BIOINDUSTRY Bioindustry in Alberta State of the Industry 2007 ADVISORY
Prepared by: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2007 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Canada. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
Executive Summary The BioAlberta survey was developed to examine the current status of Alberta s bioindustry revenue, research and development, human resources, capital and current issues. Alberta is home to over 130 bioindustry companies. The term bioindustry is interchangeable with life sciences and includes health biotechnology, medical devices and equipment, agricultural biotechnology, functional foods and nutraceuticals, industrial bioproducts, environmental biotechnology, and bioinformatics. The bioindustry in Alberta is relatively young and has seen significant growth in the number of new companies over the past 25 years. The majority of companies are located in the Edmonton and Calgary regions and operate in the health biotechnology and medical devices and equipment sectors. Many are in the pre-revenue stage and generate minimal sales. They have projects in various development stages and expect significant growth and development in the next four years. Total revenue of Alberta s bioindustry companies in 2006 is reported to be approximately $814.1 million. Survey respondents predict revenue to increase significantly within four years. Approximately half of total sales are generated outside of Canada. Most companies are small in terms of number of employees, although the number of jobs in this industry is steadily increasing. Bioindustry companies have a large demand for employees with some form of post-secondary education. Investment in Alberta s life sciences sector has increased significantly over the last three years. Sources of capital include debt financing and public offerings for larger companies, and angel investors, founder equity and government facilitated programs for smaller companies. Companies in the bioindustry reported alliances and partnerships, launching new products/services and securing financing as the three most important issues they face. The majority believes the most effective way to increase industry growth is through the use of scientific research and development tax credits. We would like to take this opportunity to thank those companies who made this study possible by agreeing to take part in the survey. Bioindustry in Alberta State of the Industry 2007 i
ii Bioindustry in Alberta State of the Industry 2007
Table of Contents Executive Summary i Background and Methodology 1 Company Establishment, Location and Composition 2 Revenue 5 Research and Development Spending and Product Development 7 Human Resources 10 Financing 12 Issues Facing the Industry 14 Industry Participation 15 About BioAlberta and KPMG 16 Bioindustry in Alberta State of the Industry 2007 iii
Background and Methodology In Spring 2007, BioAlberta and KPMG LLP ( KPMG ) surveyed leaders of life science companies located in Alberta. Those surveyed represent bioindustry companies, from small start-ups to large public companies, which include manufacturers, research and developers, consultants, and distributors of bioindustry products. The purpose of this report is to review the state of bioindustry in Alberta. The respondents of the survey provided feedback by describing the current size of their company, its current position in Alberta s marketplace, and its growth expectations. The questionnaire was distributed electronically to over 130 bioindustry company representatives. In order to supplement the report, information from other surveys conducted by BioAlberta, as well as the public domain was used. In certain cases, companies have chosen not to answer all questions. Caution should be used in extrapolating these results to the entire population of companies in Alberta s bioindustry. The results are intended to stimulate dialogue, and provide directional support for business leaders and government agencies to help the industry grow. Of the 133 companies surveyed, partial or complete results were compiled from 103, providing a response rate of 77%. Bioindustry in Alberta State of the Industry 2007 1
Company Establishment, Location and Composition Establishment The Alberta life sciences sector includes over 130 bioindustry companies. It has seen many companies entering the industry in the past 25 years. Of respondent companies, 39% were established in the last 10 years. DATE OF ESTABLISHMENT Total percentage of companies 30% 25% 20% 15% 10% 5% 0% 24% 22% 15% 15% 12% 12% Before1982-1983 - 1987 1988-1992 1993-1997 1998-2002 2003-1982 present Location In Alberta, 95% of bioindustry companies are located in the Edmonton and Calgary regions. GEOGRAPHIC REGION OF COMPANIES 5% 38% Calgary Region Edmonton Region Other 57% 2 Bioindustry in Alberta State of the Industry 2007
Sectors Alberta s bioindustry is diverse, with companies spanning a variety of sub-sectors. Most respondents classify themselves in the health biotechnology and medical devices and equipment sectors. Seventy-three percent (73%) report operating in only one sector, while 27% report operating in more than one sector. ALBERTA S BIOINDUSTRY SECTORS 5% 3% 5% 8% 8% 32% Health Biotechnology Medical Devices and Equipment Agricultural Biotechnology Other Functional Foods and Nutraceuticals 11% Industrial BioProducts Environmental Biotechnology Bioinformatics 28% Type of Company Thirty-eight percent (38%) of respondents identify themselves as a manufacturing company with another 38% in research and development. Just over one-third classify themselves in more than one category type, demonstrating that bioindustry companies are creating diversified business models to enhance their participation in their value chain. TYPE OF COMPANY 17% 6% 1% 38% Manufacturer Research and Development Consultant or Service Provider Distributor Other 38% Bioindustry in Alberta State of the Industry 2007 3
Cash Burn - R&D Companies Of the companies who categorize themselves as research and development, 19 provide additional details on the sufficiency of their current cash flow. Responses range from 2 to 48 months of cash on hand. Based on these responses, the average number of months of cash available is 15 months and the median is 12 months, assuming revenue and investment do not change. NUMBER OF MONTHS OF AVAILABLE CASH 2 (Min) 12 (Median) (Max) 48 0 50 15 (Mean) R&D COMPANIES CASH AVAILABLE Number of Companies 10 8 6 4 2 0 8 6 3 2 1-4 5-8 9-12 >12 Months of Cash Available 4 Bioindustry in Alberta State of the Industry 2007
Revenue Revenue Growth Overall revenue of Alberta s bioindustry companies is reported at $814.1 million in 2006. The median amount of revenue earned by the companies who responded is $1.1 million with the average at $20.4 million. Based on survey responses, the industry is projecting revenue to increase by 4.5 times the amount reported in 2006. BIOINDUSTRY REVENUE FORECAST 4000 3500 3684 Revenue ($ Millions) 3000 2500 2000 1500 1000 500 0 814 386 2004 2006 2008 2010 (estimated) Fiscal Year Note: 2006 revenue data includes a larger sample size of companies compared to 2004. Thus, caution should be used when building comparisons from 2006 to 2004. Bioindustry in Alberta State of the Industry 2007 5
Because of the sector s relative young age, many companies are in pre-revenue stages or generate minimal sales. Fifty percent (50%) of companies have revenue of $1 million or less, while only 13% report revenue greater than $20 million. PERCENTAGE OF TOTAL REVENUE GENERATION 60% 50% 50% Total Percentage 40% 30% 20% 10% 25% 7% 5% 8% 5% 0% 0-1 1-5 5-10 10-20 20-50 >50 Revenue ($ Millions) Percentage of total revenue by geographic location Respondents report that the majority (52%) of sales are generated outside of Canada, with 38% coming from the United States, and 14% coming from outside of North America in 2006. REVENUE GENERATION BY GEOGRAPHIC LOCATION Asia 8% Europe 5% Other 1% Canada US 38% Canada 48% US Asia Europe Other 6 Bioindustry in Alberta State of the Industry 2007
Research and Development Spending and Product Development Research and Development Spending In 2006, companies spent $135 million on research and development. Based on survey responses, research and development spending by bioindustry companies in Alberta will reach $247 million in 2010. The majority of companies spent $1 million or less on research and development in 2006. TOTAL RESEARCH AND DEVELOPMENT SPENDING Total Percentage 60% 50% 40% 30% 20% 10% 0% 57% 24% 8% 5% 3% 3% 0-1 1-5 5-10 10-20 20-30 >30 R&D Spending ($ Millions) BIOINDUSTRY R&D SPENDING FORECAST 300 Total Spending ($ Million) 250 200 150 100 50 135 247 0 2006 2010 (estimated) Fiscal Year Note: Four respondents account for approximately 64% of the total R&D expenditure reported for 2006. Bioindustry in Alberta State of the Industry 2007 7
Company Development In the next several years, the industry expects to see significant growth and development. Fifty-two (52%) of respondents are in the growth stage, 25% are in the emerging phase, and 23% are in the maturity phase of development. Many of the companies indicated they have projects in various development stages ranging from research and development to established products or services on the market. PERCENTAGE OF COMPANIES IN EACH DEVELOPMENT STAGE Maturity Phase 23% Growth Phase 52% Emerging Phase 25% 0% 10% 20% 30% 40% 50% 60% Total Percentage 8 Bioindustry in Alberta State of the Industry 2007
Company Products Nearly 60% of respondents stated they had products in multiple stages of development. The majority of companies in the bioindustry have products either in the R&D stage or products that are already established on the market. STAGES OF COMPANIES PRODUCTS 60 Number of Companies 50 40 30 20 10 49 15 10 9 7 45 4 0 R & D Pre-clinical trials Phase I Phase II Product Stage Phase III On the Market Other Bioindustry in Alberta State of the Industry 2007 9
Human Resources Company Size The bioindustry in Alberta is relatively young, with only a handful of established players. Of respondents, 82% have a company size of 50 employees or fewer. BIOINDUSTRY COMPANIES BY NUMBER OF EMPLOYEES 60% 50% 48% Total Percentage 40% 30% 20% 34% 13% 10% 0% 1-10 11-50 51-100 >100 Number of Employees 5% 1 Biotechnology Council of Ontario, Investing in the Life Sciences Sector: A Proposed Strategy for Innovation in Ontario, August 2006. 2 Milken Institute, Biopharmaceutical Industry Contributions to State and U.S. Economics, October 2004. 10 Bioindustry in Alberta State of the Industry 2007
Employment The life sciences sector in Alberta has seen a steady increase in the number of jobs. The number of direct jobs in 2006 is at 4,793 and is estimated to reach 5,983 in 2010. EMPLOYMENT TREND - DIRECT JOBS 7000 6000 5983 Number of Employees 5000 4000 3000 2000 3316 4793 1000 0 2004 2006 2008 2010 (estimated) Year It has been reported that for each direct job created in the biotechnology sector the indirect employment multiplier effect can range from 2.3 1 to 5.7 2. Using an average multiplier of 4.0, the impact of the industry on jobs in the province in 2006 is estimated to be about 19,000 jobs. If the current job increase rate continues, in 2010, this number could reach 24,000. Employee Education Most employees in this sector (82%) are individuals who have some form of higher education (PhD, Master s, Bachelor s or Technical Diploma). TOTAL EMPLOYEES BY DEGREE Percentage of Employees 30% 25% 20% 15% 10% 5% 24% 13% 27% 18% 18% 0% PhD Degree Master's Degree Bachelor's Degree Technical Diploma Other Level of Education Bioindustry in Alberta State of the Industry 2007 11
Financing Investment Respondents indicate numerous sources used to raise capital. Of the 44 companies providing a response to this question, 19 indicated they raised money in 2006. The total investment in bioindustry companies was $331.4 million in 2006. As the bioindustry has grown, so has the amount of investment that companies have been able to obtain. Outside of a significant loan procured by one respondent, investment in the bioindustry has remained fairly consistent year over year. Within the next three years, companies expect 2.2 to 2.3 times more investment than what was secured in their last fiscal year. INVESTMENT TRENDS ($ Millions) 1000 900 800 700 600 500 400 300 200 100 0 87 2003 759 331 259 112 117 2004 2006 2010 (estimated) Year Note: Investment trend per survey respondents. Approximately two-thirds (2/3) of the $331 million noted above is attributed to one respondent. Note: Investment trend without the outlier respondent. 12 Bioindustry in Alberta State of the Industry 2007
Method of Financing Government facilitated programs are identified as the most common source of investment used by the industry in 2006. Larger companies (greater than 50 employees) are able to secure much of their funding through debt or public offerings. Smaller companies report angel investors, founder equity, and government programs as their main sources of raising capital. This accounts for about 90% of the total capital raised by companies with fewer than 50 employees. METHOD OF INVESTMENT LAST FISCAL YEAR Government Facilitated Programs 9 Founder Equity 7 Angel investors 5 Debt Venture capitalists 4 4 Public financing Corporate Investors 2 2 Institutional Family & friends 1 1 0 2 4 6 8 10 # of Companies Bioindustry in Alberta State of the Industry 2007 13
Issues Facing the Industry Future Issues Respondents identified several important issues their companies currently face. The top five, in descending order, are as follows: 1. Alliances/partnerships 2. Launch of a new product/service 3. Securing financing 4. Expansion within North America 5. Attracting new skilled employees Initiatives for Growth Respondents also identified potential initiatives that would have an impact on the growth of their company in Alberta. The top five, in descending order, are as follows: 1. Scientific Research and Experimental Development ( SRED ) Tax Credits 2. Additional funding for commercialization 3. Incentives for investors to invest in Life Sciences 4. Attracting highly qualified personnel 5. Marketing programs 14 Bioindustry in Alberta State of the Industry 2007
Industry Participation BioAlberta and KPMG would like to thank all 103 survey participants. The following participants agreed to be acknowledged in this report. Advanced Integrated MicroSystems Ltd. Alberta Artificial Limb Inc. BioNeutra Inc. CardioMetabolics Inc. Ceapro Inc. Cyplasin OncoScience Inc. FactMinder Inc. GrowSafe Systems Ltd. HistoBest Inc. IGY Inc. InnerVision Medical Technologies Inc. Innovotech Inc. J.A.R. Pharmaceuticals Ltd. KMT Hepatech, Inc. Medivet Pharmaceuticals Ltd. NAEJA Pharmaceutical Inc. PBR Laboratories Inc. Permolex Ltd. QSV Biologics Ltd. Resverlogix Corp. SemBioSys Genetics Inc. Stem Cell Therapeutics Corp. TENET Medical Engineering Tyler Research Corporation Uni-can International Inc. Bioindustry in Alberta State of the Industry 2007 15
About BioAlberta KPMG BioAlberta is the central voice and organizing hub for the bioindustry in Alberta. BioAlberta is a private, not-for-profit industry association, representing Alberta's growing bioindustry. BioAlberta currently lists over 130 members, including producers, users and supporters of biotechnology activities in Alberta. BioAlberta is a member of the Biotech Accord, which includes other bioindustry development organizations, as well as the national bioindustry organization, BIOTECanada. KPMG LLP, a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG, a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 144 countries and have more than 104,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. KPMG International provides no client services. Contact Ryan Radke President, BioAlberta (780) 425-3804 ryan@bioalberta.com www.bioalberta.com Don Matthew Office Managing Partner KPMG in Edmonton (780) 429-7300 dmatthew@kpmg.ca Jonathan Kallner National Industry Leader, Biotechnology, KPMG (604) 691-3000 jkallner@kpmg.ca www.kpmg.ca 16 Bioindustry in Alberta State of the Industry 2007
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