Biotechnology Megacentres: Montreal and Toronto Regional Systems of Innovation

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

Biotechnology Megacentres: Montreal and Toronto

Regional Systems of Innovation

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 Francois 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

( Q1Cooke et al., 1998; de la Mothe & Paquet, 1998; Niosi, 2001). For one, regional imbalances

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 Quebec, Montreal,

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 competen-

cies 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, Q2Cooke (2002a, 2002b) has made a distinction between two types of regional

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 prod-

ucts, 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


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.


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.


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 biotechnol-

ogy 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 re-

searchers 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


Table 5. R&D expenditures of Canadian and foreign-owned pharmaceutical and biotechnol-

ogy 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%


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

Montreal/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

Cote-des-neiges Hospital Research Centre University of Montreal 115


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


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 Merieux 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


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


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.


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,


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/ven-

ture 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 pharmaceu-

tical 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 inter-

national 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.


Note

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

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