Without new approaches and funding sources, the next few years could cripple the biotech industry in Canada, Ernst & Young revealed Tuesday in a new report.

“More than half of the Canadian public companies still standing have less than a year’s worth of cash left,” says Rod Budd, Ernst & Young’s Canadian biotech industry leader. “The industry must tackle the challenges head-on and evolve the biotech business model to survive in any meaningful way.”

The report chalks up the industry’s struggles to the economic crisis. In the past, the model has operated like a relay race: companies work with a series of investors and partners to raise capital and share risk. But the constraints of today’s credit-strapped market are making that a harder race to run. Biotech needs both a steady supply of funding and innovation to keep the model moving forward.

“Market capitalization declined 61%, from US$10.8 billion in 2007 to US$4.2 billion in 2008,” Budd says. “That’s at least partially driven by the four significant public-company acquisitions. But the 72 public companies in existence at the end of 2008 still saw their total market value shrink by 47%.”

The lack of initial public offerings in the last two years was a bitter pill to swallow — made worse by a striking decline in follow-on public offerings of common shares, which declined from US$398 million in 2007 to $US80 million in 2008. Total funding for the Canadian industry decreased from US$1.060 billion to US$478 million.

“Capital has dried up, and that’s threatening the very existence of two-thirds of the Canadian public companies. About one third of public companies with approved products are generating revenue. That provides a basis for the future of the industry. Unless funding is found, Canada will be a much smaller player in the global economy,” Budd says.

The report notes that the number of Canadian companies dropped 11%, from 404 in 2007 to 358 in 2008.

Quebec-based companies attracted more total investment than any other province, with US$199 million raised. Ontario raised US$138 million; British Columbia raised US$90 million.

IE