Biomedical Innovation Systems - University of Toronto

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Innovation Systems Research Network

Biomedical Innovation Systems:

A Comparative Analysis of

Six Canadian Regions

Meric S. Gertler

Uyen Quach


Program on Globalization and Regional Innovation Systems

Munk Centre for International Studies

University of Toronto


Presentation to the 7
th

Annual ISRN Meeting

Renaissance Toronto Hotel Downtown

Toronto, Ontario

May 5
-
6, 2005


Innovation Systems Research Network

The Case Studies


Vancouver, British Columbia


Saskatoon, Saskatchewan


Toronto, Ontario


Ottawa, Ontario


Montr
é
al, Qu
ébec


Halifax, Nova Scotia

Innovation Systems Research Network

Definitions


Life Sciences


Broad definition that includes biotechnology,
medical and assistive technologies,
pharmaceuticals, contract research,
bioinformatics, etc.


Biotechnology


OECD (2002): “The application of Science &
Technology to living organisms as well as parts,
products and models thereof, to alter living or non
-
living materials for the production of knowledge,
goods and services.”


Statistics Canada uses similar definition

Innovation Systems Research Network

Key Questions


Composition, specialization, strengths


Scale


Enabling and triggering forces


Current challenges

Innovation Systems Research Network

Key Questions II


Role of public intervention


Catalytic, enabling, impeding?


Deliberate, accidental (or both)?


Scale: local, provincial, federal?


Role of civic associations


Talent, finance: local, nonlocal


Importance of local (vs. global) K flows



Innovation Systems Research Network

Vancouver: Overview


Key triggers/enabling factors


QLT Inc. (1981) & UBC’s University
-
Industry Liaison Office (UBC
-
UILO)


Specialization


Over ½ of firms in sub
-
sectors of human health


Characteristics/strengths


Fastest growing in Canada based on core biotech firms (E&Y 2002)


Represented 70% of all biotech firms in BC (2001)


Presence of lead firm (QLT Inc.)


Strong R&D base


General and specialized industry associations


Size


Life Sciences firms: 80
-
140


Cdn. biotech firms: 48


Biotech employees: 1701 (Industry Canada Life Sciences Branch
2005)



Innovation Systems Research Network

Vancouver

3391

Medical equipment

& supplies mfg.

6215

Medical & diagnostic

laboratories

4184

Chem. & allied prod.

wholesaler
-
distributors

3254

Pharmaceutical &

medicine mfg.

8132

Grant
-
making &

giving services

4145

Pharma, toilet., cosm.

& sundries whole.
-
dist.

5231

Sec. & com. contracts

intermediation & brok.

5416

Mgt, scientific

& tech. Consult. serv.

3344

Semiconductor & other

electronic comp. mfg.

3345

Nav., measuring, med.

& con. instruments mfg

3259

Other chemical

product mfg

3261

Plastic product

manufacturing

1.0

0.8

1.2

Employment Location Quotients

External

Linkages

Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

Innovation Systems Research Network

Vancouver: Current Challenges


Research
-
based cluster with little vertical or
horizontal integration:


“…the BC biotech sector does not manufacture commercial
products


its product, if it has one, is intellectual property
itself” (Holbrook et al 2004).



Industrial infrastructure


Lacks pharmaceutical base


Reference Drug Program (1995) identified as one factor
discouraging pharma firms to come to Vancouver


Is the Vancouver cluster sustainable?


NO: Too dependent on one firm (87% of the cluster’s
revenue generated from QLT Inc.)


YES:
“New ideas, new firms, new people will come” (Salazar
and Holbrook 2004)



Innovation Systems Research Network

Saskatoon: Overview


Key triggers/enabling factors


Canola development (1940s), Innovation Place (1981), NRC
-
PBI
(1980s)


Specialization


Agriculture and related areas


Characteristics/strengths


One of the leading ag
-
biotech centres in North America


82% of all biotech firms in Saskatchewan located in Saskatoon
(2001)


R&D collaborations between public & private actors


Infrastructural support for firm entrance (Innovation Place)


Presence of large, active and sophisticated group of farmers


Size


Life sciences firms: ~40


Cdn. biotech firms:14 (2001); 34 (Saskatchewan, 2003)


Biotech employment: 369 (Industry Canada Life Sciences Branch
2005)

Innovation Systems Research Network

3391

Medical equipment

& supplies mfg.

6215

Medical & diagnostic

laboratories

4184

Chem. & allied prod.

wholesaler
-
distributors

3254

Pharmaceutical &

medicine mfg.

8132

Grant
-
making &

giving services

4145

Pharma, toilet., cosm.

& sundries whole.
-
dist.

5231

Sec. & com. contracts

intermediation & brok.

5416

Mgt, scientific

& tech. Consult. serv.

3344

Semiconductor & other

electronic comp. mfg.

3345

Nav., measuring, med.

& con. instruments mfg

3259

Other chemical

product mfg

3261

Plastic product

manufacturing

1.0

0.8

1.2

Employment Location Quotients

External

Linkages

Saskatoon

Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

Innovation Systems Research Network

Saskatoon: Current Challenges


Financing a major challenge for firms


Lack of venture capital


Too many targeted/tailored government financial
programs?


Some firms benefit more than others (Phillips et al 2004)


Cluster potentially in process of change


Major public investments in R&D infrastructure
(e.g. CLSI) and various collaborative research
projects


Emerging private sector involvement in various
stages of product development (Phillips et al
2004)



Innovation Systems Research Network

Toronto: Overview


Key triggers/enabling factors


Diverse economy (sophisticated service industries & manufacturing base)
and human health research strengths, h
ome to Canada’s pioneering
biotechnology firm Allelix


Specialization


Human health ‘megacentre’ (Cooke 2002)


Characteristics/strengths


Robust: diverse & range


About 55% of Ontario’s biotech firms (2001)


Strong R&D base


Canada’s largest financial centre


Diverse industry associations


Size


Life sciences firms: ~400


Cdn. biotech firms: 55 (2001)


Biotech employment: 2661 (Industry Canada Life Sciences Branch 2005)

Innovation Systems Research Network

3391

Medical equipment

& supplies mfg.

6215

Medical & diagnostic

laboratories

4184

Chem. & allied prod.

wholesaler
-
distributors

3254

Pharmaceutical &

medicine mfg.

8132

Grant
-
making &

giving services

4145

Pharma, toilet., cosm.

& sundries whole.
-
dist.

5231

Sec. & com. contracts

intermediation & brok.

5416

Mgt, scientific

& tech. Consult. serv.

3344

Semiconductor & other

electronic comp. mfg.

3345

Nav., measuring, med.

& con. instruments mfg

3259

Other chemical

product mfg

3261

Plastic product

manufacturing

1.0

0.8

1.2

Employment Location Quotients

External

Linkages

Toronto

Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

Innovation Systems Research Network

Toronto: Current Challenges


Financing Issues


Gap in mid
-
stage financing for biotech


MAT firms are not well
-
understood by VC


Local VC firms investing internationally


Profile problem


Local: only recognized recently


Internationally: low visibility


Other Challenges


Slow regulatory approval process


dissatisfaction with technology transfer agencies

(Gertler and Lowe 2004)

Innovation Systems Research Network

Ottawa: Overview



Key triggers/enabling factors


Civic championing for Ottawa Life Sciences Technology Park, e
ntry of MDS
Nordion (1991), ICT bust in late 1990s raises profile of life sciences


Specialization


Non
-
therapeutic areas: convergent technologies, bioproducts, medical &
assistive technologies


Characteristics/strengths


Emergent cluster


ICT spillovers, biomedical applications


Strong R&D base & home to relevant regulatory & funding agencies in life
sciences


Ottawa Life Sciences Council


organizational leader


Size


Life sciences firms: 100
-
140


Cdn biotech firms: 10 (2001)


Biotech employment: 736 (Industry Canada Life Sciences Branch 2005)

Innovation Systems Research Network

Ottawa

3391

Medical equipment

& supplies mfg.

6215

Medical & diagnostic

laboratories

4184

Chem. & allied prod.

wholesaler
-
distributors

3254

Pharmaceutical &

medicine mfg.

8132

Grant
-
making &

giving services

4145

Pharma, toilet., cosm.

& sundries whole.
-
dist.

5231

Sec. & com. contracts

intermediation & brok.

5416

Mgt, scientific

& tech. Consult. serv.

3344

Semiconductor & other

electronic comp. mfg.

3345

Nav., measuring, med.

& con. instruments mfg

3259

Other chemical

product mfg

3261

Plastic product

manufacturing

1.0

0.8

1.2

Employment Location Quotients

External

Linkages

Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

Innovation Systems Research Network

Ottawa: Current Challenges


No life sciences
-
based VC
headquarters/decision
-
makers located in Ottawa


Need to build up industrial infrastructure, lacks a
pharmaceutical base


Weak local linkages


Low commercialization success: need linkages
between universities, labs, firms


MDS Nordion: a potential anchor firm but lacks
linkages to major local R&D actors


Innovation Systems Research Network

Montr
é
al: Overview



Key triggers/enabling factors


Pharma base, NRC
-
BRI (1983), BioChem Pharma (1986), creation of
public/quasipublic VC funds (1990s)


Specialization


Human health ‘megacentre’ with drug discovery/pharma strengths


Strengths


Home to 62% of biotech firms in Qu
ébec (2001)


Strong public support & coordination


VC/R&D funding, tax incentives, etc.
(least expensive operating costs in Canada for biomedical R& D)


Strong presence of R&D and manufacturing pharma (local and MNCs)


Strong local R&D base


Presence of industry associations


Size


Life Sciences firms: >270


Cdn. biotech firms: 80 (2001); 129 (Quebec, 2003)


Biotech employment: 3238 (Industry Canada Life Sciences Branch 2005)

Innovation Systems Research Network

Montr
éal

3391

Medical equipment

& supplies mfg.

6215

Medical & diagnostic

laboratories

4184

Chem. & allied prod.

wholesaler
-
distributors

3254

Pharmaceutical &

medicine mfg.

8132

Grant
-
making &

giving services

4145

Pharma, toilet., cosm.

& sundries whole.
-
dist.

5231

Sec. & com. contracts

intermediation & brok.

5416

Mgt, scientific

& tech. Consult. serv.

3344

Semiconductor & other

electronic comp. mfg.

3345

Nav., measuring, med.

& con. instruments mfg

3259

Other chemical

product mfg

3261

Plastic product

manufacturing

1.0

0.8

1.2

Employment Location Quotients

External

Linkages

Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

Innovation Systems Research Network

Montr
éal: Current Challenges


Historically strong government intervention and coordination


High dependence on public support especially in venture capital
financing


Less than 10% of investment in Qu
ébec from private sources


Government withdrawal is occurring but is the private sector stepping in?


Highlights future vulnerabilities


Private funds in Qu
ébec (e.g. pension plans & assurance companies)
avoid Québec venture capital


Investments spread too thin?


Risky drug development depends on reliable injections of financing
through various stages


Merck, Pfizer drug controversies


Affected biotech stocks


Stock value decline of large pharma felt especially in Montr
éal


Neurochem Inc. example


Private sector investors not as sympathetic with failures


Innovation Systems Research Network

Halifax: Overview


Key triggers/enabling factors


Biotech Working Group (1993), Ocean Nutrition Canada (1997)
Dalhousie
University establishes Business Development Office (1999)


Specialization


Majority of firms in human health but diverse sub
-
sectors (e.g. marine)


Characteristics/Strengths


Very young


is it a cluster?


Site of majority of biotech activity in Atlantic provinces


42% of biotech firms
in region located in Halifax (2001)


Local R&D base


Growing public and private support: Bioscience Enterprise Centre
(InNovacorp), MedInnova Partners Inc., Life Sciences Development
Association (LSDA)


Size


Life Sciences firms: ~60


Cdn. biotech firms: 10 (2001)


Biotech employment: 558 (Industry Canada Life Sciences Branch 2005)

Innovation Systems Research Network

Halifax

3391

Medical equipment

& supplies mfg.

6215

Medical & diagnostic

laboratories

4184

Chem. & allied prod.

wholesaler
-
distributors

3254

Pharmaceutical &

medicine mfg.

8132

Grant
-
making &

giving services

4145

Pharma, toilet., cosm.

& sundries whole.
-
dist.

5231

Sec. & com. contracts

intermediation & brok.

5416

Mgt, scientific

& tech. Consult. serv.

3344

Semiconductor & other

electronic comp. mfg.

3345

Nav., measuring, med.

& con. instruments mfg

3259

Other chemical

product mfg

3261

Plastic product

manufacturing

1.0

0.8

1.2

Employment Location Quotients

External

Linkages

Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

Innovation Systems Research Network

Halifax: Current Challenges


Financing


High dependency on local financing


But lack of VC main obstacle for growth (Rosson
and McLarney 2004)


Currently a
collection

of firms rather than
cluster

(Rosson and McLarney 2004)


Relatively young, small & private firms


R&D and inward focused


Lack of “core” specialization/interests



Innovation Systems Research Network

Comparative Summary

Vancouver

Saskatoon

Toronto

Ottawa

Montr
éal

Halifax

Key Triggers/

Enabling
Factors


QLT Inc.



UBC


Canola


Innovation
Place


NRC
-
PBI


Diverse
economy


Human health
research
strengths


Allelix



OLSTP



MDS
Nordion


Tech bubble
burst



Pharma base


NRC
-
BRI


BioChem


Public VC
funds


Biotech
Working
Group


ONC


Dalhousie
University
-
BDO

Specialization

Human health


diverse
areas

Agriculture

Human health
‘megacentre’

(robust)

Non
-
therapeutics

Human health
‘megacentre’
(pharma)

Human health


diverse
areas

Key Cluster
Characteristic

Rapidly
growing

Ag
-
biotech
centre

Scale &
diversity


Emergent


Drug
discovery/
pharma


A ‘collection’
of firms

Strengths


High rate of
firm entrance
supported by
UBC


Local R&D


Presence of
lead/anchor
firm



Strong public
and private
R&D
collaborations



Infrastructure
support for
firm entry



Presence of
large, active &
sophisticated
farmers



Robust and
diverse



Local R&D



Largest
financial
centre



Presence of
numerous
industry
associations



ICT



Local R&D
base



Federal
regulatory/
funding
agencies



Strong

government
support



Pharma base




Major site
for biotech
activities in
Atlantic
provinces



Strong local
R&D base



Emergent
public &
private
support

Innovation Systems Research Network

Comparative Summary (Continued)

Vancouver

Saskatoon

Toronto

Ottawa

Montr
éal

Halifax

Size:

LS Firms

Core

Biotech
firms


Biotech
Employmt.


80
-
140


48



1701


~40


14



369


~400


55


2661



100
-
140


10



736


>270


80



3238


~60


10



558

Challenges


Research
-
based: ‘IP
vendors’


Weak
industrial
infrastructure


Sustainable?



Financing


Public
financing
programs
too diverse
and
targeted?


Undergoing
change


Profile
problem:
local and
international


Weak
commerciali
-
zation
systems


Weak
domestic
linkages


Weak
industrial
infrastructure


No local life
-
sciences VC
fund



Government
dependence


Risky drug
discovery
activities


Financing


Is it a
cluster?


Most firms
young, small,
inward
looking, R&D
focused

Innovation Systems Research Network

Explaining Cluster Formation and
Evolution


Path Dependency



Origins of Toronto’s diverse life sciences cluster found in the
breadth of its older economic activities (Lowe and Gertler 2005)


Vancouver: weak industrial infrastructure to support product
development, modest pool of local venture capital, and
absence of a local pharmaceutical base has influenced many
firms to be ‘IP vendors’


Role of key public research institute varies by cluster


Vancouver & Saskatoon: Continues to be important for firm
creation (UBC) and R&D coordination (NRC
-
PBI)


Montr
éal: NRC
-
BRI co
-
evolved with private sector


Ottawa: Public research actors passive, though becoming more
active recently

Innovation Systems Research Network

Accounting for Change


Vancouver, Montreal, Halifax:


emergence of a
lead firm

sparked latent
entrepreneurialism/provided credibility & inspiration
for the region


Saskatoon & Montreal:


policy
-
driven through
federal decisions

to locate
national laboratories in each city


Ottawa:


ICT bust

in late 1990s raised profile of life sciences,
attracting political and financial support

Innovation Systems Research Network

Knowledge Base (1)


Identified as a critical factor for firms to locate
or remain in the region


R&D intensive, expertise, key actors in technology
transfer (out
-
licensing and firm creation), research
collaborations, consulting services, facilities, R&D
infrastructure, etc.


Need to acknowledge interdependent
relationship between local and global
knowledge flows

Innovation Systems Research Network

Knowledge Base (2)


Saskatoon case an extreme example of this:


Foreign proprietary sources of knowledge (know
-
what and why)


Local knowledge base develops tacit dimensions
of know
-
how and know
-
who to complement non
-
local knowledge flows


“…the generation and transmission of the non
-
codified
knowledge in the regional system is the key factor
holding things together. People develop skills and
working relationships, which together convert bits of
information into operable knowledge” (Phillips et al 2004)


Innovation Systems Research Network

Skilled Labour/Talent


Importance of local supply of skilled labour/talent


Often drawn from local research institutes and co
-
locating firms


Some crossovers in sectors (Toronto: pharma, Ottawa: ICT)


Consistent problems recruiting managers; diverse
responses


Halifax: Hire retired CEOs that settled in the area (Rosson and
McLarney 2004)


Saskatoon: Recruit expatriates (Greenberg 1999, Spurgeon 2002)


Toronto: Diverse mix of sources (local and non
-
local) and
methods


Gertler and Levitte (2003)


Innovative Biotech firms devote more resources, pursue diverse
strategies, and tap into global networks for recruiting staff


Local
and

global sources once again important

Innovation Systems Research Network

Summary (1)



CLUSTER FORMATION


Cases present a complex causal chain to
explain cluster formation influenced by
historical, region
-
specific context


Does not offer easily generalizable
explanations for cluster formation


Innovation Systems Research Network

Summary (2)

LOCAL VS. GLOBAL
KNOWLEDGE FLOWS


Local and global knowledge flows: cases
confirm mutually beneficial, reinforcing
nature of these two scales of flows (Bathelt
et al 2004)

Innovation Systems Research Network

Summary (3)

SPECIALIZATION or DIVERSITY?

TWO PATHS


Specialized:


Montreal, Vancouver, Saskatoon


High potential return


Risk, vulnerability?


Diverse:


Toronto, Ottawa, Halifax


Resilience


Larger E potential, more diverse mix of occupations,
employment opportunities, higher average cluster income


Lower ‘coherence’, visibility?


Innovation Systems Research Network

Thank you

Meric S. Gertler and Uyen Quach

Program on Globalization and Regional Innovation Systems

Munk Centre for International Studies

University of Toronto


Presentation to the 7
th

Annual ISRN Meeting

Renaissance Toronto Hotel Downtown

Toronto, Ontario

May 5
-
6, 2005