Did you know that two Canadian scientists, Banting and Best, discovered insulin? Even without its namesake, I am almost certain everyone would know who invented the Canadarm. We Canadians love to focus on our country’s innovation hits. Don’t get me wrong – I swell with Canadian pride when talking about the great creations of our past, but our revolutionary accomplishments are becoming more present in historical headlines than in current events.
The field of Canadian biotechnology (or “biotech”) is a buzz-worthy example, as we are entering a phase where “startups” and “biotech” are discussed as frequently as the weather. When you actually break down the meaning of biotechnology – “any technological application that uses biological systems, living organisms or derivatives thereof, to make or modify products or processes for specific use” – it is hard to believe these ideas were long relegated to science fiction instead of the stock markets. In reality, biotech companies constituted 21% of the global $714B prescription drug market in 2012 and the global market share of biotech is forecasted to grow. The research and development (R&D) focus of these companies can include drug discovery, vaccine development, food and agriculture, biofuel development and synthetic biology. In Canada, our biotech industry is fueled by internationally-renowned research institutions staffed with world-leading scientists in Toronto, Montreal, and Vancouver.
However, although Canada is recognized as a leader in academic research, our innovation follow-through falls short: Antibe Therapeutics has been the only Canadian biotech company to join the U.S. initial public offering (IPO) boom in 2013, thereby breaking Canada’s six-year hiatus since Endoceutics, Inc. in 2007. Furthermore, while Canada is home to 228 biotech companies (a reasonable tenth of the 2,349 biotech companies in the U.S.), the average number of employees and revenue generated per company pales in comparison to our southern neighbour.
CANADA’S STANDING IN THE BIOTECHNOLOGY BOOM
The Canadian Council of Academics published a report in 2013 that investigates Canadian innovation deficiencies on a broader scope. Canada’s comfort in its standing in the North American market, a lack of competition due to more lenient productivity growth benchmarks, a reliance on the United States, and a culture to achieve the status quo are all contributing factors leading to an overall perceived complacency.
On all accounts, the U.S. is the leader in the number of biotech firms, the number of biotech patents filed, the amount of government funding attained and the total R&D expenditure by biotech. Where does funding stand for Canadian biotech? We have the trained manpower, but not the resources to allow our companies to flourish. Our R&D spending, as a percentage of gross domestic product (GDP), has been declining since 2001 and is 1.35% of what the U.S. spends on R&D. Venture capital (VC) investment in Canada is at a ten-year low, so it is no wonder that biotech, a costly and risky venture, hardly reaches IPO status in Canada. Most investment options, especially VC, are more prone to picking companies with a greater chance of success and a shorter time to value. Thus, a technology startup is more appealing than a risky and long-term time investment, such as a gene therapy biotechnology startup. For this reason, Canada’s natural resource sector has been heavily invested in, as opposed to biotech industries such as immunotherapeutics. Yet investing in such a limited fashion is myopic. An economy lacking diversity is incredibly vulnerable, as demonstrated by the fall of the Canadian dollar and stocks in the current oil crisis.
RISK-TAKING AND FUNDING FOR THE LONG HAUL
If you were asked to brainstorm factors that greatly influence the odds of a startup success story you might come up with a long list including: funding for basic and translational research in academia, well-trained scientists with great ideas, infrastructure development and resources, and the amount of funding that can be devoted to R&D (which includes accelerator/seed funding, VC investment, government funding or philanthropic donations). Surprisingly, it turns out that total R&D spending does not correlate with the success of a drug whatsoever, nor does successful academic research translate into increased chances of startup success. In sum, there is currently no perfect formula that predicts the outcome of a biologic therapeutic in development. These facts can be hard to digest when you consider the amount of investment that goes into a successful drug or treatment. However, a successful drug could lead to fewer hospitalizations and fatalities. Thus, Canada must be willing to spend more of its budget on innovative biotech to gain traction in the market and reap the potential benefits.
In addition to the initial funding required to get a company on its feet and running, there needs to be some considerable planning for established companies that haven’t received their big drug/therapeutic payout. Research by the Boston Consulting Group estimates that 90% of money spent on new treatment endeavors never result in a drug that makes it to market. It takes a minimum of $350M total funding to get a therapeutic to market and a staggering 5% of drugs actually pass all phases of clinical trials. These dismal stats and the 20-year grace period before generic drugs can be made are two of the biggest factors leading to the high cost of new drugs or therapeutics. Keep in mind that patents are generally filed during the early stages of R&D, likely leaving a company only 10 years to turn a profit.
THE FUTURE OF CANADIAN BIOTECH
Predictions for the future of biotech and entrepreneurship in the STEM fields in Canada are mixed. Although there is more discussion of increasing the public funds available to entrepreneurs, some of this is being taken from the pot that was once devoted to academic research. This will surely only lead to short-term gains in innovation at the expense of long-term progress in academic research, especially since no one can predict the potential impact of basic research. A recent push by CIHR, which mirrored an NIH-initiative, to support career development and support for early stage scientists into “alternative” career paths is another great step to fostering new ideas and innovation, in addition to reshaping Canada’s business innovation culture. Only time will tell if we are headed in the right direction or down another side street.
- Council of Canadian Academies. 2013. Paradox Lost: Explaining Canada’s Research Strength and Innovation Weakness.
- Ernst & Young. Biotechnology Industry Report 2014. Beyond Borders. Unlocking Value. http://www.ey.com/Publication/vwLUAssets/EY-beyond-borders-unlocking-value/$FILE/EY-beyond-borders-unlocking-value.pdf
- October 18, 2013: Does size matter in R&D productivity? http://www.nature.com/nrd/journal/v12/n12/full/nrd4164.html?WT.ec_id=NRD-201312
- Song, X. Data Fox. March 23, 2014. Biotechnology Industry Analysis, Key Players, Future Trends. http://www.datafox.co/blog/2014/03/biotechnology-industry-analysis-key-players-future-trends/
- The Economist. Feb 2014. Fever rising: There are reasons to hope that the latest biotech boom will not be followed by another bust.
- Van Beuzekom, B. and Arundel, A. 2009. OECD Biotechnology Statistics 2009. http://www.oecd.org/sti/42833898.pdf
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