1LIFE SCIENCES CLUSTERS IN CANADA
There are some life sciences clusters across the country, with roughly half residing in Ontario. A 2003 report by Simon Fraser University’s Centre for Policy Research on Science and Technology identifies Halifax, London, Montreal, Ottawa, Saskatoon, Toronto and Vancouver as the seven communities with life sciences clusters in Canada.11 Other communities have emerging life sciences sectors as well; a 2014 report by the Hamilton Chamber of Commerce makes a compelling argument that their city has all the necessary ingredients for a sustainable life sciences ecosystem.12 Life Sciences Ontario has estimated that, in 2014, 83,000 Ontarians worked for life sciences firms (under one definition of “life sciences”), generating more than $40 billion in revenue for Ontario’s life sciences industry.13 The Cluster Atlas of Canada identifies seven metropolitan areas as having life sciences clusters (Hamilton, Kitchener-Cambridge-Waterloo, Montreal, Quebec City, Toronto, Vancouver and Winnipeg), with Toronto’s cluster of 43,810 workers (in 2011) being the largest in terms of employment. The report author’s definition of the life sciences includes the map of the ecosystem seen below:14
2INNOVATION IN THE LIFE SCIENCES INDUSTRY
Concerns about the pace of innovation in the life sciences industry have made their way to the mainstreammedia, with one 2015 Globe and Mail headline going as far as asking, “Why is Canada’s life sciences sector flatlining?”15 The Globe piece indicates that while by many input measures, such as peer-reviewed research papers, Toronto’s cluster is doing quite well, this does not manifest itself in a significant number of large publicly traded companies. Eric Reguly, the author of the Globe piece, believes that this is due, in part, to advantages commodity industries have over the life sciences, and argues that the flow-through shares model used in many commodity industries should be allowed in the life sciences.
The Expert Panel on Innovation also notes the disproportionately large number of small- and medium- sized enterprises in Canada’s life sciences ecosystem. It does note that Canada’s sector scores very well on many dimensions, as the nation is a top-10 competitor in pharmaceuticals and a top-5 in biotechnology. In the generic pharmaceutical industry, both Montreal and Toronto are significant players on the global stage. Similar to the Globe and Mail article, the expert panel notes that although in many areas research has been successful, much of the commercial exploitation takes place outside of Canada.
3PAST STUDIES OF CANADIAN LIFE SCIENCES INNOVATION
Recent studies of innovation in Canada’s life sciences industry include:
Advisory Panel on Healthcare Innovation (2015): Although this comprehensive study focuses on the larger issue of health care, there are some recommendations applicable to the life sciences industry, which include:
- Federal-provincial collaboration in identifying and accelerating the adoption of potentially disruptive technologies that benefit patients and provide value for money.
- Support the spread and scale-up measures to improve procurement through the Healthcare Innovation Agency of Canada.
- Develop a federal strategy for the sector, which would aid companies in the commercialization of products, attract foreign investment to the field, use procurement to aid “high-impact innovations” and encourage the greater availability of capital.
- Accelerate regulatory harmonization with the U.S. and provide advice and a road map of government policies to assist small- and medium-sized enterprises.
BIOTECanada (2013): The highlight of BIOTECanada’s 2013 paper is that access to capital is the “missing ingredient” to the success of Canada’s life sciences clusters. Their respondents advocate that governments “facilitate access to risk capital” for the life sciences sectors. Due to the difficulty of accessing capital, firms are looking to licensing agreements or mergers and acquisitions as a way to grow, rather than growing through firm-level investments.
Council of Canadian Academies (2009): As part of its Expert Panel on Business Innovation, the council examines the life sciences as a case study and provides four broad conclusions:
- While government research and development funding may be a necessary condition for success in the life sciences, it is not a sufficient one, as other factors play a role.
- Government policies in the life sciences must be coherent between various public sector actors.
- Given the long time frame between the discovery of a product and the introduction of that product to market, investors in the life sciences, private or public, must show unusually high levels of patience as well as “deep industry knowledge.”
- There is a role for public policies to increase links between industry participants given the high level of specialization in the life sciences ecosystem. They give the examples of linking companies with universities and research centres that have “great ideas, but few links to the marketplace.”
Gertler and Vinodrai (2009): In a study published in European Planning Studies, Gertler and Vinodrai examine the life sciences clusters in Canada’s three largest metropolitan areas (Montreal, Toronto and Vancouver) and three mid-sized centres (Ottawa, Saskatoon and Halifax) to determine how life sciences clusters emerge. There are some common themes in their analysis:
- Path-dependency is critical and life sciences clusters emerged with the help of pre-existing strengths (and are not created out of whole cloth).
- The “dominant actor leading the process of cluster emergence and dependence” differed from cluster to cluster. As such, there does not appear to be a “one-size-fits-all” model of cluster development in the life sciences.
- Diverse life sciences clusters have lower levels of volatility than clusters that are concentrated in a small subset of the life sciences.
- Public policies influence the success of the life sciences through some different mechanisms, including investments in research labs, provincial health-care expenditures and local economic development and technology transfer offices.
- Universities and colleges do not always play the leading role in the formation and growth of life sciences clusters, despite the conventional wisdom to the contrary. Gertler and Vinodrai highlight the critically important roles that these institutions play in the development and attraction of life sciences talent to the local labour market.
Life Sciences Ontario (2014): In this “state-of-the-nation” paper, four challenges are identified for Ontario’s life sciences industry. First is the small size of Ontario’s life sciences firms, with only four per cent of companies employing more than 100 people. Second, access to capital is limited for growing life sciences companies. Third is Ontario’s below-average research-and-development expenditures relative to the Organisation for Economic Co-operation and Development. Fourth is Ontario’s surprisingly high unemployment rate for 20- to 24-year-old science graduates (18.9 per cent). The paper argues for the need for a “coordinated strategic plan to grow Ontario’s Life Sciences sector.”
4WHAT OUR ROUNDTABLE TOLD US
The day after our financial services roundtable, Canada 2020 ventured to the MaRS Discovery District in Toronto. After a tour of Johnson & Johnson’s JLABS, we sat down in a MaRS boardroom with a group of industry leaders, NGOs and regulators to discuss innovation in the life sciences. Here is some of what they told us.
Defining the life sciences: When Canada 2020 started researching the life sciences industry, we did not have a precise definition of the sector. It turns out, we weren’t alone. Our panel discussed how “life sciences” was an umbrella term for many different areas, including pharmaceuticals, medical devices and (depending on whom you ask), health care, and how there was no standardized definition. Breaking life sciences down into different areas is important, as market structures and policy challenges often differ greatly between areas.
Market structure: The domination of the Canadian non-generic pharmaceutical industry by foreign firms was also a concern. The panel noted that Canada risks having a “branch-plant” sector with the truly innovative work happening in the home markets. The sheer size of multinational players in the area creates a barrier to entry to new firms, but also offers funding opportunities for smaller firms with innovative ideas. Other parts of the life sciences ecosystem, such as medical devices, are seen as having lower barriers to entry.
Funding: Some participants saw obtaining early-stage funding in Canada as difficult , with later-stage funding somewhat easier to find. Israel was cited as a country that successfully addressed this problem through a seed funding program with the government contributing 15 per cent of the capital. Others described large bottlenecks on the path to commercialization, , with one roundtable member stating, “We have great ideas, but we’re not developing them so they can survive the component that comes after them.” Engagement with multinational enterprises and the health-care system was cited as a potential solution to the problem of commercializing innovation. commercialization problem.
The role of the Health-care System: Canada’s single-payer health-care system was seen as acompetitive advantage, as it creates enormous purchasers of life sciences products that can use their buying power to effect change. Procurement policies in the health-care system would need to change to make this happen. The focus would need to be less on obtaining the lowest cost and more on driving innovation with outcome-based metrics for success, or, as one participant described, it, “running public services with private-sector discipline.”
Collaboration: One participant talked about the need for the sector to speak in a focused and unified voice, which includes “senior political involvement.” Australia was cited as a country that does this well, and concerns were raised about Canada’s ability to compete on the international stage and win global mandates without a unified national strategy. A second participant felt that Canada was at a disadvantage because this country does not have as many economic development officers in foreign jurisdictions as its competitors do; a cluster in Catalonia (Spain) was cited for being particularly effective at attracting foreign direct investment using this strategy. Finally, another member of the roundtable noted that Toronto’s life sciences ecosystem was not well understood, as research groups had never worked together to map it out, as has been done in some U.S. cities. Roundtable members believed that such a mapping would be of value, as it would identify potential gaps in the system, as well the existing strengths of the sector.
One concern was that while Canada excels at academic research in the life sciences, the country lag behind on commercialization. One participant felt that universities and individual researchers lacked the proper incentives to drive innovation and that the idea of “selling out” creates a cultural barrier to scientists working on commercializing their findings.
“CANADIAN RESEARCHERS TEND TO BE TOO HUMBLE ABOUT THEIR STRENGTHS, THEY DON’T SPEAK TO HOW STRONG THEY ARE SCIENTIFICALLY. THE GLOBAL SCIENTIFIC COMMUNITY IS SEEING VERY IMPORTANT PAPERS AND VERY IMPORTANT WORK COMING OUT OF CANADA, ESPECIALLY BEING DONE IN NEUROSCIENCE, BUT OVERALL THERE IS AN AVERSION TO EMBRACING, TO WORKING WITH INDUSTRY, SO THE NOTION OF COMMERCIALIZING, THE NOTION OF SELLING OUT IS STILL THERE.”
Final thoughts: Participants in the roundtable were highly optimistic that an innovative life sciences sector would benefit all Canadians. The development of new medical devices and pharmaceuticals make the lives of Canadians better. Furthermore, innovation can be in how Canadians access their health data, which would allow Canadians to make more informed health and lifestyle decisions. In the words of one roundtable participant, enhanced innovation will result in “benefits to patients, to the economy through reduced health-care costs, and through job creation.”
Strong life sciences clusters can help, but there was recognition that governments have tough choices to make. As one participant put it, “We are good at some things, not good at others, and we need to put our money where can generate the best returns … . The money can’t be everywhere.” Another added , “We can’t have 10 of everything.” Finally, there was a recognition that trying to recreate the Silicon Valley and Boston life sciences clusters would be a recipe for failure; Toronto’s cluster would have to play to Toronto’s unique strengths.
13 Life Sciences Ontario Report 2015 report