Biotechnology Industry in Canada Faces Cash Crunch

Strategic Insights -

Canada's biotechnology industry is facing a cash crisis, with several key players struggling to remain afloat. According to a report by Yorkton Securities Inc., two of the country's top biotech companies, Cangene Corp. and Imutec Corp., have slipped into what is known as the "danger zone" - a situation where companies have less than two years' worth of cash left on hand. This has raised concerns that without access to new funding, these companies may be forced to merge or consolidate with larger players in order to survive.

Key Takeaways:

  • Cangene Corp. and Imutec Corp. have slipped into the "danger zone" due to their limited cash reserves, with only 17 and 15 months of money left, respectively.
  • Wayne Schnarr, a partner at Yorkton Securities Inc., warns that the Canadian biotech industry must undergo some form of rationalization in order to survive, and that mergers and acquisitions are likely to become more prevalent in the coming years.
  • Cangene Corp.'s president, James Rae, disputes Schnarr's claims, stating that the company is actively seeking new financing options and has a strong relationship with pharmaceutical giant Akzo Pharmaceutical International BV.
  • Imutec Corp.'s president, Richard Potts, argues that money is not the company's primary concern, and that its ability to raise additional funds is more important than its current cash reserves.
  • Steve Burrill, a U.S. biotech guru and member of Imutec's board of directors, believes that companies in the biotech industry will begin to consolidate and merge as they run out of cash.

Statistics:

  • Cangene Corp. has $10 million in cash reserves, with a monthly spending rate of $600,000, giving it 17 months' worth of money left before it must finance or form a large strategic alliance.
  • Imutec Corp. has $7.5 million in cash reserves, with a monthly spending rate of $500,000, giving it 15 months' worth of money left before it must finance or form a large strategic alliance.
  • The Canadian biotech industry has an average survival time of 21 months, down from 34 months in 1993.
  • 50% of the North American biotech industry has less than two years' cash left on hand.
  • Ernst & Young's 1995 biotech survey shows that biotech companies in the United States are burning through their cash reserves most rapidly.

Sources:

  • Yorkton Securities Inc.
  • Cangene Corp.'s 1994 annual report
  • Imutec Corp.'s 1995 financial statements
  • Business Week article (mid-September 1994)
  • Ernst & Young's 1995 biotech survey