Ontario’s Bioscience Cluster

By Gail Garland, CEO OBIO

ONTARIO’S BIOSCIENCE CLUSTER: TAPPING THE UNTAPPED POTENTIAL

The OBIO® 2012 industry consultation and survey built on knowledge gained from OBIO’s previous three years of consultations. The financial health of Ontario’s industry hasn’t changed significantly from prior years.

Most companies are pre-revenue (50 per cent) and 47 per cent have annual revenues of less than $10 million. Companies report their financial runway is approximately 14 months and the majority (82 per cent) of those who have raised capital (61 per cent) in the last year have raised less than $2 million. Research and development consumes 46 per cent of working capital followed by marketing and sales which accounts for 34 per cent. Patent costs, clinical trial costs and costs to raise capital consume the balance.

Rather than purely provide a ‘state of the industry’ update, this year’s consultation undertook to explore the sector’s potential in healthier conditions brought about through the reduction of uncertainty largely related to insufficient financial resources. With a nod to professor Michael Porter’s (Harvard University) work on cluster strength (Figure 1), OBIO asked industry leaders to weigh in on the quality of the business environment, access to specialized risk capital and depth within the domestic human health sciences private sector.

Specifically, the survey sought to gauge companies’ progress and expansion through the creation of new jobs and the impact on key projects’ time to commercialization. Additionally, the 2012 consultation survey set out to demonstrate the potential impact of the adoption of policies by the provincial government aimed at improving the quality of the business environment.

Survey results confirmed that most roadblocks and challenges facing biotech companies are related to uncertainty and insufficient funding. Industry’s feedback from 56 of 150 invitees was presented by David J. Pye, Ph.D at OBIO’s Annual General Meeting in November, 2012.

Stable funding and hiring: 38 per cent of responding companies reported that hiring and retaining key personnel had become increasingly expensive in the last five years. This resulted in delayed company growth for a third of responders and 20 per cent reported it had a negative impact on acquiring funding. Looking forward to 2013, 50 per cent of companies reported that filling planned new positions would depend on their ability to secure adequate funding. However, given an environment of reduced uncertainty, companies would increase planned hiring by more than 20 per cent (Figure 2).

Respondents noted that even if hiring positions were created, numerous essential skills remain difficult to find in Ontario. The skill gap includes: • Scientists with corporate experience • Regulatory and Clinical Specialists • RF Engineers • Industry experience / drug developers • US health IT experience • Depth of biotech experience • Regulatory skills • Special skills / experienced professionals with adaptive industry (non-academic) roles • Device commercialization background • Financial expertise for small company fundraising • Biologics manufacturing skill set (i.e. research and development) • C-level talent/Senior Managers • Successful serial entrepreneurs

Acting on this data and the work of OBEST™ (Ontario Bioscience Economic Strategy Team), OBIO will survey industry stakeholders to understand explicitly what misalignment exists between talents coming out of Ontario’s educational institutions and what skills industry needs. It is OBIO’s intent to not only create awareness

TABLE 1:

Obtaining stable financing would be less of an obstacle (to growth)

Local policy that is supportiveof the industry and its ecosystem

Finding and retaining key personnel would be easier

The time to commercialization of new products would be significantly shorter

Other Reasons

0%

6% 11%

10%

17%

20%

29% 37%

30% 40%

about opportunities in industry and existing training programs catered for them, but also how education needs to reformat to better promote industry and prepare future industry leaders. Ontario benefits as more positions are available to skilled graduates and companies don’t need to spend scarce funding on training that educational institutions could provide.

Stable funding and Commercialization:

In 2012, companies with no marketready projects estimated an average 26.8 months to commercialization for projects with the greatest commercial potential. However, respondents indicated that this time could be reduced by almost four months if they were operating with secure, sustainable funding. Stable and sustainable funding will expedite commercialization efforts for Ontario’s bioscience industry.

In response to industry’s persistent unmet need for access to capital, OBIO together with the investment community has launched an initiative to help biotech companies improve their chances of ac-

FIGURE 1: WHAT DETERMINES COMPETITIVENESS?

quiring funding. The OBIO Capital Access Advisory Program (OBIO CAAP™) works to provide promising health technology and bioscience companies with access to the necessary capital in order to fully exploit their commercial potential.

Partnerships with Academia: Industry remains well engaged with academia to wit, 71 per cent have partnerships and/or collaborations with academic institutions in Ontario.

Market Receptivity: 66 per cent of responding companies are currently en-

What Determines Competitiveness?

Microeconomic Competitiveness

Quality of the Business Environment State of Cluster Development Sophistication of Company Operations and Strategy

Macroeconomic Competitiveness

Macroeconomic Policies

Human Development and Political Institutions

Endowments

• Productivity ultimately depends on improving the microeconomic capability of the economy and the

sophistication of local competition

• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient • Endowments create a foundation for prosperity, but true prosperity is created by productivityin the use

of endowments

20120329 –Toronto Region Economic Summit –FINAL 3

Copyright © 2012 Professor Michael E. Porter

Professor Porter states that cluster strength directly affects regional economic performance and competitiveness. He argues that productivity relies on the microeconomic capability of the economy and the sophistication of local competition. These, together with the quality of the business environment and the sophistication of company operations and strategy, drive competitiveness at the microeconomic level, building on macroeconomic foundations. Many essential drivers of competitiveness reside at the regional (as opposed to national) level. According to Porter, each region specializing in different sets of clusters needs its own competitiveness strategy and action agenda to achieve job growth, higher wages, higher patenting rates and greater new business formation.

The reduction of uncertainty related to securing sustainable funding would improve the health of the business environment resulting in:

The adoption of supportive policies by the Provincial Government has the potential to significantly improve the quality of the Ontario business environment. Changes to procurement policies can have the potential to boost Ontario customers’ receptivity to regional vendors and facilitate companies’ ability to secure investment funding:

A significant and immediate increase in the number of new positions created --- over 90% located in Ontario. New jobs would result from an increase in the number of companies planning to increase the size of their workforce and increases in the number of new positions created by those companies who were already planning to expand.

A reduction on the time-to-commercialization of companies’ projects deemed to have the greatest commercial potential.

55% would expect to see a boost in their Ontario customers’ receptivity to marketing and sales efforts

47% agree that the policy change would facilitate their company’s ability to secure investment funding

FIGURE 2: REDUCED UNCERTAINTY SEES MORE FIRMS FILLING MORE POSITIONS

In the Current Year –

• 83% of companies would have planned to hire • The number of planned new positions would have been 31% greater

In the Next Fiscal Year --

• 93% of companies would be planning to hire • The number of new positions would be 23% greater than currently planned

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Current Year Next Fiscal Year

69% 83% 83% 93%

Planned to Hire Would Have Hired Planning to Hire Would Be Hiring

gaged in marketing and sales efforts. However, most noted more receptivity to their sales and marketing efforts in the USA (34 per cent) versus Ontario at 17 per cent and negligible receptivity elsewhere in Canada.

The Stabilizing Effect of Favourable

Procurement Policies: Survey respondents believe adoption of one or more favourable provincial policies would boost Ontario customers’ receptivity to regional vendors and in turn improve company’s ability to secure investment funding. 55 per cent expect more receptive action from Ontarians if, for example, the province reimbursed hospitals and other Ontario buyers up to 10 per cent of their purchases made from Ontario-based suppliers and 47 per cent agree such a policy would facilitate acquisition of secure investment funding.

Over the coming months, OBIO together with industry stakeholders will present a new model to accelerate the adoption of innovative technologies to government. This model will be based on an open and transparent system for evaluating health system priorities and a clear understanding of how adoption of technologies for health will benefit patients and Ontario’s economy.

Staying Here and Growing Here: Over the next 12 months, 28 per cent of companies reported that they expect to consider moving their office. The primary reasons for considering a move are related to obtaining stable financing (37 per cent) in an area with policy supportive of the industry (29 per cent) (Table 1).

In summary, OBIO’s 2012 industry consultation addresses key challenges facing Ontario human health and bioscience companies. It reveals potential improvements if companies operated in a cluster environment with more sustainable funding and favourable policies thereby encouraging companies to create more jobs, increase industry/academic partnerships and advance health products to the global market faster.

This data paints a picture of a more prosperous Ontario cluster and highlights a path forward. Industry and government will together reap the rewards of a strong Ontario bioscience cluster benefiting from increased foreign direct investment producing products and technologies for export.

REFERENCES:

1.Professor Michael E. Porter, Harvard

Business School, “Regional Competitiveness: The Role of Clusters”, presentation at the Toronto Region Economic

Summit, Toronto, March 29, 2012

To see this story online visit http://biotechnologyfocus.ca/ontarios-bioscience-cluster-tappingthe-untapped-