Canada’s life sciences industry needs anchor firms to create world-class clusters: report

Canada’s life sciences sector needs to grow as many anchor firms as possible to create world-class industrial clusters, according to a report by the adMare Institute.

The life sciences industry comprises a robust innovation ecosystem, but it is missing the anchor firms required to establish internationally recognized, self-sustaining clusters, says the report, “Canada’s Evolving Life Sciences Industry: Exploring Ecosystems, Clusters, and the Need for Anchor Companies.”

“Given that the elements within a successful ecosystem are symbiotic, missing this keystone component is a critical deficiency that must be addressed if Canada’s ecosystems are to evolve into clusters,” it says.  “To realize the potential of Canada’s life sciences innovation, there must be a focus on developing as many potential anchor companies as possible.”

“When you have an anchor company, literally everything you care about in economic development terms is better,” Gordon McCauley (photo at left), president and CEO of adMare BioInnovations, told Research Money.

For capital formation and mobility, talent attraction and mobility, intellectual property development, and the translation of knowledge from academia to industry “it is all better in the presence of an anchor company,” he said.

The white paper is the first produced by the adMare Institute, a think tank created last June by adMare BioInnovations, which uses its scientific and commercial expertise, specialized R&D infrastructure, and seed capital to build life sciences companies, ecosystems and industry-ready talent.

Headquartered in Vancouver and with offices in Toronto and Montreal, adMare BioInnovations currently lists 29 portfolio companies that have attracted $2.3 billion of risk capital, have a combined value of $4 billion, and have created more than 1,000 jobs in Canada. adMare BioInnovations was one of 24 non-profit science and research organizations that received inaugural funding from the Strategic Science Fund in December.

According to the adMare Institute report, Canada’s life sciences sector was poised 20 years ago to emerge as a global player with the combined strengths of its research enterprise and burgeoning industry. Vancouver-based Quadra Logic Technologies (QLT) was one of the largest dedicated biotechnology firms worldwide. Other notable firms were BioChem Pharma Inc. in Montreal and Allelix Bio Pharmaceuticals in Toronto.

However, the acquisition or demise of several anchor companies – together with the 2008 financial crisis – disrupted the sector’s progress.

The pioneering Canadian firms are no longer active, having merged with international companies (BioChem Pharma merged with Shire Pharmaceuticals in 2000), been acquired (Allelix acquired by NPS Pharma in 2003), or struggled and ultimately succumbed to bankruptcy (QLT merged with Aegerion Pharma to form Novelion Therapeutics in 2016, which began liquidation in 2020).

Today, Canada’s life sciences sector lacks a single anchor firm – a dominant company with considerable market share, brand recognition and a track record of sustained success, the report says.

“Anchor companies are a hallmark of successful clusters,” the report notes. “The global prominence of an anchor firm enables unique insights into market opportunities, helping to maintain its dominance.”

Clusters emerge due to market-driven activity

There are currently several prominent Canadian life science companies with potential to evolve into anchor companies, but today no Canadian company meets all of the core established criteria for an anchor firm, the report says.

“In the Canadian context, anchor companies appear to be the key element currently missing from life sciences innovation ecosystems, that could catalyze their transformation into globally prominent clusters.”

In distinguishing between ecosystems and clusters, the report says ecosystems are synthetically produced by public policy and advocacy.

 Clusters, on the other hand, are internationally prominent geographic concentrations of interconnected companies and institutions in a particular industry or field. Clusters develop as a function of market-driven activity.

“The difference is that an ecosystem will only be sustained by public policy dollars and advocacy, whereas a cluster becomes self-sustaining,” McCauley said. “When it comes to biotechnology and life sciences ecosystems, by definition a cluster cannot exist without an anchor company.”

U.S. economist Michael Porter described the notion of industrial clusters and the importance of anchor companies in establishing them in a 1998 study.

The biotechnology industries in Boston and San Francisco are examples of modern clusters, and home to prominent anchor companies, such as Genzyme in Boston. Others anchor firms include Medtronic in the Minneapolis/St. Paul area, Pfizer in Connecticut, or Novartis in Basel, Switzerland.

“While clusters and innovation ecosystems share many components, advantages such as world-leading business and innovation insights, heightened supply chain integration, quality of ancillary service and capital providers and integration with leading research institutions provide a sustained competitive edge to clusters,” the adMare Institute’s report says.

Canada excels at research and talent, poor at commercialization

In 2016, Canada’s health and biosciences industry contributed $7.8 billion to Canada’s GDP, or 0.45 per cent of the total. More recent reports suggest an upward trend: in 2018-2019, the Canadian R&D pharmaceutical sector contributed just over 0.7 per cent of Canada’s GDP, with a gross value of $15 billion.

In comparison, the U.S. pharmaceutical and medical instrument subsector output in 2015 was US$675 billion, almost four per cent of the country’s total GDP.

Based on data across 80 innovation indicators such as R&D, venture capital, and high-tech production, Canada ranks 9^th among leaders in terms of inputs (such as research and talent), according to the adMare Institute report.

But Canada does less well on indicators such as infrastructure and business sophistication, and falls far down the field in knowledge and technology outputs to rank 17^th  overall in the global innovation index rankings.

“Canada has an extraordinary research enterprise that’s punching well above its weight,” McCauley said. “But we’ve done a lousy job of translating that into sustainable life sciences industry. Sustainability comes from becoming a cluster.”

According to the report, “Strong inputs with weak outputs characterize an innovation ecosystem needing to become a cluster. At a minimum, the ‘output deficit’ represents unrealized commercialization opportunity.”

In July 2021, the federal government launched a new Biomanufacturing and Life Sciences Strategy, with $2.2 billion allocated over seven years. The aim is to strengthen Canada’s ability to respond to pandemics and other emerging health threats, while also ensuring that associated health and economic benefits are realized within Canada. However, the capture of ensuing economic benefits has not yet been fully realized, the report notes.

Significant provincial efforts are also underway to broaden and deepen life sciences public policy support. These include Quebec’s Research and Innovation Strategy and Life Sciences Strategy, Ontario’s strategy for “taking life sciences to the next level” and the new BC Innovation Framework.

“The success of these efforts should be measured against innovation outputs, with intangible assets as intermediate proxies,” the adMare Institute’s report says. “Equally, the emergence of anchor companies, the single largest missing output in the Canadian ecosystem, should be the primary output measure.”

More domestic capital investment needed

The need for anchor firms in Ontario’s life sciences sector was recognized in a 2017 article by Gail Garland, the founder and then CEO of Ontario Biosciences. “Despite the presence of many emerging companies, we don’t yet have a homegrown ‘anchor’ company that is a global brand and dominant leader in its field. We need one,” she wrote.

The key driver is access to capital – and in particular “sticky capital,” Garland said. “We need investments that not only grow companies, but also reinvest returns in new ventures.”

B.C.’s life sciences and manufacturing sector has nearly 2,000 active life sciences companies that employ almost 20,000 people. However, most of the companies have five or fewer employees, with about 40 firms growing over the 50-employee threshold and only a handful of companies with more than 200 employees.

One of five key pillars in B.C.’s Life Sciences and Biomanufacturing Strategy is establishing anchor firms. As the strategy states: “We will build a vibrant life sciences ecosystem across the entire value chain by encouraging anchor companies – large established businesses – to choose B.C. for their next location and by supporting B.C. companies to expand their existing operations. These anchor companies also open doors to global markets and connections.”

The adMare Institute’s report notes that within the key research and innovation hubs of Montreal, Toronto and Vancouver – and other nodes of high-quality research elsewhere in Canada – components of the life science ecosystem are strong. These strengths include world-class research institutions, venture capital firms, strong industry associations, entrepreneurial support systems, and a growing number of companies.

“But there remains a long-recognized disconnect between Canada’s strong foundational research performance and ingenuity, and translation into commercialized innovations that capture resulting economic benefits for Canada,” the report says.

There are currently more than 10 venture capital firms with Canadian offices that have funds dedicated to investing in life science companies, according to the report.

However, Canada – unlike the U.S. – doesn’t have sufficient domestic venture capital to fund scaling companies in the life sciences or other sectors.

McCauley said that while Canada needs more VC investment, “good science done with commercial intent and commercial robustness is almost always going to be funded.” Given that the life sciences sector is a high-capital industry, he added, “the reality is, it is highly unlikely that anybody becomes an anchor [firm] without global capital.”

Government has a role in assisting the private sector with capital formation and encouraging more domestic investment, McCauley said. He pointed to the 2023 Fall Economic Statement, in which the federal government said it will work collaboratively with Canadian pension funds to create an environment that encourages and identifies more opportunities for investments in Canada by pension funds and other responsible investment pools.

The government said it will also explore removing the “30 per cent rule” from investment in Canada. The rule restricts Canadian pension funds from holding more than 30 per cent of the voting share of most corporations.

Government procurement also can help some types of companies within the life sciences sector, such as those producing medical technologies, McCauley said.

The federal Strategic Innovation Fund, along with corresponding provincial government investments, have been important in supporting biotech companies such as BioVectra and AbCellera, he said, adding that more such targeted funding for potential anchor firms would be welcome.

An anchor by itself is not a “silver bullet”

Today, several putative anchor companies are in development, including CellCarta Biosciences in Montreal, STEMCELL Technologies in Vancouver, BioVectra in Charlottetown, P.E.I.,  and AbCellera Biologics in Vancouver, among others, according to the adMare Institute’s report.

However, even as the sector matures, there is a significant gap between the scale of the world's leading life sciences economies and the Canadian ecosystems, exemplified by the “outputs deficit,” it says.

Addressing the outputs deficit requires harnessing the federal and provincial governments’ economic investments in innovation, science and technology, research, and economic development “in a collaborative Canadian manner,” with emerging anchor companies benefitting the entire cluster, the report says.

It points to Canada’s telecom industry, where national anchor companies have emerged to support a national cluster, while capitalizing on regional strengths.

Other studies have highlighted the role of Ubisoft Montreal Studio as an anchor firm – after it was established by French parent company Ubisoft Entertainment in 1997 – in catalyzing and nurturing the development of Montreal’s video gaming industry.

Consisting of only three SMEs in 1997, Greater Montreal’s gaming industry is now one of the world’s leading clusters in this field, employing 11,000 people and with nearly 240 studios large and small, including Epic Games, Warner, Eidos, Electronic Arts and Ubisoft.

Anchor companies within industrial clusters play a keystone role as a bridge between knowledge and business networks, the adMare Institute report says. “Through their deep regional connections and understanding of global market opportunities, they are ideally positioned to accelerate the quality and pace of innovation within a region.”

However, a 2021 study by researchers at HEC Montreal, while acknowledging the importance of Ubisoft, argued that the growth of Montreal’s gaming industry had as much to do with an existing local ecosystem around video games in the city. This small ecosystem evolved into a common “reservoir of resources,” co-constructed and co-exploited by both formal and informal entities and diverse communities, within the “fertile soil” of Montreal’s culture, according to the study.

A separate 2022 study, by the New South Wales (NSW) government’s Innovation and Productivity Council, said anchor businesses and anchor institutions can be game-changers for a local or regional economy. But “the search for a prospective anchor is not by itself a strategy for innovation in a place,” the report cautioned. “No anchor by itself is a silver bullet.”

The propensity of any business or institution to behave as an anchor to a specific place must be consistent with the company’s or institution’s own internal priorities and networks, according to the NSW report.

The adMare Institute’s report concurs, stating that a company must nurture a deliberate and intentional mindset to become an anchor firm from the early stages of its evolution.

However, entrepreneurs at the startup stage often come with a mindset of selling their company through a successful exit. And numerous innovative scaling Canadian companies have been acquired by foreign entities.

Within the life sciences sector, for example, Bellus Health in Montreal – one of adMare BioInnovation’s portfolio companies – was acquired last July by GSK. Also last year, another Montreal company, Inversago Pharma, was acquired by Novo-Nordisk. Such acquisitions can prevent a Canadian company from growing to the size of a domestic anchor firm.

But McCauley argued that mergers and acquisitions in Canada’s life sciences industry are a good thing, because they result in capital and talented people being recirculated within a healthy cluster.

“I’m more interested in making sure we adopt the right kind of mindset that says, ‘We need to think about building anchor companies, and we need to think about it from day one.’ It’s at the outset that it matters.”

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