Top 100 report captures healthy increase in corporate R&D spending for FY05

Canada's Top 100 R&D performers finally lifted the lid on increased revenues to boost their R&D spending in 2005, achieving a nearly 5% increase over 2004 for a total of $12 billion. The strong R&D performance marks the second year running that business R&D spending has increased, after a 5.1% decline in FY03. The results for FY05 are even more impressive when Canada's perennial R&D elephant — Nortel Networks Corp — is taken out of the mix. The remaining 99 firms increased R&D outlays by 9.7% for a total of $9.75 billion, bettering their 6.4% gain in FY04.

The data are contained in the 2006 version of the Top 100 Corporate R&D Spenders List, produced by Research Info-source Inc, a subsidiary of The Impact Group and a sister company to RE$EARCH MONEY. It shows that 69 of the Top 100 firms increased their spending in FY05, while 30 firms declined.

"The underlying trends for continued growth are quite strong," says Ron Freedman, Research Infosource CEO and RE$EARCH MONEY co-publisher. "R&D spending is going up but so is the GDP, so Canada's GERD-to-GDP ratio likely won't change. Other countries are also investing more. It's a game where you can't take a break."

The upsurge in R&D spending is spread broadly across nearly all industrial sectors, with all but one showing increases. The only sector to experience a decline is communication and telecommunications equipment, which dropped 7.9% solely due to Nortel. When Nortel is removed, the sector achieved a respectable 4% increase.

R&D spending by Nortel declined 11.8% in FY05 to $2.25 billion, down from $2.55 billion the previous year. While it remains the undisputed corporate R&D leader in Canada, Nortel's spending is a far cry from just five years ago, when it racked up $5.9 billion in R&D expenditures. Nortel still accounts for 18.7% of the Top 100 total, but its impact is declining as other R&D performers ratchet up expenditures.

Most notable is Bell Canada, which turned in another stellar performance with a 19.9% gain to $1.74 billion. Bell is in a race with other telcos and cable operators to introduce new applications and has ramped up its R&D activity by $750 million annually in just three years. Canada's second largest telco — TELUS Corp —also boosted spending, jumping 120.5% from $56.7 million in FY04 to $125 million in FY05. Bell's major cable competitor — Rogers Communications — is no longer a public company and does not divulge R&D spending.

Magna International Inc also enjoyed a strong year, with a gain of 19.4% to $823.9 million. It is the only automotive firm in the Top 100. Other firms are foreign-owned and do not release Canadian R&D spending data.

Among larger firms, Research in Motion Ltd continues to scale the Top 100 listing, moving up 13 spaces to #17. The Waterloo ON-based developer of the Blackberry line of communications devices registered $122.6 million in R&D outlays and a research intensity of 7.5%. That compares to just $11.8 million in R&D spending in FY99 when its research intensity was 16.7%.

Information technologies (IT) continue to be a key driver of Canadian corporate spending. A majority of Top 100 firms are classified as IT and account for 55% of total expenditures.

Pharmaceutical and biotechnology firms also feature prominently in the Top100, placing 37 firms for total R&D spending of $1.98 billion, up 7.2% from FY04. The highest ranked firm is Apotex Inc with $183.1 million in spending, closely followed by Pfizer Canada Inc ($178.7 million) and GlaxoSmithKline Inc ($135.5 million).

Small biotech firms are the most research intensive (R&D spending as a percentage of revenue) led by #82 ranked Isotechnika Inc (1650.9%), Neuropharm (#45/1137%) and Labopharm (#83/693.4%).

Firms that achieved the greatest R&D growth are Adherex (#96/203.7%), Aspreva Pharmaceuticals Corp (#64/175%) and TELUS Corp (#16/120.5%).

FMI: www.researchinfosource.com.

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