New data reveal little change in business R&D spending by top-ranked companies

Companies that made it onto the 2017 Top 100 Corporate R&D Spenders list eked out a 0.7% increase in their R&D outlays for a total of $12.47 billion. The ranking, published by Toronto-based Research Infosource, once again places Bombardier Inc as the biggest R&D spender in Canada for the sixth year running, despite an 18.5% decline in expenditures from nearly $2 billion in FY16 to $1.6 billion in FY17.

If Bombardier is removed from the mix, the remaining 99 firms managed a respectable yet modest 4.3% collective increase. However, firms that qualified for a place on the 2016 Top 100 list collectively spent $12.8 billion, considerably higher than the 2017 total.

“The basket of companies changes each year,” says Ron Freedman, CEO of Research Infosource, the publisher of the Top 100 ranking and several other innovation-related rankings. “(This year’s ranking) is not earth shattering although it’s a decent result … But for people who are concerned about Canada’s business R&D spending … we’re going to need a step change in R&D spending, not just incremental gains.”

The year’s ranking – the 17^th annual compilation - includes 70 firms that increased their R&D spending and 30 that spent less, a ratio Freedman says is good but not out of line with previous years.

More encouraging is the increase in the number of firms spending in excess of $100 million. The number gaining entry into Research Infosource’s $100 Million Club of companies grew from 26 in 2016 to 31 in 2017.

“Growth in the number of large spenders is always good,” says Freedman. “One of the key differences between Canadian and US BERD (business expenditures of R&D) comes from the large companies. You find the 80-20 rule in operation – the 20% of large companies spend 80% of the R&D dollars … which means the more large firms you have the better. A large part of Canada’s apparent shortfall is our lack of large companies.”

Large Canadian companies continue to dominate the Top 100 ranking, with eight in the Top 10. Magna International maintains its position in the second spot with expenditures of $677.9 million, while IBM jumps five spots to the number three position with a 9.8% increase in R&D outlays to $525 million. The biggest gainer on the Top 10 is Toronto-based Constellation Software Inc, which increased its R&D by 14.4% through an aggressive acquisition strategy. In just seven years, its R&D outlays have swelled from $91.3 million to $475.5 million.

For the second year, Research Infosource has divided the Top 100 list into three tiers to highlight the advances made by large, medium and smaller firms in the areas of overall R&D outlays, R&D spending growth and R&D intensity. As previously mentioned, Bombardier tops the Tier I ranking for total spending, although Freedman cautions that recent staff reductions and asset sales including the hugely expensive C series aircraft could dramatically reduce its R&D spending in future years. He also notes that a distinction need to be made between “good R&D and bad R&D”.

“A lot of (Bombardier’s) R&D spending was to shore up the C series and is considered in many respects unnecessary spending,” he says. “If they got it right in the first place, they wouldn’t have had to spend all that money on research.”

Tier II of the Top 100 is Pfizer Canada Inc, which held steady in 2017 with R&D expenditures of $97.9 million, followed by auto parts manufacturer Linamar Corp ($86.6 million) and Arbutus Biophara Corp ($81.4 million).

R&D Spending Growth

Heading up the Tier I firms by R&D spending growth is Shopify, which rose to #20 by boosting outlays 79.3% to $176.6 million. It was followed by Suncor, which nailed down the #11 position with a 75% increase in R&D to $350 million. Tier II was top-ranked by Novelion Therapeutics - created in 2016 through a merger of Aegerion Pharmaceuticals and QLT Inc – which boosted its expenditures 224.9% to $63.6 million. It was followed by aerospace stalwart Lockheed Martin which boosted its R&D 176.8% to $45 million. The greatest Tier III spending growth was achieved by Field Upgrading Ltd -  a Calgary-based company focused on sulphur removal and upgrading technology. It boosted R&D spending by 99.6% to $19.6 million.

R&D Intensity

Laval QC-based ProMetic Life Sciences Inc is this year’s most research intensive company in Tier I with R&D spending of $101.9 million against $39.1 million in revenue. Tier II companies are headed by Arbutus Biopharma Corp, with a research intensity of $585.9% with R&D spending of $81.4 million against revenue of $13.9 million. The top-ranked Tier III company is Toronto-based Intellipharmaceutics with a research intensity of 168.4% with R&D outlays of $12 million against revenue of $7.1 million.

Not surprisingly, pharmaceutical firms dominate the research intensity rankings as the sector is highly research intensive as compared to natural resource extraction which Freedman terms “penny a pound industries”.

“These are in process industries … where every penny you can save on your production and processes goes right to the bottom line. The other factor driving those companies of course is environmental regulations,” says Freedman.

Top 100 Threshold

Another indicator of the state of Canada’s top R&D performing companies is the threshold required to be included in the top 100. In 2017, the ranking threshold was $10.5 million – the lowest since 2014 and a far cry from the threshold is the early 2000s when it was routinely greater than $14 million. The figures have not been adjusted for inflation or the fluctuating value of the Canadian dollar, further impacting the gap. With so many variables to account for, Research Infosource cautions against drawing any firms conclusions from the declining threshold.

Minor Leagues

From a global perspective, Canada is a decidedly minor R&D player. In comparison, the world’s top R&D spender – Amazon.com Inc – racked up $22.6 billion, a year-over-year increase of $6.5 billion or 40.3% and 81.2% higher than the total Canadian Top 100 companies. The latest data from PWC (aka PricewaterhoseCoopers) shows that R&D expenditures by the global Top 10 totaled $138.5 billion.

Notes:

^*Converted to CDN$ at annual average 2017 = 1.2986; 2016 = 1.3248 (Bank of Canada)

⁺⁺Fiscal 2018 figures were used for year-ended January or February

fs = Foreign subsidiary (included revenue and R&D spending for Canadian operations only)

nd = Not disclosed