BIOTECHNOLOGY: Canadian biotech sector expects to see consolidation
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BIOTECHNOLOGY: Canadian biotech sector expects to see consolidation
Mergers, buyouts, IPOs: Venture capital babies will grow up to marry this year
Jill Vardy
Financial Post
Glenn Lowson, National Post
DR. CALVIN STILLER: Investor disillusionment with Internet and technology stocks "has really been a vaccine to investors in companies that are not measurable by a price-earnings ratio. And that's where biotech sits."
OTTAWA - The big news in biotechnology in 2002 won't be medical miracles, but a flurry of mergers, acquisitions and initial public offerings.
Few analysts this year are looking for such blockbuster drugs as Pfizer's Viagra or big-ticket innovations such as the human genome projects.
"The consensus out there is that blockbusterism is kind of dead right now," says Dr. Peter Winter, editor of Canadian Biotech News. "Companies are being more strategic ... and trying to achieve success through productivity success and reducing costs."
Other analysts say biotechnology companies will rely more on earnings and sustainable product portfolios rather than laboratory breakthroughs to impress investors.
Indeed, those biotechnology companies that have paid more attention to business fundamentals are already being rewarded. The bellwether Amex biotech index has climbed more than 200% in the past three years and analysts say an unprecedented number of U.S. and Canadian biotech companies are waiting for ripe market conditions to go public.
But IPOs will likely require companies with more than one product in development and sustainable revenues. That's why Dr. Winter predicts a wave of consolidation in the Canadian biotech sector, which now numbers about 400 companies. That consolidation would follow the flurry of U.S. and European biotech acquisitions in late 2001.
"Thanks to the availability of venture capital for startup companies since 1996, we have seen a dramatic growth in the number of companies. The problem that now arises is how these companies sustain themselves in a highly competitive environment for financial and human resources," says Dr. Winter. "I would expect the number of biotech companies in Canada to decrease but the industry will have a more robust sector better equipped to bring products to market."
Dr. Calvin Stiller, chief executive officer of the Canadian Medical Discoveries Fund, says investor disillusionment with Internet and technology stocks "has really been a vaccine to investors in companies that are not measurable by a price-earnings ratio. And that's where biotech sits."
He predicts that as biotech companies mature, consolidate and begin to show demonstrable business models, they will attract a "huge amount of capital."
He also predicts at least one huge IPO next year, although he wouldn't name the company.
David Wingnean, biotechnology analyst at TD Newcrest, also doesn't expect anything like the year 2000 genomics craze to sweep the biotechnology sector in 2002.
"But just because you don't have products to market doesn't mean you can't raise profile," he says.
For example, several promising Canadian firms will begin late-stage clinical trials next year and he expects proteomics companies -- which are creating medical treatments based on the protein complements of genomes -- to advance their work and attract investors.
Dr. Winter agrees that proteomics companies will likely attract lots of investment next year, even though most of them are still several years away from producing commercial products.
Dr. Winter adds: "If the IPO window opens next year, I think there will be five or six Canadian companies going public, including MDS Proteomics."
MDS Proteomics is building on the work of the human genome project, which mapped the human gene.
Proteomics, the study of interactions between proteins produced by genes, is the key to understanding how our bodies stay healthy.
The Toronto-based company is considered a world leader in determining the function of proteins, and the results of that research improve pharmaceutical companies' ability to discover and develop new medicines.
Dr. Wingnean says 2002 will also see the commercial releases of drugs to treat most medical ailments, as biotechnology companies see the results of five to 10 years of research. "Every single disease will have its own group of new products coming to market," he says. The big three -- heart disease, AIDS and cancer -- will see a flurry of research advances and commercial products, he adds.
But Dr. Wingnean is particularly optimistic about the commercialization of coated coronary stents, which are tiny wire devices inserted inside blocked coronary arteries and expanded using a balloon catheter.
In about a quarter of angioplasty cases, the artery gets blocked again by inflammation and scar tissue as it reacts to the stent. The coated stents gradually release the drug paclitaxe, which prevents scar tissue from forming.
Angiotech Pharmaceuticals Inc. of B.C. is a major player in this field, he says.
"This sector is forecast to have a big impact on the future of heart disease. The current market is US$2.2-billion worldwide now and people have it growing to US$6-billion to US$9-billion," Dr. Wingnean says. "The McDonald's generation is going to need this coated stent as heart disease gets more widespread. In two to three years it will be so well-known among the general public that people will just refer to them as coated stents and everyone will know what that means."
Dr. Stiller says he is closely following three of Canada's biggest biotech companies, MDS, Biovail International Corp. and QLT Inc.
"Biovail was selling generic drugs and is moving from sales and branding into more biotechnology research. And it will be very interesting to see what happens with QLT [which is marketing a drug to alleviate degeneration of the eye]. Where is it going? Will it be taken over by a big pharma or merge with another biotech company? Both these companies have real value in them for entirely different reasons."
He also lists Angiotech as among several Canadian companies poised to have big success with heart disease treatments.
Another, Cryocath Technologies of Quebec, uses a catheter to deliver liquid nitrogen to the heart area and freeze nerves that make the heart beat irregularly. The product, which has just begun sales, will replace invasive surgery procedures.
Dr. Stiller is also optimistic about Hemosol Inc., even though its blood substitute product hasn't received approval yet from the U.S. Food and Drug Administration. "They're delayed, but so is their competitor, which also hasn't received approval."
jvardy@nationalpost.com |
