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 François 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 Québec, Montréal,
Canada. E-mail: [email protected]
ISSN 0965-4313 print/ISSN 1469-5944 online/03/070000–00
DOI: 10.1080/0965431032000121346

2003 Taylor & Francis Ltd
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. Biotechnology is not an industry but a set of specific activities and technologies such as biomaterials,
combinatorial chemistry, DNA markers, genetic engineering, monoclonal antibodies, recombinant 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 mechanisms. 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
, 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
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.
et al.
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 publiclyquoted 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
Q2
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Jorge Niosi and Tomas G. Bas
Table 1. Canada’s SBFs by province, 1999
Number Leading firms
Ontario
Quebec
British Columbia
Prairie provinces
Maritime provinces
Total
Source:
111
107
71
50
26
358
Biovail, Cangene, Hemosol, Vasogen
Shire Biochem, Axcan, Nexia
QLT, Kinetek
Biomira, Isotechnika,
Efamol
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
Montreal, Quebec
Vancouver, BC
Quebec City, Quebec
Edmonton, Alberta
Calgary, Alberta
Ottawa, Ontario
73
72
59
22
18
10
9
Source:
Contact Canada, 2001.
Biotechnology Megacentres
793
Table 3. Montreal human health cluster in 2002
Organizations
Number
Human health SBFS
Pharmaceutical corporations
79
28
Clinical research organizations
Medical devices
Biotechnology services
Research universities
Government laboratory
10
13
41
4
1
Research hospital centres
16
Representative organizations
Shire Biochem, Haemacure, Ibex, Theratechnologies
Aventis Pharma, Abbott, Wyeth-Ayerst, Merck Frosst. Pfizer
Canada.
Maxxam, Phoenix Life Sciences, Quintiles
Bio-Capital, Sofinov
Concordia, McGill, Montreal, UQAM
Biotechnology Research Institute of Montreal (National
Research Council)
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
Company
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Axcan Pharma
Biosyntech
Conjuchem
Ecopia Biosciences*
Genomics One
Haemacure
Ibex Technologies
Labopharm
Millenia Hope
Neurochem**
Nexia Biotechnologies
Nymox
Paladin Laboratories
Procrea Biosciences
Prometic Life sciences
Procyon Biopharma
Shire BioChema
Signalgene
Theratechnologies
Warnex Pharma
Totals
a Shire
Domain
Therapeutics
Biomaterials
Therapeutics
Genomics
Genomics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Genomics
Diagnostics
Therapeutics
Diagnostics
Therapeutics
Therapeutics
Therapeutics
Genomics
Therapeutics
Therapeutics
Montreal
employment
2001
Stock
market
80
40
35
45
13
50
19
50
12
70
100
45
36
81
100
25
1000
54
95
80
2030
TSE
NASDAQ
TSE
TSE
TSX
TSE
TSE
TSE
OTC
TSE
TSE
NASDAQ
TSE
TSE
TSE
TSE
LSE
TSE
TSE
TSX
TSE
Market
capitalization
07/2002 (C$M)
519
12
108
22
NA
29
9
107
NA
67
85
193
109
NA
143
32
20
180
NA
1636
Biochem is a wholly owned subsidiary of Shire Pharmaceutical Group plc, of the UK. Market
capitalization for the British group is 2584 million stirling.
TSE is the Toronto Stock Exchange; NASDAQ is the North American Security Dealers market; LSE is
the London Stock Exchange.
Note:
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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$87 million in R&D in 2001.
Also, some 17 large hospital research centres are affiliated to McGill and Montreal
universities. They host thousands of researchers. Table 8 summarizes the figures for the major
Biotechnology Megacentres
795
Table 5. R&D expenditures of Canadian and foreign-owned pharmaceutical and biotechnology companies among Canada’s top 100 R&D spenders, 2001
Company
Pfizer Canada
Merck Frosst Canada
Apotex
GlaxoSmith Kline
Shire Biopharma
Aventis Pasteura
Biovail
AstraZeneca
Bayer
Aventis Pharma
Janssen-Ortho
Eli Lilly Canada
Novartis Canada
Hemosol
Schering Canada
Genpharm
ConjuChem
Cangene
Visible Genetics
Totals
Canadian R&D R&D ratio (R&D as
expenditures
percentage of
(C$ millions)
revenue
132.2
119.0
115.0
101.4
87.5
83.0
79.0
75.0
56.2
52
38.8
37.4
34.1
30.2
25.2
20.9
17.8
16.8
16.8
1138.2
12.5
15.3
19.2
10.9
24.0
39.3
8.7
9.1
3.6
13.9
9
10.8
ND
ND
8.9
9.9
1551.5
24.7
79.8
City
Montreal
Montreal
Toronto
Montreal
Toronto
Toronto
Toronto
Toronto
Montreal
Toronto
Toronto
Montreal
Toronto
Montreal
Toronto
Montreal
Toronto
Toronto
Ownership and
control
USA
USA
Canada
UK
UK
France/Germany
Canada
UK
Germany
France/Germany
USA
USA
Switzerland
Canada
USA
USA
Canada
Canada
Canada
a Aventis
Source:
Pasteur and Aventis Pharma are independent subsidiaries of Aventis Corp.
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,
and
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.
in vivo
in vitro
Table 6. Montreal and Toronto professors in
health sciences, 1999
University/region
University of Toronto
York University
McMaster University
Total Toronto
McGill University
University of Montreal
UQAM/INRS
Concordia University
Total Montreal
Montreal/Toronto
No. of professors
765
5
379
1149
417
348
57
0
822
72%
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Jorge Niosi and Tomas G. Bas
Table 7. Research funds in health sciences, 1999
University/region
Research funds
University of Toronto
MRC
Health and Welfare Canada
York University
McMaster University
MRC
Health Canada
Private sources Universities in Toronto
Total Toronto
McGill University
MRC
Santé Canada
University of Montreal
MRC
Health Canada
UQAM/INRS
Concordia
Private sources, Montreal universities
Total Montreal
Montréal/Toronto
41.5
7
0
18
1.5
157
225
28
4
21
3
ND
0
110
166
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
Centre name
Biotechnology Research Institute (BRI)
Clinical Research Institute of Montreal
Montreal General Hospital Research Centre
Institute for medical research at Jewish
General Hospital
Royal Victoria
Research Institute
Research centre at St Justine Hospital
Montreal Neurological Institute
Neurological Sciences Research Centre
L.-C. Simard Centre at Hospital Notre-Dame
Maisonneuve-Rosemont Research Centre
Human Health Centre, INRS
Microbiology and Biotechnology Centre,
INRS
Hotel-Dieu
Research Centre
Côte-des-neiges Hospital Research Centre
Affiliation
Total R&D
personnel
National Research Council
University of Montreal
McGill University
McGill University
560
454
399
373
McGill University
367
University of Montreal
McGill University
University of Montreal
University of Montreal
University of Montreal
University of Quebec
University of Quebec
330
270
186
173
155
151
142
University of Montreal
123
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 Solidarité 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 Technology 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
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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 Mérieux 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
Human health SBFS
Pharmaceutical corporations
Clinical research organizations
Biotechnology services
Research universities
Research hospital centres
Number
81
56
11
40
2
10
Representative organizations
Biovail, Hemosol, Vasogen
Astra Pharmaceuticals, GlaxoSmithKline, Eli Lilly
MDS Pharma Sciences, Patheon, Biovail Contract Research
MDS Capital Corporation, Royal Bank Ventures Inc.
University of Toronto, York University
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
Company
Amgen Canada
Arius research
BCY Life Sciences
Biogen Canada
Biovail
Cangene
Dimethaid
Draxis Health
DUSA Pharmaceuticals
Generex Biotechnologies
GenSci Regeneration
GlycoDesign
Helix Biopharma
Hemosol
IMI Internat. Medical
Innovation
Lorus Therapeutics
Microbix Biosystems
NPS Pharmaceuticals
Prescient Neuropharma
Spectral Diagnostics
SYN X Pharma
Tm Bioscience
Toxin Alert
Vasogen
Visible Genetics
Viventia Biotech
Waratah Pharmaceuticals
Totals
Area
Employees
2001
Stock exchange
Market
capitalization
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Biomaterials
Therapeutics
Therapeutics
Therapeutics
60
20
5
20
1200
450
85
300
55
25
60
100
50
180
NASDAQ
TSX
TSX
NASDAQ
TSE
TSE
TSE
TSE
NASDAQ
NASDAQ
TSE
TSE
TSE
TSE
NA
NA
NA
NA
5958.3
596.8
132.1
129.7
46.2
67.5
15.5
8.3
43.8
367.5
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
Therapeutics
16
30
35
138
27
110
30
19
15
20
200
57
11
3318
TSX
TSE
TSE
TSE
TSX
TSE
TSX
TSX
TSX
TSE
NASDAQ
TSE
TSX
88.0
95.3
9.2
32.7
NA
NA
7.7
NA
NA
152.6
41.2
36.1
NA
7838
TSE is the Toronto Stock Exchange; NASDAQ is the North American Security Dealers market; LSE is
the London Stock Exchange.
Note:
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
Centre name
Hospital for Sick Children
St Michael’s Hospital
Sunnybrook and Women’s College Health Science
Centre
Mount Sinai Hospital S. Lunenfeld Research Institute
Ontario Cancer Institute
Centre for Addiction and Mental Health
Baycrest Hospital
Affiliation
University of Toronto
University of Toronto
University of Toronto
and public laboratory
University of Toronto
University of Toronto
and public laboratory
University of Toronto
and public laboratory
University of Toronto
Total R&D
personnel
1600
634
600
538
400
300
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 consistently 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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