For about two decades, Canada''s biopharmaceutical sector has been quietly growing its infrastructure. Many companies have reached a state of maturity which now allows them to look to establishing partnerships and collaborations with foreign firms.
With an excellent science base, a first-rate business environment complemented by fiscal and financial incentives and other measures, the country is working hard to attract investment and other international linkages.
Burgeoning Global Industry
Biotechnology is one of the world''s fastest growing industries. It''s greatest impact, both in Canada and worldwide, is in health care, including biopharmaceuticals. More than 90 percent of the advanced biotechnology products on the world market are health-related. It is expected that about three quarters of world biotechnology demand will continue to be in the health sector.
Within the health sector, the biopharmaceutical segment promises major social and economic benefits. Its medicines, vaccines and other health-related devices and products have helped to reduce or eradicate many diseases and to improve life expectancy. Economically, world sales of biopharmaceuticals have grown more than seven-fold over the past decade, and should exceed $US18 billion by 2003. The biopharmaceutical portion of world prescription drug sales is expected to triple from the current 5 percent to 15 percent by 2005. Canada is well positioned to be an important player in this transition.
Of the 24 biopharmaceuticals approved for sale on the world market, three emanate from Canadian firms: 3TC by BioChem Pharma Inc. for the treatment of HIV/AIDS; Photofrin by QLT PhotoTherapeutics Inc. for the treatment of various cancers; and, Truquant BR by Biomira Diagnostics Inc. for the detection of breast cancer. Canada is poised for rapid growth in the commercialization of new biotechnology applications. A January 2000 survey of selected biopharmaceutical firms conducted by the Medical Research Council of Canada found that this group had over 400 products in the pipeline at that time.
Canadian Biotechnology - A Success Story
Canada has become a biotechnology success story. Over the past several years, Canadian governments, the research community and industry have combined to create a strong infrastructure for a prosperous biotechnology future. Building on this base, the Canadian industry has achieved international recognition for the development of several important products, particularly in health care and agriculture.
Like many forward thinking nations, Canada started investing in biotechnology research in the 1980s and is now building on its strengths. An important government goal is to position Canada as an ethically and socially responsible world leader in the development, commercialization, sale and use of biotechnology products and services.
A 1997 survey by Statistics Canada in collaboration with Industry Canada and the association BIOTECanada indicated that the industry at that point consisted of 282 core companies, of which almost half were in the health sector. That industry snapshot showed employment of almost 10,000 people, revenues of more than $1.1 billion [Unless otherwise indicated, dollars are expressed in Canadian currency], and R&D spending exceeding $585 million. Exports totaled $400 million annually.
More recently Industry Canada identified 102 additional biotechnology companies which have been formed from 1997 onward, most of these in the health sector.
While Canada''s biotechnology industry sales are still small in the global context, this Canadian sector is dynamic and growing rapidly - by 25 percent or more per year. In absolute numbers, Canada ranks second in terms of number of companies using biotechnology, employees and revenues. About 75 of Canada''s biotechnology companies are publicly traded.
Biotechnology is a cross-Canada success story. Science-based organizations and core biotechnology companies stretch from coast to coast. Quebec, Ontario and British Columbia are particularly strong in the health care sector. Saskatchewan is a global leader in agricultural biotechnology, while Atlantic Canada excels in aquaculture, forestry and biodiversity.
Biohealth and Biopharmaceutical Strengths
Canada has several areas of biopharmaceutical strength. Vaccine development and production, for example, have been highly successful areas of research and business for 25 years. The discovery of the T-cell receptor by Canadian investigators has allowed better understanding of the fundamental immune processes involved in controlling chronic diseases. It is now possible to envision the development of immunotherapeutic strategies for the prevention or treatment of chronic diseases such as some forms of cancer, AIDS and hepatitis C through the triggering of a protective immune response.
Canada''s private and public sectors both contribute significantly to the growth of biopharmaceuticals. Canadian companies have developed world-class therapeutic products for infectious agents such as HIV, hepatitis and influenza, and are at the leading edge of diagnosing life threatening ailments such as heart disease. In the public sector, federal scientists have developed products such as monoclonal anti-bodies and recombinant proteins, and then transferred the technology - including the know-how, trade secrets and patent rights - to the private sector to develop vaccines and diagnostic kits.
Canada''s biopharmaceutical expertise is gaining recognition. In 1997, Aventis Pasteur (formerly Pasteur Mérieux Connaught Canada) announced a $350-million project to develop therapeutic vaccines for cancer. The cornerstone of this initiative is the company''s cancer vaccine network, a collaboration of outstanding Canadian researchers from the private and public research sectors.
Several American and European organizations have located in Canada, and Japanese companies, too, are starting to realize the strengths of Canada''s biopharmaceutical sector. In 1999, for example, GLYCODesign Inc. and Seikagaku Corporation (SKK) of Tokyo announced a three-year research agreement to identify small-molecule, orally active Core 2 transferase inhibitors to treat inflammation.
During the term of the research collaboration, SKK will select for development up to three compounds displaying anti-inflammatory activity. It also has the option to an exclusive, worldwide, sub-licensable right, on a compound-by-compound basis, to license intellectual property covering compounds selected during the collaboration term. If all three compounds reach the market, the deal could be worth up to US$56 million, excluding royalties.
Government Support of Innovation
In 1998 the Government of Canada launched a new biotechnology strategy, updating its 1983 predecessor, to help maximize biotechnology''s social and economic benefits in an ethically, environmentally responsible manner. Several provinces have also instituted major initiatives to promote a solid commercial biotechnology industry.
Strong federal support to biotechnology research and research network fuels innovation in Canada. In 1997/98, the Government of Canada spent $314 million on S&T expenditures for biotechnology, with almost all of these funds - $310 million - going to R&D. In 1999, it announced a $550-million increase in health research funding over three years, including the creation of the Canadian Institutes of Health Research, $200 million in additional funding for the Canadian Foundation for Innovation, and another $150 million for Technology Partnerships Canada.
In its February 2000 Budget, the federal government announced several additional measures to boost the country''s research and communities. Among them were $160 million to fund five genomic science centres across Canada, another $900 million for university and hospital research infrastructure through the Canada Foundation for Innovation, and $900 million for 2000 research chairs at Canadian universities. In addition, a further $90 million resources are provided to bolster Canada''s regulatory capacity in the biotechnology area.
Canada''s National Research Council (NRC) Biotechnology Group invests significantly in biotechnology. The group consists of five institutes across the nation, each with research and technology transfer programs to support applications in pharmaceuticals and health care, agriculture and food, aquaculture and environment. NRC complements the Biotechnology Group with other programs such as the Industrial Research Assistance Program for small and medium-sized enterprises, the Canadian Institute for Scientific and Technical Information, and the Steacie Institute for Molecular Sciences. New vaccines, enzymes, value-added crops, analytical tools and methodologies, diagnostic instruments and software have emerged from the program to help create a unique, viable Canadian industrial cluster.
Other federal programs include the Medical Research Council, Natural Sciences and Engineering Research Council, Technology Partnerships Canada and the National Health Research and Development Program. Government support also comes in the form of fiscal incentives. For example, industries benefit from competitive corporate and payroll taxes. The OECD reports that Canada''s ratio of corporate taxes to Gross Domestic Product is well below the G-7 average (7.6 percent in Canada compared with the G-7 average of 10.1 percent).
Canada also has the most generous R&D tax credits of all the G-7 countries. Federal taxation allows a 120-percent deduction (that is, a 20-percent credit) on current R&D expenditure, including capital expenditure on R&D machinery and equipment.
Several provinces offer additional incentives of their own, and are increasingly competitive in this regard to attract foreign investment. Ontario, for example, adds an R&D "superallowance" allowing firms to claim a further 25-35 percent of these expenditures for provincial tax purposes. The Quebec government provides a refundable tax credit of 29 percent on wages paid for R&D done in Quebec. Combined with other measures in each province, the after-tax costs of doing $100 of research could be as low as $33 in Ontario and $32 in Quebec.
In addition, the February 2000 Budget altered the tax treatment of employee stock options to the benefit of high technology sectors.
Excellent Research Base / Strategic Partnerships
The generous fiscal incentives, along with an extensive network of research-intensive hospitals, universities and government laboratories, make Canada an ideal place to conduct R&D and establish strategic partnerships. Canada also has a significant contract research industry, with many firms highly regarded internationally for their ability to conduct clinical trials.
The research base is further strengthened by strategic partnerships across the country and around the world. Such partnerships among universities, industry and governments are critical in accessing new ideas, managing investment risk, expanding the technology base and increasing the payback for technology investments. These alliances are key to Canada''s biotechnology success.
A major boost in this regard has bee the federal Networks of Centres of Excellence (NCEs). NCEs are unique partnerships among industry, universities and government, connecting top-notch research with industrial know-how and practical investment. In 1997/98, some 463 companies, 100 provincial and federal departments and agencies, 44 hospitals, 61 universities and more than 200 other organizations from Canada and abroad took part. NCEs have so far stimulated outside investments exceeding $200 million, including more than $150 million by participating private-sector companies.
Two new health NCEs will soon enrich the Canadian biotechnology landscape following a February 2000 federal announcement. The Canadian Network for Vaccines and Immunotherapeutics of Cancer and Chronic Viral Diseases will bring Canadian scientists specialized in immunology, virology and molecular biology together with Canadian biopharmaceutical companies to develop vaccines to fight cancer and life-threatening viral infections such as hepatitis C and AIDS. The second network will develop innovative prevention and recovery strategies for strokes. These new NCEs bring to seven the complement of health-related Networks. Others specialise in bacterial diseases, genetic diseases, protein engineering, arthritis and health evidence application and linkages.
Canadian biopharmaceutical firms are increasingly attracting alliances with "traditional" pharmaceutical and large biotechnology companies. Two recent examples include Vancouver-based Inflazyme''s agreement with Hoechst Marion Roussel for the development of novel compounds for the treatment of asthma and allergies, as well as Toronto-based Skye PharmaTech''s collaboration with Genzyme in the area of stroke diagnosis.
First-rate Business Environment
Canada''s economic fundamentals and relative cost advantages provide a first-rate business environment for biopharmaceutical companies. Canada has one of the strongest economies in the OECD, and the OECD projects the country''s growth to average 2.9 percent in 2000/2001. Canada and the U.S. are the only G-7 countries to have total government balance surpluses on a national accounts basis. The Institute for Management Development ranks Canada among the best fiscally managed countries in the world, and the Economist Intelligence Unit ranks it fourth among the top 10 countries in terms of overall business climate.
On average, the overall cost of doing business is considerably lower in Canada than in other industrialized nations - about 57 percent that of the U.S. and 59 percent of Germany''s. In pharmaceutical manufacturing, Canada offers a 6.6 percent business cost advantage over the U.S.
The federal government and the Bank of Canada have an inflation target that locks the inflation rate in the 1-3 percent range. Over the past five years, Canadian inflation has averaged 1.3 percent, 30 percent lower than that of the U.S. Canada''s low deficit and low inflation are reflected in low long-term interest rates.
Canada has an abundant supply of highly skilled workers and a stable workforce. The country''s health science research community consists of more than 30,000 investigators in 16 medical schools, and more than 100 teaching hospitals and research institutes. The University of Toronto and its affiliated research institutions comprise the fourth-largest medical R&D community in North America.
Canada also has a well-established venture capital community specialized in life sciences investments. Investments in Canadian biotechnology by venture capital funds have been rising steeply, but nothing prepared observers for the unprecedented, explosive surge in equity financing that has so far marked the year 2000.
The Globe and Mail reported that in the month of January 2000, four deals had raised $96 million with more issues waiting in the wings. By January 21, 2000, Hemosol Inc. of Toronto had sold $46 million of new equity;
Calgary-based Synsorb Biotech Inc., $24 million; and, Inex Pharmaceuticals Corp. of Burnaby, British Columbia, $20 million, all in bought deals. As well, Response Biomedical Corp., also of Burnaby, had raised $6 million through a normal underwriting. (A bought deal is a quick, risk-free way for a company to fill its coffers because the underwriting syndicate buys the issue and resells it to its clients.)
The Globe and Mail added that helping the financing surge is a bull market in biotechnology stocks. Biotechnology is one of the fastest growing segments on the Toronto Stock Exchange, registering year-over-year increases of 55 percent and reaching a market capitalization of $15 billion in Canada. The sector''s subindex on the Toronto Stock Exchange had climbed 28 percent by January 21, 2000, with many mid- and small-capitalization stocks posting even stronger gains. High fliers since the end of 1999 have included Angiotech Pharmaceuticals Inc., Synsorb Biotech Inc., Micrologix Biotech Inc., Inflazyme Pharmaceuticals Ltd., ID Biomedical Corp., Hemosol Inc. and Helix Biopharma Corp. Many industry observers predict the financing boom will continue.
The newspaper also reported that some experts say that the surge is due in part to an unprecedented number of biotechnology companies entering the last phase of clinical trials and soon to be launching new products. A number of companies including Hemosol, Synsorb, Biomira and AnorMed Inc. are currently in Phase III clinical trials, while AEterna Laboratories Inc., Inex Pharmaceuticals Corp. and Micrologix are expected to enter the pivotal premarketing phase soon. Biomira is conducting a major Phase III clinical trial for its Theratope breast cancer vaccine and a Phase II trial for a lung cancer vaccine, BLP-25.
Stable Investment Climate
Canada''s impressive economic fundamentals, along with other factors such as its 20-year patent protection for pharmaceuticals and ongoing endeavours to improve the regulatory framework, combine to create a favourable, stable investment climate for innovation.
Recent finetuning of the regulatory framework for drug patent policy in Canada includes shortening the length of the regulatory stay from 30 to 24 months; requiring manufacturers of generic products to notify patentees of the specific product intended for manufacture and to file its Notice of Compliance before initiating NOC proceedings; and, allowing patentees to get court-ordered disclosure of the generic manufacturer''s NOC application. The Canadian government regulates all products, including those derived from biotechnology, to protect health, safety and the environment. The regulatory system uses science-based risk assessments and takes into account the characteristics of the product and any potential risks through its life cycle. Canada''s risk-assessment process is considered to be among the best in the world.
In genera, Canada''s approval regulations are similar to those of other industrialised countries. Canada''s regulations include a fast-track approval process for drugs that may be available for diseases with no current effective treatment.
Knowing that regulatory policy is key to attracting foreign direct investment and retaining Canadian-based investments and jobs, Canada is in the process of further improving its regulatory system through streamlining of its regulatory requirements for the conduct of clinical trials. Amendments include the introduction of a 48-hour target review time for Phase I clinical trials in healthy volunteers and a 30-day default review period (replacing 60 days) for all other clinical trials.
This initiative will make Canada an even more attractive site for clinical research. The Government of Canada also uses tools such as benchmarking, performance standards and monitoring, and improved regulatory cooperation and harmonization (for example, through mutual recognition agreements) to make its regulatory system more efficient, effective, responsive and predictable. For example, Canada has mutual recognition agreements with the European Union and Switzerland for conformity assessment of regulated products, and has adopted various International Conference of Harmonization guidelines such as the Clinical Trial Design and Clinical Safety Data Management.
Market Access
Market access is another Canadian strength. Canada''s participation in the North American Free Trade Agreement means long-term, assured, tariff-free access to the North American market. NAFTA also provides procedures for border facilitation, personnel movement, investment and intellectual property protection, and product certification.
Canada is also increasingly penetrating other important markets. Its trade with the European Union, for example, jumped by 51 percent from 1993-97, and Canada is currently negotiating a trade agreement with the European Free Trade bloc (Switzerland, Norway, Iceland and Liechtenstein). It also has entry to the growing South American markets through its Free Trade Agreement with Chile, and is in the early stages of negotiating the Free Trade Agreement of the Americas.
Canada''s Well-positioned Biopharmaceutical Sector
Canada''s biotechnology and biopharmaceutical industries are well positioned to grow, prosper and compete globally. With a solid biotechnology base, established research structure, fertile business environment, government support and other favourable factors, Canada''s biopharmaceutical sector is set to surge. This helps to make Canada a world-class location for biotechnology and biopharmaceutical collaborations and investment.
The author is Advisor (Trade), Canadian High Commission, New Delhi.
For any additional details on Canadian capabilities in this sector, the author may be reached at e-mail: viney.gupta@dfait-maeci.gc.ca