Health firms dominate biotech sector as increases in R&D expenditures accelerate

Biotech R&D spending in 1997 by Canada's biotechnology sector skyrocketed by 28% above the previous year, with $446 million in outlays by firms that spent at least $1 million on R&D. Moreover, the total R&D performed by firms conducting biotech R&D reached $904 million in the same year, representing 5.8% of total industrial R&D. The data were contained in Statistics Canada's most recent biotech R&D survey, which was culled from the latest survey of R&D activity in Canadian industry. Over the 1989-1997 survey period, the annual rate of increase in biotech R&D spending was 22.3%.

The data also captured a dramatic evolution in the funding of biotech R&D, with government's share plummeting from 10.9% of the total in 1989 to just 2.4% in 1997. The drop was also substantial in dollar terms, declining from $30.9 million to $21.9 million over the same period. Other domestic sources of funding have remained relatively constant, registering 76.9% of the total in 1997. The largest increase is found in foreign sources of funds, which jumped from 10.4% to 20.6% in the same nine-year period. The higher foreign content of R&D funding is attributed to the increase in strategic partnerships struck between domestic firms and foreign multinationals.

Bio-therapeutic firms dominate sector

Not surprisingly, the health sector accounts for the majority of R&D expenditures. Health biotech firms accounted for 69.1% of all expenditures, while the services sector accounted for 20.9%, largely due to clinical trials and contract research in support of health biotech. Agrifood firms spent $24.6 million for 5.5% of the total.

Health biotech firms within the core biotechnology group (those dedicating more than 50% of their R&D spending to biotechnology) accounted for $291 million or 65.2% of the 1997 total. With 29 firms included in the category, the average expenditure per firm is $10 million. Core biotech firms outside of the health sector spent $97 million, while all non-core biotech firms accounted for the remaining $58 million.

The StatsCan survey also included detailed data on the personnel of biotech firms. It estimates that the biotechnology sector employed 6,262 full-time equivalent staff in 1997, up from just 2,772 nine years earlier. More than half are categorized as professionals, with the remainder classified as technical and support staff. The health sector employed the largest share of personnel with 2,799 working in the sector in 1997. Ranking second is the services sector (1,698), followed by natural resources (643), agrifood (550) and equipment and other (430).

Among the professional personnel, education levels were also tracked, with post graduates attaining the largest share (1,757). Those with bachelors degrees numbered 1,544.

The all-important subject of wages is also included in the StatsCan data and they illustrate the rapid expansion of the health sector. Total wages jumped from $43.1 million to $162.5 million between 1989 and 1997, while the next highest sector was services, which accounted for $62.7 million in 1997. Natural resources ranked third ($40.0 million) equipment and other ranked fourth ($29.6 million) and agrifood ranked fifth ($25.2 million).

Large number of firms excluded from survey

The decision by StatsCan to rely on Revenue Canada data for firms spending less than $1 million in R&D means that 1995 was the last year in which full coverage of the biotech sector was provided For that year, firms spending more than $1 million on R&D accounted for 87.7% of total expenditures, but those same firms accounted for just 24% of companies reporting biotech R&D activities.

That leaves a significant number of firms outside of the scope of the 1996 and 1997 surveys, representing a huge void in the data. The rationale for excluding smaller performers from the StatsCan R&D industrial survey was to reduce the reporting burden of those firms. Yet the cost of failing to obtain complete and accurate data seems immense. There's no way of knowing, for instance, whether the R&D spending of smaller firms has increased. While the current survey does not attempt to justify the exclusion of smaller firms, it does provide a comparison of expenditures between the complete field of biotech firms and larger companies up to 1995.

In 1995, larger firms accounted for 87.7%% of the $345.9 million in total expenditures, up from a 83.9% share in 1993, when the total was $231.7 million. That's also up from the 76.4% that large firms represented in 1989, reflecting a trend towards an increasing dominance of larger firms in the sector, at least when examining total R&D expenditures. Whether that trend has continued is a matter of conjecture.

With the increasing importance of biotechnology in all facets of the economy (not to mention its high ranking in the current government's economic priority list), the lack of comprehensive data seems unfortunate. Perhaps it's time to re-think the decision to exclude smaller firms from one of the most important surveys impacting science and technology.

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