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Demographics According to Canada's national biotechnology association, BIOTECanada, Quebec and Ontario each host about a third of the approximately 400 biotech companies in Canada (see Figure 7.6). British Columbia is host to about 20 percent of the biotech companies, with the

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FIGURE 7.6 Provinces hosting major biotech activity in Canada. Over half of the country's biotech activity is located in Quebec and Ontario.

remaining 20 percent distributed amongst the remaining provinces. Every province is host to some form of biotech activity.

The geographical distribution of biotech activity in Canada is primarily in and around the large metropolitan areas that can support a critical mass of business and research centers. For example, five of Canada's 16 medical schools are in Ontario and four are in Quebec. British Columbia hosts one medical school in Vancouver. Proximity to centers of biotech activity in the United States is another factor. Montreal, Quebec, and Toronto, Ontario are less than an hour from Boston by air shuttle. Similarly, Vancouver, British Columbia, is the closest major Canadian city to San Francisco. Proximity to the United States is key because of the numerous strategic alliances between U.S. pharmaceutical companies and Canadian biotech firms.

Over half of Quebec's biotech firms and half of Canada's pharmaceutical industry are located in the Greater Montreal Megacluster. The Montreal area is also home to over half of Canada's basic and clinical research. Montreal is also the site of the National Research Council of Canada's Biotechnology Research Institute, the country's leading molecular biology research center. Quebec's biotech strengths are in the areas of medicine and agriculture.

Ontario has the fourth largest concentration of biotech firms in North America, and about a third of Canada's biotech firms. Ontario graduates 40 percent of Canada's life sciences students from 21 universities and 25 community colleges. Much of the biotech activity is in the Toronto metropolitan area. In addition to the University of Toronto and the Toronto Biotechnology Initiative, Toronto has its version of the Greater Montreal Megacluster, the Greater Toronto Cluster. Toronto's Hospital for Sick Children, the largest hospital-based research center in North America, is active in the discovery of disease-related genes.

The biotech industry in British Columbia is clustered in and around Vancouver. The Vancouver metropolitan area is home to the Center for Molecular Medicine and Therapeutics, headquarters for the Canadian Genetic Diseases Network, the National Research Council Innovation Center, and the Center for Integrated Genomics.

The summary of regional analysis for the Canadian biotech industry appears in Figure 7.7.

Infrastructure One indicator of the state of Canada's information technology infrastructure is that the number of Internet users per capita is among the highest in the world. Canadian academic centers are equipped with modern computing facilities and the top life sciences research institutions have access to high-speed supercomputer facilities. Canada's Information technology infrastructure rates a "good."

CANADA

Area

Rating

Note

Infrastructure

Information Technology

Legal-Regulatory

Intellectual Property

Labor

Education

Public Attitude

Financing

Industry

Government

Universities and Colleges Fair

Nonprofit Institutions Private Investors

Venture Capital Strategic Alliances

Biotech Industries

Pharmaceuticals

Agriculture

Military Computing Medicine Biomaterials

Good One of the greatest Internet users per capita

Good Liberal legislation regarding biotech research

Good Patent protection aligned with NAFTA

Fair Demand greater than supply

Good High quality, but system can't supply demand for life scientists Good Public accepting of GM foods and need for biotech research investment

Good Especially from multinational firms Good Federally funded Networks of Centers of Excellence (NCE) Relatively small amount of academic funding

Poor Not a major source of financing

Fair Only about 18 percent of biotech companies are public Good Funding at stages equally distributed Good Significant alliances with United States and Latin America

Good Therapeutics account for over half of biotech activity Good Prominent area of research and development Poor Insignificant presence

Fair Boosted by the Genome Canada Initiative

Good Most biotech firms are in the health sector Fair Modest biomaterials development activity

FIGURE 7.7 Summary of regional analysis for the biotech industry in Canada.

Canada's legal-regulatory infrastructure is rated as "good," reflecting the permissive biotech research and development environment. Unlike the United States, for example, stem cell research is one of several national research objectives. The intellectual property infrastructure is "good" because Canada's patent protection legislation is aligned with that of the United States through NAFTA, the North American Free

Trade Agreement. Pushing the previous seven-year protection for branded pharmaceuticals to 20 years, as in the United States, is good for the branded pharmaceuticals, but detrimental to consumers who could have otherwise purchased less-expensive generics.

The labor infrastructure in Canadian biotech is only "fair," reflecting the shortage of core life scientists and support personnel. To address the shortage of skilled labor to fuel the biotech sector, a variety of nonprofit organizations have been formed by Canadian businesses. For example, the Biotechnology Human Resource Council (BHRC) is tasked with growing Canada's pool of biotech talent. Its partners include region-specific groups promoting biotech, as well as major corporations. For example, the Ottawa Life Sciences Council (OLSC) is a not-for-profit local and international, private- and public-sector partnership committed to stimulating the growth of the life sciences sector in the Ottawa area. Other partners with similar regional objectives include the Toronto Biotechnology Initiative, BIQuebec, and the Prince Edward Island Business Development (PEI). Parc Technlogique promotes the Quebec Metro High Tech Park, home to over 100 companies, including 18 biotech firms.

The shortage of highly trained life scientists isn't due to lack of quality of education, but of the volume of students who move through the system annually. Canada is home to 16 medical schools, nearly 100 universities, and 67 university-affiliated clinics that produce 7,200 medical, pharmacology, and health services graduates per year. However, the number of graduates available to fuel the biotech industry is less than demand. Despite this reality, Canada's educational infrastructure is bolstered by Federally funded Networks of Centers of Excellence (NCE), a public and private research infrastructure that includes private and public companies, provincial and federal agencies, hospitals, and universities.

There are 22 Networks in the program categorized into four categories, including health, human development, and biotechnology. One of the networks in this category is the Canadian Bacterial Diseases Network, which supports research and development efforts in 15 universities, and involves nearly 60 biotech companies, several federal and provincial organizations and agencies across Canada. Other biotech-related networks include the Canadian Arthritis Network (CAN), focused on developing treatment for rheumatoid arthritis, the Canadian Genetic Diseases Network (CGDN) to identify genes associated with chronic diseases. The Stem Cell Genomics and Therapeutics Network is focused on exploring the sociopolitical issues surrounding stem cell research as well as developing new therapies using stem cell technology.

The public attitude of Canadians toward biotech is positive. The "good" rating reflects the public acceptance of genetically modified foods and need for national biotech research and development investment. This acceptance of biotech is reflected in the strength of Canada's agricultural biotech presence.

Financing The source of financing for biotech activity in Canada is primarily through industry, the government, venture capital, and strategic alliances, each of which are rated as "good." Canada is attractive to multinational pharmaceutical firms as a relatively low-cost, low-risk place to build production and research facilities, even though the big pharmaceutical firms aren't locating their main offices in Canada. Similarly, strategic alliances are particularly important to Canadian biotech, which has close, bidirectional ties with Latin America institutes and companies. According to Canada's Department of Finance, despite Canada's dependence on trade with the United States, the Canadian economy outperformed the economy of the United States in 2001 and 2002 because of strong domestic demand.

Total R&D expenditures for the federal government was $3 billion in 2001, with approximately 10 percent earmarked for biotech firms, according to Statistics Canada. Provincial government funding for R&D was just under $1 billion, distributed primarily to Quebec (32 percent), Ontario (31 percent), and British Columbia (15 percent), according to Statistics Canada. Although this distribution of provincial funding contrasts with provincial populations, it parallels the activity in biotech. Ontario is by far the most populace province, with 11.7 million inhabitants, compared to Quebec, the next most populated province, with 1.4 million inhabitants.

Venture capital (VC) investment in Canadian biotech peaked in 2000, but the decline in 2001 was relatively small, and the level of VC funding remained stronger than in the years leading up to the bubble in 2000. In all, venture capital funding of the biotech industry in Canada amounted to $2.8 billion in 2002, about 20 percent from U.S. venture capital, according to BIOTECanada. Unlike venture capital financing in the United States, which is weighted toward late-stage companies, venture capital financing in Canada is about equally distributed between seed/startup, early-stage, expansion, and late-stage companies.

Other sources of funding for biotech research and development are less significant. Private investors rate "fair" because only about 18 percent of Canada's biotech firms are public. Furthermore, the funds raised for IPOs peaked at $152 million in 2000 and then dropped to $25 million in 2001. Funding for biotech research and development from universities and colleges similarly ranks "fair" because of the relatively small amount of money from this source. Similarly, the funds available from nonprofit institutions are relatively insignificant, and rates "poor" as a source of financing.

Biotech Industries The most prominent biotech industries in Canada are pharmaceuticals, agriculture, and medicine, each of which is rated as "good." Biotech computing and biomaterials, which are rated at "fair," are less significant. The military biotech industry, with a rating of "poor" is relatively insignificant, primarily because of Canada's limited military spending overall.

In the Canadian pharmaceutical industry, the trend for biotech companies from 1997 through 2001 was an increase in a focus on therapeutics, at the expense of agriculture and diagnostics. In 2001, the largest sector of the Canadian biotech industry was therapeutics, accounting for 57 percent of all firms. Agriculture was the second largest sector, with 15 percent of biotech firms, down from 26 percent in 1997. This reduction in number of biotech firms represents a consolidation of the industry. Approximately 40 percent of Canada's biotech revenues in 2002 were derived from agriculture. Diagnostics was third, accounting for 10 percent of biotech firms, down from 22 percent in 1997. Although Canada doesn't host corporate headquarters for any of the major multinational pharmaceutical companies, Merck, Astra, Hoechst Marion Roussel, Amgen, Lilly, and Glaxo-SmithKline do have production facilities in Canada.

The medical biotech industry is robust, given the public health-care infrastructure of medical research facilities and medically-oriented Networks of Centers of Excellence. Many of the landmark discoveries in medicine, such as the discovery of Insulin in treating diabetes, were made in Canadian medical research centers.

Canada's biotech computing industry is strengthened by programs such as the Genome Canada Initiative and the country's overall computing infrastructure. The $194 million initiative focuses on functional genomic activities, genomic sequencing, genotyping, and other bioinformatics computing. Despite this infusion of capital, only about 9 percent of Canadian biotech companies are involved in genomics research as of 2001. Similarly, although there is activity in biomaterial research and development, including at least one firm developing recombinant spider silk for a variety of military and civilian uses, there are few companies relative to other sectors of the biotech industry.

According to Canada's Department of Finance, the defense budget for Canada is only about $580 million through 2005. In comparison, the United States defense budget is approximately $580 million every 19 hours. Thus, the amount of funding available for biotech research and development is considerably less than that available to the biotech industries in the EU and the United States. Given funding limitations, the Canadian government is nonetheless active in promoting military-supported research and development through programs such as Defense Research and Development Canada's (DRDC's) Business Development Office. The DRDC is an agency within the Canadian Department of National Defense, responsible for providing leading-edge science and technology to the Canadian Forces. The DRDC Business Development Office assists biotech and other industries by privatizing the product of publicly funded research and development, primarily by licensing technologies to commercial firms and by working with the Defense Industrial Research program that partners with industries to develop and commercialize products.

Although Canada is second only to the United States in terms of the number of biotech firms, Canadian firms in all areas are on average much smaller than their European or American counterparts. As a reference for comparison, only two Canadian firms have market capitalization in excess of $1 million, compared to 8 firms in Europe and over 30 in the United States. The typical Canadian biotech firm employs fewer than 50 employees and is less than 6 years old, according to The Canadian Biotechnology Industry Report 2003, produced by Canadian Biotech News. Furthermore, BIOTECanada reports that the average annual revenue of Canadian biotech firms is $2.5 million, compared to $4 million for European companies and over $17 million for companies in the United States.

Summary Canada's proximity to the biotech centers of activity in the United States, its large number of biotech firms and federally funded Networks of Centers of Excellence create an environment supportive of secondary biotech research, development, and production activities outside of the primary centers in the United States and Europe. Although growth continues to be limited by labor shortages, financing through venture capital and strategic alliances continues to fuel the biotech sector. The best prospects for growth are in the areas of pharmaceuticals, agriculture, and medicine.

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