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Recession hurts bioscience sector
The global economic crisis has hit several industry sectors hard. In Canada, companies in the biotechnology arena – there are more than 500 life sciences firms, many of them small and private operations – are among the victims of this recession.
The collapse has fueled fears that some life sciences businesses will disappear or be snapped up by American interests. And once again, the spectre of a brain drain of scientists fleeing south has been raised, as more stimulus money is allocated in the U.S.
The downturn has accelerated cash burns and aggravated existing strains in lending. It has dried up liquidity lines, ratcheted up some rates, led to the insolvency of some non-bank lenders, and has cratered venture capital and private equity funding.
“I think we're noticing certain longstanding, faithful customers are in a bind,” says Hugh Hoogendoorn, president of Affinity Biologicals in Ancaster. “And so, you have to make certain concessions (in sales orders and accounts receivable situations).”
Some financiers – competing in a market where IPOs and mergers have dried up, and where pension funds, insurance firms, or limited partnerships are reluctant to fund VC operations – are content just to wait out this global crisis.
That's bad, a senior Business Development Bank of Canada official warned in early spring. Edmée Metivier, BDC’s executive vice-president of financing, told a House of Commons subcommittee that the crunch will hobble technology entrepreneurs.
“It breaks my heart because if we let go of these technology companies, once this recession is over, you will have lost all this (new) technology. You will have lost a decade,” said Metivier.
Studies repeatedly stress the need for capital in the industry. PricewaterhouseCoopers' 2009 Canadian Life Sciences Industry Forecast found that almost 80 per cent of 167 biotechnology firms surveyed listed the ability to access capital as their key issue.
BIOTECanada has asked Ottawa for relief. The national voice for the biotech sector has suggested one-time cash refunds on tax losses, capital gains tax exemptions on investment, and breaks in the Scientific Research and Experimental Development credit program.
To be fair, venture capital fundraising in Canada was sliding before the recession. Four years ago, the industry raised $1,718 billion, according to the Venture Capital & Private Equity Association (CVCA). Last year, the total fell to $1,028 billion – a 41 per cent drop.
That's the fundraising side. VC investing in all companies, not just life-sciences firms, has also plummeted. The amount of VC infusions in this year’s first quarter, at $275 million, was the lowest on a quarterly basis in almost six years.
Governments and their funding/banking agencies have been criticized for being slow to react to tighter conditions. For example, critics have hit at the Ontario Venture Capital Fund for being too deliberative, taking too long to put money into play.
And earlier this year, several bioscience / biotechnology groups and officials took shots at the Harper government's budget. They criticized its directing of federal funds more to infrastructure than to actual hands-on research work.
But Quebec and Ontario – to name just two provinces – have ponied up money of late. In March, Ontario announced its $250 million Emerging Technologies Fund, to be matched with private investments, for cleantech, IT, and life sciences startups.
A month later, Quebec launched a private-public sector $700 million fund of funds. CVCA president Gregory Smith called the fund “a shining example” of collaboration between both sectors.
Some VC and equity players think the slowdown may well promote a clearing of the decks. Lumira Capital head Peter van der Velden notes on a blog: “Today’s market represents an outstanding time to cull the weak and underperforming from our herds ...”
posted: 6/15/2009
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