Sector outlook: Pharma/bio

Sectors in-the-know investors will definitely want to keep an eye on

Separating hype from real hope in the Canadian life-sciences industry has never been easy. What may look like a sure thing in the early stages of research and development can often end in disappointment, due to safety concerns or delays in regulatory approval. With so many drug firms facing generic competition and a weaker-than-usual financing climate, the race to inject shrinking pipelines full of promising drug candidates has never been more relevant. For that reason, experts say the year ahead will be all about the pipeline: what's in it, how to make it bigger faster, and how to ensure there's enough money kicking around to take successful products from research bench to pharmacy shelf.

Companies to watch in 2007 include Neurochem Inc., which is waiting on a final decision from the U.S. Food and Drug Administration regarding its kidney drug Kiacta, and Labopharm Inc., also expecting regulatory approval for its once-daily painkiller, Tramadol. Other possible success stories include Theratechnologies Inc., expected to release pivotal Phase 3 results for its HIV drug candidate, and YM BioSciences Inc., a leading cancer drug developer with two products in late-stage clinical trials.

Financing will continue to be a challenge for Canada's $13.2-billion biotech industry in 2007 as it competes with the oil and gas industry for much-needed investment. Canadian biotechs will need to look beyond their borders for venture capital firms with deeper pockets, says Wayne Schnarr, senior vice-president, life sciences at investor relations firm Equicom Group. Don't expect to see a lot of activity when it comes to initial public offerings, either. Many risk-averse investors will continue to shy away from unproven, early-stage life sciences firms with little in their pipeline, says Schnarr.

It's not all doom and gloom, though. Aaron Bennett, a senior health-care analyst at Westwind Partners, expects to see an acceleration in merger and acquisition activity. “Despite a late start, the sector has shown some life going into the year-end, which may spill over into the new year with several potential catalysts for high-profile and lesser-known companies,” writes Bennett in a recent research report.