Biotechnology Megacentres: Montreal and Toronto Regional Systems of Innovation

European Planning Studies, Vol. 11, No. 7, October 2003

JORGE NIOSI and TOMAS G. BAS

[Paper ﬁrst received, May 2002; in ﬁnal form, August 2002]

ABSTRACT Canada hosts two major diversiﬁed biotechnology regional systems of innovation in its two largest cities. Similar in many respects, they display some particular characteristics. We review here the main theories on regional innovation systems and innovative clusters and proceed to analyse these two regional systems before concluding on the usefulness of several theories to study biotechnology regional innovation systems.

1. Theory: From Clusters to Regional Innovation Systems The well-documented agglomeration of high-technology companies in a few geographical regions of each industrialized nation has received several competing explanations. Many authors, based on Alfred Marshall (1890) pioneering work in the late nineteenth century, argued that high-tech ﬁrms agglomerate around major pools of skilled labour; sometimes, these pools were initiated by the arrival of large foreign- or locally-owned multinational corporations in the region, such as Galway in Ireland, or Ottawa in Canada (OECD, 2001; Niosi, 2000). In other cases, regional higher education institutions were responsible for the development of such a labour pool. Another European tradition, based on the work of Franc¸ois Perroux (1982), underlined that many regional poles were created by the development of ‘engine industries’ such as large aerospace or aircraft assemblers, operating as a magnet for hundreds of suppliers of parts and components (Scott, 1991; Beaudry 2001). This concept of regional poles oriented much industrial policies in Western Europe in the 1960s and 1970s (Meardon, 2001) More recently, Michael Porter argued that both productive and innovative clusters were the outcome of the agglomeration, within a given region, of many competing small and medium-sized enterprises using the same suppliers, and catering to the same consumers within the local area (Porter, 1998, 2001). Based on the national system of innovation perspective developed in the late 1980s and early 1990s, yet other authors proposed the regional system of innovation (RSIs) approach (Cooke et al., 1998; de la Mothe & Paquet, 1998; Niosi, 2001). For one, regional imbalances Q1 are as marked as national ones. They also suggested that the regional agglomeration of

Jorge Niosi and Tomas G. Bas, Department of Management and Technology, University of Que´bec, Montre´al, Canada. E-mail: [email protected]

ISSN 0965-4313 print/ISSN 1469-5944 online/03/070000–00  2003 Taylor & Francis Ltd DOI: 10.1080/0965431032000121346 790 Jorge Niosi and Tomas G. Bas high-technology firms obeys to different determinants and is characterized by different patterns than purely productive ones. Second, companies in high-technology industries are knowledge- and R&D-intensive. In such an environment, most of these companies gather knowledge from external organizations such as research universities, government laboratories, other R&D-intensive corporations, venture capital firms and the like. Third, in all market economies, both private and public organizations will underinvest in R&D if governments do not design the proper incentives. Institutions are required for such regional (but also national) systems of innovation to exist. Thus, regional systems of innovation (RSIs) are not simply agglomerations of private innovative firms, but they also include other organizations and institutions, the nature of which varies from one industry or technology to another. The RSI approach differs from the more traditional clusters and industrial poles in the sense that it includes other knowledge-producing organizations, as well as institutions (particularly policy incentives for innovation), and it does not imply any particular industrial structure.

1.1 Regional Systems of Innovation in Biotechnology Biotechnology is the latest generic technology developed in the post-war period. Biotechnol- ogy is not an industry but a set of specific activities and technologies such as biomaterials, combinatorial chemistry, DNA markers, genetic engineering, monoclonal antibodies, recom- binant DNA, etc. (Statistics Canada, 2002). These technologies produce either new products (i.e. artificial blood and human tissue), new processes for existing products (i.e. new methods for producing some specific protein) as well as new organisms for environmental cleaning or human consumption purposes. Their applications encompass such different industries as pharmaceuticals, food and beverages, chemical, environmental, and mining to name a few. However, most specialized biotechnology firms (SBFs) as well as most applications outside SBFs are now in the area of drugs for human health. The pharmaceutical industry is the main user of the new biotechnology. Modern biotechnology regional innovation systems display a basic set of organizations and institutions. Prominent among them are research universities, the fountains from which SBFs and their knowledge basically emerge. Most major biotechnology firms are spin-offs from research universities, or from other firms previously spun-off from academic institutions (Swan et al., 1998; Yarkin, 2000). The second key organization in biotechnology innovation systems are venture capital firms, providing the new SBFs with seed money, management competencies and credibility with regard to large pharmaceutical and chemical firms (Kenney, 1986, 2000). In countries and regions with a well-developed set of biotechnology firms, institutions provide SBFs with appropriate incentives (such as patent protection, tax credits for R&D and research grants) and common infrastructures, including government laboratories and publicly subsidized buildings with shared facilities such as fermentation units where the new SBFs can conduct experiments at a reduced cost. On the basis of this set of organizations and institutions, other theoretical approaches were developed and applied to biotechnology innovative clusters. Some authors argued that localized knowledge spillovers occur within these regions among the earlier mentioned organizations (Feldman, 1999). Spillovers or externalities are unintended benefits (or losses) that some organizations impose on others and that do not pass through the market mecha- nisms. Knowledge externalities are flows from knowledge-producing organizations that reduce the cost of producing new technology in firms receiving these flows. Thus, SBFs would freely benefit from knowledge created in universities and public laboratories. Other authors disagree with this perspective. They show that university researchers having created most SBFs are able to capture much of the benefits arising from their academic research. Biotechnology regions are thus characterized not so much by technology spillovers Biotechnology Megacentres 791 than by technology markets that occur within the region (Zucker et al., 1998a, 1998b). Others argued that these spillovers are far from being precisely understood and mapped to represent a solid foundation to explain regional agglomeration of firms (Breschi & Lissoni, 2001). Several authors made the case that networks are key within biotechnology regions (Powell, 1998). Networks provide knowledge (scientific and technological as well as financial and managerial) and other resources (such as access to capital) to the new SBFs. Among firms in the same region, networks provide trust and prevent free-riding behaviour as the possibility of repeated games creates reputation and retaliation effects. This approach has emphasized the importance of intraregional networks, while other authors (Rallet & Torre, 1998) have insisted on the fact that functional closeness is at lest as important as geographical proximity. In other words, important networks are not necessary among organizations located in the same area. More recently, Cooke (2002a, 2002b) has made a distinction between two types of regional Q2 innovation systems in the health sciences. The largest and more complex of them are called ‘megacentres’. They include all the important organizations in the value chain, such as large numbers of SBFs, large pharmaceutical corporations, clinical research organizations (CROs), research universities, research hospitals and venture capital firms. Some four European and four US centres qualify for this status of megacentres. The superiority of these megacentres as opposed to more specialized biotechnology clusters, lies on the fact that R&D, particular in the health sciences, has moved from a narrow disciplinary focus to a more wide, trans-disciplinary one where the new molecular biology, combinatorial chemistry, and more traditional pharmacology combine in the development of new drugs. RSIs with this kind of competencies are more likely to grow than more specialized ones.

2. The Rise of Canadian Biotechnology New biotechnology activities started in Canada a few years after they had emerged in the US and the UK. By 1980 there were only a handful of specialized biotechnology firms in the main cities of Montreal, Toronto and Vancouver. Today, Canada competes with the UK for second place in the world after the US, in terms of new firms, patents, publication or venture capital dedicated to biotechnology. This remarkable growth has several explanations. Early in the 1980s, the federal government handpicked biotechnology as one of the most promising new technologies and launched a Canadian Biotechnology Strategy, designed to promote its development. The strategy included the creation or upgrading of a set of five dedicated public laboratories, the largest of which is located in Montreal (the Biotechnology Research Institute or BRI with 260 permanent researchers and a similar number of invited ones). The other federal biotechnology laboratories are located in Halifax, Ottawa, Saskatoon and Winnipeg. The new strategy included the reinforcement of patent protection for pharmaceutical products, the upgrading of tax credits for R&D to include firms without revenues or profits, and new subsidies for academic and industrial research. In 20 years, the number of companies has multiplied by a hundred. Today, there are at least 358 SBFs with Ontario and Quebec the leading provinces, and Toronto and Montreal the leading regional innovation systems (see Tables 1 and 2). These 358 firms spend almost C$1billion on R&D. Even if SBFs specializing in human health products and processes are less than 50% of the total, they represent well over 50% of the total revenues, over 70% of the total employment, 85% of the R&D expenditures, and all but one among the 95 publicly- quoted Canadian biotechnology firms. Along with the SBFs, some 800 companies in the pharmaceutical, food, chemical, oil and mining, pulp and paper, and environmental industries use also biotechnologies in Canada in their R&D activities. These biotechnologies are used to develop new drugs, new plants and 792 Jorge Niosi and Tomas G. Bas

Table 1. Canada’s SBFs by province, 1999

Number Leading ﬁrms

Ontario 111 Biovail, Cangene, Hemosol, Vasogen Quebec 107 Shire Biochem, Axcan, Nexia British Columbia 71 QLT, Kinetek Prairie provinces 50 Biomira, Isotechnika, Maritime provinces 26 Efamol Total 358

Source: Statistics Canada, 1999. bacteria for microbial ecology, bioremediation, biofiltration, biopulping, biodesulphurization, etc. Toronto and Montreal represent the two largest concentrations of biotechnology R&D, not only within the new SBFs, but also in the other, more established industries, like the pharmaceutical, chemical and food and beverages. In addition, the two largest Canadian cities also host large clinical research organizations, large concentrations of venture capital firms and other service companies. Conversely, the minor regional innovation systems, located in Vancouver, Saskatoon, Quebec City and Ottawa, are exclusively made of SBFs, their incubating research universities, and in the case exclusively of Vancouver, venture capital firms (Niosi & Bas, 2001).

3. Montreal’s Human Health R&D System Montreal and Toronto represent together over 50% of Canadian biotechnology. These cities do not look like the classic biotechnology cluster that one can ﬁnd in San Francisco or San Diego with the well-known triad of SBFs, research universities and venture capital ﬁrms. In both Canadian cities, biotechnology is spread among a vast array of research organizations, private and public, displaying a complex pattern of collaboration and competition. Montreal’s system is made of several components (see Table 3).

3.1 The Core Biotechnology Firms Montreal is host to over 100 SBFs, of which between 70 and 80 are active in the development of products and processes for human health. Twenty of these ﬁrms are quoted in the stock

Table 2. Canada’s SBFs by major city, 2001

City and province Number

Toronto, Ontario 73 Montreal, Quebec 72 Vancouver, BC 59 Quebec City, Quebec 22 Edmonton, Alberta 18 Calgary, Alberta 10 Ottawa, Ontario 9

Source: Contact Canada, 2001. Biotechnology Megacentres 793

Table 3. Montreal human health cluster in 2002

Organizations Number Representative organizations

Human health SBFS 79 Shire Biochem, Haemacure, Ibex, Theratechnologies Pharmaceutical corporations 28 Aventis Pharma, Abbott, Wyeth-Ayerst, Merck Frosst. Pﬁzer Canada. Clinical research organizations 10 Maxxam, Phoenix Life Sciences, Quintiles Medical devices 13 Biotechnology services 41 Bio-Capital, Soﬁnov Research universities 4 Concordia, McGill, Montreal, UQAM Government laboratory 1 Biotechnology Research Institute of Montreal (National Research Council) Research hospital centres 16 Montreal neurological Institute, Clinical Research Institute of Montreal

exchanges (Table 4). These public firms employ over 2000 researchers and their market capitalization, by July 2002 was over C$ 1.5 billion. One Montreal SBF deserves special mention. In 2001, Shire Pharmaceuticals plc of Great Britain acquired the largest Canadian biotechnology firm, BioChem Pharma of Montreal, for US$ 4 billion (or C$ 5.9 billion). With over 1000 employees, 46 US patents and a large stream of revenues stemming for its flagship drug 3TC, marketed outside Canada as Epivir, the

Table 4. Main Montreal public biotechnology companies

Montreal Market employment Stock capitalization Company Domain 2001 market 07/2002 (C$M)

1 Axcan Pharma Therapeutics 80 TSE 519 2 Biosyntech Biomaterials 40 NASDAQ 12 3 Conjuchem Therapeutics 35 TSE 108 4 Ecopia Biosciences* Genomics 45 TSE 22 5 Genomics One Genomics 13 TSX NA 6 Haemacure Therapeutics 50 TSE 29 7 Ibex Technologies Therapeutics 19 TSE 9 8 Labopharm Therapeutics 50 TSE 107 9 Millenia Hope Therapeutics 12 OTC NA 10 Neurochem** Therapeutics 70 TSE 67 11 Nexia Biotechnologies Genomics 100 TSE 85 12 Nymox Diagnostics 45 NASDAQ 193 13 Paladin Laboratories Therapeutics 36 TSE 109 14 Procrea Biosciences Diagnostics 81 TSE NA 15 Prometic Life sciences Therapeutics 100 TSE 143 16 Procyon Biopharma Therapeutics 25 TSE 32 17 Shire BioChema Therapeutics 1000 LSE 18 Signalgene Genomics 54 TSE 20 19 Theratechnologies Therapeutics 95 TSE 180 20 Warnex Pharma Therapeutics 80 TSX NA Totals 2030 TSE 1636 a Shire Biochem is a wholly owned subsidiary of Shire Pharmaceutical Group plc, of the UK. Market capitalization for the British group is 2584 million stirling. Note: TSE is the Toronto Stock Exchange; NASDAQ is the North American Security Dealers market; LSE is the London Stock Exchange. 794 Jorge Niosi and Tomas G. Bas world’s best-selling treatment for HIV treatment, BioChem Pharma towers above Montreal’s biotechnology. Shire BioChem also produces vaccines and has several other products in the Montreal research pipeline. This is not the only foreign subsidiary among Montreal’s SBFs. In 1988, the German pharmaceutical corporation Boehringer Ingelheim had acquired Bio-Mega, another large dedicated biotechnology company to make its biotechnology division in North America. With over 130 employees in R&D, Bio-Mega is another major biotechnology laboratory within the cluster. The vast majority of Montreal’s SBFs are, however, Canadian owned and controlled. On average they employ only 12 persons and ﬁrm median age in 2002 is only 8 years. The group of publicly quoted core biotechnology companies are larger and older: they are 10 years old, they employ on average 54 people, and their average market capitalization is around C$86 million or US$55 million.

3.2 The Pharmaceutical Research For over a century, Montreal has hosted pharmaceutical research. Both Canadian and foreign-owned pharmaceutical corporations have established in the city some of their R&D laboratories, due to the presence of research universities and large public hospitals. Some of these innovating pharmaceutical corporations with decades of involvement in the cluster deserve particular mention. They include Merck Frosst, the subsidiary of US Merck, with some 300 researchers in Montreal, Aventis Pharma hosting over 200 researchers in the cluster, Bristol-Myers-Squibb with a total Montreal R&D staff of 150. Other major pharmaceutical R&D companies include GlaxoSmithKline, Novartis and Wyeth Ayerst Canada. These large R&D centres have already added biotechnology R&D to their in-house innovation activities. Table 5 shows the total R&D expenditures in 2001 of the major pharmaceutical and biotechnology corporations established in either Toronto or Montreal; companies do not break down their ﬁgures by geographical agglomeration in Canada, but basically all their laboratories are situated in either Montreal or Toronto or both (Table 5).

3.3 Universities and Their Affiliated Hospitals and Centres Montreal hosts four research universities. Three of them have at least some research in biotechnology. The largest is by far McGill University, founded in 1819, now with 1360 professors, including 417 professors in health science. The University of Montreal, founded in 1920, employing 1300 professors, including 348 in health sciences, follows. These two universities have large Faculties of Medicine and Sciences, as well as affiliated research hospitals. The University of Quebec, and its affiliated National Institute of Scientific Research, founded in 1969, have 57 professors in the area of health sciences but no affiliated hospitals and no Faculty of Medicine. The potential for human biotechnology and pharmaceutical discovery is thus variable from one university to another, and it comes as no surprise that the Faculty of McGill University created the largest number of spin-off companies (30), followed by the faculty at the Universities of Montreal (seven) and Quebec (three). Concordia University has no medicine and no sciences but a large Faculty of engineering where some biochemical processes are studied (Tables 6 and 7). The most conspicuous biotechnology university spin-off in Canada is BioChem Pharma, now Shire Biochem, founded in 1986 by a group of researchers of McGill University and University of Quebec’s National Institute for Scientific Research hosting some 1000 researchers by early 2002, and spending over C$87 million in R&D in 2001. Also, some 17 large hospital research centres are affiliated to McGill and Montreal universities. They host thousands of researchers. Table 8 summarizes the figures for the major Biotechnology Megacentres 795

Table 5. R&D expenditures of Canadian and foreign-owned pharmaceutical and biotechnology companies among Canada’s top 100 R&D spenders, 2001

Canadian R&D R&D ratio (R&D as expenditures percentage of Ownership and Company (C$ millions) revenue City control

Pﬁzer Canada 132.2 12.5 Montreal USA Merck Frosst Canada 119.0 15.3 Montreal USA Apotex 115.0 19.2 Toronto Canada GlaxoSmith Kline 101.4 10.9 UK Shire Biopharma 87.5 24.0 Montreal UK Aventis Pasteura 83.0 39.3 Toronto France/Germany Biovail 79.0 8.7 Toronto Canada AstraZeneca 75.0 9.1 Toronto UK Bayer 56.2 3.6 Toronto Germany Aventis Pharma 52 13.9 Montreal France/Germany Janssen-Ortho 38.8 9 Toronto USA Eli Lilly Canada 37.4 10.8 Toronto USA Novartis Canada 34.1 ND Montreal Switzerland Hemosol 30.2 ND Toronto Canada Schering Canada 25.2 8.9 Montreal USA Genpharm 20.9 9.9 Toronto USA ConjuChem 17.8 1551.5 Montreal Canada Cangene 16.8 24.7 Toronto Canada Visible Genetics 16.8 79.8 Toronto Canada Totals 1138.2 a Aventis Pasteur and Aventis Pharma are independent subsidiaries of Aventis Corp. Source: Research Infosource, Ottawa, 2002. hospital research centres in Montreal as well as the Biotechnology Research Institute of Montreal, a federal public laboratory. Research hospitals carry mainly their own research programmes, but also conduct contract research for industry, such as clinical trials, genetic validation of existing drugs, in vivo and in vitro replication of studies, etc. While most of their revenues come from peered-review research grants, university foundations and donations, an increasing percentage of their income comes for industrial contracts obtained from both SBFs and big pharmaceutical corporations located in Montreal.

Table 6. Montreal and Toronto professors in health sciences, 1999

University/region No. of professors

University of Toronto 765 York University 5 McMaster University 379 Total Toronto 1149 McGill University 417 University of Montreal 348 UQAM/INRS 57 Concordia University 0 Total Montreal 822 Montreal/Toronto 72% 796 Jorge Niosi and Tomas G. Bas

Table 7. Research funds in health sciences, 1999

University/region Research funds

University of Toronto MRC 41.5 Health and Welfare Canada 7 York University 0 McMaster University MRC 18 Health Canada 1.5 Private sources Universities in Toronto 157 Total Toronto 225 McGill University MRC 28 Sante´ Canada 4 University of Montreal MRC 21 Health Canada 3 UQAM/INRS ND Concordia 0 Private sources, Montreal universities 110 Total Montreal 166 Montre´al/Toronto 74%

3.4 Venture Capital in Montreal During the last 20 years, Montreal has nurtured the development of a large venture capital fund in the biotechnology ﬁeld. A dozen venture capital companies operate in the region, lending some C$120 million every year. Some 10 local specialized biotechnology ﬁrms are

Table 8. The largest biomedical public research centres in Montreal, 2001

Total R&D Centre name Afﬁliation personnel

Biotechnology Research Institute (BRI) National Research Council 560 Clinical Research Institute of Montreal University of Montreal 454 Montreal General Hospital Research Centre McGill University 399 Institute for medical research at Jewish McGill University 373 General Hospital Royal Victoria McGill University 367 Research Institute Research centre at St Justine Hospital University of Montreal 330 Montreal Neurological Institute McGill University 270 Neurological Sciences Research Centre University of Montreal 186 L.-C. Simard Centre at Hospital Notre-Dame University of Montreal 173 Maisonneuve-Rosemont Research Centre University of Montreal 155 Human Health Centre, INRS University of Quebec 151 Microbiology and Biotechnology Centre, University of Quebec 142 INRS Hotel-Dieu University of Montreal 123 Research Centre Coˆte-des-neiges Hospital Research Centre University of Montreal 115 Biotechnology Megacentres 797 thus supported each year. Besides, some Montreal SBFs manage to receive funds from other regions of Canada as well as from overseas companies. Local venture capital firms include government-owned organizations (such as Sofinov and Business Development Bank of Canada), government-backed ones (such as the Fonds de Solidarite´ de la FTQ), and private firms (Investissements Desjardins, Schroders & Associates).

3.5 Technology Parks and Incubators Montreal hosts two dedicated biotechnology parks, one in Laval Science and High Technol- ogy Park (Laval is a northern suburb of the city) and the second one in Ville St Laurent (northern Montreal). While most of the companies are located in these two areas, many of them are located elsewhere in the city or its immediate surroundings. Besides three major incubators offering space and common facilities exist in the area: Quebec Biotechnology Innovation Centre (in Laval), Montreal Enterprise and Innovation Centre, and Inno-Centre.

3.6 Clinical Research Organizations (CROs) Together with the development of biotechnology, pharmaceutical research has experienced another change, namely the arrival of the CROs as a specialized sub-sector (Piachaud, 2002). This new segment of the industry is dedicated to pre-clinical and clinical research, an activity that represents nearly half of the US$550 to $800 million cost of the development of a new drug. In 1962, after the thalidomide crisis, the US Federal Drug Administration, followed by their equivalent agencies in all industrial nations, increased their standards in terms of clinical research in order to approve a new drug. Pharmaceutical firms decided to subcontract some part of these responsibilities and the independent CRO was born. By 2002, there were some 1300 CROs in the world, most of them being US firms with overseas subsidiaries. Several of these like Covance, Quintiles and Parexel are active in Montreal, and were joined by some Canadian owned ones, such as Phoenix Life Sciences. These CROs produce clinical essays for both the pharmaceutical and biotechnology firms in Montreal as well as for foreign customers, mainly pharmaceutical corporations based in the US. They represent the fastest-growing component of the Montreal human health regional innovation system (Niosi et al., 2002).

3.7 The Dynamics of the System Montreal’s regional innovation system in the pharmaceutical/biotechnology area includes two different and fairly autonomous portions. One is the university/SBF/venture capital network. University researchers develop technologies and often create new SBFs with the help of venture capital. When these companies reach some level of maturity, venture capital ﬁrms bring them to the stock market, and give them advice to manage intellectual property and develop international alliances. Also, the more mature SBFs require the services of the local CROs. This portion of the regional cluster was developed during the last 20 years and is still growing by the addition and attraction of new ﬁrms. The presence of the SBFs in the cluster is due to their incubation in local universities where the founders usually teach and conduct research. The second segment is composed of large pharmaceutical multinational corporations (MNCs), most often foreign controlled, having some relationship with the universities, where they subcontract some parts of their research. The presence of these large MNCs is much older and linked to the availability of a large regional pool of university graduates in the areas of biology, biochemistry, pharmacology and medicine. The alliances of these MNCs are most 798 Jorge Niosi and Tomas G. Bas often international than regional, and they are based on similarity of research themes and missions.

4. Toronto’s Biotechnology Cluster Toronto represents the largest Canadian biotechnology cluster, and the world’s tenth largest, measured either by the number of firms, employees or patents. Like Montreal dedicated biotechnology firms, most of Toronto’s SBFs operate in the area of human health. At the origin of these Toronto firms, one finds the large faculty of Medicine of the University of Toronto, as well as its large research hospitals. The Toronto Biotechnology Incubator Centre and the Biotechnology Commercialization Fund, two provincial initiatives, have also played a part in the growth of the regional cluster.

4.1 Pharmaceutical Research The long history of pharmaceutical research in Toronto started in the 1880s. For over a century, the city has attracted the largest number of large pharmaceutical multinational corporations operating in Canada. Among these Astra Pharmaceuticals, Aventis, Eli Lilly, GlaxoSmithKline and Johnson and Johnson are prominent. In the involvement of Canadian firms, it is key to mention the 1914 creation of Connaught Labs by 1922 Nobel Prize winners Drs Frederick Banting and Charles Best. This University of Toronto start up was founded to commercialize the first industrial method to purify insulin, developed by both scientists. The large scale manufacturing of insulin required the collaboration of the US pharmaceutical firm Eli Lilly. This was one of the earliest and most conspicuous university–industry collaboration in Canada. Eventually, the French government Me´rieux Institute bought Connaught, and it was later merged with Aventis, the Franco-German pharmaceutical corporation. Connaught is now the Aventis Pasteur subsidiary of the European giant. Aventis Pasteur is the world’s largest producer of vaccines and a large biotechnology laboratory. Table 5 shows that by 2001 many of the largest pharmaceutical multinational corporations were conducting R&D in Toronto, and that their involvement represented hundreds of millions of dollars in the area.

4.2 Universities and their Affiliated Institutions The Toronto agglomeration hosts two major universities active in human health and pharmacological research. The University of Toronto is the largest of them, and also the largest in Canada and one of the largest in North America. Its Faculty of Medicine is best known for its research on neurobiology, cardiovascular disease, and biotechnology (including biomaterials). By 1999 the University had almost 2500 professors, over 55000 students and external financing for research worth C$454 million. Its Faculty of Medicine, founded in 1843, employs 765 professors and has an annual budget over C$220 million (Tables 6 and 7). The second university in the region is York University, much smaller than the University of Toronto, founded in 1959. Without a faculty of medicine, its science research is well known in molecular biology and microbiology. The university hospitals are affiliated to the University of Toronto. They host some 40 research centres, and spend over C$400 million. These figures put Toronto in the fourth place in North America regarding medical research. Among Toronto’s largest hospitals one should mention the Hospital for Sick Children, the Ontario Cancer Institute, the Sunnybrook Health Science Centre, St Michael’s Hospital, Women College Hospital, the Centre for Addiction Biotechnology Megacentres 799

Table 9. Toronto human health cluster in 2002

Organizations Number Representative organizations

Human health SBFS 81 Biovail, Hemosol, Vasogen Pharmaceutical corporations 56 Astra Pharmaceuticals, GlaxoSmithKline, Eli Lilly Clinical research organizations 11 MDS Pharma Sciences, Patheon, Biovail Contract Research Biotechnology services 40 MDS Capital Corporation, Royal Bank Ventures Inc. Research universities 2 University of Toronto, York University Research hospital centres 10 Hospital for Sick Children, St Michael’s Hospital

and Mental Health and the Baycrest Hospital (see Table 9). Needless to say, only part of this research uses biotechnology in its different applications. In 2000, Toronto established a Toronto Biotechnology Commercialization Centre (TBCC), a corporation backed by most of the largest metropolitan organizations working in biotechnology. They include the University of Toronto, the seven leading hospitals in the region the City of Toronto and the Government of Canada. TBCC invests over C$400 million yearly in biotechnology R&D. There are also several projects linking public and private institutions. Two of the most noticeable are the MARS (Medical and Related Science) project and Genome Ontario. In 2001, MARS was launched by a group of visionary leaders of biotechnology. They established a facility close to the University of Toronto campus, to host research institutes, laboratories, venture capital ﬁrms and other services required by a research-intensive activity such as biotechnology. Early in 2000, Genome Ontario was initiated and funded by the Ontario Government in the Toronto Discovery District to study the human genome. The ﬁrst investment occurred in early 2001 with C$200 million.

4.3 Venture Capital in Toronto A major difference between Ontario’s Toronto and Quebec’s Montreal is the role of government in venture capital. We have noted that most of the venture capital firms in Montreal are government-owned and/or government-backed organizations. In the more conservative Ontario, private firms are the rule. Toronto is host to some 12 venture capital firms investing in biotechnology. The largest of them is MDS Capital Corporation, Canada’s largest provider of venture capital funds for the health sciences, with a total fund of C$800 million and investments in not less than 76 companies including most of the leaders in Canadian biotechnology, such as Hemosol, NPS Pharmaceuticals and GlycoDesign (Toronto), Nexia Biotechnologies (Montreal) and Inex Pharmaceuticals (Vancouver). MDS Capital Corporation is a private company, a spin-off of MDS, a research-oriented life science Toronto corporation. Another major investor in biotechnology is Royal Bank Ventures Inc. (RBVI) a diversified financial institution, with a total biotechnology fund of C$45 million and investments in 22 SBFs including Toronto’s Draxis Health, GlycoDesign, and Hemosol. Among the smaller venture capital firms, Yorkton Securities, another private organization, has collaborated in the launching of Draxis Health and Yorkton Biocatalysts.

4.4 Core Biotechnology Firms Toronto hosts close to 80 biotechnology ﬁrms, one third of which are quoted in the stock markets in the US and Canada. The market capitalization of these ﬁrms approaches the C$8 800 Jorge Niosi and Tomas G. Bas

Table 10. Publicly quoted core biotechnology ﬁrms in Toronto

Employees Market Company Area 2001 Stock exchange capitalization

Amgen Canada Therapeutics 60 NASDAQ NA Arius research Therapeutics 20 TSX NA BCY Life Sciences Therapeutics 5 TSX NA Biogen Canada Therapeutics 20 NASDAQ NA Biovail Therapeutics 1200 TSE 5958.3 Cangene Therapeutics 450 TSE 596.8 Dimethaid Therapeutics 85 TSE 132.1 Draxis Health Therapeutics 300 TSE 129.7 DUSA Pharmaceuticals Therapeutics 55 NASDAQ 46.2 Generex Biotechnologies Therapeutics 25 NASDAQ 67.5 GenSci Regeneration Biomaterials 60 TSE 15.5 GlycoDesign Therapeutics 100 TSE 8.3 Helix Biopharma Therapeutics 50 TSE 43.8 Hemosol Therapeutics 180 TSE 367.5 IMI Internat. Medical Innovation Therapeutics 16 TSX 88.0 Lorus Therapeutics Therapeutics 30 TSE 95.3 Microbix Biosystems Therapeutics 35 TSE 9.2 NPS Pharmaceuticals Therapeutics 138 TSE 32.7 Prescient Neuropharma Therapeutics 27 TSX NA Spectral Diagnostics Therapeutics 110 TSE NA SYN X Pharma Therapeutics 30 TSX 7.7 Tm Bioscience Therapeutics 19 TSX NA Toxin Alert Therapeutics 15 TSX NA Vasogen Therapeutics 20 TSE 152.6 Visible Genetics Therapeutics 200 NASDAQ 41.2 Viventia Biotech Therapeutics 57 TSE 36.1 Waratah Pharmaceuticals Therapeutics 11 TSX NA Totals 3318 7838

Note: TSE is the Toronto Stock Exchange; NASDAQ is the North American Security Dealers market; LSE is the London Stock Exchange.

billion figure, with one large company, Biovail, heading the pack with close to C$6 billion in market value (Table 10). In terms of market value, Toronto SBFs look like Montreal, in the sense that one very large company (Shire Biochem in Montreal, Biovail in Toronto) dwarfs dozens of small and medium-sized firms. The average size of Toronto’s publicly quoted firms is 122 employees, but the figure is reduced to 81 employees when Biovail is subtracted. Similarly, in Montreal the average size of public SBFs is 102, but it descends to 54 employees when Shire Biochem is removed from the list. Many of Toronto’s SBFs are the spin-offs of the University of Toronto.1 Today’s Aventis Pasteur (with 900 employees in Toronto) is one of the largest biotechnology organizations in the city, and as previously mentioned, it originated in 1914 as Connaught Labs, a University of Toronto spin-off. According to official university figures, some 30 biomedical firms in Toronto emanate from the University of Toronto professors. Also three of the most important publicly quoted SBFs were created from University of Toronto research. These are Helix BioPharma, Spectral Diagnostics and Visible Genetics. Smaller companies include Biox, Interface Biologics, Urex and Select Therapeutics. Biotechnology Megacentres 801

Table 11. Main research hospitals in Toronto, 2001

Total R&D Centre name Afﬁliation personnel

Hospital for Sick Children University of Toronto 1600 St Michael’s Hospital University of Toronto 634 Sunnybrook and Women’s College Health Science University of Toronto 600 Centre and public laboratory Mount Sinai Hospital S. Lunenfeld Research Institute University of Toronto 538 Ontario Cancer Institute University of Toronto 400 and public laboratory Centre for Addiction and Mental Health University of Toronto 300 and public laboratory Baycrest Hospital University of Toronto 130

4.5 Contract Research Organizations Toronto is host to a large number of CROs. A few of them are foreign subsidiaries, such as Parexel International, but some are among the largest Canadian-owned and controlled human-health corporations. These include MDS Pharma Sciences, aaiPharma and Biovail Contract Research. Like in Montreal, the CROs conduct clinical and pre-clinical research for the Canadian subsidiaries of large multinational pharmaceutical corporations in Canada, local SBFs and the main laboratories of US pharmaceutical companies in New Jersey and New York.

4.6 Government Programmes for Biotechnology Even if less interventionist than Quebec governments, Ontario’s administrations have consist- ently supported biotechnology through the last two decades. The following list includes some of the most conspicuous provincial public programmes.

• The Biotechnology Commercialization Fund, launched in 1998 with a C$20 million over 4 years in order to contribute to the creation of regional biotechnology centres for small start-up ﬁrms. • Ontario Research and Development Challenge Fund, created in 1997, with C$500 million over 10 years aimed at promoting collaboration between the private sector and public research. • Ontario Innovation Trust, created in 1999, has a C$750 million fund to collaborate in the purchase of research equipment in universities, hospitals and other R&D organizations in the province. • Premier Research Excellence Awards, launched in 1998, brings C$75 million to attract and retain star scientists in all ﬁelds. • Ontario Research Performance Fund, a year 2000 initiative, has over C$30 million to reimburse research cost incurred by Ontario scientists within the province. • Ontario Genomics Initiative has received C$75 million over 5 years to increase the province competencies in genomic research. • Ontario Cancer Research Network, created in 2000, was endowed with C$50 million to acquire equipment in order to conduct research on new therapeutics.

On the top of these programmes, some of which serve the biotechnology research community, 802 Jorge Niosi and Tomas G. Bas

Ontario has a tax credit for R&D to help private sector research-intensive companies, as well as a 100% tax deduction to cover the application for patents.

5. Conclusion Both Toronto and Montreal regional innovation systems in biotechnology display similar characteristics. Both are megacentres with a large variety of organizations and institutions: research universities and their affiliated hospitals, close to a hundred SBFs, most of which aim at new human health products and processes, over a dozen venture capital firms and at least as many CROs, as well as a large number of pharmaceutical research laboratories. These large megacentres are made of two different subsystems. The SBF/university/venture capital one is the most recent one. University research has spun-off nearly half of these new SBFs and venture capital firms have provided them with seed capital, management services and expertise as well as credibility. Toronto’s RSI is slightly bigger in terms of the number of firms, the size of SBFs and the venture capital pool for biotechnology. Both however host world-class academic research, and in both RSIs, one large company dwarfs 20 to 30 publicly quoted dedicated biotechnology companies and not less than 50 other SBFs in human health. Montreal venture capital is more linked to government departments and public funds, while Toronto’s is more private, and eventually larger. The second subsystem is much older and centred on the large laboratories of pharmaceutical MNCs, most of which are foreign-owned and controlled. Contract research organizations provide services mostly to these MNCs but also to the local SBFs as well as exporting services to the US. Some of the MNCs research is contracted out to local universities and/or their research hospitals. Both subsystems are scantly related. More often they coexist rather than cooperate. MNCs have developed research alliances with foreign-based SBFs on the basis of R&D interests and complementarities. Local SBFs have created alliances with overseas pharmaceutical international corporations on a similar foundation of complementary knowledge. Both MNCs and SBFs cooperate with research universities and both use the services of the local CROs. When it comes to theories, both megacentres display some elements of Michael Porter innovative clusters, with dozens of small and medium-sized enterprises competing for human and financial resources, but collaborating on matters of common facilities, and using the same legal, financial and other services. The large number of spin-offs launched from local universities points to both technology markets and knowledge externalities. Also strong networks exist in each RSI between SBFs, universities and venture capital, as well as among a few SBFs, large pharmaceutical firms and CROs. But another, older network coexists within the region, one including large pharmaceutical firms, CROs and universities. Contacts between these two subsystems are less dense, as the most important alliances of both big pharmaceutical corporations and local SBFs are international and based on functional rather than geographical proximity. This finding brings support to Rallet and Torres contention about the importance of functional closeness. At this point we are not able to decide whether pure spillovers of market transactions are more important in the circulation of knowledge created in universities. Another very different research will be necessary to make the point on this major issue. At this point, it is important to underline the fact that with approximately half of the local SBFs in each megacentre has been spun-off regional universities, pointing out to major technology markets between academic research centres and the new biotechnology firms. Biotechnology Megacentres 803

Note

1. University of Toronto has only recently started to collect information about its spin-offs.

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