115 06 Biotechnology in Canada

Report December 2005
Biotechnology in Canada A Technology Platform for Growth

INNOVATION AND KNOWLEDGE MANAGEMENT
Biotechnology in Canada: A Technology Platform for Growth by Trefor Munn-Venn and Paul Mitchell
About The Conference Board of Canada

We are: A not-for-profit Canadian organization that takes a business-like approach to its operations. Objective and non-partisan. We do not lobby for specific interests. Funded exclusively through the fees we charge for services to the private and public sectors. Experts in running conferences but also at conducting, publishing and disseminating research, helping people network, developing individual leadership skills and building organizational capacity. Specialists in economic trends, as well as organizational performance and public policy issues. Not a government department or agency, although we are often hired to provide services for all levels of government. Independent from, but affiliated with, The Conference Board, Inc. of New York, which serves nearly 2,000 companies in 60 nations and has offices in Brussels and Hong Kong.
2005 The Conference Board of Canada* Printed in Canada All rights reserved ISBN 0-88763-713-2 Agreement No. 40063028 *Incorporated as AERIC Inc.
Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal or tax advice.
Preface
Biotechnologywhich can perhaps be described most simply as biology plus technologyis poised to affect Canada and the rest of the world in a variety of dramatic ways over the next decade. Its importance to the Canadian economy will continue to increase accordingly. Canada therefore needs to act quickly to capitalize on the opportunities presented by biotechnology. Our past performance in this sector, while respectable, does not guarantee future success. Canadas ability to be global-best in biotechnology will require a more focused approach that capitalizes on our emerging biotechnology assets and historic economic strengths. Biotechnology in Canada: A Technology Platform for Growth evaluates Canadas performance in biotechnology relative to that of other countries, and identifies the key issues that business, government and academia must address in order to help Canadas biotechnology sector compete successfully in the global marketplace. Its purpose is to establish the foundation for a sophisticated, nuanced, ongoing discussion about biotechnology in Canada.
Contents
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i Chapter 1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 What Is Biotechnology? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 The Rapid Pace of Biotechnology Discoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Governments Are Betting on Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Chapter 2The Biotechnology Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 What Are Technology Platforms? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Is Biotechnology a Technology Platform? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Chapter 3The Global Biotechnology Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Global Competitive Pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Dominance of U.S.-Based Biotech Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Canadian Biotechnology Companies Are Facing a Cash Crunch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Public Perceptions of Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Finding Our Role in the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Chapter 4Canada's Performance, Sector by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Human Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Food Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Bioinformatics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Aquaculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Canada's Relative Biotechnology Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Chapter 5Policy Issues for Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Funding Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Biotechnology Workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Chapter 6Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Where Next for Biotechnology in Canada? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Canada's Biotechnology Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Moving to the 21st Century Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 Appendix AKey Indicators for Biotechnology Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Appendix BBibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Acknowledgements
This report has been produced under the direction of Gilles Rhaume and Brian Guthrie. The project manager was Trefor Munn-Venn. The primary authors were Trefor Munn-Venn and Paul Mitchell. The report is the result of a team effort. Contributors include Brian Guthrie, Greg Hoover, Bridget Mallon, Paul Mitchell, Nam Young Her, Patti Ryan and Randa Saryeddine. Internal reviewers from The Conference Board of Canada include Gilles Rhaume, Brian Guthrie, Roland Paris and Glen Roberts. A number of external reviewers provided comments and insight during the preparation of this report. External reviewers include: Brian Colton, Canadian Biotechnology Secretariat, Industry Canada Brian Harling, MDS International Glenn Kendall, Canadian Biotechnology Secretariat, Industry Canada Jorge Niosi, Universit du Qubec Montral Peter Phillips, University of Saskatchewan Margot Priest, Environmental Protection Review Canada Antoine Rose, Statistics Canada Jack Smith, Office of the National Science Advisor David Watters, Global Advantage Consulting The Conference Board acknowledges the financial support of the Canadian Biotechnology Secretariat.
EXECUTIVE SUMMARY
Biotechnology in Canada A Technology Platform for Growth
iotechnologywhich could be described most simply as biology plus technologyis being embraced rapidly by the worlds most advanced countries. It can be applied to many economic and social sectors, and has the potential to improve our ability to treat debilitating diseases, clean up the environment, produce new goods and services, and compete internationally. Biotechnology is positioned to have as significant an affect on Canada over the next 15 years as the Internet has had over the past 15 years. Canada must be poised to take advantage of its socio-economic potential. While Canada has the opportunity to capitalize on biotechnology, we face a paradox: we have enjoyed a history of good performance in biotechnology thus faras this report detailsbut we are not well positioned for the future. We lack focus at the national level; our commercialization record has been weak; we have a limited ability to harness risk capital; and we have a critical shortage of highly skilled talent.
LACK OF FOCUSED INVESTMENT Canadas modest investments in biotechnology are spread across a range of industry sectors, including agriculture, health, environment, food processing, aquaculture, bioinformatics and natural resources. Meanwhile, other leading countries are making more strategic decisions about their investments in order to achieve international competitive advantages. For example, the United Kingdom has set the goal of becoming the most efficient and effective setting for conducting clinical trials in the world.1 In India, two-thirds of all biotech investment is directed to the health sector.2 In the United Sates, the lions share of government investment is being directed to the National Institute for Allergy and Infectious Diseases as part of the BioShield initiative, through which US$5.6 billion will be dedicated over the next 10 years to improving medical countermeasures (such as vaccines) against bioweapons.3 The past performance of Canadas biotechnology researchers and businesses is no guarantee of future success. Canada is at a significant juncture. Our international success in biotechnology requires that we develop critical mass in our research investments, in our talent pool and in our biotechnology companies. To become global-best, we need to connect our biotechnology strengths with our conventional economic strengths. It is time for a renewed biotechnology strategy. It is time to set clear targets against which we will evaluate our performance internationally.
Canada is at a significant juncture. Our international success in biotechnology requires that we develop critical mass in our research investments, in our talent pool and in our biotechnology companies.
Within this context, this report looks past the hype and promises to the facts. Our objective is to establish the foundation for a more sophisticated and nuanced discussion about biotechnology in Canada by gauging the countrys performance relative to that of global leaders, and by identifying the key issues that business, government and academia must address.
The Conference Board of Canada
POOR COMMERCIALIZATION RESULTS Canada has a substantial pool of biotechnology companiesthere are about 500but many of these companies are very small. In fact, 10 of them account for 70 per cent of the market capitalization of all Canadian biotechnology companies. These companies are important to Canadas growth, but they are not yet delivering tangible returns. Success in biotechnology will require a global presence and a global approach. Unfortunately, Canada is struggling with that approach, particularly on the business side. Currently, Canadas revenue growth in biotechnology comes primarily from sales to the domestic market rather than from global customers.
Unresolved issues in the global arenasuch as the protection of intellectual propertycan also negatively affect investor confidence. Intellectual property protection for biotech companies will continue to be pursued by the United States and Europe. The resolution of these issues may help to boost investor confidence in biotechnology products and global marketplace opportunities.4 As a result of these uncertainties, investors now demand short-term returns instead of holding out for the long-term promises of biotechnology. As one analyst phrases it, Gone are the investors with a ten- to twenty-year horizon willing to wait for the scientific breakthrough that will bring enormous financial benefits. They are now content with a smaller return but insist on a much shorter time frame; five years is now the norm.5 SHORTAGE OF HIGHLY SKILLED TALENT The field of biotechnology requires both world-class scientific talent and globally oriented managerial talent.
Canada is struggling with a global approach, which is required for success in biotechnology.
Investments in biotechnology research and development (R&D) are typically too high to be recouped domestically, and specific target markets (e.g., healthcare patients with unique ailments) can be very small. Furthermore, the convergence of scientific domains that enable biotechnology makes it far too complicated for any one personlet alone any single countryto truly know the discipline. Canada must be part of a global knowledge community and pay particular attention to its ability to tap into the most advanced thinking in the world. LIMITED ACCESS TO RISK CAPITAL Part of the commercialization challenge facing Canadian biotechnology companies is the difficulty they have in obtaining risk capital. Along with low profits, Canadian biotechnology firms are facing a cash crunch. In a field where product development can take years, the Ernst & Young Survival Index indicates that 38 per cent of publicly traded biotechnology companies in Canada have less than one year of cash available, while another 14 per cent have less than two years available. While a number of Canadian companies have been able to raise cash successfully, earlier-stage and smaller public companies are in a precarious positioneven more so than during the market decline of 2002.
The scientific talent is required to conduct research and development and to transform breakthroughs into new products and services. The science of biotechnology is so complex that no single individual, company or country will be able to gain a monopoly on the knowledge. As a result, it is necessary for scientists to reach into the best minds, labs and companies around the world to build on other research. A successful biotechnology company also requires management talent that understands the fundamentals of the underlying science, and is experienced in taking biotechnology products and services to market globally. Yet research into issues faced by biotechnology employers in Canada reveals several weaknesses: an inability to attract talent with necessary leadership skills; an inability to compete internationally for talent; a shortage of job-ready graduates; and an inability of staff to adapt to changing business conditions.6 Human capital is the essential resource for biotechnology, and international competition for top talent will only grow more fierce in the coming years.
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HOW DOES CANADA MEASURE UP? Overall, Canada is struggling to develop globally competitive biotechnology firms. Our companies are small; they have difficulty attracting investors; they are not generating substantial revenue flows; and market capitalization is low. In these respects, Canadian firms face challenges similar to those faced by many other countries. This is in large part owing to the fact that biotechnology is, in many ways, still in its infancy. In key sectors, here is a snapshot of how Canada is performing against other key players: HealthDespite resources and investment comparable to those of the United Kingdom, Canada is not seeing similar revenues in the health sector. AgricultureCanada has about the same number of biotech firms in agriculture as the United States, but just one-third the revenue. Food processingCanada appears to be a leader in the application of biotechnology to food processing, but this may simply reflect superior data collection capabilities. EnvironmentCanada appears to lead the way in environment-related biotechnology, typically with higher revenues and more investment. Natural resourcesDespite the presence of enormous natural resources, Canada has done little to capitalize on them. That said, other nations are not focusing on this sector either. BioinformaticsThere is little to suggest that Canadas information and communications technology (ICT) companies and biotechnology companies are converging to form bioinformatics companies. AquacultureThis is a niche in which Canada appears to have a first-mover advantage. However, this lead is not so large that it would be difficult for other countries to surpass it.
While the federal government has more than doubled its spending commitments to academic research in life sciences over the last five years, many industry players consider this spending to be insufficient, since the R&D investments being made by other nations are much more aggressive. Government research institutes are also major players in the performance of basic research in biotechnology. Canada has a favourable tax treatment for R&D expenditures, but this advantage is waning as other nations respond with their own models.
Our companies are small; they have difficulty attracting investors; they are not generating substantial revenue flows; and market capitalization is low.
The academic community is performing relatively well, considering the overall environment in which it is operating. Progress in biotechnology is occurring rapidly on the scientific side, and the talent we do have meets global standards. However, the flow of students into the science and engineering fields is lower than in our comparator countries. Comparisons with other countries suggest there is room for improvement in the transfer of technology to Canadian businesses. CRITICAL ISSUES FACING CANADA Based on this analysis, a number of key questions and issues require further detailed examination if Canada is to embrace the biotechnology platform seriously. While we have organized these questions and issues around key playersbusiness, the academic community and governmentit is important to recognize that each of these players shares responsibility for addressing these issues. KEY ISSUES FOR BUSINESS Why do Canadian biotechnology firms struggle to commercialize? It is clear that there are challenges related to obtaining capital and attracting the right labour force, but related research suggests that Canadian companies struggle to take new products and services to market.8 What fundamental changes are required to build a culture of commerce, a focus on customers and an emphasis on global markets, all of which are so necessary to Canadas future success?
The governments performance in creating an enabling environment has been mixed. Canadian public confidence in the regulatory process is highjust behind Australia and the United States. Moreover, Canadians are increasingly receptive to the development and use of biotechnology, a fact which may prove to be advantageous for companies deciding where to locate their operations. However, the regulatory approval time in Canada is longer than in comparator countries and is not considered to be sufficiently harmonized with those of other key nations.7
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Where should Canada play in the international biotechnology supply chain? It is not reasonable to believe that Canada will become the dominant player in all sectors and supply chains building on biotechnology. Can we really expect to be global-best in the application of biotechnology to agriculture and health and natural resources and aquaculture? The answer, clearly, is no. The next question, then, is: in which niches of global supply chains can we become dominant? The United Kingdom has set the goal of becoming the most efficient and effective setting for conducting clinical trials in the world.9 Where will Canada focus?
It is not reasonable to believe that Canada will become the dominant player in all sectors and supply chains building on biotechnology. In which niches of global supply chains can we dominate?
KEY ISSUES FOR THE ACADEMIC COMMUNITY How can we improve the transfer of knowledge and technology from Canadas publicly funded research laboratories to Canadian businesses? Canadas research labs have a long history of developing major biotechnology breakthroughs, but speed is essential if Canada is to be successful. The rapid flow of knowledge to emerging and existing businesses will determine, in part, whether or not Canada can keep pace with other leading nations. Identifying barriers to this flowwhether a lack of research talent in business, diverse intellectual property approaches, or poor connections between business and university labsis a critical first step. How can we ensure that Canadas universities are preparing graduates with the right skills? While this is a perennial issue, ensuring the right fit with biotechnology is particularly important. Canadas firms will not be able to grow and respond to opportunities without the right staff. The flip side is that many of Canadas biotechnology firms are small and on the brink of bankruptcy. If the businesses are there, but the graduates are not, Canada fails. If the graduates are there, but the businesses are not, we may be training the next-generation labour forces of our competitors.
KEY ISSUES FOR GOVERNMENT How can government facilitate the development of a biotechnology platform? There is a clear role for Canadas governments to play in this respect. They need to recognize biotechnology as the next economic growth platform for Canadathe successor to the information and communications technologies that have underpinned our economic growth in recent years. We need frank discussion about where to find leadership. The 2004 Speech from the Throne identified biotechnology as a technology platform that is essential to Canadas ongoing prosperity.10 But roles and responsibilities are fragmented across numerous federal bodies, including the Department of Fisheries and Oceans, Agriculture and Agri-Food Canada, Industry Canada, Natural Resources Canada, Health Canada, International Trade Canada, and Environment Canada. How will Canada address the demand side of biotechnology? Discussions of biotechnology are typically about supply-side issues: R&D investment, skilled workers and risk capital. Consideration should be given to improving the connections between Canadas biotechnology firms and both domestic and global customers. Who are these customers, and what are their specific needs? How can we attract foreign direct investment, with a particular emphasis on biotechnology? What conditions can we establish to make Canada the nation of choice in global market niches? How will Canada attract top talent? Biotechnology is a field where scientific breakthroughs will be occurring around the world. To capitalize on those breakthroughs, Canada will need to be able to reach into the international science community and bring the leading ideas home to Canadian firms. Government will have to help attract the skilled individuals who will transform global knowledge into new devices, products, services and therapies. Not only does Canada still struggle to recognize foreign credentials, but there does not seem to be a cohesive effort to attract the best talent in the world and keep it in Canada. Businesses also have a key role to play, and will need to pay top dollar for top talent. How can Canada leverage its natural strengths in biotechnology? In this analysis, we identify seven different sectors in which biotechnology is emerging. The diversity of Canadas economy allows for
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this level of breadth. However, competing nations are making specific decisions to become dominant in particular sectors. Will Canada continue to try to play in all areas of biotechnology, or will we have the discipline necessary to make the difficult choices that will let us become global-best in particular niches? Research and capital investments can be
massive. Canada does not have the wherewithal to invest in all subsectors. For example, connecting this emerging science to areas of conventional strengthnatural resources and agriculturemay help to improve Canadas biotechnology opportunities. In the context of limited resources, much further analysis is required to identify these strengths.
1 U.K. Department of Trade and Industry, Bioscience 2015: Improving National Health, Increasing National Wealth [online]. A Report to the Government by the Bioscience Innovation and Growth Team [cited September 12, 2005]. www.dti.gov.uk/bio-igt/bio-igt-index.html. 2 Andrew Devlin, An Overview of Biotechnology Statistics in Selected Countries, Organisation for Economic Co-Operation and Development, STI Working Papers 2003/13 (Paris: OECD, 2003). 3 Mergent, The North American Biotechnology Sectors: A Company and Industry Analysis, Industry Report, Biotechnology. (Australia: Mergent Inc., March 2004). 4 Ernst & Young, Millennium in Motion: Global Trends Shaping the Health Sciences Industry. [online]. (June 2001), [cited Feb. 23, 2005], p. 15. www.ey.com/global/download.nsf/UK/Millennium_in_Motion/$file/ EY_Millennium_In_Motion.pdf. 5 Dr. Francesco Bellini, Canadas Biopharmaceutical Industry Shifts Focus From Long-Term Promise to Short-Term Potential, BioCanada: 2003 Investors Guide to the Canadian Biotech Industry, Vol. 2, 2. (June 2003).
6 Biotechnology Human Resource Council, 2004 Canadian Biotechnology Human Resources Study The Key to the Future, 2004 (Ottawa: BHRC, 2004). 7 N.S.B. Rawson, Canadian Medical Association Journal (February 22, 2000) p. 162; External Advisory Committee for Smart Regulation, Smart Regulation for CanadaDraft Final Report (Ottawa: EACSR, August 2004). 8 The Conference Board of Canada, Exploring Canadas Innovation Character: Benchmarking Against Global Best (Ottawa: The Conference Board of Canada, 2004). 9 U.K. Department of Trade and Industry, Bioscience 2015: Improving National Health, Increasing National Wealth. 10 Adrienne Clarkson, Speech from the Throne. Presented in the Senate Chamber, Ottawa, October 5, 2004. [online], [cited Sept. 2, 2005]. www.pm.gc.ca/sft-ddt.asp.
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CHAPTER 1
Introduction
uch of the current discourse on biotechnology tends to focus on promises, but sound policy and investment decisions must go beyond sound bites. Every advance in biotechnology seems to stir up forecasts of how this field will transform society. Advocates promise alleviation of world hunger, greater economic prosperity, and dramatic opportunities to protect the environment and improve human health. Detractors project much gloomier outcomes. The complexity and novelty of biotechnology require that these decisions be grounded, wherever possible, in fact. As Canada plans for the future, it is necessary to engage in a more nuanced discussion of biotechnologyone that is rooted in evidence-based analysis, not promises. In this report, The Conference Board of Canada responds to this need by: assessing Canadas performance in biotechnology and identifying barriers to its development in Canada; analyzing policy issues, including research funding, commercialization strategies and global competitive pressures; examining where Canada can go next with biotechnology; and identifying areas of further research. WHAT IS BIOTECHNOLOGY? The origins of biotechnology date back 10,000 years to the domestication of crops. A technique such as crop manipulation could be described as traditional biotechnology, which used natural organisms, products and processes that predate modern biotechnology methods. Modern biotechnology can involve genetic manipulation through modern molecular biology techniques. Today, a broad range of biotechnology applications are in use or development, each offering benefits and risks. Just a few examples are: new vaccines; genetically modified, pest-resistant plants; replacement heart valves that are better accepted by the body; human infertility treatments; bacteria that can clean up environmental contamination; and the use of corn as a fuel
Major Canadian Contributions to Biotechnology Canadians have played an important role in the ongoing development of biotechnology. For example: 1922 Insulin for diabetes is discovered by Canadian doctors Sir Frederick Grant Banting and C.H. Best. A Canadian programAnalysis and Technology Progresscontributes to the Human Genome Project. Canadian researcher Robert Holt leads an international team of scientists who crack the genetic code of the mosquito that carries the deadliest strain of malaria. Canadians play a key role in dealing with severe acute respiratory syndrome (SARS): the Michael Smith Genome Sciences Centre sequences the genome of the coronavirus. The breakthrough could lead to diagnostic tests and the development of a vaccine. Dr. Steve Scherer leads an international research team that deciphers human chromosome 7, which holds the gene for cystic fibrosis.
1970s Canola is developed by Canadian plant breeders. 1992 2002
2003
2003
source.1 In this context, Canadas performance to date has been quite respectable. (See box, Major Canadian Contributions to Biotechnology.) DEFINING BIOTECHNOLOGY Despite its long history, there is no commonly accepted definition of biotechnology. Also known as modern biology, bioengineering or genomics, biotechnology can be described most simply as biology plus technology.2 The Canadian Environmental Protection Act defines biotechnology as the application of science and engineering in the direct or indirect use of living organisms or parts or products of living organisms in the natural or modified forms.3 However, there is growing recognition of the importance of being able to identify, measure and analyze biotechnology consistentlynone of which are possible without a common definition. Generally, one of two approaches is taken in defining biotechnology. The first is a list-based approach that identifies specific activities that could be construed as biotechnology. Only a few
countries use list-based definitions. For the purposes of this study, we place greater emphasis on the second approach, which is a single statement definition that attempts to describe the field broadly. Statistics Canada and the Organisation for Economic Co-operation and Development (OECD) share similar definitions of biotechnology. In fact, Statistics Canada is perhaps the most advanced organization in the world when it comes to measuring biotechnology. The OECD definition was adopted based largely on original work conducted by Statistics Canada. The single definition of biotechnology is as follows: The application of science and technology to living organisms as well as parts, products and models thereof, to alter living or non-living materials for the production of knowledge, goods and services.4
important contributions that Canada has made. Given the rapid pace of biotechnology discoveries, no country should take current leads for granted. In order to keep pace with the aggressive rate of progress, countries that intend to be major players in biotechnology will need to develop a labour force that possesses strong capabilities in advanced sciences. GOVERNMENTS ARE BETTING ON BIOTECHNOLOGY Many governments view biotechnology as a potential new growth engine. The most common analogy relates its impact to that of information and communications technologies (ICTs) when they emerged. As this new technology platform arose in the mid-1990sbest characterized by the arrival of the Internetnations around the world invested heavily, expecting to enable new economic opportunities. In Canada, the Connecting Canadians initiative led by the federal government sought to ensure that all Canadians had access to the Internet. International comparisons show that Canada is now among the most wired nations in the world, with high penetration rates and affordable pricing. As e-business becomes more commonand is increasingly referred to simply as businesscountries are searching for the next technology platform that will drive innovation. Canada is no exception. The 2004 Speech from the Throne identified three technology platforms as essential to Canadas ongoing prosperity: information and communications technologies, biotechnology and advanced manufacturing.6 World leaders are looking to biotechnology as a source of increased revenues, new companies, increased employment and a hedge against offshoring. With human capital as their primary resource, nations do not need to be rich in natural resources to be players in biotechnology. The competition will be particularly fierce as nonresource countries (e.g., Singapore, Japan, South Korea) fight to capitalize on these new opportunities. For example, when Singapore launched Biopolisa state-of-theart research facility established to attract the best scientists and companies in the field of biotechnologyit announced that biotechnology represents the future of the country.
Statistics Canada is perhaps the most advanced organization in the world when it comes to measuring biotechnology.
For the purpose of this study, The Conference Board of Canada will adopt the single definition shared by the OECD, Statistics Canada and other organizations. This definition is the most mature among competing definitions and has the capacity to adapt as the field of biotechnology advances. It is also the closest among all definitions to gaining universal acceptance. THE RAPID PACE OF BIOTECHNOLOGY DISCOVERIES The pace of biotechnology discoveries continues to accelerate. Taking the United States as an example, domestic biotechnology companies have brought 187 new medicines to market thus far, serving more than 325 million patients. In 2003, the U.S. Food and Drug Administration (FDA) approved 25 new biotech medicines and vaccines, including products to treat HIV/AIDS, cancer and rare genetic disorders.5 In Exhibit 1, a number of the major biotechnology discoveries have been plotted on a timeline to illustrate the increased rate of discoveries in the last century even the last 20 yearsas well as to illustrate the
Exhibit 1 Major Biotechnology Discoveries
The Conference Board of Canada 1943 Oswald Theodore Avery, a Canadian scientist, isolates pure DNA. The T-cell receptor touted as the holy grail of immunology is discovered by Toronto researchers. Cloned pigs are born for the first time. The first genetically engineered human vaccineChiron's Recombivax HB is approved for the prevention of hepatitis B. Canada is the first country to grow biotech crops with full commercial production of canola, corn and soybeans. Canadian researcher Robert Holt leads an international team of scientists who crack the genetic code of the mosquito that carries the deadliest strain of malaria. 1983 1986 1996 2002 2004 FDA approves the first antiangiogenic drug for cancer. Angiogenesis is the formation of new blood vessels. Without a blood supply bringing nutrients to cells, tumors cannot grow. 1940 1980 1990 1996 2001 2004 Developments in biotechnology are occurring rapidly, including many new medicines and diagnostic tests. 1928 Fleming discovers penicillin, the first antibiotic. The DNA fingerprinting technique is developed. A Canadian program called the Analysis and Technology Progress contributes to the Human Genome Project 1984 1992 1998 A research team led by Canadian Stephen Scherer identifies a gene responsible for a severe form of epilepsy. 2001 The biotech industry responds to the release of anthrax in the U.S. mail system with R&D in biodefense. 2003 Canadians play a key role in dealing with SARS: The Michael Smith Genome Sciences Centre sequences the genome of the coronavirus. The breakthrough could lead to diagnostic tests and to the development of a vaccine. The sequencing of the human genome is completed.
8000 B.C.
1919
Humans domesticate crops and livestock.
The word biotechnology is first used by a Hungarian agricultural engineer.
8000 B.C.
1900
1920
1750 B.C.
1922
The Sumerians brew beer.
Insulin for diabetes is discovered by Canadian doctors Sir Frederick Grant Banting and C.H. Best.
Sources: North Carolina Biotechnology Center; Biotechnology Industry Organization; ADPI Resources for School; Biotech Ontario; Genome Canada.
At the Bio2002 conference held in Toronto, representatives from Singapore asked attendees to outline what they would need to move their businesses to Singapore. This active solicitation, coupled with the outstanding quality of the facilities, is attracting leading biotechnology companies and scientists. As we will explore later in this report, other nations are increasing their investments in basic research, creating new policy mechanisms to promote the development of biotechnology capabilities and businesses, and establishing biotechnology clusters. In addition to economic growth, world leaders are also looking to biotechnology to address other issues. With the global population expected to grow to 9 billion by 2050, many are turning to solutions promised by biotechnology to address the looming global shortages of food and clean water. Governments are also investing in biotechnology to help offset rising health-care costs driven by aging populations. For example, diagnoses based on genetic makeup rather than symptoms could fundamentally transform not only health care but also the insurance industry. Some argue that changes brought about by biotechnology could turn Canadas annual health-care trade deficit of approximately $8 billion into a trade surplus.7 Some see biotechnology as a solution for growing energy costs because it may offer renewable substitutes for non-renewable energy sources (such as coal and oil)for example, using biofeedstocks like wood waste, corn or wheat. Still others see important security applications from biotechnology to prevent tampering with cargo or to ensure the safety of military personnel or the public. Governments are acting on these promises, aggressively positioning themselves in this field. Chart 1 shows the biotechnology research and development (R&D) budgets of the United States, Japan, Australia, Canada and India for 2002. The total investment represented in this chart is approximately CDN$48.4 billion. The scale of the investment by the United States cannot be ignored. It demonstrates a significant commitment, and may also indicate the strategic importance of biotechnology to the United States.
RESEARCH APPROACH Our first challenge in preparing this report was to identify a framework that could enable a detailed, systematic and cogent analysis of biotechnology. It was necessary for the framework to accommodate an assessment of the key actorsbusiness, academia and governmentas well as the key activities related to biotechnology. During our consultation on the framework, the topic of innovation surfaced often. Indeed, innovation is an important and useful concept for analyzing an emerging, wide-ranging field such as biotechnology. An innovation-centric approach is effective because it provides a holistic view, is flexible and adaptable, captures the activities of a wide range of actors, and focuses on how knowledge is turned into economic and social value. Key elements of the framework are: environmentthe overarching conditions that influence innovation (e.g., policy, regulations, leadership); creationgenerating new knowledge or significantly improving existing knowledge (e.g., research); diffusionsharing knowledge (e.g., publishing, collaboration, teaching); transformationadopting or adapting knowledge for a specific purpose (e.g., creating new products);
Chart 1 Government Spending on Biotechnology R&D, 2002 (CDN$ billions) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 44,825
1,645 United States Japan
1,115 Australia
695 Canada
77 India
Sources: United StatesNational Science Foundation. Exchange rate used as of Jan. 1, 2003: CDN$1.5760000000 = US$1 JapanOECD/TIP. Australia2005 Biotech Industry Review. Exchange rate used as of Jan. 1, 2003: AUS$1= CDN$0.8850816000. CanadaStatistics Canada. IndiaSachin Chaturvedi.
Defining Innovation The Conference Board defines innovation as:
Exhibit 2 The Innovation Framework Environment
A process through which economic or social value is extracted from knowledge through the creation, diffusion and transformation of ideas to produce new or significantly improved products or processes.
Creation
usedelivering or implementing new or significantly improved goods, processes, programs or services (e.g., selling new products, using a new process); and valuesocial or economic value from transformed knowledge (e.g., revenue, profit, reduced healthcare costs).
Use Value Diffusion
Exhibit 2 illustrates how these six factors interact with one another in a dynamic and interactive manner. In order to understand Canadas relative position in the world, we compare Canada against countries that are considered leaders in the field. Specifically, the comparator countries are the United States, the United Kingdom, Japan, Australia and India. We have also included other countries in our analysis where they provide greater insight into our understanding of Canadas biotechnology performance. We also evaluate the contributions of the key actorsbusiness, government and academiaas they relate to building Canadas innovation capabilities in biotechnology. As shown in Exhibit 3, this framework enables us to see a range of factors and actors simultaneously. Note that the availability of data varies significantly by both actor and innovation factor. FAIR WARNING ABOUT THE DATA This study is based on a literature review of secondary research. Wherever possible, we compare Canadas performance against that of other leading nationsthe United States, the United Kingdom, Japan, Australia and Indiain sectors where biotechnology is actively applied. It is important to note a number of caveats about the data used in this study: Biotechnology data collection is still rudimentary. While there are common data-gathering practices that will align data across countries, the implementation of these practices is in its infancy. The sophistication of data collection is also uneven across countries.
Transformation
Environment
Exhibit 3 Summary of Canadas Biotechnology Performance
Academia Creation of knowledge Diffusion of knowledge Transformation of knowledge Use of knowledge Value of knowledge Enabling Environment
Business
Government
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Strong performance
Moderate performance
Poor performance
Source: The Conference Board of Canada.
Canada appears to be the most advanced in collecting biotechnology data. This is the result of a focused effort by Statistics Canada to develop a clear understanding of this field. Their efforts make data analysis easier in some respects but more difficult in others. While we can have a high level of confidence in the accuracy of the Canadian data, it is still difficult to make assured comparisons against other countries. It should also be noted that even within Canada, the availability of data varies both by actor and by components of the Innovation Framework. We note data gaps throughout this report. Comparing biotechnology sectors is difficult. Sectoral parameters are unclear, and activities undertaken outside dedicated biotechnology firms are difficult to capture. As a result, conventional businesses that are employing new biotechnology processes may not be reflected in the count of firms. There will therefore be some discrepancies
between the findings of this report and those of other reports whose conclusions may have been based on less stringent assessment criteria. The scale of biotechnology activities in the United States dwarfs that of all other countries. The scale of biotech activity in the United States is so much larger than in other countries that it can create distortions. It is plausible that activities considered too small to report in the United States may be greater than the total efforts of other countries. Therefore, care should be taken when identifying potential competitive advantage against the United States. Firm count is at best a rough measure of activity. A simple count of the number of firms should not be considered an accurate reflection of the size, sustainability or success of those firms; nor should a high firm count should not necessarily be considered a sign of a successful biotechnology sector.
1 Health Canada, Biotechnology. [online]. [cited October 31, 2005]. www.hc-sc.gc.ca/english/protection/biotech/human_health.htm. 2 Office of Public Health Practice, Public Health InfrastructureFrom the Perspective of the Centre for Surveillance Coordination. [online]. [cited October 31, 2005]. www.phac-aspc.gc.ca/csc-ccs/faq_e.html. 3 Government of Canada, Canadian Environmental Protection Act. [online]. [cited October 31, 2005]. lois.justice.gc.ca/en/C-15.31/index.html. 4 Namati Traor, Biotechnology Use and Development Study: Methodology, Issues and Responses. [online]. (Ottawa: Statistics Canada, February 2004), [cited Oct. 31, 2005]. Working paper, Catalogue No. 88F0006XIENo. 006, ISSN: 1706-8967. www.statcan.ca/english/research/88F006XIE/88F006XIE2004006.pdf.
5 Biotechnology Industry Association, Milestones 2004. [online], [cited October 31, 2005]. www.bio.org/speeches/pubs/milestone04/healthcare.asp. 6 Adrienne Clarkson, Speech from the Throne. Presented in the Senate Chamber, Ottawa, on October 5, 2004. [online]. [cited Sept. 2, 2005]. www.pm.gc.ca/sft-ddt.asp. 7 Dr. Henry Friesen, quoted in Amber Lepage-Monette, Lifetime of Leadership, in BioScience World. [online]. [cited March 7, 2005]. www.bioscienceworld.ca/view.html?id=1559.
CHAPTER 2
The Biotechnology Platform

iotechnology is routinely discussed in terms of sectors, and we take the same approach in this report, assessing the performance of different industry sectors that are capitalizing on the science of biotechnology. This method is useful because it provides a detailed perspective of both the investments and returns related to biotechnology. That said, we believe a shift in thinking is required when considering the broader impacts of biotechnology, including the policy structures that will affect its future development. Biotechnology is best understood as a technology that contributes to many sectors. All signs suggest that biotechnology may be best thought of as an enabling technology platform in much the same way that we think of information and communications technology including the Internetas a platform. WHAT ARE TECHNOLOGY PLATFORMS? Substantial thought has been given to what technology platforms are, how they evolve, and what effects they have on societies, businesses and governments. Platforms can take many different forms. For example, a number of technology platforms have emerged over the centuries related to power delivery, including the domestication of animals, the advent of the steam engine, electricity and the internal combustion engine.1
The research into technology platforms reveals a number of common traits:3 Not all technology platforms are created equal. For example, electricity has been adopted more widely than some other platforms, including ICTs. Technology platforms are often small and crude when they first emerge, typically serving a single purpose. Over time, however, they become more sophisticated, serve more purposes, and become more integrated into business and personal activities. Technology platforms always surprise us. Its worth remembering that after the Second World War, the global market for computers was estimated at eight. Today, computers are integrated into virtually all aspects of our lives. Technology platforms dont bring exclusively positive changes; history shows that they can cause damage as well. For example, the domestication of animals combined with evolutions in transportation, such as three-masted sailing ships, brought disease to North America, killing millions. Technology platforms both destroy and create skills. Certain types of existing human capital can be rendered obsolete (e.g., craftsmen) as new human capital is built (e.g., factory managers). It is also worth noting that existing technologies fight back. The water wheel is a great example: the efficiency of the water wheel improved substantially as electricity was introduced. TYPICAL IMPACTS OF NEW PLATFORMS Research has also shown that new technology platforms have a number of typical impacts, including the following: They generate secondary and tertiary spinoffs, creating new industries and opportunities. Much human capital is destroyed as old skills are made redundantbut much human capital is created as new skills are required.
All signs suggest that biotechnology may be best thought of as an enabling technology platform in much the same way that we think of information and communications technologyincluding the Internetas a platform.
Technology platforms are characterized by their capacity to provide a wide scope for the improvement and elaboration of business practices, their applicability across a wide range of sectors, their potential for use in a variety of products and processes within those sectors, and their ability to complement existing or potential new technologies.2
Substantial unemployment can result from destruction of old skills, as well as widening disparities in income distribution and changes in regional patterns of industrial location. The necessary skills change and evolve, and learning and adapting to these skills takes time. New infrastructures develop as technology platforms evolve. For example, dams, hydroelectric stations and the entire electrical grid were established as a result of the growth of electricity. New technology platforms can drive changes to policies and policy structures, such as new rules and regulations and new administrative bodies. Common changes include the destruction or creation of monopolies, changes to competition rules, shifts in ownership laws, and the transformation of labour practices.4 Technology platforms transform how people live, behave and interact with one another. For example, the Internet has brought many changes to how people interact in the form of e-mail and instant messaging.
replacing the existing power source (e.g., a water wheel) for the main shaft of a manufacturing plant did little to improve its productivity. Productivity improvements grew only as production processes were transformed. It was not until manufacturing plants moved from a single main shaft that powered all machines to a modular approach, where each machine had its own engine, that productivity began to improve. Instead of organizing factories around proximity to the main shaft, factories could then be organized by workflow. There was less downtime for these plants, since the entire factory did not have to be shut down to make changes in one area. The same is true for the introduction of computers. In the early days, computers were regarded as substitutes for human hands and minds. Before they could yield productivity gains, administrative and production facilities had to be redesigned both physically and in their command structures.7 When the structures changed, transformation occurred. We have seen how computers have transformed product design, production, marketing and the organization of business processes. Computers are enabling major changes in how organizations are managed as knowledge flows are transformed. For example, computers are now used to fly airplanes, operate machines, run building systems, monitor health, and facilitate communication through the Internet, e-mail and desktop publishing. Productivity improvements occur only when firms move beyond replacing technologies to transforming practices. A reorganization of production processes must occur, and a facilitating structure has to emerge. IS BIOTECHNOLOGY A TECHNOLOGY PLATFORM? The general view is yes. But it is important to recognize that platforms are very unpredictableand notoriously difficult to identify while they are still emerging. Once recognized, they are often greeted with overinvestmentas seen with the railway bubble in 1929 and the Internet bubble in 2001. Technology platforms are also believed to deliver enormous spill-over effects that are difficult to measure.
Advocates of new technology platforms often argue that these platforms will radically affect productivity. It is probably a fair claim, but there a number of nuances that warrant further discussion.5
Productivity improvements occur only when firms move beyond replacing technologies to transforming practices.
For most technology platforms, there is an initial productivity slowdown followed by eventual productivity payoff throughout their lifecycle.6 Productivity slowdowns are accompanied by the replacement of existing capital with new, often more expensive capital. To illustrate the productivity lifecycle common to the introduction of technology platforms, it is useful to look at the introduction of electricity, which is perhaps one of the most widely adopted technology platforms. As electricity was introduced, there was a productivity slowdown. The slow adoption of electricity up to the 1920s was largely attributable to the fact that retrofitting existing, serviceable manufacturing plants with new technology was not immediately profitable. The coexistence of old technologies restricted the scope for exploiting electricitys potential. For instance, simply
If biotechnology is a technology platform, the logical question is: What should be done about it? Recognizing biotechnology as a platform suggests that strictly sectoral approaches may limit Canadas capacity to capitalize on this emerging technology. This is particularly true when considering the role of government. Since the 1930s, no technology platforms have emerged without substantial public support. As illustrated by the creation of the software industry by the U.S. Department of Defense, governments have an active role to play.
However, new institutions are often needed if governments are to be effectivea situation that is reflected today in government efforts to manage issues horizontally rather than departmentally: Todays typical government bureaucracy still has the hierarchical form of functionally defined departments that characterized firms in the Fordist era. However, many of todays new governmental concerns cut across old boundaries.8
1 Richard Lipsey, Notes for presentation on Economic Growth and Technological Change. Presentation made in Vancouver, October 1997. 2 Paul A. David and Gavin Wright (All Souls College and Stanford University), General Purpose Technologies and Surges in Productivity: Historical Reflections on the Future of the ICT Revolution. Presented to the International Symposium on Economic Challenges of the 21st Century in Historical Perspective. Symposium held in Oxford, England, July 24, 1999. 3 Richard Lipsey, Economic Growth, Technological Change and Economic Policy, August 1, 2001. Forthcoming in a volume on Canadian economic policy edited by Pierre Fortin and Craig Riddell. 4 Ibid.
5 Ibid. 6 Productivity slowdown resulting from the introduction of technology platforms has been identified in a number of sources, including the following: David and Wright; Lipsey, Notes for presentation on Economic Growth and Technological Change; Boyan Jovanovic and Peter L. Rousseau. A proposed chapter in Handbook of Economic Growth (Berkeley: University of California, January 2003); and Chris Freeman, Policies for Developing New Technologies (Brighton, U.K.: SPRUScience and Technology Policy Research, August 2003), Paper No. 98, SPRU Electronic Working Paper Series. 7 David and Wright. 8 Lipsey, Economic Growth, Technological Change and Economic Policy.
CHAPTER 3
The Global Biotechnology Context
o assess Canadas performance, we begin by looking at the general context in which biotechnology is evolving. This includes: a brief overview of global competitive pressures; a comparison of the relative performances of leading countries against a number of key indicators; some perspective on investor confidence and the cash flow challenges of Canadian biotechnology companies; and a brief review of the publics perception of biotechnologyrelated issues in Canada. GLOBAL COMPETITIVE PRESSURES A number of global pressures are affecting the development and impact of biotechnology on various sectors, as well as the governments ability to facilitate growth. These pressures include access to skilled labour, the impacts of outsourcing, global pricing differentials, investor confidence, trade issues and public opinion. Ensuring sufficient skilled labour is a competitive issue in most fields. To foster biotechnology, governments are working hard to keep, develop and attract top talent. At the same time, rising skill levels and competitive wages offshore are driving outsourcing. Commentator Bernadette Tansey observes that countries such as India and Singapore are working fervently to capture a slice of the biotechnology market by setting up new research centres such as Biopolis and Genome Valley. The cost of doing early drug development work, such as toxicology studies, in places like Taiwan, Singapore and China can be as low as 10% to 40% of the U.S. cost.1 Global pricing differentialswhich arise for numerous reasonsare giving some countries a competitive edge. Indias cheaper labour, for instance, leads to more competitive pricing while the skills and capabilities of its workforce continue to improve.
Trade issues are also key, and Ernst & Young has identified several that affect global competitive pressures, including both tariff and non-tariff barriers, trade diversion and parallel trade, ethical concerns, and safety risks posed by counterfeit medicinal products.2 (We consider issues related to both skills and trade in greater depth in Chapter 5, Policy Issues for Canada.)
Pressures include access to skilled labour, outsourcing impacts, global pricing differentials, investor confidence, trade issues and public opinion.
Political acceptance and positive public opinion within a country toward biotechnology can be a national and global advantage. The United States, where biotechnology interests are actively lobbying on everything from patent protection to homeland security, is a clear example.3 The pharmaceutical and health products industry is particularly active, and represents one of the top 20 industries for campaign contributions.4 DOMINANCE OF U.S.-BASED BIOTECH COMPANIES When some basic comparisons are made, the most striking (though not unexpected) factor in the global context is the dominance of the United States in most of the key areas: revenue, R&D expenditure and number of employees, for example. However, as Table 1 indicates, there are some areas where the United States is not playing a leading role. Europe is leading in the number of biotechnology companies. This may indicate a vibrancy in the development of biotechnology in a number of sectors. However, it does not necessarily represent a sustainable advan-
10
Table 1 Key Biotechnology Indicators (2004) by Country Australia Measure Sales/revenue (CDN$ billions) Annual R&D expenditure (CDN$ billions) Number of companies Number of employees* Number of public companies Ratios Average revenue per company (CDN$) Average revenue per employee (CDN$) Revenue per annual R&D expenditure (CDN$) 1.30 0.10 226 6,393 58 5,752,212 203,347 13.00 Canada 3.80 1.50 496 11,931 81 7,661,290 318,498 2.53 Europe 9.70 5.40 1,878 32,470 96 5,165,069 298,737 1.77 United States 61.40 18.50 1,473 146,100 318 41,683,639 420,260 3.32
Notes: bold = top performer. The Statistics Canada data is bio-specific (only employees directly involved with biotechnology, revenue generated from biotech activities, and R&D specific to biotechnology are accounted for), whereas the Ernst & Young data is much broader (all employees, revenues, and R&D expenditures of a firm associated with biotechnology are encompassed in their figures). * Includes employees working specifically on biotech-related activities (e.g., biologists and related scientists, chemists, software engineers and information systems analysts). Currency conversion USD to CDN $1.2946, Dec. 31, 2003. Data not available for Japan. Source: Datamonitor, Biotechnology in Canada.
tage. Europe also has the lowest revenue per company and per employee, indicating that these firms are at relatively early stages in terms of taking products to market. The data on Australia are also very interesting. While spending less than a tenth of what Canada spends on R&D, and with a biotech workforce of less than half the size, Australias average revenue per company is three-quarters that of Canadian companies. The efficiency of their spending is very high, resulting in a substantially higher level of revenue per annual R&D expenditureabout five times greater than Canadas and four times that of the United States. These results may demonstrate a strong commercialization capability. However, while its performance is strong today, Australia may face serious challenges over the longer term unless its R&D investments begin to grow. The data from Table 1 also show that Canada is a strong player. Factoring out the United States, Canada ranks first against Australia and Europe in terms of average revenue per company and per employee. This is an important reminder that while we certainly face challenges when it comes to competing globally, we also have substantial strengths on which to build. When we look specifically at the market value of public companies, the dominance of the United States becomes clear. (See Chart 2.) The value of public
Chart 2 Biotechnology Market Capitalization by Country, 2004 (CDN$ billions) 500 415 400 300 200 100 18 0 United States Canada 18 10
United Kingdom Australia
Notes: United Kingdom figures are for 2003; Currency conversions used: US$1.3344 to CDN$1.6152 EURO to CAD. Sources: Peter Winter, Canadian Biotechnology Industry Report 2004; Biotechnology Industry Organization; Ernst & Young; Refocus; Department of Industry and Tourism, Australia.
biotechnology companies in the United States exceeds that of companies in all other countries, and is nearly 10 times greater than company values in Canada, the United Kingdom and Australia combined. However, it is worth noting that the market capitalization of public biotechnology companies in Canada is comparable to that of other major players, including the United Kingdom and Australia.
11
To further emphasize the size and scale of biotechnology in the United States, we sought to compare the value of the largest public biotechnology company in the United States to that of Canadian biotechnology companies. The results are really quite shocking. When we compared the U.S.-based human therapeutics firm Amgen Inc. to Canadian public companies, we found that the difference in value was so large as to make the comparison almost meaningless. Amgen has a market capitalization larger than the combined values of the Royal Bank, BCE and Nortel. (See Chart 3.)
Chart 3 Market Capitalization of Amgen in Context, 2005 (CDN$ billions) 100 90 80 70 60 50 40 30 20 10 0 97.1 15.4 27.7
47.7
Amgen A number of Canadian companies have been able to raise cash successfully, but earlier-stage and smaller public companies are in precarious positions.
Royal Bank
BCE
Nortel
Source: Stock prices as of April 22, 2005, from TSE and NASDAQ, with calculations by The Conference Board of Canada.
Canada does appear to lead in a few areas of biotechnology performance globally, but our current leads are marginal. For example, while Canada generally exceeds the United States in terms of revenues from environment-related biotechnology, in 2003 it did so only by approximately CDN$180 milliona small lead that can easily be lost should other countries turn their attention seriously to the sectors in which Canada is leading. CANADIAN BIOTECHNOLOGY COMPANIES ARE FACING A CASH CRUNCH Liquidity is a major issue for Canadian biotechnology firms. In a field where product development can take years, the Ernst & Young Survival Index indicates that 38 per cent of publicly traded biotechnology companies in Canada have less than one year of cash available, while another 14 per cent have less than two years available. Although a number of Canadian companies have been able to raise cash successfully, earlier-stage and smaller public companies are in precarious positionseven more so than during the market decline of 2002. INVESTOR CONFIDENCE When we analyze sources of cash for biotechnology companies in Canada (as in Chart 4), it may seem encouraging that about 60 per cent of cash flow is generated by product sales. However, considering the relative nascence of many Canadian biotechnology firms, as well as their small size, a higher level of cash flow stemming from venture capital and other forms of outside investment would
12
Chart 4 Sources of Cash Flow for Canadian Biotech Firms (per cent; share by cash flow) Product sales Research funding Royalties Other
7.7 7.3
59.7 25.3
Source: Data Monitor, Biotechnology in Canada: Industry Profile (New York: Data Monitor, November 2004). Reference Code 0070-0695.
be expected. This may suggest a relative chill on Canadian biotechnology companies from the investment community in comparison with other nations. It is useful to assess investor confidence at the general industrial level, since specific sector-based analyses (e.g., agriculture, forestry) are not available. Broadly speaking, there is consensus that investor confidence in the Canadian biotechnology sector is lower than ideal and that investors are proceeding with caution.
One of the reasons for this caution is skepticism of the hyperbole that has characterized the field of biotechnology. Research prepared for the Department of Justice makes the point well: Inaccurate or exaggerated representations of genetic research have the potential to damage the research enterprise by undervaluing the long-term and enduring value of basic scientific advances. They may similarly harm the biotechnology industry by focusing on short-term, unrealistic, therapeutic goalsgoals that are likely not going to be met, thus eroding investor confidence.5 Unresolved issues in the global arenasuch as the protection of intellectual propertycan also affect investor confidence negatively. Intellectual property protection for biotech companies will continue to be pursued by the United States and Europe. The resolution of these issues may help to boost investor confidence in biotechnology products and global marketplace opportunities.6 As a result of these uncertainties, investors now demand short-term returns rather than holding out for the longer-term promises of biotechnology: Gone are the investors with a ten- to twenty-year horizon willing to wait for the scientific breakthrough that will bring enormous financial benefits. They are now content with a smaller return but insist on a much shorter time frame; five years is now the norm.7 Investor confidence is higher in the United States than in Canada, as evidenced by its greater commercialization performance. Biotechnology firms in the United States fought back from the 2002 downturn more successfully than Canadian firms did. Analysis conducted by Industry Canada suggests that a combination of smart business decisions and product advances renewed investor interest in biotechnology stocks and financing. As a result, U.S.-based biotechnology stocks recovered significantly in 2003 and outperformed the market overall.8 Industry observers note that investment in Canadian biotechnology operates on a wing and a prayer, with capital raised on the promise of a return.9 Conversely, in the United States, biotechnology companies are realizing tangible returns on investment, reflecting the greater maturity of its biotechnology sector.
The market capitalization of the top 10 biotechnology companies in Canada reached $9.7 billion on December 30, 2003, versus $6.9 billion the previous yearan increase of 40 per cent. These 10 companies also represented 70 per cent of the total biotechnology market capitalization in Canada, raising more than $773 million (or 57 per cent) of the total biotechnology funding in 2003. These companies now believe they have the funds required to execute their business plans. Their performance indicates that the Canadian biotech industry is becoming segregated into haves and have-nots.10 PUBLIC PERCEPTIONS OF BIOTECHNOLOGY The publics perceptions of biotechnology are as important as those of investors. For instance, widespread resistance to the production of genetically modified organisms in Europe has limited the acreage of these crops. Canadians are increasingly receptive to the development and use of biotechnology. According to research conducted in March 2004, a growing majority support the use of products and processes that involve biotechnology.11 A survey of all relevant opinion research reveals that entrenched opposition to biotechnology has decreased since tracking began in 1999. Coupled with this are a number of positive messages from the Canadian public about biotechnology: More than 70 per cent of Canadians agree that biotechnology research represents the next frontier that will lead to significant quality of life benefits for all Canadians.12 About four out of five Canadians agree that we have to accept some risk to achieve the benefits of biotechnology like new discoveries and cure of serious illnesses. A smaller majority (63 per cent) agree that some risk is acceptable to achieve the benefits of biotechnology when applied to new foods that contain vitamins or medicine.13 Almost 90 per cent of Canadians agree that although there may be some unknown risks, technologies like biotechnology are part of the future, so all we can do is make sure that its uses are as safe as possible.14 This analysis indicates that a growing majority of Canadians have a balanced, nuanced desire to gain the benefits of the technology while managing its risks appropriately.15
13
In both Canada and the United States, ethics is declining in importance as a major issue. Only 7 to 12 per cent of Canadians and Americans identify ethics as their major concern with regard to applications of biotechnology.16 However, Canadians still expect ethical considerations to play an important role when decisions are made about biotechnology.17 Consistently, the issues of potential long-term risk to human health and the environment are of greatest concern to Canadians when it comes to biotechnology.18,19 As well, Canadians staunchly believe that ethics trumps science in the cloning of human beings.20 CONFIDENCE IN BIOTECHNOLOGY REGULATORS Ethical concerns are much higher in European countries than in North America. These divergent continental views are reflected in public confidence in biotechnology regulators. Less than half of Europeans have confidence in their governments ability to do a good job.21 This is also true in Japan, where citizens have witnessed government and business scandals that have reduced their confidence in the efficacy of regulation.22
In contrast, Australians have a higher level of public trust in their regulators than any other country included in our analysis.23 Americans are next, followed very closely by Canadians. Only 10 and 11 per cent of the public, respectively, are not at all confident in the FDA, Health Canada and the Canadian Food Inspection Agency.24 FINDING OUR ROLE IN THE WORLD The challenge for Canada is to ensure our current biotechnology strengths can provide us with global advantages in the future. This will not be easy. Other countries are increasing their investments in biotechnology and working hard to attract the worlds top talent. The United States, in particular, has achieved a critical mass that is unmatched. The strength of its biotechnology companies, access to risk capital and large pool of labour will help them maintain their leading position. In contrast, Canadian biotechnology companies are less mature and therefore less attractive to investors. At this juncture, Canada must determine how to capitalize on its strengthssuch as a relatively positive perception of biotechnology by the publicin order to find niches in the global biotechnology supply chain.
7 Dr. Francesco Bellini, Canadas Biopharmaceutical Industry Shifts Focus from Long-Term Promise to Short-Term Potential, in BioCanada: 2003 Investors Guide to the Canadian Biotech Industry, Volume 2, 2 (June 2003). 8 Industry Canada, Bioindustry Report 2, 1 (June 2004), p.1. 9 Ernst & Young, Canadian Biotechnology Industry at Critical Point in Development. [online]. (June 7, 2002), [cited February 23, 2005]. www.ey.com/global/Content.nsf/Canada/Media_-_2002_-_BeyondBorders. 10 Ernst and Young, Resurgence: Global Biotechnology Report 2004The Americas Perspective (New York: E&Y, 2004). 11 Decima Research Inc. Public Opinion Research on Biotechnology: CanadaU.S. Tracking Survey Final Report (Ottawa: Decima, March 2004). 12 Ibid. 13 Ibid.
1 Bernadette Tansey, Are Biotech Jobs Next to Go? Stronghold of Bay Area Economy Not Immune to Trend, April 2004, SFGATE.com. sfgate.com/cgibin/article.cgi?f=/c/a/2004/04/18/MNGBM672L01.DTL. Cited in Duke University, Biotechnology. [online]. Fall 2004 [cited February 16, 2005]. http://www.duke.edu/web/soc142/biotech/. 2 Ernst & Young, Trade Issues of Concern to the Healthcare Industry. [online]. [cited February 17, 2005]. www.ey.com/global/download.nsf/International/ Trade_Issues_in_Health_Care_WEF2003/$file/ Trade%20Issues%20in%20Health%20Care%20WEF2003.pdf. 3 Sheryl Fred, The Biotech Boom. [online]. Capital Eye, July 9, 2003 [cited February 17, 2005]. www.capitaleye.org/inside.asp?ID=91. 4 Opensecrets.org, Pharmaceuticals/Health Products: Background. [online]. [cited February 17, 2005]. www.opensecrets.org/industries/background.asp?Ind=H04. 5 E. Richard Gold and Timothy A. Caulfield, Human Genetic Inventions, Patenting and Human Rights (Ottawa: Department of Justice, April 2003), p. 12. 6 Ernst & Young, Millennium in Motion: Global Trends Shaping the Health Sciences Industry. [online]. (June 2001) [cited February 23, 2005], p. 15. www.ey.com/global/download.nsf/UK/Millennium_in_Motion/$file/EY_Mille nnium_In_Motion.pdf.
14 Ibid. 15 Pollara Inc. Public Opinion Research Findings on Biotechnology (Toronto: Pollara, March 31, 2004). 16 Decima Research Inc.
14
17 Government of Canada, Summary of Public Opinion Research into Biotechnology Issues in Canada (Ottawa: Government of Canada, 2003). 18 Ibid. 19 Decima Research Inc. 20 Government of Canada. 21 George Gaskell et al., Europeans and Biotechnology in 2002: Eurobarometer 58.0, Second edition (London, U.K.: Methodology Institute, London School of Economics, March 21, 2003).
22 Inaba and Macer, Attitudes to Biotechnology in Japan in 2003, Eubios Journal of Asian and International Bioethics 13 (2003), pp. 7890. 23 Millward Brown, Australia Biotechnology Public Awareness Survey; Final Report (2003), (Australia, Biotechnology Australia, November 2003). 24 Decima Research Inc.
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CHAPTER 4
Canadas Performance, Sector by Sector
hus far, our discussion of biotechnology has been at an aggregate level. This chapter compares Canadas performance against that of other leading nationsthe United States, the United Kingdom, Japan, Australia and Indiain sectors where biotechnology is actively applied. At this point, it is worth reiterating the earlier cautions about the accuracy of the data: data collection is still rudimentary; comparing biotechnology sectors is difficult; the scale of biotechnology activities in the United States dwarfs that of all other countries; and firm count is, at best, a rough measure of activity. With these cautions in mind, Chart 5 illustrates that the human health sector accounts for the largest number of biotechnology firms in Canada, making up more than 50 per cent of all biotechnology firms in the country.
The agriculture sector is second to human health. Each sector identified in the chart will be assessed in this chapter. Additional details about each of the sectors discussed are included in Appendix A. HUMAN HEALTH In the health sector, biotechnology is applied to everything from blood products and vaccines to drugs and tissue heart valves. Despite the fact that more than half of Canadas biotechnology companies belong to the human health sector, the commercialization performance in this sector is quite weak. As a result, Canadas revenues in this sector are low relative to those of our comparator countries. (See Chart 6.) Canadas revenues are about one-third those of the United Kingdom, one-sixth those of Japan, and less than one-twentieth those of the United Statesdespite having more than 10,000 biotechnology products or processes in the approval pipeline as of 2003.1
Chart 5 Biotechnology Firms in Canada by Sector, 2003 (per cent; n=496) Human health Agriculture Food processing Environment 3.2 3 Natural resources Bioinformatics Aquaculture
Chart 6 Biotechnology Health Revenues by Country, 2003 or latest year (CDN$ millions) 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 44,938
4.2 8.0
11,983 5,715 United States (2003) Japan (2002) United Kingdom (2003) 1,999 Canada (2003) 668 India (2001)
10.9
52.7
17.9
Note: Totals do not add to 100 per cent due to rounding. Source: Statistics Canada.
Sources: Statistics Canada; Department of Trade and Industry, United Kingdom; Nikkei Biotechnology and Business, Japan; Sachin Chaturvedi, Status and Development of Biotechnology in India: An Analytical Overview.
16
Canadas relative performance in commercialization in this sector becomes more clear when compared to that of the United Kingdom. It has a comparable number of firms, equivalent capital investments, a similar number of patents, and fewer products in the approval pipeline than Canada, yet manages to achieve triple the revenue. As in biotechnology in general, the United States is without question the worlds dominant player in biohealth. Its revenues, expenditures, and capital raised dwarf the figures for all comparator countries. Japan is typically considered second to the United States in revenue, though many data gaps exist and its drug approval process takes twice as long. India has yet to introduce a novel health biotechnology, but promises to be a meaningful player in the future. Its competitive advantage stems from a combination of expertise, technical capacity and cheaper labour. While Australia is active in biotechnology in general, the data on its health sector are not sufficient to draw any conclusions. AGRICULTURE Biotechnology is being used in the agriculture sector to integrate specific traits into plants through genetic manipulation. These could include increasing the mineral content of a plant, for example, or helping staple crops become more resistant to drought. Not
only are these methods expected to offer many opportunities to improve agricultural yield, they are also a means to reduce the laboratory and field-testing time required to deliver conventional product traits and improved foods to market.2 When assessed against our comparator countries, Canada has the highest number of firms actively using biotechnology in agriculture but almost the lowest revenue in the bioagriculture sector. Countries with fewer companies are generating more revenue than Canada. Looking through the lens of the Innovation Framework described earlier, this suggests that Canada faces barriers that are limiting the ability of its biotechnology companies to generate value. As Chart 7 shows, the United States has a large lead in this sector. Its numbers of employees, R&D expenditures and genetically modified (GM) crop areas related to biotechnology far exceed those of other countries. In 2004, the United States had about nine times the number of hectares of GM crops than Canada. This is perhaps not surprising, since the United States has substantially more farm land than Canada. However, it is worth noting that since 1997, Canada has increased the number of square hectares devoted to GM crops by about four times compared to United States, which has grown its dedicated area by about six times. That said, Canada is still third in the world in total number of hectares of GM crops, after the United States and Argentina.
Chart 7 Presence of Genetically Modified Crops: Canada and the United States, 19962004 (millions of hectares) Canada 50 45 40 35 30 25 20 15 10 5 0 United States 47.6 35.7 28.7 20.5 8.1 0.1 1.5 1996 1.3 97 2.8 98 5.4 04 30.3 39 41.1
4.0 99
3.0 00
3.2 01
3.5 02
4.4 03
Sources: OECD; BIOTECanada; Mergent; Clive James, Global Status of Commercialized Biotech/GM Crops, 2004.
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The United Kingdom, which does not grow genetically modified crops at present due to public concern, is nonetheless ahead of Canada in terms of revenue, R&D expenditures, and the total number of employees.3 Reported revenues may be higher, though, because available data include marine, animal health care, biopesticides, crop agriculture and food technology in the bioagriculture sector. India is a country to watch in this sector where estimates suggest higher revenues than Canadas. The 2001 value of the Agri/Seed Market was estimated to be between US$450 million and US$500 million.4 A black market for genetically modified seeds also appears to exist in India; illicitly sourced, genetically modified cotton is a widely discussed example.5 While statistics on such crops do not exist, this analysis may underestimate biotechnologys potential impact on Indias agriculture industry. Still, an excellent scientific infrastructure in agriculture, rich biodiversity, and skilled, low-cost labour all position India as a force to be reckoned with in the future.6 Japan shows very little activity in this sector, and does not have any GM crop area of which to speak. Again, data gaps prevent us from drawing conclusions about Australia at this time. FOOD PROCESSING Biotechnology is used in food-processing to manipulate micro-organisms that improve process control, yields, efficiency and the quality, safety and consistency of bioprocessed products.7
Genetically improved microbes are being used in fermentationwhich is relied upon heavily in Asia and Africato improve nutrition, food safety, taste, digestive properties and shelf life. Biological tools are also used in diagnostic tests for food products and processes, which enable quicker, more accurate detection of additives, toxins, pesticides, micro-organisms and antibiotics than do traditional laboratory processes.10 Available data suggest that Canada has the most mature biofood processing sector, with the highest revenues ($1.3 billion in 2003), greatest number of firms (54), highest investment in R&D ($23 million in 2003) and the most employees (761). This is one area where the more advanced data collection capabilities of Statistics Canada distinguishes Canada from the rest of the world. However, this makes comparisons difficult because, for example, in the United States and the United Kingdom, data (to the extent they exist) are typically included under the agriculture sector. Japan has a relatively nascent biofood processing industry. November 2003 was the first time that a food product carrying a GMO label appeared in the Japanese market. That said, available data about revenue places Japan second, after Canada. In this sector, insufficient data hamper any analysis of Australia or India. ENVIRONMENT Biotechnology is increasingly being used to address environmental issues. For example, bacteria are being used to clean up oil spills. In other cases, biofuels are being created from plant waste; and in industrial processes, such as paper bleaching, biological enzymes (as opposed to chemicals) reduce the need for chlorine.11 Biomassrenewable organic material such as forest products, crops, animal waste, aquatic plants or some elements of municipal and industrial wastecan also be used to produce different forms of energy. Through processes like fermentation, combustion or pyrolysis, biomass can be turned into sources of heat and power. For example, in Ajax, Ontario, a biomass-powered district energy system provides energy to the community centre, Ajax-Pickering Hospital, the Ajax Works Department and more than a dozen industrial customers.
Available data suggest that Canada has the most mature biofood processing sector, with the highest revenues, greatest number of firms, highest investment in R&D, and the most employees.
Biotechnology can be applied to plants or animals to improve their food-processing properties, such as the now-common Flavr Savr tomato variety, which has been modified to reduce its ripening rate,8 or fruit juice production, where the addition of enzymes increases yield.9
18
Chart 8 Biotechnology Revenues in the Environment Sector by Country, 2003 or latest year (CDN$ millions) 300 250 200 150 100 50 0 Canada United Kingdom United States Japan 87.8 39.4 4.1 India 268 213
At this time, reliable data on environment-related biotechnology activities in Japan, Australia and India are not available. The data that are present suggest that the environment is not a biotechnology focus for these countries. NATURAL RESOURCES Biotechnology is being used in a number of different ways in the natural resources sector. For example, genetic engineering is being used to protect forests through biological pest-control methods. Biotechnology is also being used to create bioproducts (described below) and to assess the environmental impacts of biotechnology-derived products.12 Canada has about 10 per cent of the worlds forests, a forest industry worth $81.8 billion in 2003,13 and is one of the worlds largest exporter of wood products.14 Canada was the seventh-largest oil producer in the world in 2004, and the third-largest producer of natural gas. Yet despite Canadas abundance of natural resources, there are just 21 biotech firms with 120 employees focused on natural resources, and $13 million invested in R&D.15
Currency conversions: US$ to CDN$, Dec. 31, 1999: 1.45290 US$ to CDN$, Dec. 31, 2002: 1.57690 EURO to CDN$, Dec. 31, 2003: 1.6256 Sources: Statistics Canada; Department of Trade and Industry, United Kingdom; Nikkei Biotechnology and Business, Japan; OECD.
Other initiatives are using biomass to power vehicles through the production of ethanol from corn, or biodiesel from seeds, canola, corn and animal fats, among others. Canada appears to be the leader in applying biotechnology to the environment sector. While Canada has a relatively small number of environment-related biotechnology firms, they are showing relatively strong results. With about 20 per cent fewer firms than the United States, the total revenue of these companies exceeds those of the U.S.-based companies by almost three times (CDN$268 million compared to CDN$87.8 million). (See Chart 8.) Biotechnology does not seem to play a significant role in the environment sector in the United States. Despite the fact that U.S.-based companies employ more people than any of the companies based in any of the comparator countries, there is limited investment in R&D (about onetenth the investment in Canada), nor is it yielding substantial revenue. The environment sector in the United Kingdom has the highest number of biotechnology firms (46) of our comparator countries and, despite spending about half what Canada does on R&D, its revenues are only 20 per cent lower.
The Potential of Bioproducts A bioproduct is a commercial or industrial productother than food and feedthat is generated from biomass, such as plant material, vegetation or agricultural waste. Examples of bioproducts include biopower (heat and electricity), biofuels (ethanol and biodiesel), industrial biochemicals, and a broad range of other bioproducts like agri-fibre panels, textiles made from flax and hemp, and bioplastics made from corn starch.1 There is evidence that bioproducts can reduce the environmental impact of industry and contribute to sustainable industrial development. According to the OECD, plants and animal waste could become viable alternatives to fossil fuels in providing energy and materials if governments changed strategies.2 The benefits of bio-products include: decreased capital and operating costs; decreased energy and water use; the development of new, more profitable and environment-friendly products; a contribution to the national security of energy and chemical supplies; and the ability to counter environmental degradation. Canada is a world leader in the development of bioenergy and biobased products. Agriculture and Agri-Foods Canada reports that Canada meets about 6 per cent of its energy requirements from biomass. This compares to 3 per cent for both the European Union and the United States. Canada also has the ability to grow the needed renewable raw materials.3
1 Agriculture and Agri-Food Canada, Canadas Bioproducts Industry. [online]. [Cited March 22, 2005]. www.agr.gc.ca/misb/spcrops/sc-cs_e.php?page=bioproducts-bioproduits. 2 Organisation for Economic Co-operation and Development, Amid Volatile Oil Prices OECD Report Calls for Policy Changes to Promote Biomass (Paris: OECD, June 9, 2004). 3 Agriculture and Agri-Food Canada.
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The United States had 29 firms with a primary focus in natural resources and biotechnology in 2001, and 12 with a secondary focus. The natural resources sector is not identified as a key area in the United Kingdom, Japan, Australia or India. BIOINFORMATICS Bioinformatics is the combination of biology and computer science, and has been fuelled in part by the Human Genome Projects mapping of the 30,000 genes in human DNA.16 Researchers are now analyzing the vast amounts of data created to find information and cures for diseases. In contrast to Canadas biotechnology performance in the environment sector, our performance in bioinformatics appears weak. Databases are a primary tool underlying work in bioinformatics. Since laboratory practices create large amounts of biological data, the effective management, storage and analysis of that data is crucial. The United States currently hosts five of the top 10 bioinformatics databases in the world. Moreover, in an industry where human capital is critical, the United States has a compelling lead, with nearly 15,000 employees in the sector. Japan has one of the 10 major bioinformatics databases and issued the majority of bioinformation patent applications from 1990 to 1998. More than 50 per cent of bioinformation patent applications came from Japan
Chart 9 Bioinformatics Employment by Country, 2003 (number of employees)
during this time frame, compared to slightly more than 10 per cent from Europe and the remainder from the United States.17 All available indicators place the United Kingdom ahead of Canada, where only 16 firms have formed as a result of biotechnology and ICT convergence. Canada has less than one-third the employees of the United Kingdom in this area The United Kingdom has three of the 10 major bioinformatics databases. The industry is still developing there, though, with revenues barely exceeding investment. Australia, like Canada, lacks a critical mass of bioinformatics firms. (See Chart 9.)
In an industry where human capital is critical, the United States has a compelling lead, with nearly 15,000 employees in the sector.
In India, bioinformatics is the fastest-growing sector in biotechnology.18 While this sector is less mature than in the United States and Europe, it appears to be wellpositioned for the future. India . . . was one of the first countries in the world to establish a nationwide bioinformatics network . . . The department of biotechnology initiated the program on bioinformatics way back in 198687 . . . [which] has covered the entire country by connecting to the 57 key research centers.19 KPMG predicts the Indian bioinformatics market will exceed US$2 billion by 2008, and that the market for the countrys biotechnology R&D products and services should rise to around US$3 billion by 2010.20 AQUACULTURE
16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0
14,907
788 United States United Kingdom
244 Canada
200 Australia
Sources: OECD; BIOTECanada; Mergent; Clive James, Global Status of Commercialized Biotech/GM Crops, 2004.
Increased demand for seafood and a dwindling supply of natural marine habitats are driving activity in bioaquaculture, which focuses on increasing the production of marine food products by growing aquatic organisms in a controlled environment. Scientists are identifying and combining traits in fish and shellfish to reduce growing times and increase resistance to infections.21 A salmon that normally takes two to three years to reach market size, for example, could take half that time if all goes well. Proponents argue that this can make fish farming more sustainable, decrease overfishing, and reduce consumer costs.
20
Canada and the United States appear to have an early lead in aquaculture. The United States has the greatest number of firms (128) but does not typically recognize aquaculture as a key industrial sector. It is difficult to compare Canadas aquaculture performance with that of other countries. To the extent it exists, data from the United Kingdom are combined with the agricultural and marine sector. Aquaculture is not identified as a key area in Japan, Australia or India. It should be noted, then, that nascent data collection might obscure the maturity of this sector relative to the situation in other countries. CANADAS RELATIVE BIOTECHNOLOGY PERFORMANCE Without question, the United States is the dominant biotechnology force among our comparator countries. Table 2 illustrates the relative performance of our
Table 2 Biotechnology Rankings by Country and Sector Sector Human health Agriculture Food processing Environment Bioinformatics Natural resources Aquaculture United States 1 1 2 3 1 1 1 Canada 4 4 1 1 n.a. 2 2
comparator countries (excluding Australia, owing to the lack of data) using a synthesis of performance in a number of key areas.22 Overall, Canada is a real player in biotechnology, and has established a foundation on which to build globally competitive companies. Canada is demonstrating strengths in the food-processing and environment sectors. However, there are two important caveats related to these strengths. First, Canadas superior measurement capabilities may simply be identifying activities at a level of detail not yet possible in other countries. Second, these sectors are still emerging, so any leads can easily be lost should comparator countries turn their attention to them. More importantly, however, Canada faces a number of other challenges that must be dealt with before we can expect to realize the potential of our biotechnology strengths. We explore these challenges in Chapter 5, Policy Issues for Canada.
United Kingdom 3 2 n.a. 2 3 n.a. n.a.
Japan 2 n.a. n.a. 4 2 n.a. n.a.
India 5 3 3 5 4 n.a. n.a.
n.a.: not enough available data to rank the country. Sources: Calculations from The Conference Board of Canada; Statistics Canada.
1 Statistics Canada, Biotechnology Use and Development, in Innovation Analysis Bulletin 7, 1, Cat. No. 88-003-XIE. [online]. (February 2005). www.statcan.ca/english/freepub/ 88-003-XIE/88-003-XIE2005001.pdf. 2 DuPont, Frequently Asked Questions About Biotechnology. [online]. [Cited Oct. 31, 2005]. www2.dupont.com/Biotechnology/en_US/intro/faqs.html#how_is. 3 The United Kingdom is still in the preparatory stages of giving the go-ahead for GM crops. The government is seeking further consultation on the coexistence of GM and non-GM crops, and aims to have specific measures in place by 2005. Mergent, The Europe Biotechnology Sectors, October 2004, p. 28. 4 Sachin Chaturvedi, Status and Development of Biotechnology in India: An Analytical Overview, Research and Information System for the Non-Aligned and Other Developing Countries (New Delhi: RIS-DP, 2002), No. 28, p. 13. Based on i) Business Standard, December 24th 2000 and ii) Economist, Sept., 2001.
5 Mukund Padmanabhan, The Dilemmas Over Illicit GM Cotton, The Hindu. [online]. (Oct. 30, 2001), [cited March 7, 2005]. www.gene.ch/gentech/2001/Nov/msg00006.html. 6 Mergent, Biotechnology: Asia Pacific, December 2004. 7 Biotechnology applications in food processing: Can developing countries benefit? Electronic Forum on Biotechnology in Food and Agriculture: Conference 11. www.fao.org/biotech/C11doc.htm. 8 Ibid. 9 The European Food Information Council, Modern Biotechnolgoy and Food Quality. [online]. [Cited Oct. 31, 2005]. www.eufic.org/gb/tech/tech01d.htm. 10 Ibid.
21
11 Health Canada, Biotechnology. [online]. [cited Oct. 31, 2005]. www.hc-sc.gc.ca/ english/protection/biotech/human_health.htm; Bio.org, Report Finds Industrial Biotechnology Is Sparking a New and Cleaner Industrial Revolution. [online]. [cited Oct. 31, 2005]. www.bio.org/news/newsitem.asp?id=2004_0603_01. 12 Natural Resources Canada, Biotechnology. [online]. [Cited Oct. 31, 2005]. www.nrcan-rncan.gc.ca/cfs-scf/science/resrch/biotechnology_e.html. 13 Natural Resources Canada, The State of Canadas Forests, 20032004. [online]. (Ottawa: Natural Resources Canada, 2004), [cited Feb. 21, 2005]. www.nrcan-rncan.gc.ca/cfs-scf/national/what-quoi/sof/latest_e.html. 14 Council of Forest Products, World Exports of Forest Products. [online]. (British Columbia, COFI, 2000), [cited March 30, 2005]. www.cofi.org/reports/factbook2000/Pages%20from%20FACTBOOK%202000-4.pdf. 15 Statistics Canada.
16 National BioInformatics Institute, Industry Outlook: Biotechnology. [online]. [cited Oct. 31, 2005]. www.bioinfoinstitute.com/view.asp?recno=35. 17 Japan Patent Office, Survey on Trends Concerning Key Biotechnology (Tokyo: JPO.) Note: the data cover patent applications between 1990 and 1998, searched and retrieved through WPINDEX (STN). 18 Narayan Kulkarni, And Now Its Bioinformatics, in BioSpectrum India. [online]. (Feb. 10, 2003), [cited March 7, 2005], p. 9. biospectrumindia.com/content/search/showarticle.asp?arid=42870&way=search. 19 Ibid. 20 Mergent, Biotechnology: Asia Pacific, December 2004. 21 Bio.org, The Important Role of Biotechnology in Aquaculture. [online]. [Cited Oct. 31, 2005]. www.bio.org/foodag/positions/aquaculture.asp. 22 These include the total number of biotechnology products/processes in development, the number of employees with biotechnology-related responsibilities, the number of firms, revenue, R&D expenditures, and the amount of capital raised.
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CHAPTER 5
Policy Issues for Canada

o far, we have seen that extensive biotechnology activity is underway in Canada. We have many emerging companies, we have a track record of scientific breakthroughs, and there is a growing recognition of the importance of this field. However, while Canada has approximately 500 biotechnology companies, they are mostly small; they have difficulty accessing risk capital; and they struggle when they compete globally. We have also seen that biotechnology is best understood as a technology platform, which suggests that a comprehensive approach may be required to support this field. Fundamentally, Canada is at a critical juncture. To build on our strengths, establish this technology platform and unlock the future performance of Canadian biotechnology companies, a number of key policy issues must be addressed. These are: funding that supports the creation of new biotechnology ideas; the biotechnology workforce; trade and investment issues; the generation of value through successful commercialization; and the innovation environment, including regulation and intellectual property. We will explore each of these issues in this chapter. FUNDING RESEARCH In Chapter 1, we examined the biotechnology R&D budgets of five countriesCanada, Japan, the United States, Australia and Indiaand saw that, together, they planned to spend approximately $48 billion. Canadas spending represented about $0.7 billion of that amount. We have also seen that comparator countries are prioritizing their research funding in areas of strategic interest or national importance, with biotechnology as a key element. For example, in India, two-thirds of all biotech investment is directed to the health sector.1 In the United Sates, the lions share of government investment is being directed to the National Institute for Allergy and Infectious Diseases as part of the BioShield
initiative, through which US$5.6 billion will be dedicated over the next 10 years to improving medical countermeasures (such as vaccines) against bioweapons.2 The majority of funding in the United Kingdom goes to the Medical Research Council, supporting its dedicated strategy for maintaining its leadership in genomics.3 The United Kingdom is moving from a primary emphasis on basic research to an approach that includes more support for applied research. Seven research councils have been established to support this shift.4
Comparator countries are prioritizing their research funding in areas of strategic interest or national importance, with biotechnology as a key element.
Priority areas for the Australia Research Council include nano-materials and biomaterials, genome/phenome research, photon science and technology, and complex and intelligent systems.5 The Australia Research Council (ARC), one of the main funding agencies in Australia for basic research, administers a range of competitive granting schemes that provide funding to Australian researchers and universities for a variety of research endeavours (excluding clinical medicine and dentistry). The ARC identifies investment strategies in six key areas: industry linkages, research training and development, research infrastructure, priority setting, community awareness and governance.6 Most experts argue that Canada has done relatively well in funding basic research in biotech.7 The government has more than doubled its spending commitments to academic research in life sciences over the last five years. Table 3 shows the increases from 2000 to 2003, including the kinds of activities addressed by the funding and the organizations performing the research. The government funds several programs related to biotechnologies that support basic research and discovery in addition to integration into the public markets. The primary
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Table 3 Canadian Government Science and Technology Expenditures on Biotechnology by Activity and Performer (CDN$ thousands) Activity 200203 200102 200001 Intramural 252,118 232,764 193,709 Business enterprise 40,313 33,457 32,585 Higher education 340,096 206,345 202,387 Other performers 57,798 79,887 2,781 Foreign performers 4,810 4,366 851 Total 695,135 556,819 432,313
Source: Statistics Canada.
channels for funding have been the Canadian Institutes of Health Research, Genome Canada and the Canada Foundation for Innovation. Some countries offer R&D tax incentives or other tax relief to encourage basic research. Typically, these efforts are relevant, although not specific, to biotech.8 Japan and Canada give tax credits for basic research conducted by the private sector. Japan also offers direct tax relief for companies performing or financing basic research. (See box, R&D Tax Credits, for more about Canadas program.) Another common tactic is to stimulate more collaborative research between industry and public research institutions and universities through the design of R&D tax incentives. Japan and the United Kingdom, for instance, provide tax incentives for industry R&D projects contracted to universities and public research institutes. The tax credit established in the United Kingdom is provided to companies conducting rather than financing R&D, unless carried out in collaboration with universities or research organizations. In March 2002, the United Kingdom announced a new research and development tax credit for larger companies to match a similar program already in place for smaller firms. The new tax credit is designed to encourage collaborative research with universities, and allows companies to claim research and development as a write-off against their taxes. While the program for large companies does not offer a cash-back system in the same way as the program for small companies, the 20 per cent credit will still benefit companies and encourage research collaboration.9
R&D Tax Credits Tax credits targeted to support R&D activities are considered an effective mechanism to support biotech-related R&D indirectly. Among our comparator countries, Canada provides the most favourable tax treatment for R&D expenditures (as of 2004). R&D tax credits in Canada are based on current expenses plus an allowance for overhead.1 In fact, Canadas Scientific Research and Experimental Development (SR&ED) tax credit has long been considered one of the best in the world. However, since its inception in the late 1980s, there has not been a comprehensive review of the program. While some would argue that the SR&ED program is a cornerstone of Canadas international competitiveness, its ability to act as a competitive differentiator for Canada has been diminishing over time. Other countries are implementing equivalent programs that are challenging this competitive differentiator. Moreover, R&D investment by Canadian business has remained relatively flat for the last decade, with a marked decrease in recent years. The number of firms conducting R&D in Canada is beginning to fall. Meanwhile, businesses in other countries have been increasing their R&D investments. These facts suggest that a review of the efficacy of the SR&ED tax credit is warranted, and that Canada cannot rest on the past success of this program.2
1 Organisation for Economic Co-operation and Development, Tax Incentives for Research and Development: Trends and Issues, Whats New August 2003 e-letter (Paris: OECD, 2003). 2 Brian Guthrie and Trefor Munn-Venn, Six Quick Hits for Canadian Commercialization (Ottawa: The Conference Board of Canada, 2005), p. 8.
Japan has made substantial progress since 2001, with its government investing in incentives that will help attract foreign companies into the biotech market. For example, 12 per cent of overall R&D spending is now tax-deductible.10
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It is important to note a few key contextual issues in relation to the funding of biotechnology R&D in Canada. First, the funding levels are relatively low, unlikely to propel Canada to a world-leading position in biotechnology research. Second, while Canada is reinvesting, other countries are also ramping up their rates of investment, particularly in R&D.11 Third, there is little to suggest that Canada is establishing serious focus as it relates to biotechnology. While comparator countries are linking their funding to issues of national priorityhealth care or defence, for exampleCanada does not seem prepared to make similar critical choices. Finally, R&D should be seen as a necessary but insufficient condition for success in this field. There are a number of critical factors that have to be addressedboth at a policy level and at a corporate levelbefore Canada can become a major player in biotechnology. BIOTECHNOLOGY WORKFORCE Perhaps one of the most critical issues common to all comparator countries is access to the highly skilled labour essential to the field of biotechnology. The greatest shortage in human capital is among workers who possess both business skills and an understanding of biotechnology science. There are also gaps in managerial, marketing, regulatory and governance positions. (See Table 4.) Not enough scientific researchers are available to meet the needs of industry, government and academia, especially for firms with fewer than 149 employees. In large firms, there is a significant lack of managerial talent.
Table 4 Number of Unfilled Biotech Positions by Employment Type and Size, 2001 Biotech positions Fewer than 50 employees 50149 employees 150+ employees
The Canadian Biotechnology Human Resources Study identifies a number of reasons for the gaps in types of employees and overall stock of employees. Survey respondents indicated some of the issues they currently face, or expect to face: inability to attract talent with necessary leadership skills; inability to compete internationally for talent; shortage of job-ready graduates; and inability of staff to adapt to changing business conditions.12
Human resource data devoted to biotechnology are among the most difficult to compile. But clearly the greatest shortage in human capital is among workers who possess both business skills and an understanding of biotechnology science.
It should also be noted that, according to the Organisation for Economic Co-operation and Development (OECD), human resource data devoted to biotechnology are among the most difficult to compile. The number of biotech employees by field is available in only four out of 15 OECD countries, and the number of biotech employees by qualifications is available in three or fewer countries. In addition, for the comparator countries that report such data, there is a lack of uniformity in biotech employment measures. Domestic policies alone are not likely to bridge the biotechnology skills gaps. Canada has a small labour force to begin with; the specialization required for biotechnology will make it a challenge to assemble the appropriate talent. Canada will necessarily have to attract talent from foreign countries in order to become, and remain, competitive in biotechnology. This alone will bring its own challenges, particularly as it relates to recognizing foreign credentials.13 There is a clear recognition by governments around the world that they face serious challenges in developing the capabilities of their workforces to compete successfully in global markets. Again, this is an area in which the United States shows a substantial lead against all other comparator countries, with more than 160,000 biotechnology employees in 1999 (the most
Scientific/R&D 103 Technicians 95 Regulatory/clinical 31 Production 41 Finance/marketing 43 Management and other 30 Total 343
95 27 73 82 35 20 32 32 21 27 24 (mgmt) 130 10 (other) 291 318
Source: Statistics Canada.
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recent data available).14 It is worth examining the steps being taken by the countries that are struggling to amass the labour force required to compete with the United States. (See Table 5.) CanadaWe currently lack the supply of skilled and educated workers required to become a global leader in biotech. The supply of technical and scientific workers is low, and we lack sufficient personnel with experience in management and regulatory issues. Of the biotechnology labour force currently in place, almost three-quarters work in the human health sector, suggesting limited diversity of labour in this field.15 Businesses indicate they are unable to attract the job-ready leaders they require to be competitive. There are several ways to improve this situation. One is to reduce the obstacles to attracting top talent from foreign countries. Another is to increase the flow of students into the science and engineering fields, which is lower here than in other countries. Canada is responding to biotech skill gaps in several ways: The Canadian Institutes of Health Research (CIHR) Strategic Training Initiative in health research brings together health mentors and educators to train and support research talent.16 National Science and Engineering Research Council of Canadas Collaborative Research and Development Grants fund universityindustry research partnerships to enhance the technical skills of students.17 Tax incentives encourage citizens to return home and work in biotech.18 The Human Resources Skills Development prior learning assessments are intended to improve recognition of foreign skills in all sectors.19
Table 5 Total Number of Biotechnology Employees Working in Canadian Firms Total number of employees in biotech companies 1997 1999 2001 199701 (percentage change) 31,924 62,613 62,242 95 Number of biotech employees* 9,019 7,748 11,897 32
*Statistics Canada defines biotech employees as those employees with biotech-related responsibilities as identified by respondents of its Biotechnology Use and Development Survey. Such employees may be in scientific/research and development, technician, regulatory/clinical, production, finance/marketing, management, or other related positions. Source: Statistics Canada.
The United Kingdom also identifies problems in its education system. Among them are inappropriate curricula and inadequate funding of undergraduate science courses in higher education. In response to these issues, the governments approach is to:21 demonstrate the support available for scientists working in ethically charged areas (e.g., animal experimentation); improve public confidence by acting upon scientific advice; use media to inform the public about the risks and benefits of biotechnology; attract talent through incentives (e.g., low personal taxation rates); abolish the tax-free ceiling on relocation expenses and make reasonable relocation expenses taxdeductible;22 and develop interdisciplinary education programs. On this last point, the United Kingdom is examining how well current research and education structures encourage interdisciplinary research that falls between arts and science. Further, they are examining what more government can do to strengthen links between research and teaching communities in these disciplines, particularly in higher education. JapanEstimates suggest that 1.1 million people will be involved in the biotech industry by 2010, and the Japanese government is concerned it will not have the required personnel.23 Japan compares itself to the United States in terms of how many people hold undergraduate
Of the biotechnology labour force currently in place, almost three-quarters work in the human health sector, suggesting limited diversity of labour in this field.
United KingdomThe supply of bioscientists remains a major problem, and there is a recognition that the number of students in science programs needs to increase. Like other countries, the United Kingdom lacks individuals with both business acumen and an understanding of bioscience.20
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and advanced degrees in medicine, agricultural chemistry, biology and pharmacology. As a result of its concerns, Japan is:24 consolidating and intensifying educational research in biotech-related fields (e.g., physical sciences, engineering, agriculture); establishing programs specifically directed at the life sciences; creating international networks of Japanese researchers, recognizing that it will not be able to rely solely on domestic personnel development; and working to establish more open evaluation of research in order to boost its professional reputation and increase remuneration for its researchers. Despite Japans effort to develop human resources, government regulation of hiring and personnel practices is centrally controlled, and may not permit the diversity that is characteristic of leading countries.25 IndiaSome argue that Indias biotechnology achievements to date are strongly linked to early initiatives taken by the Department of Biotechnology (DBT) in setting up institutional infrastructure for human resource development.26 In the mid-1980s, DBT was entrusted with the responsibility of evolving curricula for biotechnology courses and meeting demand for human resources in biotechnology. As a result of its efforts, more than 62 universities and institutions are now engaged in biotechnology training and education-related programs, and there are 55 centres for bioinformatics, which are linked with databases and networks around the world. The DBT offers: support for 20 masters-level science courses in general biotechnology, as well as four in agricultural biotechnology, one each in medical and marine biotechnology, and diploma courses in molecular and biochemical technology; support for overseas short-term training courses for at least 22 scientists a year, to expose Indian scientists to newer R&D trends;
support to expand the teaching of biotechnology at higher educational institutions; the development of a module on biotech for school curricula by the National Council of Education Research and Training and the boards of School Education; funds to develop centres of excellence at universities (in genomics, genetics and biotech), start new integrated programs in life sciences and biotechnology, upgrade equipment and library facilities, and recruit more researchers; and support to reduce the time required by scholars to complete Ph.Ds.27
Indias biotechnology achievements are strongly linked to early initiatives in setting up institutional infrastructure for human resource development.
AustraliaThere is a recognized need for improvement in Australias stock of managers for research, intellectual property and technology, as well as highquality researchers and experienced leaders.28 Human resource development issues are a key component of Australias National Biotech Strategy. Through this strategy, Australia is working to: monitor the demand and supply of biotechnology specialist skills; improve the management of research, intellectual property and technology within established and new biotech enterprises; develop, attract and retain high-quality researchers, particularly in those fields where Australia has strong capacities to commercialize biotech research outcomes; maximize technological awareness and capabilities throughout industries that will be developing and applying biotechnology; and monitor emerging skills needs in biotechnology and develop appropriate responses.29
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TRADE AND INVESTMENT There is very little trade and investment data related specifically to biotechnology. This is an important policy issue that requires consideration. Biotechnology is also an area where countries are competing to attract investment. CANADAS BIOTECHNOLOGY TRADE Canada offers incentives for foreign investment for all sectors (e.g., reduced corporate income taxes and depreciation allowances). In the Government of Canadas 2004 CEOs Guide to World Business Costs: Biotech R&D, Canada was ranked as the most cost-competitive country in biomedical R&D worldwide.30 The United Kingdom provides incentives that are directly relevant to biotech. For example, its Research & Development Allowance allows plant, machinery and buildings used in R&D to be written off against profits immediately.31 Australia is particularly active with its Biotech Strategy, which aims to create an internationally competitive environment for biotechnology, link research to industry, and better manage intellectual property. Australia has established a national investment agency, Invest Australia, to promote itself to the international and domestic business communities as an attractive investment location. Invest Australia is also responsible for identifying Australian biotechnology trade and investment opportunities, promoting sector capabilities in key overseas markets, and identifying potential investors and development partners from overseas markets for Australian projects and firms. India stands out among comparator countries for its biotech-related industrial policies. OECD findings on these policies suggest that India is making significant attempts to attract foreign investors to its biotechnology industry. India offers a wide range of incentives:32 100 per cent foreign equity investment in almost all sectors (and automatically in the drugs and pharmaceuticals sector); a fast-track clearance route for foreign direct investment; customs duty exemption on goods imported for use in government-funded R&D projects; customs and excise duty exemptions that recognize scientific and industrial research organizations;
a 125 per cent weighted tax deduction on R&D expenditure, a 100 per cent rebate on a companys own R&D expenditure, and a 125 per cent rebate if research is contracted in publicly funded R&D institutions; special fiscal benefits for joint R&D projects; and a three years excise duty waiver on patented products.
PROMOTING TRADE AND INVESTMENT In Canada, efforts to promote trade and investment are undertaken through International Trade Canada. This federal department works to improve market access, manage trade relationships and support Canadian businesses involved in biotechnology.33 The Technical Barriers and Regulatory Division identifies international barriers to trade and negotiations, makes representations at international fora, and pursues outreach efforts to help build fair, transparent regulatory capacity in other countries (e.g., engaging in multilateral and bilateral initiatives to reduce barriers). The Trade Commissioner Service promotes Canadas economic interests internationally by providing Canadian firms with business contacts and market information on local companies, as well as visit information, face-toface briefings and troubleshooting services (e.g., training in biotech for the trade commissioner service).
India is making significant attempts to attract foreign investors to its biotechnology industry by offering a wide range of incentives.
Finally, the Science and Technology Division provides support to the Canadian biotech community to identify foreign technology and potential venture capital partners. The Australian government is active in promoting biotech trade and investment in external markets, and in Australia from foreign sources.34 Recent and ongoing efforts include: a series of Biopartnering and Investment fora to help businesses plan their entries into the biotechnology market in the United States; the operation of offices in 108 cities and 63 countries to identify potential buyers or agents, and pass on specific
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business opportunities as they arise; and a mentoring and partnering program to make biotech companies investment- and collaboration-ready. In the United Kingdom, the Department of Trade and Industry (DTI) is responsible for policy, regulatory and trade issues related to biotechnology.35 Seeking to attract significant inward investment in bioprocessing assets, DTI has contracted a specialist company to identify and respond to potential inward investors and liaise with a bioprocessing-dedicated individual appointed to Invest U.K. The company is also developing a more coordinated approach for facilitating the evaluation of potential foreign-inward investors. COMMERCIALIZATION STRATEGIES In this section, we compare the biotech commercialization approaches adopted by the United States, Canada, the European Union, the United Kingdom, Germany, France, Japan and China. There are several commonalities among these countries in terms of general policies that encourage biotechnology. All have tax incentives. A small and mediumsized enterprise (SME) fund is common to the United States, the United Kingdom, Germany and France. Startup funds are found in the United States, Germany, France and Canada, while Japan and the United Kingdom provide start-up grants. There are also some similarities and differences in biotech-specific commercialization policies. Policies supporting R&D in biotechnology are common to all countries, while specific biocluster policies are found in all comparator countries except France and Canada. The United States claims to have 51 bioclusters, the United Kingdom nine; Canada, France and Japan each claim to have eight biotechnology clusters. In terms of business performance, the lead held by the United States is considered to result, in part, from its early beginning in this field. The commercialization of biotechnology products and services in the United States began in the mid-1970s, while Japan, the United Kingdom, France and Canada didnt really enter the market until the early 1980s. Germany didnt enter the field until the mid-1990s. The biotechnology companies in the United States were also quick to recover from the 2000 market collapse, while those in most other countries experienced slower recoveries.
United StatesSuperior commercialization of biotech products and services in the United States results from several factors. First, it is generally agreed that there is an efficient technology transfer system that links basic research with companies and investors. The United States is also considered to have sufficient venture capital and many clusters of biotechnology activity. However, these clusters have experienced mixed success. Of the 51 bioclusters in the United States, only nine are dominating the nations bioindustry.36
The biotechnology companies in the United States were also quick to recover from the 2000 market collapse, while those in most other countries experienced slower recoveries.
CanadaBiocommercialization began only in the early 1980s, and to date there is no biotech-specific commercialization policy in Canada. Instead, biotech is promoted with existing general policies. These policies are considered to be fragmented and are implemented by various ministries. Additional support has come through the establishment of the Canadian Biotechnology Secretariat in 1998, which aims to bring a new level of integration. While a common biotechnology strategy exists, it has not yet delivered the anticipated results. Canadian biotechnology companies identify a number of barriers to commercialization and trade. For example, from 2001 to 2004, the percentage of firms identifying access to capital as a key issue grew from less than one-half of those surveyed to almost two-thirds. The proportion of companies citing the time and costs involved in addressing regulatory issues as barriers fell from almost 90 per cent of those surveyed to about two-thirds during that same time period.37 European UnionWhile the onset of commercialization here lagged far behind that in the United States, Europe is now engaged in a fierce race to catch up. European countries are shifting from the restriction to the stimulation of biotechnology. Within Europe, the United Kingdom, Germany and France are dominant players. Despite recent progress, EU countries are challenged by insufficient start-up finance and limited access to venture capital, particularly at the late stage, as well as member-diversified regulation.
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United KingdomThe United Kingdom has a long history of successful basic research in universities and institutes. From the 1950s to 1990s, 10 of 12 key biotechnology innovations came from the United Kingdom (the remaining two were from the United States).38 Unfortunately, this research strength has not been matched by networking between the research institutions and industry. In an attempt to change gears, the region is now considering biotechnology-specific policies. Fostering clusters in the health/pharmaceutical sector is considered a key mechanism for maintaining the regions world position. Other efforts include a reduction in drug approval times, more efficient clinical processes, and the creation of the National Clinical Trials Agency to support clinical research and trials and facilitate a more rapid connection between researchers and patients. GermanyDespite a late start in the commercialization of biotechnology products and services, Germany now boasts a range of biotechnology assets, including strong government initiatives, active biotechnology firms, a solid base of manufacturers and basic research, a vigorous venture capital market, specialized banks for small and medium-sized enterprises, and a strong pharmaceutical industry. Where Germany suffers is in its rigid regulatory system for spinoffs, its extensive government intervention and the limited role played by universities. There are policies that prohibit spinoffs from universities and ban universities from selling government-owned patents. Though commercialization is highly active, sustainability is uncertain. Profitability is low due to liquidity problems for SMEs from the 2000 bubble collapse. This is exacerbated by the limit on government funds to start-ups and basic research. FranceFrances strengths are its government support, the excellent research capability of its universities and institutes, and its strong pharmaceutical industry. Also to its advantage are favourable biotechnology tax treatments, like the social security tax exemption for employment linked with R&D. While not as active as that of the United Kingdom or Germany, French government investment is shifting to support biotechnology clusters and networks.
France is challenged by a weak venture capital market, the small scale of biobusiness, a perception of too much government intervention, and a lack of networking among universities, research institutes and biotechnology firms. Pride taken by academics in basic research seems to get in the way, and there appears to be a cultural bias against entrepreneurship.
Frances strengths are its government support, the excellent research capability of its universities and institutes, and its strong pharmaceutical industry.
JapanIn response to the oil crisis and profit decreases in key industry sectors, and in an effort to diversify, major Japanese firms mobilized to pursue biotechnology in the 1980s. The lack of investment in basic research coupled with the presence of very few entrepreneurial firmsparticularly small and mediumsized firmsare considered the main reasons for Japans slow progress in this field. After the 1990s, Japanese biotechnology companies began to recover from past mistakes and increase investments in R&D. Recent government decisions are providing more support for small and medium-sized firms, spinoffs and networks. The fostering of bioclusters is now treated as a key tool in the achievement of national development in this field. ChinaBiocommercialization was initiated by public institutes in the mid-1980s for social and political reasonsprimarily to address population, food supply, health and environmental issues. Policy is highly fragmented among ministries, causing power struggles and weak networking among key players. Chinas economic structure prefers more mature industries. This is compounded by an insufficient supply of risk capital, a weak R&D infrastructure and low involvement of universities. China is now attempting to shift from a follow and copy the west model to a begin to innovate strategy. Real government efforts toward biocommercialization began in the late 1990s with the China National Center for Biotechnology Development (CNCBD), which plays a key role in supporting innovation in biotechnology.
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In the short- and mid-term, the prospects for Chinese biocommercialization are not bright. Economic development priorities are geared more to traditional sectors. The current industrial culture is not suited to the characteristics of biotechnology (e.g., world-class knowledge requirements, high-risk business activities, an appetite to fund capital-intensive R&D). But there is long-term potential for China. Its domestic biotech market is increasing, and Chinese scientists are returning from training in the west. To achieve its potential, China must address the need for incentives and a price control system, as government is both a primary customer and price-setting authority. REGULATORY APPROVALS In Canadaas in other countriesregulatory systems are often identified as barriers to trade. The External Advisory Committee for Smart Regulation (EACSR) heard from every major sector that the current regulatory system often acts as a constraint to innovation, competitiveness, investment and trade.39 Specific to biotechnology, the lack of harmonization between Canadas regulatory system and those of the United States, Japan and Europe presents a disadvantage for Canadas small biotech market.40 As a result, foreign-based companies may focus on larger, more lucrative American and European markets rather than on Canadas.41 There is no doubt that regulation can be a burden, but not all biotechnology products require heavy regulation. For example, even in the health sector, not all diagnostics require regulatory approval. Moreover, there are necessary, and often valuable, trade-offs that go with regulatory approvals. For instance, the presence of mad cow disease in Canadas beef stock has clearly introduced a barrier to commercialization and trade. In this case, regulation designed to prevent these kinds of disease occurrences can enable trade and commerce. Biotech is among the most heavily regulated technologies in Canada, affecting market access.42 The regulatory approval time for bioproducts in Canada is longer than that in the United Kingdom, the United
States and Australia.43 In recent years, there has been pressure to add non-scientific, socio-economic and ethical concerns to the regulatory review process in biotech, including market acceptance as a requirement for regulatory approval for new food.44 This added dimension may ultimately lengthen approval times. While Canadas target review times compare with those of other countries, they are rarely met.45 In 200102, biologics (or new active substances) were introduced to the Canadian market on average six months to two years later than they were in the United States.46 Governments may pursue such policies in hopes of protecting the domestic biotechnology industry or reflecting public concerns (e.g., requirements around labelling). Indeed, the importance of public confidence should not be underestimated. While Canada shows the longest approval time among comparator countries, the regulatory process also receives high marks in confidence from Canadians.
The regulatory approval time for bioproducts in Canada is longer than those in the United Kingdom, the United States and Australia.
There is a lack of standards regarding regulatory and intellectual property approaches shared between Canada and its major trading partners.47 According to the EACSRs final report, standards help reduce additional costs for investors and eliminate factors that might dissuade them from developing or investing in Canada. EACSR has recommended that Canada improve the international harmonization of its reviews, risk assessments and regulations with other nations. While changes to the regulatory system promise improved time-to-market for regulated companies, the impact of this change should be kept in context. It is just one factor among many that Canada is facing, including difficulty accessing risk capital, a lack of both scientific and managerial talent, and challenges in taking new products and services to international customers.
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NATIONAL APPROACHES A comparison of national regulatory approaches helps put Canadas general approach in context. CanadaBiotechnology falls under the mandate of four main bodies: Health Canada, the Department of Fisheries and Oceans, Environment Canada and the Canadian Food Inspection Agency.48 Each regulates biotech products under different acts. As in the United States, the regulation of biotechnology food products does not differ fundamentally from the regulation of conventional food products. But contrary to the approach used in the United States, Canada regulates biotechnology based on the traits, novelty or characteristics of the product rather than on the process by which it was created. United StatesThe regulatory guidelines established by the National Institutes of Health (NIH) as they relate to biotechnology link the degree of containment with the amount of hypothetical risk. In essence, the better the risks are understood, the more relaxed are the guidelines.49
United Kingdom and European UnionIn the United Kingdom, public opinion affects restrictions on imports of genetically modified food, and anti-GMO groups are active. In 1996, a moratorium was placed on the commercialization of GM crops due to a food scare that was sparked by a Monsanto shipment of GM soy.51 In 2001, the Department of Trade and Industry in the United Kingdom developed an online regulatory map, The Biotechnology Regulatory Atlas, to serve as a guide to the main technical regulation affecting biotech companiesparticularly for businesses without access to dedicated regulatory staff. The European Union has adapted the precautionary principle based on their social and political situation and history of food safety scares. The precautionary principle is fundamentally a risk management approach. It comes into effect when potentially dangerous effects deriving from a phenomenon, product or process have been identified, and when scientific evaluation does not allow the risk to be determined with sufficient precision. IndiaWhile some commentators argue that Indias regulatory policies are compliance-friendly, open and transparent,52 it is generally considered that there may be too many agencies involved in providing regulatory clearances related to biotechnology. To address the concerns of both the general public and business, efforts are underway to establish a single point of contact for Indias regulatory mechanisms to promote the speedy commercialization of biotechnology products and processes. INTELLECTUAL PROPERTY RIGHTS A majority of countries have existing intellectual property legislation that applies to biotechnology products, at least to some extent.53 Most stakeholders agree that patent protection affects trade in most sectors; overly restrictive policies can result in an outflow of both funds and expertise.54 Interpretations of the Agreement of Trade-Related Aspects of Intellectual Property Rights (TRIPS) allow for differences in patenting living organisms.
The regulation of biotechnology food products in the United States does not differ fundamentally from the regulation of conventional food products.
As mentioned above, the regulation of biotechnology food products in the United States does not differ fundamentally from the regulation of conventional food products. Existing food safety and environmental protection laws and regulations are applied to biotechnology products. For example, the Animal and Plant Health Inspection Service (APHIS) regulates based on the process (e.g., genetic engineering) by which products are developed rather than on the characteristics, traits or novelty of the end product. JapanJapan uses existing legislation to regulate genetically modified organisms. It lacks one coordinating body to oversee the involvement of different ministries in biotechnology.50 This has led to overlapping policies launched by competing agencies that serve to protect ministerial jurisdiction rather than respond to safety requirements.
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In the United States, living organisms can be patented under the following legislative language: any new and useful process, machine and manufacture, or composition of matter, or any new and useful improvement thereof.55 Plant breeders rights in the United States are protected under the Plant Patent Act (PPA) and the Plant Variety Protection Act. Patent protection is issued to most new and distinct asexually propagated varieties; and patentlike protection is issued for certain types of new sexually reproduced plant species. Japans patent system is similar to that of the United States: that is, a patent-worthy invention must use a law of nature in the highly advanced creation of technical ideas. Transgenic animals are patentable in Japan.56 In the United Kingdom, micro-organisms are patentable, but animals are not. Britain does not permit patenting of specific plant varieties. Patents and the intellectual property system in the United Kingdom are being refined to cope with the application of modern biotechnology to humans and other living things, such as novel strains of micro-organisms and plants.
Living organisms cannot be patented in Canada, whose patent laws are more restrictive than in other countries.57 (See Table 6.) It should be noted that this restriction could inhibit foreign companies from investing in the Canadian biotech market.
Table 6 Patenting Living Organisms Right to Right to patent Right to Right to patent micro- non-human patent plants patent seeds organisms animals Australia Canada India Japan United Kingdom United States Yes No Yes Yes Yes Yes Yes No n.a. Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes No Yes
n.a.: data unavailable. Sources: CanadaThe Canadian Biotechnology Advisory Committee; External Advisory Committee for Summary Regulations. IndiaDevinder Sharma, Death Knell for Low Cost Medicines. JapanZhiqi Chen and Alison McDermott, International Comparisons of Biotechnology Policies.
1 Andrew Devlin, An Overview of Biotechnology Statistics in Selected Countries (Paris: Organisation for Economic Co-operation and Development, 2003). STI Working Papers 2003/13. 2 Mergent, The North American Biotechnology Sectors: A Company and Industry Analysis, Industry Report, Biotechnology, March 2004. 3 Devlin. 4 Organisation for Economic Co-operation and Development, Governance of Public Research: Toward Better Practices (Paris: OECD, 2003). 5 Organisation for Economic Co-operation and Development, Science, Technology and Industry Outlook 2004 (Paris: OECD, 2004). 6 Ibid. 7 Strategic Health Innovations, Biotechnology Related Federal Funding Programs: A Strategic Analysis (Toronto: SHI, March 2004). 8 Organisation for Economic Co-operation and Development, Tax Incentives for Research and Development: Trends and Issues, Whats New August 2003 e-letter (Paris: OECD, 2003). 9 Ibid. 10 Organisation for Economic Co-operation and Development, Tax Incentives for Research and Development: Trends and Issues. 11 The Conference Board of Canada, Exploring Canadas Innovation Character: Benchmarking Against Global Best (Ottawa: The Conference Board of Canada, 2004). 12 Biotechnology Human Resource Council, 2004 Canadian Biotechnology Human Resources StudyThe Key to the Future (Ottawa: BHRC, 2004).
13 Factors affecting foreign investment, such as a competitive tax regime, business-friendly environment and immigration policies, also affect our ability to attract talent (e.g., Quebec offers a special tax break over a given number of years to foreigners who come to work in the biotech field). 14 Brigitte van Beuzekom, Biotechnology Statistics in OECD Members Countries: Compendium of Existing National Statistics (Paris: Organisation for Economic Co-operation and Development, 2001). STI Working Papers 2001/6. 15 Ibid. 16 Ottawa Centre for Research and Innovation, Implementing Canadas Innovation Strategy (Ottawa: OCRI, September 2002). 17 Ibid. 18 Organisation for Economic Co-operation and Development, Tax Incentives for Research and Development: Trends and Issues. 19 Human Resources and Skills Development Canada, Prior Learning Assessment and Recognition InitiativeGrants and Contributions. [online]. (Ottawa: HRSDC, November 2004), [cited March 30, 2005]. www.hrsdc.gc.ca/asp/gateway.asp?hr=en/hip/lld/lssd/plar/plardesc.shtml&hs=lxi. 20 Department of Health (United Kingdom), Our Inheritance, Our Future: Realising the Potential of Genetics in the NHS (London: Department of Health, June 2003). 21 Bioscience Innovation and Growth Team, Bioscience 2015: Improving National Health, Increasing National Wealth (U.K.: Bioscience Innovation and Growth Team, November 2003). 22 Ibid.
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23 Biotechnology Strategy Council, Biotechnology Strategy Guidelines (Draft): Three Strategies Opening the Way to Vast Improvements of the Human Experience: Our Health, Our Food, Our Lifestyles (Tokyo: Biotechnology Strategy Council, December 2002). 24 Ibid.
39 External Advisory Committee for Smart Regulations, Smart Regulation for CanadaDraft Final Report (Ottawa: EACSR, August 2004). 40 Zhiqi Chen and Alison McDermott, International Comparisons of Biotechnology Policies, Journal of Consumer Policy 21 (1998), pp. 527550. 41 External Advisory Committee for Smart Regulations.
25 National Academy of Sciences, National Academy of Engineering, Institute of Medicine, International Benchmarking of US Immunology Research. [online]. (Washington: National Academies Press, 1999), [cited March 31, 2005]. books.nap.edu/books/NI000993/html/35.html#pagetop. 26 Sachin Chaturvedi, Status and Development of Biotechnology in India: An Analytical Overview, RIS Discussion Working Papers (New Delhi: RIS-DP, 2002). No. 28/2002. 27 Ibid; Nagesh Kumar, ed., Asian Biotechnology and Development Review (New Delhi: Research and Information System, 2002). 28 Commonwealth Biotechnology Ministerial Council, National Biotechnology Strategy. [online]. (Canberra: CBMC, November 2000), [cited March 31, 2005]. www.industry.gov.au/assets/documents/itrinternet/ BA_strategy.doc?CFID=2207999&CFTOKEN=14677809. 29 Biotechnology Australia, Australian Biotechnology: Progress and Achievements. [online]. (Canberra: Biotechnology Australia, November 2000), [cited March 31, 2005]. www.industry.gov.au/assets/documents/ itrinternet/BA_progress.doc?CFID=9892342&CFTOKEN=57786646. 30 Government of Canada, CEOs Guide to World Business Costs: Biotech R&D (Ottawa: Government of Canada, 2004). 31 Organisation for Economic Co-operation and Development, Tax Incentives for Research and Development: Trends and Issues. 32 Devlin. 33 Department of Foreign Affairs and International Trade, Biotechnology Transforming Society: Creating an Innovative Country and a Higher Quality of Life: Report on Biotechnology 19982003 (Ottawa: DFAIT, 2003). 34 Biotechnology Australia. 35 Bioscience Innovation and Growth Team. 36 Joseph Cortright and Heike Mayer, Signs of Life: The Growth of Biotechnology Centers in the U.S., Cities and Suburbs [online]. (Washington, D.C.: The Brookings Institution, 2002), p. 3. 37 BIOTECanada, State of the Industry 2004. [online]. (Ottawa: BIOTECanada, 2004), [cited Jan. 27, 2004]. www.biotech.ca/PDFs/BTC_StateReport2004_en.PDF. 38 Philip Cooke, New Economy Innovation Systems: Biotechnology in Europe and the USA , in Industry and Innovation (2001).
42 Ibid.; Chen and McDermott. In their paper, Chen and McDermott (1998) state that biotechnology regulations can be used as a convenient tool for restricting trade. 43 N.S.B. Rawson, Time Required for Approval of New Drugs in Canada, Australia, Sweden, the United Kingdom and the United States in 19961998, Canadian Medical Association Journal (Feb. 22, 2000), p. 162. 44 Peter Pringle, The USEuropean Biotechnology InitiativeWorkshop 3: Segregation, Traceability and Labelling of GM Crops (Minnesota: December 2001). 45 External Advisory Committee for Smart Regulation. 46 Ibid. 47 Ibid. 48 Ibid. 49 Pringle; James Stamp, Trade in Biotechnology Food Products. [online]. (Washington, D.C.: U.S. International Trade Commission, January 2003), [cited March 31, 2005]. www.useu.be/Categories/Biotech/Jan1503TradeBiotechnologyStamps.html. 50 Biotechnology Strategy Council. 51 Pringle. 52 Chaturvedi. 53 Chen and McDermott. 54 External Advisory Committee for Smart Regulation. 55 Chen and McDermott. 56 Ibid. 57 Thomas Clarke, Impact of Canadas Patent System and Public Sector Technology Transfer System on the Growth of the Biotechnology Industry in Canada. [online]. (Nanaimo, B.C.: Stargate Consultants Ltd., February 2001), [cited March 31, 2005]. cbac-cccb.ca/epic/internet/ incbac-cccb.nsf/fr/ah00403f.html.
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CHAPTER 6
Conclusion
WHERE NEXT FOR BIOTECHNOLOGY IN CANADA? learly, there is tremendous biotechnology activity going on in Canada. The question is whether or not we will be able to gain sufficient traction in this field to provide Canada with a global competitive advantage. The chief concern is that our efforts will lack the depth and focus required to compete with countries that appear to be more motivated to succeed and more organized in their approach. As shown in the box Performance of Canada's Biotechnology Sectors, Canada is experiencing mixed success when we assess our biotechnology performance in various industry sectors. It is important to keep in mind that for countries with small economies (such as Canada), it is insufficient to look at sectoral performance through domestic lenses. Investments in R&D are typically too high to be recouped domestically, and specific target markets (e.g., health care patients with unique ailments) can be very small. Furthermore, the convergence of scientific domains that enable biotechnology makes it far too complicated for any one personlet alone any single countryto truly know the discipline. Canada must be part of a global knowledge community and pay particular attention to its ability to tap into the most advanced thinking in the world. Success in biotechnology will require a global presence and a global approach. Unfortunately, Canada is struggling with that approachparticularly on the business side. Currently, Canadas revenue growth in biotechnology is coming primarily from sales to the domestic market rather than to the global market.
Performance of Canada's Biotechnology Sectors Health With resources and investment comparable to that of the United Kingdom, Canada is not seeing similar revenues in the health sector. Canada has about the same number of biotech firms in agriculture as the United States, but about one-third the revenue. Canada appears to be a leader in the application of biotechnology to food processing, but this may simply reflect superior datacollection capabilities. Canada appears to lead the way in environment-related biotechnology, typically with higher revenues and more investment. There is little to suggest that Canadas ICT and biotechnology companies are converging to form bioinformatics companies.
Agriculture
Food processing
Environment
Bioinformatics
Natural resources Canadas capacity appears weak, but competition appears scarce. Canada had 10 per cent of the worlds forests and a forest industry worth $81.8 billion in 2003; it was the seventh largest oil producer in the world, and the third largest producer of natural gas, in 2004; 21 biotech firms with 120 employees are focused on natural resources. Aquaculture This is a niche in which Canada appears to have a first-mover advantage. However, this lead is not so large that other countries couldnt surpass it.
CANADAS BIOTECHNOLOGY PERFORMANCE Exhibit 3 is a duplicated of the analytical framework outlined in Chapter 1. Where sufficient data are available, it indicates the overall level of Canadas performance. The exhibit shows that Canada is performing relatively well in the creation of knowledgein this case, in the R&D investment in biotechnology. We are by no means the world leader, but for the time being, we are holding our own.
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Exhibit 3 Summary of Canadas Biotechnology Performance
Academia Creation of knowledge Diffusion of knowledge Transformation of knowledge Use of knowledge Value of knowledge Enabling Environment
Business
Government
THE FEDERAL GOVERNMENTS PERFORMANCE IN BIOTECHNOLOGY The governments performance in creating an enabling environment for biotechnology has been moderate. This assessment category includes a range of factors that provide a more nuanced understanding of the governments performance (illustrated in Exhibit 4). While the governments performance has been assessed as moderate, the specific performance of underlying factors varies. The Canadian publics confidence in the regulatory process is highjust behind confidence levels in Australia and the United States. Canadians are increasingly receptive to the development and use of biotechnology, a factor which may prove to be advantageous for companies deciding where to locate their operations. While the regulatory approval process in Canada is longer than in comparator countries, and is not considered to be sufficiently harmonized with those of other key nations, the system
Exhibit 4 Governments Biotechnology Performance
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Strong performance
Poor performance
Government
Enabling Environment
It is worth noting that we were not able to capture sufficient reliable evidence to evaluate a number of factors relating to biotechnology. This is no reflection on the importance of these factors. Limited data are available as they pertain to diffusion or transformation of knowledge. This is not surprising considering the relative immaturity of biotechnology. It also reflects nascent data collection capabilities. Overall, Canada is demonstrating weak performance as it relates to the creation of value from biotechnology. Our firms remain small; they have difficulty attracting investors; they are not generating substantial revenue flows; and market capitalization is low. Canadian firms continue to struggle in commerce related to biotechnology.
Public opinion Investment in research Skills Development Regulatory approval process Commerce (includes clusters) Trade Risk Capital
Strong performance
Poor performance
36
regulates based on the novelty of the technology (as discussed previously), and it is well respected by Canadian residents. The federal government has more than doubled its spending commitments to academic research in life sciences over the last five years, indicating a positive trend. However, this is considered by many to be insufficient, as the investments being made by other nations in R&D are much more aggressive. Government research institutes are also major players in the performance of basic research in biotechnology. The challenge will be connecting this research to the business community in order to help Canadian companies survive and grow in this increasingly competitive field. Canada also has a favourable tax treatment for R&D expenditures, but this advantage is waning as other nations respond with their own models. THE BUSINESS COMMUNITYS PERFORMANCE IN BIOTECHNOLOGY Canadas biotechnology business community is struggling. Of the 500 or so biotechnology companies in Canada, most are extremely small, and 10 of those companies account for 70 per cent of the total biotechnology market capitalization (2003). Investor confidence is weak, with a focus on short-term returns and concerns about unresolved issues around intellectual property. Canadian firms are having difficulty gaining access to the necessary research and scientific talent that is so critical to this field. They are experiencing similar challenges attracting the marketing, management and sales expertise required to succeed internationally. THE ACADEMIC COMMUNITYS PERFORMANCE IN BIOTECHNOLOGY The academic community is performing relatively well, considering the overall environment in which it is operating. Progress in biotechnology is occurring rapidly on the scientific side, and the talent we do have is up to global standards. However, the flow of students into the science and engineering fields is lower than in our comparator countries. Comparisons with other countries suggest there is room for improvement in the transfer of technology to Canadian businesses.
MOVING TO THE 21ST CENTURY PLATFORM In this report we have moved beyond many of the promises and hyperbole often associated with biotechnology to focus on the facts as they are currently available. Canada is at a critical juncture. We have a strong history in biotechnology, but our performance to date may be as accidental as it is deliberate. Our ability to achieve global-best status in specific aspects of biotechnology requires a more focused approach. There is an opportunity for the government to lead the development of a consolidated biotechnology strategy that will position Canadian scientists and companies at the forefront of global biotechnology activities. As we develop this strategy, we must apply the innovation policy test by asking: Does this new policy or program inhibit innovation in any way?
Our ability to achieve global-best status in specific aspects of biotechnology requires a more focused approach.
Governments around the world are making specific choices about where to focus their biotechnology activities. It is time for Canada to have the discussion that will establish our choices. We need an integrated biotechnology strategy that will encompass risk capital, the availability of highly skilled talent, and regulatory and policy changes. We need that strategy to capitalize on our emerging biotechnology assets and historic economic strengths. Canada needs to act quickly in order to capitalize on biotechnology. We are beyond the point of discussing whether or not Canada should embrace biotechnology as a technology platform for growth. It would be like discussing whether or not we should embrace electricity or the Internet. It is no longer a matter of if we should establish a biotechnology platform but how we will establish it.
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APPENDIX A
Key Indicators for Biotechnology Sectors, 2003 or Latest year

Human Health (all financial data is CDN$ millions) Amount of capital raised 1,460.0 11,137.5 806.5 3,003.1 e,12 Drug Number of approval biotech times products/ (monthly) Patents processes (199901)1 (199001)2 8,711a 4,327b 574b 013 2.2 1.5 1.9c 3.2 2.4 702 11,458 781 1,211 270 Country Canada3 United States4 United Kingdom5 Japan Australia India Number of firms 262 1,089 239 2277 ~86d,9 Revenues 1,999.0 44,803.2 5,697.7 11,982.9d,6 596.7d,10 R&D expenditures 1,316.0 23,930.5 2,485.5 Number of employees 9,194 123,136 13,199 ~4,5008 3,066 e,11
Notes: a Approved/on market/in production b Concept/in production/approved c EU centralized procedure d In 2002 e In 1999 Currency conversions: (US$ to CDN$) 1.4529 (US$ to CDN$) 1.5911 (US$ to CDN$) 1.5769 (US$ to CDN$) 1.2946 (EURO to CDN$) 1.6256 1 CMR International. 2 National Research Council of Canada. 3 Statistics Canada. 4 Department of Trade and Industry, United Kingdom. 5 Ibid. 6 Nikkei Biotechnology and Business. 7 AusBioInfo cited in Mergent. 8 Department of Industry, Tourism and Resources, Australia. 9 Biotech Consortium India Limited (BCIL). 10 Sachin Chaturvedi, Status and Development of Biotechnology in India: An Analytical Overview, Research and Information System for the Non-Aligned and Other Developing Countries. 11 OECD. 12 Ibid. 13 Although India has yet to introduce a novel health biotechnology product, it has a strong science base from which to launch innovations. Nandini Kumar et al., Indian BiotechnologyRapidly Evolving and Industry Led, Nature Biotechnology, 22, December 2004, p. 31. Source: The Conference Board of Canada. 12/31/1999 12/31/2001 12/31/2002 12/31/2003 12/31/2003
38
Agriculture (all data is in CDN$ millions) Number of firms 89 87 34 685 ~86a,7 R&D expenditures 66.0 221.1 131.7 Number of employees 1,155 8,548 1,638 ~6006 5,217b,9 Crop area Amount of (millions capital raised of hectares) c,1 133.0 149.7 0.0 1,276.1b,10 5.4 47.6 0.2 0.5
Country Canada2 United States3 United Kingdom4 Japan Australia India

Notes: a In 2001 b In 1999 c In 2004
Revenues 448.0 2955.3 882.7 716a,8
Currency conversions: (US$ to CDN$) 1.4529 (US$ to CDN$) 1.5911 (EURO to CDN$) 1.6256
12/31/1999 12/31/2001 12/31/2003
1 Clive James, Global Status of Commercialized Biotech/GM Crops, 2004. 2 Statistics Canada. 3 Department of Trade and Industry, United Kingdom. 4 Ibid. 5 AusBioInfo cited in Mergent. 6 Department of Industry, Tourism and Resources, Australia. 7 BCIL. 8 Sachin Chaturvedi, Status and Development of Biotechnology in India: An Analytical Overview, Research and Information System for the Non-Aligned and Other Developing Countries. 9 OECD. 10 Ibid. Source: The Conference Board of Canada.
Food Processing (all data is CDN$ millions) Country Canada1 Japan Australia India Number of firms 54 203 Revenues 1,266 1,156a,2 69b,5 R&D expenditures 23 Number of employees 761 ~3004 Amount of capital raised 17 -
Notes: a In 2002 b 200304, for the bio-industrial sector For the United States and United Kingdom, data are grouped under the agricultural sector (as available). Available data do not paint a clear picture of the food-processing industry in India; however, a bioindustrial sector exists, and is particularly evident in the market for industrial enzymes used in breweries and distilleries, baking and flour milling, food processing, and animal and fish feeds. 1 Statistics Canada. 2 Nikkei Biotechnology and Business. 3 AusBioInfo cited in Mergent. 4 Department of Tourism and Resources, Australia. 5 BioSpectrum. Source: The Conference Board of Canada.
39
Environment (all data is in CDN$ millions) Country Canada1 United States2 United Kingdom3 Japan Australia India
Notes: a In 1999 b In 2001 c In 2002
Number of firms 33 42 46 37 5 ~4b,7
Revenues 268.0 87.8 213.0 39.4c,4 4.1a,8
R&D expenditures 16.0 1.6 8.1 -
Number of employees 709 1,194 941 ~2506 -
Amount of capital raised 16.0 3.9 10.1 -
Currency conversions: (US$ to CDN$) 1.4529 (US$ to CDN$) 1.5769 (EURO to CDN$) 1.6256
1 Statistics Canada.
12/31/1999 12/31/2002 12/31/2003
2 Department of Trade and Industry, United Kingdom. 3 Ibid. 4 Nikkei Biotechnology and Business. 5 AusBioInfo cited in Mergent. 6 Department of Industry, Tourism and Resources, Australia. 7 BCIL. 8 OECD. Source: The Conference Board of Canada.
Natural Resources (all data are in CDN$ millions) Country Canada1 United States Number of firms 21 29 a,b,2 Revenues R&D expenditures 13 Number of employees 120 Amount of capital raised -
Notes: a In 2001 b 12 companies with a secondary focus 1 Statistics Canada. 2 OECD. Source: The Conference Board of Canada.
40
Bioinformatics (all data is in CDN$ millions) Country Canada1 United States2 United Kingdom3 Japan Australia India7 Number of firms 16 200 38 13 5 Revenues 3,652.7 84.5 209.7a,4 22.2b,8 R&D expenditures 26.0 1,585.0 82.9 Number of employees 244 14,907 788 ~200 6 Amount of capital raised 50.0 423.5 18.4 Number of key databases 0 5 3 1 0 0
Notes: a In 2002 b In 2004 1 crore is equal to 10 million. Rs 80 crore equal to approx US$18.4 million; US$1 = 43.4800 INR. Currency conversions: (US$ to CDN$) 1.5769 (US$ to CDN$) 1.2048 (EURO to CDN$) 1.6256 1 Statistics Canada. 2 Department of Trade and Industry, United Kingdom. 3 Ibid. 4 Nikkei Biotechnology and Business. 5 AusBioInfo cited in Mergent. 6 Department of Industry, Tourism and Resources, Australia. 7 Sachin Chaturvedi, Status and Development of Biotechnology in India: An Analytical Overview, Research and Information System for the Non-Aligned and Other Developing Countries. 8 BioSpectrum. Source: The Conference Board of Canada.
12/31/2002 12/31/2004 12/31/2003
Aquaculture (all data is in CDN$ millions) Country Canada1 United States Notes:
a In 2001 b 58 companies
Number of firms 15 70a,b,2
Revenues 14 -
R&D expenditures 7 -
Number of employees 167 -
Amount of capital raised -
with a secondary focus
1 Statistics Canada. 2 OECD. Source: The Conference Board of Canada.
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APPENDIX B
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115 06 Biotechnology in Canada

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115 06 Biotechnology in Canada

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Report December 2005

Biotechnology in Canada A Technology Platform for Growth

About The Conference Board of Canada

Biotechnology in Canada A Technology Platform for Growth

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

1970s Canola is developed by Canadian plant breeders. 1992 2002

The Conference Board of Canada

The Conference Board of Canada

Exhibit 1 Major Biotechnology Discoveries

Humans domesticate crops and livestock.

The word biotechnology is first used by a Hungarian agricultural engineer.

The Sumerians brew beer.

1,645 United States Japan

The Conference Board of Canada

Defining Innovation The Conference Board defines innovation as:

Exhibit 2 The Innovation Framework Environment

Use Value Diffusion

Exhibit 3 Summary of Canadas Biotechnology Performance

Source: The Conference Board of Canada.

The Conference Board of Canada

The Conference Board of Canada

The Biotechnology Platform

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Global Biotechnology Context

The Conference Board of Canada

United Kingdom Australia

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

Canadas Performance, Sector by Sector

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

788 United States United Kingdom

The Conference Board of Canada

United Kingdom 3 2 n.a. 2 3 n.a. n.a.

Japan 2 n.a. n.a. 4 2 n.a. n.a.

India 5 3 3 5 4 n.a. n.a.

The Conference Board of Canada

The Conference Board of Canada

Policy Issues for Canada

The Conference Board of Canada

Source: Statistics Canada.

The Conference Board of Canada

95 27 73 82 35 20 32 32 21 27 24 (mgmt) 130 10 (other) 291 318

Source: Statistics Canada.

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada

The Conference Board of Canada