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Report December 2005

Biotechnology in Canada

A Technology Platformfor Growth

INNOVATION AND KNOWLEDGE MANAGEMENT


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PrefaceBiotechnologywhich can perhaps be described mostsimply as biology plus technologyis poised to affect

Canada and the rest of the world in a variety of dra-matic ways over the next decade. Its importance to theCanadian economy will continue to increase accordingly.

Canada therefore needs to act quickly to capitalize on theopportunities presented by biotechnology. Our past per-formance in this sector, while respectable, does not guar-antee future success. Canadas ability to be global-best inbiotechnology will require a more focused approach thatcapitalizes on our emerging biotechnology assets and his-toric economic strengths.

Biotechnology in Canada: A Technology Platform for Growth evaluates Canadas performance in biotechnol-ogy relative to that of other countries, and identifiesthe key issues that business, government and academiamust address in order to help Canadas biotechnologysector compete successfully in the global marketplace.Its purpose is to establish the foundation for a sophisti-cated, nuanced, ongoing discussion about biotechnol-ogy in Canada.

Biotechnology in Canada: A Technology Platform for Growthby Trefor Munn-Venn and Paul Mitchell

About The ConferenceBoard of CanadaWe are: A not-for-profit Canadian organization that

takes a business-like approach to its operations. Objective and non-partisan. We do not lobby

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Independent from, but affiliated with, TheConference Board, Inc. of New York, which

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2005 The Conference Board of Canada *Printed in Canada All rights reservedISBN 0-88763-713-2Agreement No. 40063028*Incorporated as AERIC Inc.

Forecasts and research often involve numerous assumptions and datasources, and are subject to inherent risks and uncertainties. This informationis not intended as specific investment, accounting, legal or tax advice.


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Contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .i

Chapter 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1What Is Biotechnology? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1The Rapid Pace of Biotechnology Discoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Governments Are Betting on Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Chapter 2 The Biotechnology Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7What Are Technology Platforms? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Is Biotechnology a Technology Platform? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Chapter 3 The Global Biotechnology Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Global Competitive Pressures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Dominance of U.S.-Based Biotech Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Canadian Biotechnology Companies Are Facing a Cash Crunch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Public Perceptions of Biotechnology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Finding Our Role in the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Chapter 4 Canada's Performance, Sector by Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16Human Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Food Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Bioinformatics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Aquaculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Canada's Relative Biotechnology Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Chapter 5 Policy Issues for Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Funding Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Biotechnology Workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Chapter 6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Where Next for Biotechnology in Canada? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Canada's Biotechnology Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Moving to the 21st Century Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Appendix A Key Indicators for Biotechnology Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Appendix B Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43


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AcknowledgementsThis report has been produced under the direction of Gilles Rhaume and Brian Guthrie. The projectmanager 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 ConferenceBoard 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.


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B iotechnologywhich could be described mostsimply as biology plus technologyis beingembraced rapidly by the worlds most advancedcountries. It can be applied to many economic and socialsectors, and has the potential to improve our ability totreat debilitating diseases, clean up the environment,produce new goods and services, and compete interna-tionally. Biotechnology is positioned to have as signifi-cant an affect on Canada over the next 15 years as theInternet has had over the past 15 years. Canada must bepoised to take advantage of its socio-economic potential.

While Canada has the opportunity to capitalize onbiotechnology, we face a paradox: we have enjoyed a his-tory of good performance in biotechnology thus farasthis report detailsbut we are not well positioned for the

future. We lack focus at the national level; our commer-cialization record has been weak; we have a limited abil-ity to harness risk capital; and we have a critical shortageof highly skilled talent.

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 hypeand promises to the facts. Our objective is to establishthe foundation for a more sophisticated and nuanceddiscussion about biotechnology in Canada by gaugingthe countrys performance relative to that of globalleaders, and by identifying the key issues that business,government and academia must address.

LACK OF FOCUSED INVESTMENT

Canadas modest investments in biotechnology arespread across a range of industry sectors, including agri-culture, health, environment, food processing, aquacul-ture, bioinformatics and natural resources. Meanwhile,other leading countries are making more strategic deci-sions about their investments in order to achieve interna-tional competitive advantages.

For example, the United Kingdom has set the goal of becoming the most efficient and effective setting for con-ducting clinical trials in the world. 1 In India, two-thirdsof all biotech investment is directed to the health sector. 2

In the United Sates, the lions share of government invest-ment 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 thenext 10 years to improving medical countermeasures(such as vaccines) against bioweapons. 3

The past performance of Canadas biotechnologyresearchers and businesses is no guarantee of futuresuccess. Canada is at a significant juncture. Our interna-tional success in biotechnology requires that we developcritical mass in our research investments, in our talentpool and in our biotechnology companies. To become

global-best, we need to connect our biotechnologystrengths with our conventional economic strengths. Itis time for a renewed biotechnology strategy. It is timeto set clear targets against which we will evaluate ourperformance internationally.

EXECUTIVE SUMMARY

Biotechnology in Canada

A Technology Platformfor Growth


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POOR COMMERCIALIZATION RESULTS

Canada has a substantial pool of biotechnologycompaniesthere are about 500but many of thesecompanies are very small. In fact, 10 of them account for70 per cent of the market capitalization of all Canadianbiotechnology companies. These companies are impor-

tant to Canadas growth, but they are not yet deliveringtangible returns.

Success in biotechnology will require a global pres-ence and a global approach. Unfortunately, Canada isstruggling with that approach, particularly on the businessside. Currently, Canadas revenue growth in biotechnol-ogy comes primarily from sales to the domestic marketrather than from global customers.

Canada is struggling with a global approach,which is required for success in biotechnology.

Investments in biotechnology research and develop-ment (R&D) are typically too high to be recoupeddomestically, and specific target markets (e.g., health-care patients with unique ailments) can be very small.Furthermore, the convergence of scientific domains thatenable biotechnology makes it far too complicated for anyone personlet alone any single countryto truly know

the discipline. Canada must be part of a global knowledgecommunity and pay particular attention to its ability to tapinto the most advanced thinking in the world.

LIMITED ACCESS TO RISK CAPITAL

Part of the commercialization challenge facingCanadian biotechnology companies is the difficulty theyhave 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 centof publicly traded biotechnology companies in Canadahave less than one year of cash available, while another14 per cent have less than two years available. While anumber of Canadian companies have been able to raisecash successfully, earlier-stage and smaller public compa-nies are in a precarious positioneven more so than dur-ing the market decline of 2002.

Unresolved issues in the global arenasuch as theprotection of intellectual propertycan also negativelyaffect investor confidence. Intellectual property protectionfor biotech companies will continue to be pursued by theUnited States and Europe. The resolution of these issuesmay help to boost investor confidence in biotechnologyproducts and global marketplace opportunities. 4

As a result of these uncertainties, investors nowdemand short-term returns instead of holding out forthe long-term promises of biotechnology. As one ana-lyst phrases it, Gone are the investors with a ten- totwenty-year horizon willing to wait for the scientificbreakthrough that will bring enormous financial bene-fits. They are now content with a smaller return butinsist on a much shorter time frame; five years is nowthe norm. 5

SHORTAGE OF HIGHLY SKILLED TALENT

The field of biotechnology requires both world-classscientific talent and globally oriented managerial talent.

The scientific talent is required to conduct researchand development and to transform breakthroughs intonew products and services. The science of biotechnol-ogy is so complex that no single individual, company orcountry will be able to gain a monopoly on the knowl-edge. As a result, it is necessary for scientists to reach

into the best minds, labs and companies around theworld to build on other research.

A successful biotechnology company also requiresmanagement talent that understands the fundamentalsof the underlying science, and is experienced in takingbiotechnology products and services to market globally.

Yet research into issues faced by biotechnologyemployers 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 biotech-nology, and international competition for top talent willonly grow more fierce in the coming years.

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HOW DOES CANADA MEASURE UP?

Overall, Canada is struggling to develop globallycompetitive biotechnology firms. Our companies aresmall; they have difficulty attracting investors; theyare not generating substantial revenue flows; and mar-ket capitalization is low. In these respects, Canadian

firms face challenges similar to those faced by manyother countries. This is in large part owing to the factthat biotechnology is, in many ways, still in its infancy.In key sectors, here is a snapshot of how Canada is per-forming against other key players:

Health Despite resources and investment compa-rable to those of the United Kingdom, Canada isnot seeing similar revenues in the health sector.

Agriculture Canada has about the same numberof biotech firms in agriculture as the United States,

but just one-third the revenue. Food processing Canada appears to be a leader in

the application of biotechnology to food processing,but this may simply reflect superior data collectioncapabilities.

Environment Canada appears to lead the way inenvironment-related biotechnology, typically withhigher revenues and more investment.

Natural resources Despite the presence of enor-mous natural resources, Canada has done little tocapitalize on them. That said, other nations are

not focusing on this sector either. Bioinformatics There is little to suggest that

Canadas information and communications technol-ogy (ICT) companies and biotechnology companiesare converging to form bioinformatics companies.

Aquaculture This is a niche in which Canadaappears to have a first-mover advantage. However,this lead is not so large that it would be difficultfor other countries to surpass it.

The governments performance in creating an enabling

environment has been mixed. Canadian public confidencein the regulatory process is highjust behind Australiaand the United States. Moreover, Canadians are increas-ingly receptive to the development and use of biotechnol-ogy, a fact which may prove to be advantageous for com-panies deciding where to locate their operations. However,the regulatory approval time in Canada is longer than incomparator countries and is not considered to be suffi-ciently harmonized with those of other key nations. 7

While the federal government has more than doubledits spending commitments to academic research in lifesciences over the last five years, many industry playersconsider this spending to be insufficient, since the R&Dinvestments being made by other nations are much moreaggressive. Government research institutes are alsomajor players in the performance of basic research in

biotechnology. Canada has a favourable tax treatmentfor R&D expenditures, but this advantage is waning asother 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 relativelywell, considering the overall environment in which itis operating. Progress in biotechnology is occurringrapidly on the scientific side, and the talent we do havemeets global standards. However, the flow of studentsinto the science and engineering fields is lower thanin our comparator countries. Comparisons with othercountries suggest there is room for improvement inthe transfer of technology to Canadian businesses.

CRITICAL ISSUES FACING CANADA

Based on this analysis, a number of key questionsand issues require further detailed examination if Canadais to embrace the biotechnology platform seriously. Whilewe have organized these questions and issues around keyplayersbusiness, the academic community and govern-mentit is important to recognize that each of theseplayers shares responsibility for addressing these issues.

KEY ISSUES FOR BUSINESS Why do Canadian biotechnology firms struggle to

commercialize? It is clear that there are challengesrelated to obtaining capital and attracting the rightlabour force, but related research suggests thatCanadian companies struggle to take new productsand services to market. 8 What fundamental changesare required to build a culture of commerce, a focuson customers and an emphasis on global markets, allof which are so necessary to Canadas future success?

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Where should Canada play in the internationalbiotechnology supply chain? It is not reasonable tobelieve that Canada will become the dominant playerin all sectors and supply chains building on biotech-nology. Can we really expect to be global-best inthe application of biotechnology to agriculture and health and natural resources and aquaculture? The

answer, clearly, is no. The next question, then, is: inwhich niches of global supply chains can we becomedominant? The United Kingdom has set the goal of becoming the most efficient and effective setting forconducting clinical trials in the world. 9 Where willCanada 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 ACADEMICCOMMUNITY How can we improve the transfer of knowledge and

technology from Canadas publicly funded researchlaboratories to Canadian businesses? Canadasresearch labs have a long history of developing majorbiotechnology breakthroughs, but speed is essentialif Canada is to be successful. The rapid flow of

knowledge to emerging and existing businesses willdetermine, in part, whether or not Canada can keeppace with other leading nations. Identifying barriersto this flowwhether a lack of research talent inbusiness, diverse intellectual property approaches,or poor connections between business and univer-sity labsis a critical first step.

How can we ensure that Canadas universities are preparing graduates with the right skills? Whilethis is a perennial issue, ensuring the right fit withbiotechnology is particularly important. Canadas

firms will not be able to grow and respond toopportunities without the right staff. The flip sideis that many of Canadas biotechnology firms aresmall and on the brink of bankruptcy. If the busi-nesses are there, but the graduates are not, Canadafails. If the graduates are there, but the businessesare not, we may be training the next-generationlabour forces of our competitors.

KEY ISSUES FOR GOVERNMENT How can government facilitate the development

of a biotechnology platform? There is a clear rolefor Canadas governments to play in this respect.They need to recognize biotechnology as the nexteconomic growth platform for Canadathe succes-sor to the information and communications technolo-

gies that have underpinned our economic growthin recent years. We need frank discussion aboutwhere to find leadership. The 2004 Speech fromthe Throne identified biotechnology as a technologyplatform that is essential to Canadas ongoingprosperity. 10 But roles and responsibilities are frag-mented across numerous federal bodies, includingthe Department of Fisheries and Oceans, Agricultureand Agri-Food Canada, Industry Canada, NaturalResources Canada, Health Canada, InternationalTrade Canada, and Environment Canada.

How will Canada address the demand side of biotechnology? Discussions of biotechnology aretypically about supply-side issues: R&D invest-ment, skilled workers and risk capital. Considerationshould be given to improving the connections betweenCanadas biotechnology firms and both domesticand global customers. Who are these customers,and what are their specific needs? How can weattract foreign direct investment, with a particularemphasis on biotechnology? What conditions canwe 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 occur-ring around the world. To capitalize on those break-throughs, Canada will need to be able to reach intothe international science community and bring theleading ideas home to Canadian firms. Governmentwill have to help attract the skilled individuals whowill transform global knowledge into new devices,products, services and therapies. Not only does Canadastill struggle to recognize foreign credentials, but

there does not seem to be a cohesive effort to attractthe best talent in the world and keep it in Canada.Businesses also have a key role to play, and willneed to pay top dollar for top talent.

How can Canada leverage its natural strengths inbiotechnology? In this analysis, we identify sevendifferent sectors in which biotechnology is emerg-ing. The diversity of Canadas economy allows for

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this level of breadth. However, competing nationsare making specific decisions to become dominantin particular sectors. Will Canada continue to try toplay in all areas of biotechnology, or will we havethe discipline necessary to make the difficult choicesthat will let us become global-best in particularniches? Research and capital investments can be

massive. Canada does not have the wherewithal toinvest in all subsectors. For example, connectingthis emerging science to areas of conventionalstrengthnatural resources and agriculturemayhelp to improve Canadas biotechnology opportuni-ties. In the context of limited resources, much fur-ther analysis is required to identify these strengths.

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1 U.K. Department of Trade and Industry,Bioscience 2015: Improving National Health, Increasing National Wealth [online]. A Report to the Government bythe 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 FocusFrom 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 ofCanada, 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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Much of the current discourse on biotechnol-

ogy tends to focus on promises, but soundpolicy and investment decisions must go

beyond sound bites. Every advance in biotechnologyseems to stir up forecasts of how this field will transformsociety. Advocates promise alleviation of world hunger,greater economic prosperity, and dramatic opportunitiesto protect the environment and improve human health.Detractors project much gloomier outcomes. The com-plexity and novelty of biotechnology require that thesedecisions be grounded, wherever possible, in fact.

As Canada plans for the future, it is necessary toengage in a more nuanced discussion of biotechnol-ogyone 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 competitivepressures;

examining where Canada can go next with biotech-nology; and

identifying areas of further research.

WHAT IS BIOTECHNOLOGY?

The origins of biotechnology date back 10,000years to the domestication of crops. A technique suchas crop manipulation could be described as traditionalbiotechnology, which used natural organisms, productsand processes that predate modern biotechnology meth-ods. Modern biotechnology can involve genetic manip-ulation through modern molecular biology techniques.

Today, a broad range of biotechnology applicationsare in use or development, each offering benefits andrisks. Just a few examples are: new vaccines; geneti-cally modified, pest-resistant plants; replacement heartvalves that are better accepted by the body; humaninfertility treatments; bacteria that can clean up envi-ronmental contamination; and the use of corn as a fuel

source. 1 In this context, Canadas performance to datehas been quite respectable. (See box, Major CanadianContributions to Biotechnology.)

DEFINING BIOTECHNOLOGYDespite its long history, there is no commonly

accepted definition of biotechnology. Also known asmodern biology, bioengineering or genomics, biotech-nology can be described most simply as biology plustechnology. 2

The Canadian Environmental Protection Act definesbiotechnology as the application of science and engi-neering in the direct or indirect use of living organismsor parts or products of living organisms in the naturalor modified forms. 3

However, there is growing recognition of the impor-tance of being able to identify, measure and analyzebiotechnology consistentlynone of which are possiblewithout a common definition. Generally, one of twoapproaches is taken in defining biotechnology. The firstis a list-based approach that identifies specific activitiesthat could be construed as biotechnology. Only a few

CHAPTER 1

IntroductionMajor Canadian Contributions to BiotechnologyCanadians have played an important role in the ongoing developmentof biotechnology. For example:

1922 Insulin for diabetes is discovered by Canadian doctorsSir Frederick Grant Banting and C.H. Best.

1970s Canola is developed by Canadian plant breeders.1992 A Canadian programAnalysis and Technology

Progresscontributes to the Human Genome Project.2002 Canadian researcher Robert Holt leads an international

team of scientists who crack the genetic code of the mos-quito that carries the deadliest strain of malaria.

2003 Canadians play a key role in dealing with severe acute

respiratory syndrome (SARS): the Michael Smith GenomeSciences Centre sequences the genome of the coron-avirus. The breakthrough could lead to diagnostic testsand the development of a vaccine.

2003 Dr. Steve Scherer leads an international research team thatdeciphers human chromosome 7, which holds the gene forcystic fibrosis.

The Conference Board of Canada 1


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countries use list-based definitions. For the purposesof this study, we place greater emphasis on the secondapproach, which is a single statement definition thatattempts to describe the field broadly.

Statistics Canada and the Organisation for EconomicCo-operation and Development (OECD) share similar

definitions of biotechnology. In fact, Statistics Canadais perhaps the most advanced organization in the worldwhen it comes to measuring biotechnology. The OECDdefinition was adopted based largely on original work conducted by Statistics Canada. The single definitionof biotechnology is as follows:

The application of science and technology to livingorganisms as well as parts, products and modelsthereof, to alter living or non-living materials for the production of knowledge, goods and services. 4

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 Boardof Canada will adopt the single definition shared by theOECD, Statistics Canada and other organizations. Thisdefinition is the most mature among competing defini-

tions and has the capacity to adapt as the field of bio-technology advances. It is also the closest among alldefinitions to gaining universal acceptance.

THE RAPID PACE OF BIOTECHNOLOGYDISCOVERIES

The pace of biotechnology discoveries continuesto accelerate. Taking the United States as an example,domestic biotechnology companies have brought187 new medicines to market thus far, serving more

than 325 million patients. In 2003, the U.S. Food andDrug Administration (FDA) approved 25 new biotechmedicines and vaccines, including products to treatHIV/AIDS, cancer and rare genetic disorders. 5

In Exhibit 1, a number of the major biotechnologydiscoveries have been plotted on a timeline to illustratethe increased rate of discoveries in the last centuryeven the last 20 yearsas well as to illustrate the

important contributions that Canada has made. Giventhe rapid pace of biotechnology discoveries, no countryshould take current leads for granted. In order to keeppace with the aggressive rate of progress, countries thatintend to be major players in biotechnology will needto develop a labour force that possesses strong capabili-ties in advanced sciences.

GOVERNMENTS ARE BETTING ONBIOTECHNOLOGY

Many governments view biotechnology as a poten-tial new growth engine. The most common analogyrelates its impact to that of information and communica-tions technologies (ICTs) when they emerged. As thisnew technology platform arose in the mid-1990sbestcharacterized by the arrival of the Internetnationsaround the world invested heavily, expecting to enable

new economic opportunities.

In Canada, the Connecting Canadians initiativeled by the federal government sought to ensure thatall Canadians had access to the Internet. Internationalcomparisons show that Canada is now among the mostwired nations in the world, with high penetration ratesand affordable pricing.

As e-business becomes more commonand isincreasingly referred to simply as businesscountries

are searching for the next technology platform thatwill drive innovation. Canada is no exception. The2004 Speech from the Throne identified three technol-ogy platforms as essential to Canadas ongoing pros-perity: information and communications technologies,biotechnology and advanced manufacturing. 6

World leaders are looking to biotechnology as asource of increased revenues, new companies, increasedemployment and a hedge against offshoring. With humancapital as their primary resource, nations do not need to

be rich in natural resources to be players in biotechnol-ogy. The competition will be particularly fierce as non-resource countries (e.g., Singapore, Japan, South Korea)fight to capitalize on these new opportunities. For exam-ple, when Singapore launched Biopolisa state-of-the-art research facility established to attract the best scien-tists and companies in the field of biotechnologyitannounced that biotechnology represents the future of the country.

2 The Conference Board of Canada


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E x

h i b i t 1

M a

j o r

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At the Bio2002 conference held in Toronto, repre-sentatives from Singapore asked attendees to outlinewhat they would need to move their businesses toSingapore. This active solicitation, coupled with theoutstanding quality of the facilities, is attracting leadingbiotechnology companies and scientists. As we willexplore later in this report, other nations are increasing

their investments in basic research, creating new policymechanisms to promote the development of biotechnol-ogy capabilities and businesses, and establishingbiotechnology clusters.

In addition to economic growth, world leaders arealso looking to biotechnology to address other issues.With the global population expected to grow to 9 bil-lion by 2050, many are turning to solutions promisedby biotechnology to address the looming global short-ages of food and clean water.

Governments are also investing in biotechnology tohelp offset rising health-care costs driven by aging popu-lations. For example, diagnoses based on genetic makeuprather than symptoms could fundamentally transform notonly health care but also the insurance industry. Someargue that changes brought about by biotechnologycould 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 substitutesfor non-renewable energy sources (such as coal andoil)for example, using biofeedstocks like woodwaste, corn or wheat. Still others see important securityapplications from biotechnology to prevent tamperingwith cargo or to ensure the safety of military personnelor the public.

Governments are acting on these promises, aggres-sively positioning themselves in this field. Chart 1 showsthe biotechnology research and development (R&D)

budgets of the United States, Japan, Australia, Canadaand India for 2002. The total investment represented inthis chart is approximately CDN$48.4 billion. The scaleof the investment by the United States cannot be ignored.It demonstrates a significant commitment, and may alsoindicate the strategic importance of biotechnology to theUnited States.

RESEARCH APPROACH

Our first challenge in preparing this report wasto identify a framework that could enable a detailed,systematic and cogent analysis of biotechnology. Itwas necessary for the framework to accommodate anassessment of the key actorsbusiness, academia and

governmentas well as the key activities related tobiotechnology.

During our consultation on the framework, the topicof innovation surfaced often. Indeed, innovation is animportant and useful concept for analyzing an emerg-ing, wide-ranging field such as biotechnology.

An innovation-centric approach is effective becauseit 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 economicand social value. Key elements of the framework are:

environment the overarching conditions that influ-ence innovation (e.g., policy, regulations, leadership);

creation generating new knowledge or significantlyimproving existing knowledge (e.g., research);

diffusion sharing knowledge (e.g., publishing,collaboration, teaching);

transformation adopting or adapting knowledgefor a specific purpose (e.g., creating new products);

Chart 1Government Spending on Biotechnology R&D, 2002(CDN$ billions)

Sources:United StatesNational Science Foundation. Exchange rate usedas of Jan. 1, 2003: CDN$1.5760000000 = US$1JapanOECD/TIP.Australia2005Biotech Industry Review . Exchange rate used asof Jan. 1, 2003: AUS$1= CDN$0.8850816000.CanadaStatistics Canada.IndiaSachin Chaturvedi.

United States Japan Australia Canada Indi05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000 44,825

1,645 1,115 695 77



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use delivering or implementing new or signifi-cantly improved goods, processes, programs orservices (e.g., selling new products, using a newprocess); and

value social or economic value from transformedknowledge (e.g., revenue, profit, reduced health-care costs).

Exhibit 2 illustrates how these six factors interactwith one another in a dynamic and interactive manner.

In order to understand Canadas relative positionin the world, we compare Canada against countriesthat are considered leaders in the field. Specifically,the comparator countries are the United States, theUnited Kingdom, Japan, Australia and India. We havealso included other countries in our analysis wherethey provide greater insight into our understanding of Canadas biotechnology performance. We also evaluatethe contributions of the key actorsbusiness, govern-ment and academiaas they relate to buildingCanadas innovation capabilities in biotechnology.

As shown in Exhibit 3, this framework enables us tosee a range of factors and actors simultaneously. Notethat the availability of data varies significantly by bothactor and innovation factor.

FAIR WARNING ABOUT THE DATAThis study is based on a literature review of second-

ary research. Wherever possible, we compare Canadasperformance against that of other leading nationstheUnited States, the United Kingdom, Japan, Australiaand Indiain sectors where biotechnology is activelyapplied. It is important to note a number of caveatsabout the data used in this study:

Biotechnology data collection is still rudimentary.While there are common data-gathering practices thatwill align data across countries, the implementationof these practices is in its infancy. The sophisticationof data collection is also uneven across countries.

Exhibit 2The Innovation Framework

Value

Use

Creation

Diffusion

Transformation

Environment

Environment

Defining Innovation

The Conference Board defines innovation as:

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.


Exhibit 3Summary of Canadas Biotechnology Performance

Source: The Conference Board of Canada.

GovernmentBusinessAcademia

Creationof knowledge

Diffusionof knowledge

Transformation of knowledge

Use of knowledge

Valueof knowledge

EnablingEnvironment

Strong performance Moderate performance Poor performa

n.a. n.a. n.a.

n.a. n.a. n.a.

n.a.

n.a.

n.a.


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Canada appears to be the most advanced in collectingbiotechnology data. This is the result of a focusedeffort by Statistics Canada to develop a clear under-standing of this field. Their efforts make data analy-sis easier in some respects but more difficult in oth-ers. While we can have a high level of confidence inthe 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, theavailability of data varies both by actor and by com-ponents of the Innovation Framework. We note datagaps throughout this report.

Comparing biotechnology sectors is difficult.Sectoral parameters are unclear, and activitiesundertaken outside dedicated biotechnology firmsare difficult to capture. As a result, conventionalbusinesses that are employing new biotechnologyprocesses 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 beenbased on less stringent assessment criteria.

The scale of biotechnology activities in the United States dwarfs that of all other countries. The scaleof biotech activity in the United States is so muchlarger than in other countries that it can create dis-

tortions. It is plausible that activities considered toosmall to report in the United States may be greaterthan the total efforts of other countries. Therefore,care should be taken when identifying potentialcompetitive advantage against the United States.

Firm count is at best a rough measure of activity .A simple count of the number of firms should notbe considered an accurate reflection of the size,sustainability or success of those firms; nor shoulda high firm count should not necessarily be consid-ered 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], [citedOctober 31, 2005]. www.bio.org/speeches/pubs/milestone04/healthc

6 Adrienne Clarkson, Speech from the Throne. Presented in the SenatChamber, 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 ofLeadership, inBioScience World . [online]. [cited March 7, 2005].www.bioscienceworld.ca/view.html?id=1559.


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Biotechnology is routinely discussed in terms of sectors, and we take the same approach in thisreport, assessing the performance of different

industry sectors that are capitalizing on the science of biotechnology. This method is useful because it pro-vides a detailed perspective of both the investmentsand returns related to biotechnology. That said, webelieve a shift in thinking is required when consideringthe broader impacts of biotechnology, including thepolicy structures that will affect its future development.

Biotechnology is best understood as a technologythat contributes to many sectors. All signs suggest thatbiotechnology may be best thought of as an enablingtechnology platform in much the same way that wethink of information and communications technologyincluding the Internetas a platform.

WHAT ARE TECHNOLOGY PLATFORMS?

Substantial thought has been given to what technol-ogy platforms are, how they evolve, and what effectsthey have on societies, businesses and governments.Platforms can take many different forms. For example,a number of technology platforms have emerged overthe centuries related to power delivery, including thedomestication of animals, the advent of the steamengine, electricity and the internal combustion engine. 1

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 capac-ity to provide a wide scope for the improvement and elab-oration of business practices, their applicability across awide range of sectors, their potential for use in a variety of products and processes within those sectors, and their abil-ity to complement existing or potential new technologies. 2

The research into technology platforms revealsa number of common traits: 3

Not all technology platforms are created equal. Forexample, electricity has been adopted more widelythan some other platforms, including ICTs.

Technology platforms are often small and crude whenthey first emerge, typically serving a single purpose.Over time, however, they become more sophisticated,serve more purposes, and become more integratedinto business and personal activities.

Technology platforms always surprise us. Its worthremembering that after the Second World War, theglobal market for computers was estimated at eight.Today, computers are integrated into virtually allaspects of our lives.

Technology platforms dont bring exclusively posi-tive changes; history shows that they can causedamage as well. For example, the domestication of animals combined with evolutions in transportation,such as three-masted sailing ships, brought diseaseto North America, killing millions.

Technology platforms both destroy and create skills.Certain types of existing human capital can be ren-dered obsolete (e.g., craftsmen) as new human capi-tal is built (e.g., factory managers).

It is also worth noting that existing technologiesfight back. The water wheel is a great example: theefficiency of the water wheel improved substantiallyas electricity was introduced.

TYPICAL IMPACTS OF NEW PLATFORMSResearch has also shown that new technology plat-

forms have a number of typical impacts, including thefollowing: They generate secondary and tertiary spinoffs ,

creating new industries and opportunities. Much human capital is destroyed as old skills

are made redundant but much human capitalis created as new skills are required .


CHAPTER 2

The Biotechnology Platform


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Substantial unemployment can result from destructionof old skills , as well as widening disparities in incomedistribution and changes in regional patterns of indus-trial 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 estab-lished as a result of the growth of electricity. New technology platforms can drive changes to

policies and policy structures , such as new rulesand regulations and new administrative bodies.Common changes include the destruction or cre-ation of monopolies, changes to competition rules,shifts in ownership laws, and the transformationof 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 peopleinteract in the form of e-mail and instant messaging.

Advocates of new technology platforms often arguethat these platforms will radically affect productivity. Itis probably a fair claim, but there a number of nuancesthat warrant further discussion. 5

Productivity improvements occur only when

firms move beyond replacing technologies to

transforming practices.

For most technology platforms, there is an initialproductivity slowdown followed by eventual productiv-ity payoff throughout their lifecycle. 6 Productivityslowdowns are accompanied by the replacement of existing capital with new, often more expensive capital.To illustrate the productivity lifecycle common to theintroduction of technology platforms, it is useful tolook at the introduction of electricity, which is perhaps

one of the most widely adopted technology platforms.

As electricity was introduced, there was a produc-tivity slowdown. The slow adoption of electricity up tothe 1920s was largely attributable to the fact that retro-fitting existing, serviceable manufacturing plants withnew technology was not immediately profitable. Thecoexistence of old technologies restricted the scope forexploiting electricitys potential. For instance, simply

replacing the existing power source (e.g., a waterwheel) for the main shaft of a manufacturing plantdid little to improve its productivity.

Productivity improvements grew only as productionprocesses were transformed. It was not until manufac-turing plants moved from a single main shaft that pow-

ered all machines to a modular approach, where eachmachine had its own engine, that productivity began toimprove. Instead of organizing factories around prox-imity to the main shaft, factories could then be organ-ized by workflow. There was less downtime for theseplants, since the entire factory did not have to be shutdown to make changes in one area.

The same is true for the introduction of computers.In the early days, computers were regarded as substi-tutes for human hands and minds. Before they could

yield productivity gains, administrative and productionfacilities had to be redesigned both physically and intheir command structures. 7

When the structures changed, transformationoccurred. We have seen how computers have trans-formed product design, production, marketing andthe organization of business processes. Computers areenabling major changes in how organizations are man-aged as knowledge flows are transformed. For example,computers are now used to fly airplanes, operate

machines, run building systems, monitor health, andfacilitate communication through the Internet, e-mailand desktop publishing.

Productivity improvements occur only when firmsmove beyond replacing technologies to transformingpractices. A reorganization of production processesmust occur, and a facilitating structure has to emerge.

IS BIOTECHNOLOGY A TECHNOLOGYPLATFORM?

The general view is yes. But it is important to recog-nize that platforms are very unpredictableand notori-ously difficult to identify while they are still emerging.Once recognized, they are often greeted with over-investmentas seen with the railway bubble in 1929and the Internet bubble in 2001. Technology platformsare also believed to deliver enormous spill-over effectsthat are difficult to measure.



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If biotechnology is a technology platform, thelogical question is: What should be done about it?Recognizing biotechnology as a platform suggeststhat strictly sectoral approaches may limit Canadascapacity to capitalize on this emerging technology.

This is particularly true when considering the role

of government. Since the 1930s, no technology plat-forms have emerged without substantial public support.As illustrated by the creation of the software industryby the U.S. Department of Defense, governments havean active role to play.

However, new institutions are often needed if gov-ernments are to be effectivea situation that is reflectedtoday in government efforts to manage issues horizon-tally rather than departmentally: Todays typical gov-ernment bureaucracy still has the hierarchical form of functionally defined departments that characterizedfirms 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 andTechnological 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 Reflectionson the Future of the ICT Revolution. Presented to theInternational 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 EconomicPolicy, August 1, 2001. Forthcoming in a volume on Canadian economicpolicy edited by Pierre Fortin and Craig Riddell.

4 Ibid.

5 Ibid.

6 Productivity slowdown resulting from the introduction of technology platformshas been identified in a number of sources, including the following: David andWright; Lipsey, Notes for presentation on Economic Growth and TechnologicalChange; Boyan Jovanovic and Peter L. Rousseau. A proposed chapter inHandbook 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, August2003), Paper No. 98, SPRU Electronic Working Paper Series.

7 David and Wright.

8 Lipsey, Economic Growth, Technological Change and Economic Policy.


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T o assess Canadas performance, we begin bylooking at the general context in which bio-technology is evolving. This includes: a brief overview of global competitive pressures; a comparisonof the relative performances of leading countriesagainst a number of key indicators; some perspectiveon investor confidence and the cash flow challengesof Canadian biotechnology companies; and a brief

review of the publics perception of biotechnology-related issues in Canada.

GLOBAL COMPETITIVE PRESSURES

A number of global pressures are affecting thedevelopment and impact of biotechnology on varioussectors, as well as the governments ability to facilitategrowth. 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 competitiveissue in most fields. To foster biotechnology, governmentsare working hard to keep, develop and attract top talent.At the same time, rising skill levels and competitivewages offshore are driving outsourcing. CommentatorBernadette Tansey observes that countries such as Indiaand Singapore are working fervently to capture a slice of the biotechnology market by setting up new research cen-tres 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 canbe as low as 10% to 40% of the U.S. cost. 1

Global pricing differentialswhich arise for numer-ous reasonsare giving some countries a competitiveedge. Indias cheaper labour, for instance, leads to morecompetitive pricing while the skills and capabilities of its workforce continue to improve.

Trade issues are also key, and Ernst & Young hasidentified several that affect global competitive pres-sures, including both tariff and non-tariff barriers, tradediversion and parallel trade, ethical concerns, andsafety risks posed by counterfeit medicinal products. 2

(We consider issues related to both skills and trade ingreater 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 opinionwithin a country toward biotechnology can be a nationaland global advantage. The United States, where biotech-nology interests are actively lobbying on everything

from patent protection to homeland security, is a clearexample. 3 The pharmaceutical and health productsindustry is particularly active, and represents one of the top 20 industries for campaign contributions. 4

DOMINANCE OF U.S.-BASED BIOTECHCOMPANIES

When some basic comparisons are made, the moststriking (though not unexpected) factor in the globalcontext is the dominance of the United States in most

of the key areas: revenue, R&D expenditure and num-ber of employees, for example. However, as Table 1indicates, there are some areas where the United Statesis not playing a leading role.

Europe is leading in the number of biotechnologycompanies. This may indicate a vibrancy in the develop-ment of biotechnology in a number of sectors. However,it does not necessarily represent a sustainable advan-


CHAPTER 3

The Global

Biotechnology Context


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tage. Europe also has the lowest revenue per companyand per employee, indicating that these firms are at rela-tively 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 Canadaspends on R&D, and with a biotech workforce of lessthan half the size, Australias average revenue per com-

pany is three-quarters that of Canadian companies. Theefficiency of their spending is very high, resulting in asubstantially higher level of revenue per annual R&Dexpenditureabout five times greater than Canadasand four times that of the United States. These resultsmay demonstrate a strong commercialization capabil-ity. However, while its performance is strong today,Australia may face serious challenges over the longerterm 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, Canadaranks first against Australia and Europe in terms of average revenue per company and per employee. Thisis an important reminder that while we certainly facechallenges when it comes to competing globally, wealso have substantial strengths on which to build.

When we look specifically at the market value of public companies, the dominance of the United Statesbecomes clear. (See Chart 2.) The value of public

biotechnology companies in the United States exceedsthat of companies in all other countries, and is nearly10 times greater than company values in Canada, theUnited Kingdom and Australia combined. However, itis worth noting that the market capitalization of publicbiotechnology companies in Canada is comparable tothat of other major players, including the UnitedKingdom and Australia.


Table 1Key Biotechnology Indicators (2004) by Country

Australia Canada Europe United States

MeasureSales/revenue (CDN$ billions) 1.30 3.80 9.70 61.40Annual R&D expenditure (CDN$ billions) 0.10 1.50 5.40 18 .50Number of companies 226 496 1,8 78 1,473Number of employees* 6,393 11,931 32,470 146,100Number of public companies 58 81 96 318

RatiosAverage revenue per company (CDN$) 5,752,212 7,661,290 5,165,069 41,6 8 3,639Average revenue per employee (CDN$) 203,347 318,498 298,737 420,260Revenue per annual R&D expenditure (CDN$) 13.00 2.53 1.77 3.32

Notes:bold = top performer.The Statistics Canada data is bio-specific (only employees directly involved with biotechnology, revenue generated from biotech activities, andR&D specific to biotechnology are accounted for), whereas the Ernst & Young data is much broader (all employees, revenues, and R&Dexpenditures 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 andinformation systems analysts).Currency conversion USD to CDN $1.2946, Dec. 31, 2003.Data not available for Japan.Source: Datamonitor, Biotechnology in Canada.

Chart 2Biotechnology Market Capitalization by Country, 2004(CDN$ billions)

Notes: United Kingdom figures are for 2003; Currency conver-sions 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.

United States Canada United Kingdom Australia0

100

200

300

400

500415

18 18 10


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To further emphasize the size and scale of biotech-nology in the United States, we sought to compare thevalue of the largest public biotechnology company inthe United States to that of Canadian biotechnologycompanies. The results are really quite shocking. Whenwe compared the U.S.-based human therapeutics firmAmgen Inc. to Canadian public companies, we found

that the difference in value was so large as to make thecomparison almost meaningless. Amgen has a marketcapitalization larger than the combined values of theRoyal Bank, BCE and Nortel. (See Chart 3.)

A number of Canadian companies have been able to

raise cash successfully, but earlier-stage and smaller

public companies are in precarious positions.

Canada does appear to lead in a few areas of biotechnology performance globally, but our currentleads are marginal. For example, while Canada gener-ally exceeds the United States in terms of revenuesfrom environment-related biotechnology, in 2003 itdid so only by approximately CDN$180 millionasmall lead that can easily be lost should other countriesturn their attention seriously to the sectors in whichCanada is leading.

CANADIAN BIOTECHNOLOGY COMPANIES

ARE FACING A CASH CRUNCH

Liquidity is a major issue for Canadian biotechnologyfirms. In a field where product development can takeyears, the Ernst & Young Survival Index indicates that38 per cent of publicly traded biotechnology companiesin Canada have less than one year of cash available, whileanother 14 per cent have less than two years available.Although a number of Canadian companies have beenable to raise cash successfully, earlier-stage and smallerpublic companies are in precarious positionseven more

so than during the market decline of 2002.

INVESTOR CONFIDENCEWhen we analyze sources of cash for biotechnology

companies in Canada (as in Chart 4), it may seem encour-aging that about 60 per cent of cash flow is generated byproduct sales. However, considering the relative nascenceof many Canadian biotechnology firms, as well as theirsmall size, a higher level of cash flow stemming from ven-ture capital and other forms of outside investment would

be expected. This may suggest a relative chill on Canadianbiotechnology companies from the investment communityin comparison with other nations.

It is useful to assess investor confidence at the gen-eral industrial level, since specific sector-based analyses(e.g., agriculture, forestry) are not available. Broadlyspeaking, there is consensus that investor confidence inthe Canadian biotechnology sector is lower than idealand that investors are proceeding with caution.


Chart 3Market Capitalization of Amgen in Context, 2005(CDN$ billions)

Source: Stock prices as of April 22, 2005, from TSE and NASDAwith calculations by The Conference Board of Canada.

Amgen Royal Bank BCE Nortel0

1020304050

60708090

100 97.1

47.7

27.7

15.4

Chart 4Sources of Cash Flow for Canadian Biotech Firms(per cent; share by cash flow)

Source: Data Monitor,Biotechnology in Canada: Industry Profile (New York: Data Monitor, November 2004). ReferenceCode 0070-0695.

59.7

25.3

7.37.7

Product sales

Research funding

Royalties

Other


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One of the reasons for this caution is skepticism of the hyperbole that has characterized the field of biotech-nology. Research prepared for the Department of Justicemakes the point well:

Inaccurate or exaggerated representations of genetic research have the potential to damage the

research enterprise by undervaluing the long-termand enduring value of basic scientific advances.They may similarly harm the biotechnology indus-try by focusing on short-term, unrealistic, thera-

peutic goalsgoals that are likely not going to bemet, thus eroding investor confidence. 5

Unresolved issues in the global arenasuch asthe protection of intellectual propertycan also affectinvestor confidence negatively. Intellectual property pro-tection for biotech companies will continue to be pursued

by the United States and Europe. The resolution of theseissues may help to boost investor confidence in biotech-nology products and global marketplace opportunities. 6

As a result of these uncertainties, investors nowdemand short-term returns rather than holding out forthe longer-term promises of biotechnology: Gone arethe investors with a ten- to twenty-year horizon willingto wait for the scientific breakthrough that will bringenormous financial benefits. They are now content witha smaller return but insist on a much shorter time

frame; five years is now the norm.7

Investor confidence is higher in the United Statesthan in Canada, as evidenced by its greater commer-cialization performance. Biotechnology firms in theUnited States fought back from the 2002 downturnmore successfully than Canadian firms did. Analysisconducted by Industry Canada suggests that a combina-tion of smart business decisions and product advancesrenewed investor interest in biotechnology stocks andfinancing. As a result, U.S.-based biotechnology stocks

recovered significantly in 2003 and outperformed themarket overall. 8

Industry observers note that investment in Canadianbiotechnology operates on a wing and a prayer, withcapital raised on the promise of a return. 9 Conversely, inthe United States, biotechnology companies are realizingtangible returns on investment, reflecting the greatermaturity of its biotechnology sector.

The market capitalization of the top 10 biotechnologycompanies in Canada reached $9.7 billion on December30, 2003, versus $6.9 billion the previous yearanincrease of 40 per cent. These 10 companies also repre-sented 70 per cent of the total biotechnology marketcapitalization 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 fundsrequired to execute their business plans. Their perform-ance indicates that the Canadian biotech industry isbecoming segregated into haves and have-nots. 10

PUBLIC PERCEPTIONS OF BIOTECHNOLOGY

The publics perceptions of biotechnology are asimportant as those of investors. For instance, widespreadresistance to the production of genetically modified organ-isms in Europe has limited the acreage of these crops.

Canadians are increasingly receptive to the develop-ment and use of biotechnology. According to researchconducted in March 2004, a growing majority supportthe use of products and processes that involve biotech-nology. 11 A survey of all relevant opinion researchreveals that entrenched opposition to biotechnology hasdecreased since tracking began in 1999. Coupled withthis are a number of positive messages from theCanadian public about biotechnology: More than 70 per cent of Canadians agree that

biotechnology research represents the next frontierthat will lead to significant quality of life benefitsfor all Canadians. 12

About four out of five Canadians agree that wehave to accept some risk to achieve the benefitsof biotechnology like new discoveries and cure of serious illnesses. A smaller majority (63 per cent)agree that some risk is acceptable to achieve thebenefits of biotechnology when applied to newfoods that contain vitamins or medicine. 13

Almost 90 per cent of Canadians agree that although

there may be some unknown risks, technologies likebiotechnology are part of the future, so all we can dois 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 thebenefits of the technology while managing its risksappropriately. 15



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In both Canada and the United States, ethics isdeclining in importance as a major issue. Only 7 to 12per cent of Canadians and Americans identify ethicsas their major concern with regard to applications of biotechnology. 16 However, Canadians still expect ethi-cal considerations to play an important role when deci-sions are made about biotechnology. 17

Consistently, the issues of potential long-term risk to human health and the environment are of greatestconcern to Canadians when it comes to biotechnol-ogy. 18,19 As well, Canadians staunchly believe thatethics trumps science in the cloning of human beings. 20

CONFIDENCE IN BIOTECHNOLOGYREGULATORS

Ethical concerns are much higher in European coun-tries than in North America. These divergent continental

views are reflected in public confidence in biotechnol-ogy regulators. Less than half of Europeans have confi-dence in their governments ability to do a good job. 21

This is also true in Japan, where citizens have witnessedgovernment and business scandals that have reducedtheir confidence in the efficacy of regulation. 22

In contrast, Australians have a higher level of publictrust in their regulators than any other country included inour analysis. 23 Americans are next, followed very closelyby Canadians. Only 10 and 11 per cent of the public,respectively, are not at all confident in the FDA, HealthCanada and the Canadian Food Inspection Agency. 24

FINDING OUR ROLE IN THE WORLD

The challenge for Canada is to ensure our currentbiotechnology strengths can provide us with globaladvantages in the future. This will not be easy. Othercountries are increasing their investments in biotechnol-ogy and working hard to attract the worlds top talent.The United States, in particular, has achieved a criticalmass that is unmatched. The strength of its biotechnol-ogy companies, access to risk capital and large pool of labour will help them maintain their leading position.

In contrast, Canadian biotechnology companies areless mature and therefore less attractive to investors. Atthis juncture, Canada must determine how to capitalizeon its strengthssuch as a relatively positive percep-tion of biotechnology by the publicin order to findniches in the global biotechnology supply chain.


1 Bernadette Tansey, Are Biotech Jobs Next to Go? Stronghold of Bay AreaEconomy Not Immune to Trend, April 2004, SFGATE.com. sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/04/18/MNGBM672L01.DTL. Cited in DukeUniversity,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 [citedFebruary 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_Millennium_In_Motion.pdf.

7 Dr. Francesco Bellini, Canadas Biopharmaceutical Industry Shiftsfrom Long-Term Promise to Short-Term Potential, inBioCanada: 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_-_BeyondB

10 Ernst and Young,Resurgence: Global Biotechnology Report 2004ThAmericas 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.

14 Ibid.

15 Pollara Inc.Public Opinion Research Findings on Biotechnology (Toronto:Pollara, March 31, 2004).

16 Decima Research Inc.


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17 Government of Canada,Summary of Public Opinion Research into Biotechnology Issues in Canada (Ottawa: Government of Canada, 2003).

18 Ibid.


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 Schoolof 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).




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T hus far, our discussion of biotechnology hasbeen at an aggregate level. This chapter com-pares Canadas performance against that of otherleading nationsthe United States, the United Kingdom,Japan, Australia and Indiain sectors where biotechnol-ogy is actively applied. At this point, it is worth reiterat-ing the earlier cautions about the accuracy of the data:data collection is still rudimentary; comparing biotechnol-ogy sectors is difficult; the scale of biotechnology activi-ties 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 thatthe human health sector accounts for the largest numberof biotechnology firms in Canada, making up more than50 per cent of all biotechnology firms in the country.

The agriculture sector is second to human health. Eachsector identified in the chart will be assessed in thischapter. Additional details about each of the sectorsdiscussed are included in Appendix A.

HUMAN HEALTH

In the health sector, biotechnology is appliedto everything from blood products and vaccines todrugs and tissue heart valves. Despite the fact thatmore than half of Canadas biotechnology companiesbelong to the human health sector, the commercializa-tion performance in this sector is quite weak. As aresult, Canadas revenues in this sector are low relativeto those of our comparator countries. (See Chart 6.)Canadas rev

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