1. 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

2. Innovation Systems Research Network The Case Studies Vancouver, British Columbia Saskatoon, Saskatchewan Toronto, Ontario Ottawa, Ontario Montréal, Québec Halifax, Nova Scotia

3. 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

4. Innovation Systems Research Network Key Questions Composition, specialization, strengths Scale Enabling and triggering forces Current challenges

5. 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

6. 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)

7. 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 1.00.81.2 Employment Location Quotients External Linkages Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

8. 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)

9. 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)

10. 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 1.00.81.2 Employment Location Quotients External Linkages Saskatoon Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

11. 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)

12. Innovation Systems Research Network Toronto: Overview Key triggers/enabling factors –Diverse economy (sophisticated service industries & manufacturing base) and human health research strengths, home 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)

13. 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 1.00.81.2 Employment Location Quotients External Linkages Toronto Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

14. 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)

15. Innovation Systems Research Network Ottawa: Overview Key triggers/enabling factors –Civic championing for Ottawa Life Sciences Technology Park, entry 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)

16. 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 1.00.81.2 Employment Location Quotients External Linkages Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

17. 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

18. Innovation Systems Research Network Montréal: 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 Québec (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)

19. Innovation Systems Research Network Montréal 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 1.00.81.2 Employment Location Quotients External Linkages Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

20. Innovation Systems Research Network Montréal: Current Challenges Historically strong government intervention and coordination –High dependence on public support especially in venture capital financing Less than 10% of investment in Québec from private sources –Government withdrawal is occurring but is the private sector stepping in? Highlights future vulnerabilities –Private funds in Québec (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 Montréal –Neurochem Inc. example Private sector investors not as sympathetic with failures

21. 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)

22. 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 1.00.81.2 Employment Location Quotients External Linkages Source: Data compiled and diagram created by Spencer and Vinodrai 2005.

23. 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

24. Innovation Systems Research Network Comparative Summary VancouverSaskatoonTorontoOttawaMontréalHalifax 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 AgricultureHuman health ‘megacentre’ (robust) Non- therapeutics Human health ‘megacentre’ (pharma) Human health – diverse areas Key Cluster Characteristic Rapidly growing Ag-biotech centre Scale & diversity EmergentDrug 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

25. Innovation Systems Research Network Comparative Summary (Continued) VancouverSaskatoonTorontoOttawaMontréalHalifax 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 ChallengesResearch- 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

26. 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) –Montréal: NRC-BRI co-evolved with private sector –Ottawa: Public research actors passive, though becoming more active recently

27. 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

28. 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

29. 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)

30. 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

31. 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

32. 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)

33. 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?

34. 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