Bail out for Canadian biotech?
While Canadian banks might be faring well, it’s another story for biotech. The March 2009 Parliamentary Quarterly from BIOTECanada makes for grim reading, painting a picture of an industry in distress:
- Capital formation in the biotech sector decreased 41% in 2008 vs 2007.
- Over 50% of Canadian biotech companies have less than a year of cash left (25% have less than six months of cash).
- The hit to public company valuations has been greater in the biotech sector (down 45%) compared to the broader market (S&P TSX Composite Index decreased 32%) in the Sep 2008 to Jan 2009 period.
- There were no biotech IPOs in Canada in 2008 and only one in the US.
The question is: What to do?
The report makes the compelling case for the government to act quickly to sustain the industry. Other nations (USA, France, UK and Israel) are already investing heavily to support their biotech sectors to ensure they’ll remain competitive locations for international R&D.
Several suggestions are made to improve existing tax credits and create a capital gains-free period for investors who support small-to-medium sized biotech companies (a strategy that we strongly endorse).
History has shown that innovation is the major factor in wealth generation. Bailing out failed industries is only staving off the inevitable (at a huge cost to taxpayers). Canada needs to embrace and support its knowledge-based industries (such as biotech) in order to sustain the quality of life that we are so fortunate to enjoy. The old industries are not going to help in the longer term.