Toronto Biopharmaceutical Cluster · 4 September 10, 2004 Toronto’s BioPharma Cluster Study Overview Industry Overview Ontario under performs in innovative activity and productivity

1 September 10, 2004

Toronto Biopharmaceutical Cluster


The Porter Diamond and Clusters


Assessing Toronto’s Biopharmaceutical Cluster

Clusters profiled and assessed using cluster template developed by Michael Porter’s Institute for Strategy and Competitiveness

Used 120 variables to measure the four elements of the Porter DiamondThis allows for comparison of competitiveness between clusters


Toronto’s BioPharma Cluster Study Overview

Industry OverviewOntario under performs in innovative activity and productivity

Cluster AnalysisWeak demand conditions do not contribute to an innovative climate

Opportunities for Development in Toronto’s ClusterEncourage more competition among health care providers

Revamp pricing strategyStrengthen intellectual property protection Reduce drug approval times and duplication of regulatory processes Allow for more end-consumer input and choice in system

Encourage more outsourcing by health care providers Enforce more sophisticated purchasing by health care providers/fundersImprove linkages between venture capitalists and entrepreneurs


Traded Industries Grouped into 41 Clusters


Clusters Drive Productivity and Innovation


Clusters Drive Productivity and Innovation in Ontario

Average WageC $ (2000)

$44,404

$30,000

$44,208

Traded Clusters Local Industries Natural Resources

Share of Employment

40%

59%

1%

Patents per 10,000 Employees(US Data)

20.48

1.38

6.40


Source: Institute for Strategy and Competitiveness – Cluster Mapping Project, Institute for Competitiveness & Prosperity


Share of Income

49%

49%

1%


Toronto ranks 8th versus leading North American jurisdictions

•Neighbouring MSAs combinedSource: Institute for Strategy – Cluster Mapping Project & Competitiveness, Institute for Competitiveness & Prosperity

*

*

*

*

*

*

Top Biopharmaceutical Clusters by Employment - MSA/CMA

- 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

San Diego, CA

San Francisco, CA

Baltimore, MD

Indianapolis, IN

Montreal, QC

Greensboro-Winston-Salem-High Point-Raleigh-Durham-Chapel Hill, NC

Chicago, IL

Toronto, ON

Boston-Worcester-Lawerence-Lowell-Brocktn, MA-NH

Grand Rapids-Muskegon-Holland-Kalamazonn-Battle Creek, MI

Philadelphia, PA-NJ

New London-Norwich-New Haven-Bridgeport-Stamford-Danbry-Wtrbry, CT

Los Angeles-Long Beach-Orange County-CA

New York-Nassau-Suffolk, NY

Newark-Middlesex-Somerset-Hunterdon-Bergen-Passaic, NJ

Total Employment


Wages in Leading North American Biopharmaceutical Clusters Ranked by Employment Size

$- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000

San Diego, CA

San Francisco, CA

Baltimore, MD

Indianapolis, IN

Montreal, QC

Greensboro-Winston-Salem-High Point-Raleigh-Durham-Chapel Hill, NC

Chicago, IL

Toronto, ON

Boston-Worcester-Lawerence-Lowell-Brocktn, MA-NH

Grand Rapids-Muskegon-Holland-Kalamazonn-Battle Creek, MI

Philadelphia, PA-NJ

New London-Norwich-New Haven-Bridgeport-Stamford-Danbry-Wtrbry, CT

Los Angeles-Long Beach-Orange County-CA

New York-Nassau-Suffolk, NY

Newark-Middlesex-Somerset-Hunterdon-Bergen-Passaic, NJ

Average Wages $ US, PPP Adjusted

Toronto Wages Under Perform US clusters

Note: * Data is suppressed

Source: Institute for Strategy and Competitiveness, Institute for Competitiveness & Prosperity

*

*

*

*


Toronto ranks 8th versus leading North American jurisdictions

3 Narrow Sub-clusters

8 Broad Sub-clusters

Health and Beauty Products

Containers

Biopharmaceutical Products

Surgical Instruments and Supplies

Medical Equipment

Dental Instruments and Supplies

Diagnostic Substances

Ophthalmic Goods Research Organizations

Biological Products

Patent Owners & Lessors

Source: Institute for Competitiveness & Prosperity

© 2004 Institute for Competitiveness and Prosperity

Toronto Life Sciences Cluster

Surgical Instruments and Supplies (B)

Medical Equipment (B)

Dental Instruments and Supplies (B)

Diagnostic Substances (B)

Ophthalmic Goods (B)

Containers (N)

Health and Beauty Products (N)

Biological Products (B)

Biopharmaceutical Products (N)

17th in N.A.

Research Organizations (B)

Educational Institutions

University of Toronto, York University, Ryerson

University

Cluster Organizations

(Rx&D, CGPA)

Health Providers

Specialized Services

Banking, Accounting, Legal

Specialized Risk Capital

VC Firms, Angel Networks

Patent Owners and Lessors (B)

Competitive (6-10)

Position Established (11-15)

Less Developed (16-20)

Uncompetitive (20+)

North American Leader (1-5)


Boston Life Sciences Cluster


Lack of specialized service providers Related and Supporting Industries

Strong science base in OntarioWeak technology transfer in Toronto

Factor Inputs

Pharma MNC’s in Toronto vs Boston Toronto: Astra Zeneca, Bayer Canada, Eli Lilly

Canada, GSK Canada, Hoffman-RocheBoston: Amgen, Astra Zeneca, Merck & Co., Novartis

and Pfizer Boston is home to 4 of the world’s top 20 biotech

companies Genzyme, Biogen, Millennium and Vertex

Toronto is home to none$2.75B revenue from Top 100 US companies

headquartered in Boston $890M revenue from FP Top 500 health care

companies in Toronto

Rivalry

Slow approval times in CanadaPrice controls in CanadaLocal hospitals constrained in innovative procurement

and research

Demand Conditions

Biopharma Cluster: Boston vs. Toronto


Canada Captures a Small Portion of Global Market Revenues

Source: IMS Health

Share or Pharmaceutical Sales, 2002Canada

2.6%

US53.4%

Germany6.2%

France5.3%

Italy3.7%

UK3.9%

Others 24.9%


Canada Lags on Drug Sales per Capita

Pharmaceutical Expenditure per capita

$386

$472

$374

$459

$227

$345

$236

$556

$487

$569

$408

$485

$330$355

$341

$674

$-

$100

$200

$300

$400

$500

$600

$700

$800

Canada France Germany Italy Sweden Switzerland UK US

$US

20002002

Ontario 2002 = $513

Source: Provincial Reimbursement Advisor (July 2004) and Institute for Competitiveness & Prosperity analysis based on CANSIM II


Canada’s Trade Deficit has Narrowed in ‘03

Canada is a Net Importer of Pharmaceutical Products

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1999 2000 2001 2002 2003

million

Total Exports

Total Imports

Source: Industry Canada


Research and Development in Ontario

$479.1M spent on branded pharmaceutical research and development in 2002

A result of Bill C-22Generic companies spend an additional $250-300M per year

Canada and the US differ on the type of R&D conductedCanada trails in basic R&D

Major research initiatives:Merck Frosst Canada to establish Respiratory Imaging CentreEli Lily Canada – Cancer Care Ontario Translational Research ProgramAstraZeneca to establish research chair at McMaster University GlaxoSmithKline to create Asthma Education Centre Pfizer Canada to create Arthritis Treatment Program U of T to receive organ transplant research chair Purue Pharma Ambulatory Care Services Centre


US Companies Focus on Breakthrough R&D; Canadians on Clinical Trials

Source: Secor, adapted from PMPRB Annual Report 2001 and PhRMA

USACanada

100100TOTAL

29.120.9Drug regulation submissions; bio-availability studies; Phase IV clinical trials

OTHER

28.847.6Phases I-III clinical trials

13.513.6Manufacturing process R&D; preclinical trialsAPPLIED

28.617.8i.e. Synthesis and extraction, biological screeningBASIC

% SHARE OF R&DACTIVITIESTYPE OF RESEARCH

USACanada

100100TOTAL

29.120.9Drug regulation submissions; bio-availability studies; Phase IV clinical trials

OTHER

28.847.6Phases I-III clinical trials

13.513.6Manufacturing process R&D; preclinical trialsAPPLIED

28.617.8i.e. Synthesis and extraction, biological screeningBASIC

% SHARE OF R&DACTIVITIESTYPE OF RESEARCH

Comparison of Canadian and US Pharmaceutical R&D(2000)


Relatively Low R&D Intensity in Canada

Source: PMPRB, A Comparison of Pharmaceutical Research and Development Spending,S-0217, December 2002 * Based on a voluntary survey of R&D expenditures for Rx&D members **1.7 % of the 14 countries but 1.2 % of world R&D.

% of the 14 countries

R&D

R&D per capita

0.8%

$11

5.0% 2.6% 11.4% 1.3% 57.9% 7.7% 7.0% 0.7% 0.3% 1.7%** 0.2% 1.7%1.6%

$386 $164 $108 $73 $118 $52 $75 $25 $33 $30 $22 $17$33

A Comparison of R&D to Sales for Different Countries(2000)

10.9%

19.3%

R&D/sales 2001

Ontario

Quebec

$29

$55

R&D per capita2001

79.0%

102.5%

44.4%

35.1%28.6%

18.4% 17.3% 16.8% 16.4% 14.7%10.1% 8.3% 6.2% 5.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

Switzerland Denmark Sweden UK Belgium US Germany France Netherlands Finland Canada Norway Italy Spain


R&D is Increasingly Shifting to the U.S.

“…there is a process of concentration of R&D into North America. In 1999, European pharmaceutical companies spent only 59 percent of their worldwide R&D in the European Union, down from 73 percent in 1990. The United States was the main beneficiary of this shift in R&D expenditures.” (Pharmaceutical Industry Profile 2004)

Source: European Federation of Pharmaceutical Industry Associations (EFPIA)

• According to a recent Bain report, “the heart of Europe’s decline is the dramatic shift in pharmaceutical innovation from Europe to the US. While a number of reasons are mentioned above, the primary cause is that pharmaceutical innovation has ‘followed the money.” To get a return on the $1.7B currently required to bring a new drug to market, on average, pharmaceutical companies increasingly focus on the US market, which represents the largest and fastest-growing share of the global profit pool, now 62%. Pharmaceutical companies now depend on the US as their key source of returns on R&D investments.”


R&D Spending by Region

Quebec , 44%

Ontario , 38%

Rest of Canada , 18%

Distribution of Pharmaceutical R&D by Province, 2001

Source: Rx&D


Pharmaceutical R&D Expenditures in Ontario

$71.5

$106.7 $114.5

$156.6$170.2

$213.3$236.2

$268.1$286.1 $296.6

$329.7

$381.4$396.2

$427.2

$479.1

$-

$100

$200

$300

$400

$500

$600

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Millions of Dollars

Notes: Excludes capital R&D and allowable depreciation expendituresSource: PMPRB

Investment in R&D Continues to Grow, but…

CAGR 1990-2002 = 13.5%


R&D Investment in US is Growing Faster

CAGR 1990-2001 = 32.5%


US Produces More Break-through R&DL e a d in g C o u n tr ie s in b io p h a rm a c e u t ic a l p

C o u n try B io p h a rm aIn v e n t io n s

B io p h a rm a p a te n ts p e r y e a r /m ill io n h a b ita n ts

U n ite d S ta te s 1 1 ,4 5 8 3 .5S w itz e r la n d 2 7 2 3 .1C a n a d a 7 0 2 1 .9D e n m a rk 1 8 3 2 .9S w e d e n 2 5 2 2 .4Is ra e l 2 3 2 3 .5A u s tr ia 1 3 7 1 .4B e lg iu m 1 7 7 1 .4U K 7 8 1 1 .1N e th e r la n d s 2 4 0 1 .3A u s tra lia 2 7 0 1 .2G e rm a n y 8 4 1 0 .9F ra n c e 6 6 8 0 .9J a p a n 1 ,2 1 1 0 .8Ita ly 2 8 1 0 .4W o r ld (n ) 1 6 ,5 1 0 0 .2S o u rc e : C o m p ile d b y S c ie n c e -M e tr ix f ro m U S P T O d a ta

Leading Countries in biopharmaceutical patents, 1990-2001


Toronto Suffers from Unsophisticated Demand

Turning to each factor…

Strength* for Toronto

Neutral* for Toronto

Significant* Weakness for Toronto

* Vs Boston

Lags Boston


Toronto Has Impressive Factors Conditions

Good general factors: Positive geographic location to largest market, lower input costs relative to US, largest population in Canada, andaccess to Canada’s most significant VC market

Good specialized factors: High production of medically-trained professionals – more graduates on a per capita basis in life sciences than most US states, Significant funding of medically related research,World class educational and research institutions, Competitive research and development tax credits, and Globally recognized teaching hospitals


Weak Demand Conditions in Toronto Do Not Promote Innovation

‘Monopsonist’ intermediate buyer – provincial government

Demanding Cost containment

But not sophisticatedNot responsive to end consumer needsOperate with silo mentality

Weak Demand Conditions:Restrictive government formularies Slow approval timePrice controlsWeak intellectual property protection laws


Canada Has Slow Regulatory Approval Times

Source: Ernst & Young analysis for Rx&D, 2000.

Average Drug Approval times for 1998

575

500

450

400

357

200180

0

100

200

300

400

500

600

700

Canada Japan Australia EMEA US France UK

Number of Days


Canada Has Slow Regulatory Approval Times

International NCE Approval Times

Source: Rx&D, FDA, Parexel , SAPI.

743

535

426

615541

365

549493

365

395R

570

356

395R

591

383 395480

717

0100200300400

500600700800

Canada US Sweden

Days to Approval

1996 1997 1998 1999 2000 2001


Lengthy Approval Times Continue to be Worrisome for Investment in Canada

Canada ’s Research - Based Pharmaceutical Companies’ New Drug Submissions

Average Time to Approval

9401024

1097 10891163

1045 1044 1142

682615 549 570 591

743 717 672

0

200

400

600

800

1000

1200

1400

1987

1989

1991

1993

1995

1997

1999

2001

Source: Rx&D Notice of Compliance Survey (2001) - compiled by KPMG.


Lengthy Approval Times Continue to be Worrisome for Investment in Canada

Average Time to Full Listing of New Drugs Launched*

* Between December 2000 and November 2003Source: IMS, Provincial Reimbursement Advisor.

0

100

200

300

400

500

600

BC AB SK MB ON QC NB NS NF

Days to listing


The Formulary in Ontario is the Very RestrictiveProvincial Variations in Patient Access to New Drugs*

* Out of 289 possibilities between 1996 and 2002 Source : IMS, Provincial Reimbursement Advisor.

45Alberta45Manitoba

59 Quebec 54Saskatchewan

3938

British Columbia Ontario

Proportion of New DrugsListed in Formulary (%)

PROVINCE

45Alberta45Manitoba

59Quebec54Saskatchewan

39

35

British Columbia

Ontario

Proportion of New DrugsListed in Formulary (%)

PROVINCE


Price Controls Stifle Innovation

Price ceilings Limit competitionImpede innovation – companies can’t recoup costsReduce the quality of health care provided to patients

“Canada’s failure to provide effective data exclusivity remains a cause for serious concern. Price controls, regulatory delays and restrictions on formulary listing also hamper PhRMA member companies’ ability to do business in Canada….The use of international price comparisons and the establishment of price ceilings on patented medicines are counterproductive to initiatives to provide high quality health care, and thus improve the health of patients, or to help contain healthcare spending.” (PhRMA 2004)


Canada Sets Prices to Achieve Median of 8 Countries

Source: PMPRB

Average Foreign to Canadian Price Ratios, Patented Drug Products

83.9 85.8

98.1100.9 100.0

107.2 108.6

169.0

78.982.7

93.6 95.9100.0

104.3 105.4

167.0

0

20

40

60

80

100

120

140

160

180

Italy France Sweden Germany Canada UK Switzerland US

Ratio

20012002


Related/Supporting Industries Are a Weakness for Toronto

Presence of specialized legal firms in Toronto matches BostonToronto significantly lags life science venture capital in dollar terms (number of firms and average deal size are about 1/3 of that in Boston), but life science ventures account for similar percentage of all venture capital investments

Toronto firms primarily attract local VC funds; less successful in attracting outside funds

Toronto significantly lags Boston in the number of consultant firms with a specialty in life science and intellectual property


Supporting Industries Are a Weakness for Toronto

Boston: Boston Business JournalToronto: Canadian Association of Management Consultants & ICP research

1138Management Consultants

Boston: Massachusetts Venture Capital ServicesToronto: CVCA & ICP research

1844Venture Capital

Boston: Boston Lawyer DirectoryToronto: Ontario Bar Association

1720Legal

Firms Specializing in Health Care:

SourceToronto Boston


Fewer and Smaller Venture Capital Deals in Ontario

$7MMBMonteris Medical Inc.

$8MONLymphoSign Inc.

$8.5MQCBioMep Inc.

$10MQCInnodia Inc.

$10.3MQCInfectio Diagnostic

$12MQCBioxel Pharma Inc.

USD $11.5BCOncoGenex Technologies Inc.

12.3MQCAurelium Biopharma Inc.

$13.5MONBioniche Life Sciences Inc.

$22.1MQCAxcan Pharma Inc.

$ CADProvinceCompany Name

$2.4MProtedyne (CT)

$6MArthoSurface Inc.

$8.9MNephros Therapeutics Inc. (RI)

$9.0MAcceleron Pharma

$13.2MActivBiotics, Inc.

$16.7MArchemix Corporation

$20.5MMomenta Pharmaceuticals Inc.

$30MCombinatoRx Inc.

$33MDomantis Ltd.

$50MSynta Pharmaceuticals

Amount Raised (USD $)

Company Name

Source: CVCA, Boston.com


In Toronto, Firm Rivalry Seems Adequate

Stable economy Strong competition for limited VC funding Competitive anti-trust laws relative to other OECD nations Few firms – diminished inclination to compete on innovation Industry is open to competition – domestic and foreignInformal collaboration within Toronto cluster Strong industry organization involvement Marginal effective tax burdens are higher in Ontario than other leading jurisdictions


Porter’s Assessment of Boston Biopharma Cluster

Documents

Toronto Biopharmaceutical Cluster · 4 September 10, 2004 Toronto’s BioPharma Cluster Study Overview Industry Overview Ontario under performs in innovative activity and productivity