one-quar- million hectares or 247 million acres of biotech crops. ter last year.7 It also predicts the global market value of biotech crops The most popular biotech crop grown globally is is expected to increase from approximately $4.5 billion soybeans with 102.2 million acres, accounting for 55% this year to $5 billion or more by 2005.9 of all soybeans grown. Secondly, with new varieties By 2002, the value of the transgenic seed marand more country approvals, the area planted with ket was $4.0 billion with global R&D expenditures in biotech maize increased 25% to 38.3 million acres the private and public sectors reaching $4.4 billion, worldwide, 11% of the global maize area. Canola fol95% of that total in industrialized nations. lowed with 20% growth for a total of 8.9 million acres, In developing countries, China and India lead the 16% of canola hectarage globally. Biotech cotton now pack in investing in crop biotechnology. Overall, GM totals 9.7 million acres, 21% of the global cotton area.8 crops represent approximately 13% of the $30 billion Within the next five years, the ISAAA predicts 10 global commercial seed market in 2001.10 million farmers in 25 or more countries will plant 100
SECTION II - Corporate Member Survey SECTION II - Corporate Member Survey
BIOTECanada continues to survey its members on an annual basis to identify the issues our corporate members are managing and to reflect the changes in the environment in which they operate. All figures are taken from the participating company’s 2003 annual reports. BIOTECanada, the national biotechnology industry association, focuses its activities around five main pillars in the biotechnology industry and research community:
1 2
3 4
5
Promoting public awareness, understanding, and acceptance of biotechnology; Advocating to the federal government for financing and investment strategies to build a sustainable biotechnology community in Canada; Promoting the value of strong intellectual property protection; Assisting in the development of appropriate regulatory regimes and frameworks with respect to the safe use, research, and development of biotechnology and consumer products and process; and Identifying human resource related issues in this sector.
The survey results address these key pillars as they relate directly to BIOTECanada corporate members.
Our typical corporate member: Is more likely to be a public company Works in human therapeutics Has over 40% of its work force dedicated to R&D Employs less than 50 people Is primarily focused on product development Has between 12 and 24 months of funding available Is most likely self funded Cost & time for regulatory approval and access to capital are the key hurdles to commercialization Highest strategic priorities are product development and financing BIOTECanada 2004 Is most likely looking for opportunities in all countries to form an alliance Outsources activities in the product development cycle Continues to build toward sustainability
BIOTECanada 2004
page 4
State of the industry 2004 State of the industry 2004
growth; many of these companies are publicly held. In 2001, 75% of our corporate members were public companies, whereas, in 2004, 63% are public. In general, our corporate members continue to be challenged by the lack of financing opportunities and the numerous hurdles to commercialization. The climate our companies operate in has not progressed to meet the needs of the industry; hence, the issues continue to be consistent year over year. Our companies continue their quest for a robust, timely, transparent, science-based regulatory system. As well, a stable investment climate that encourages investment and intellectual property protection remains key to their success and sustainability. In their study of the Canadian industry, Ernst & Young found similar trends. Although the biotechnology industry in Canada “experienced double-digit revenue growth (18%) in 2003,” the industry itself continues to strugHealth gle. “Amid the very successful companies – those able to raise needed funds –the earlierAgriculture stage and smaller public companies in Canada 11 Aquaculture continue to be in a precarious position.” It is evident we need to create an environment that supports innovation and the unique needs of Academic the biotech sector in Canada.
Affiliate Knowledge & Service Provider
Where are are we today? Where we today?
BIOTECanada continues to see a growth in its membership base with more than 160 members. Biotech companies focused on research and development account for the majority, 45%, of our membership. The membership is strongly represented by small- and medium-size companies, with 50% of our corporate companies having less than 50 employees. We represent the full spectrum of Canadian biotech interests throughout all regions in Canada and continue to have broad geographic representation, with just over 54% of our members headquartered in Ontario. Small to medium-sized biotechnology companies account for much of our membership
BIOTECanada Membership 2004
6% 17% 1% 6%
32%
38%
Building Sustainabiilty in Canada Building Sustainability in Canada
The small- and medium-sized enterprises dominating our membership represent 57% of member companies. They indicate their primary focus is product development to move them toward entering the marketplace. Of those companies who do have products on the market, the majority have less than five. Slightly less than 40% of our current corporate members do not generate revenues and depend on a supportive fiscal environment to keep companies viable. The majority of the corporate members rely on multiple sources of funding. The top two sources of funding are internal sources and government. There is a marked decline in the number of companies receiving venture funding this past year. The shift away from venture capital is reflected in the reliance on internal cash flow, internal partners and government funding. The largest category of our members have less than $1 million in biotech revenues (48%), with 65% of this group generating no revenues. This reflects the early stages of development most of our companies are in, the length of time it takes to get products to market and the commercialization challenges they face.
Membership Revenues
60% No revenues < $1 million 50% $1 - $25 million > $25 million 40%
30%
20%
10%
0% 2001 2002 2003 2004
BIOTECanada 2004
page 5 Our survey results indicate the barriers to commercialization are not breaking down. For the past four surveys, the cost of regulatory approvals and the need for a more efficient regulatory system is still a major challenge to 67% of our corporate members. Access to capital has become a greater challenge to 67% of our corporate members versus 58% in 2003. The issue of the lack of skilled human resources has taken on less significance this year with 38% of our members listing
State of the industry 2004 State of the industry 2004
this as a key hurdle versus 50% in 2003. It is fair to conclude that human resources is still a critical issue, but financial challenges have taken precedence. Of particular note, international harmonization has increased in significance from 8% in 2003 to 19% in 2004. Conversely, consumer acceptance has lessened as a priority for our members in 2004 (29%) than in 2003 (35%). For the third year, market access continues to decline in importance as a hurdle for success.
Hurdles to Commercialization
Access to Capital Cost & Time Regulatory IP Protection Skilled HR Consumer Acceptance International Harmonization Market Access Lack of Info on Markets Access to Technology Other 0% 20% 40% 60% 80% 100% 2004 2003 2002 2001 * Members giving priority as 1, 2, or 3
Strategic Decision Making Strategic Decision Making
As seen in the 2003 survey results, product development has been the highest priority strategic decision facing our corporate members. Although alliances and partnerships are still critical decisions for our companies, the lack of access to capital has moved financial decisions up the continuum with 67% of our members identifying it as one of their top three strategic decision priorities. The quality of science being pursued by our members is highly regarded. But they face an uncertain financial environment and a regulatory framework not meeting globally competitive standards. Many of our corporate members have yet to bring their products through the regulatory approval process and will need strong financial resources to maintain them through this period of development. The lack of efficiencies in the Canadian regulatory system is limiting the potential commercialization of vital new products in Canada.
100% 00
Strategic Decisions 2004
2004 2003
80% 80
2002 2001
60% 60
40% 40
20% 20
0%
e ct du pm ro elo P v De
nt
Fin
an
ce
y / s ce ip log an m urce an ersh n o ng li Hu so ch i Al rtn Te ens Re Pa Lic
Ot
he
r
BIOTECanada 2004
page 6
State of the industry 2004 State of the industry 2004
The 2004 survey results now place manufacturing agreements ahead of joint ventures, with licensing agreements and research agreements still ranking one and two as priorities for types of alliances. Manufacturing agreements have replaced joint ventures as one of the top types of alliances. Marketing and equity investments are at the same level and are also strong options our members have taken advantage of. The challenges facing our members to achieve product commercialization continues to hinder their development and forces them to look to forming alAlliances most any type of alliance Licensing available. Agreement The industry in Canada has become truly global with Research our corporate members lookAgreement ing within Canada, the United States and internationally Equity equally to form alliances. Investment
Outsourcing
We saw a decrease in the number of our corporate companies outsourcing last year, but this year, the number increased to 67% from 58% in 2003. Of those companies who outsource, 57% of the outsourcing is outside Canada – the same level as 2003.
Marketing Agreement Manufacturing Agreement Joint Venture University 0% 20% 40% 60%
2004 2003 2002 2001
80%
BIOTECanada is the national association representing the Canadian health care, agricultural, food, bioinformatics, research institutions and other organizations dedicated to the long term and sustainable development of a Canadian biotechnology industry, its practices and products.
1 2 3 4 5 6 7 8 9
The Canadian Biotechnology Industry Report, September 2004 International Service for the Acquisition of Agri-biotech Applications (ISAAA) Winter, Peter, Canadian Biotech News Winter, Peter, Canadian Biotech News Canadian Food Inspection Agency ISAAA Ibid. Ibid. James, C. 2003. Preview: Global Status of Commercialized Transgenic Crops: 2003. ISAAA Briefs No. 30. ISAAA: Ithaca, NY. 10 Ibid. 11 Ernst & Young, Resurgence: Global Biotechnology Report 2004
BIOTECanada 2004