Canada's life sciences sector
Introduction
Canada’s life sciences sector is an important contributor to the country’s innovation and broader economy, that extends across the research, development, and manufacturing fields. Stakeholders range from small to medium-sized to global companies involved in the development of diagnostics, biopharmaceuticals, pharmaceuticals, and medical devices, serving the domestic and international markets.
Canada is home to a large pool of highly skilled life sciences professionals with a broad range of expertise and offers an ecosystem for life sciences companies to thrive which includes first-class academic institutions, research networks, partnership opportunities and an increasingly favourable funding environment.
In 2020, the three largest IPOs ever by domestic life sciences companies in Canada were filed, including that of AbCellera Biologics (AbCellera) – a Vancouver start-up that is now the most valuable Canadian biotech company ever. And the potential exists to grow other companies and turn Canada’s life sciences sector into a global competitor.
As Canada comes out of the pandemic, the gradual improvement in economic conditions, increased demand for health care spending, aging demographics, and the nation’s focus on economic self-sufficiency in areas such as pharmaceuticals, all bode very well for the domestic life sciences sector.
Canadian quick stats
$2.2B
2021 Federal Budget contribution towards life sciences and bio-manufacturing sector over seven years
Source: Statistics Canada: 2021 Budget
Big 10
The world’s ten largest biopharmaceutical companies have a presence in Canada
Source: InvestCanada
26%
Life Sciences’ share of total VC investment in 2020 – up 10% year-over-year
Source: CVCA 2020
5%
Canada captures 5% of the world's clinical trials, ranking ninth globally
Source: InvestCanada
58%
Canadians aged 25-64 having graduated from post-secondary institutions – one of the world’s best-educated talent pools
Source: OECD 2020
The awakening
The pandemic has understandably led to a focus on medical facilities and life sciences – and a desire not to be overly dependent on a single supplier, country or geography. The aim of decreasing foreign dependencies may lead to a growing trend to onshore production and strengthen the domestic supply chain. Venture capital funding for medical research has increased substantially with medical infrastructure and R&D spending now increasingly seen as relevant to national security, and demand for lab space is likely to increase.
Meanwhile, the commercial real estate sector will play a critical role in maximizing the efficiency and results of the life sciences sector across the country. More importantly, Canada is not yet manufacturing a COVID-19 vaccine and that sets the stage for more life sciences facilities, so developing companies and experienced workers do not look elsewhere to expand and work in the field.
Government support
The federal government has been criticized for its decision to source its COVID-19 vaccine supply from other countries’ production facilities. However, the importance of Canada’s life sciences sector goes beyond responding to the pandemic. This is a growing sector that supports thousands of middle-class jobs. The goal is for Canada to become a more attractive and globally competitive place for investment to ensure a more robust domestic life sciences sector.
The 2021 Budget allocates a total of $2.2 billion over seven years for the life sciences and bio-manufacturing sector – funding that will help build and keep talent and research systems, and support the growth of Canada’s life sciences companies.
Notable funding includes:
- $1 billion on a cash basis over seven years, starting in 2021-22, of support through the Strategic Innovation Fund would be targeted toward promising domestic life sciences and bio-manufacturing firms.
- $500 million over four years, starting in 2021-22, for the Canada Foundation for Innovation to support the bio-science capital and infrastructure needs of post-secondary institutions and research hospitals.
- $500 million over five years, starting in 2021-22, and $100 million per year ongoing, to expand the Industrial Research Assistance Program to support up to 2,500 additional innovative small and medium-sized firms.
A favourable funding environment
Venture-capital (VC) investment in the life sciences sector is vital to the Canadian economy and has been a catalyst for many now-thriving Canadian companies. According to the Canadian Venture Capital and Private Equity Association (CVCA), new VC investment in Canada during 2020 reached $4.4 billion across 509 deals – second only to 2019.
Life Sciences companies received slightly more than one-quarter or a 26% share ($1.1 billion over 89 deals) of the total dollars invested in 2020, a 10% increase from 2019 – second only to Information, Communications & Technology companies, which received 55% of total VC funding ($2.4 billion across 284 deals) – up 40% year-over-year. For perspective and according to CB Insights, global health care funding hit a new quarterly record in the first quarter of 2021 – US$31.6 billion.
Canada Life Sciences VC Investment
Source: CVCA 2021
The top three provinces by number of VC investment deals in the life sciences sector in 2020 were Ontario (35 deals or 39% share), Québec (30 or 34%), and British Columbia (12 or 13%) – capturing 77 life sciences deals, or 86% of the total across the country.
Three of the top 10 VC deals in 2020 were attributable to the life sciences sector – all three going public on NASDAQ – including Vancouver-based biotech company AbCellera, the largest exit in 2020 and largest exit on record for life sciences in Canada with a market cap of $6.7 billion; followed by Montréal-based cancer-drug developer Repare Therapeutics ($1.5 billion) and Fusion Pharmaceuticals ($959 million), based in Hamilton, part of the Greater Toronto and Hamilton Area (GTHA).
Canada’s life sciences sector kicked-off 2021 on a strong note with $324-million in first-quarter funding (12% of the $2.7 billion VC total) across 24 deals – on pace for a third consecutive $1-billion-plus year. Ontario led with eight deals (33% share), followed by British Columbia and Québec with five deals each (21%). Meanwhile, two life sciences firms made the top 10 VC list: Notch Therapeutics ($108 million) and Corvista Health ($65 million), both Toronto based, while Montréal-based Dialogue Health Technologies’s went public ($779 million) on the TSX.
The hubs
The three primary life sciences markets in Canada are Toronto, Montréal and Vancouver. Hamilton – an extension of the Greater Toronto Area (GTA) – is also an emerging hub, and Calgary is home to Biospace 1, a new facility catering to advances in health, wellness and biomedical innovation opened by DynaLife Medical Laboratories and Biohubx in Royal Vista in the city's northwest. Across the country, unprecedented investment by the federal government is already being deployed to help expand, finance, or build new lab space, including:
- AbCellera, a Vancouver-based biotech company, is expanding into two new purpose-built office/lab buildings comprising more than 380,000 square feet (sf) in Mount Pleasant with the vision of creating a large-scale biotech campus.
- In March 2021 and in partnership with the federal, provincial, and municipal governments, Sanofi announced an investment of approximately $925 million in a new vaccine manufacturing facility at its existing site in Toronto – due to open in 2026.
- In May 2021, the federal government announced a $200-million investment in Mississauga-based Resilience Biotechnologies to expand capacity for vaccines and therapeutics, including mRNA shots.
- In Hamilton, the McMaster Innovation Park, associated with McMaster University, is evidence of growing demand in the GTHA region – adding more than 2 msf of new life sciences space – doubling the park’s space year-over-year.
- Financing construction of the $126-million Biologics Manufacturing Centre adjacent to the National Research Council’s Biotechnology Research Institute on Royalmount Avenue in Montréal – scheduled for completion in summer/fall 2021. This financing is a huge boost for the market, given that labs are typically up to three times more expensive to build than other commercial real estate, such as office and residential space.
- In the Greater Montréal Area (GMA), the City of Laval and the National Institute of Scientific Research are launching Phase II of Biotech City – adding up to 1.2 million square feet (msf) of additional life and health sciences development to an existing 13-msf science park.
Not your ordinary premises
The biggest cost for most companies is either employees or real estate, and this no different for life sciences firms, as lab space is very expensive. Most early-stage life sciences work is project-driven and done in a lab (wet or dry) and once at the proof-of-concept or trial stage, the need for premises can change quickly. In addition to lab space for ongoing research, life sciences companies’ needs will shift to mass-manufacturing and distribution capacity. In the end, life sciences facilities are complex buildings that can be costly to retrofit, build and operate – creating barriers to entry for both new premises development and conversions.
However, the limited supply in some markets and potential growth of the life sciences sector may become so compelling that some owners may start to convert traditional office buildings into lab premises. This could be fuelled by the uncertainty in the office – and even retail – markets, which is making it more and more appealing for building owners to consider the possibility, despite the specific requirements and costs associated with this type of space.
Undertaking such an investment means these extraordinary costs often need to be amortized over a longer period, so owners may not receive an immediate return with their first tenants. On the plus side, higher fit-out costs than for traditional office space mean these specialized facilities will attract significantly higher rents down the road.
Notable costs for life sciences space include:
Heating, Ventilation, and Air Conditioning (HVAC)
More HVAC than a traditional office due to higher ventilation requirements and the need for different types of airflow in different spaces of a life sciences facility – which also means higher ceiling heights to accommodate duct work.
Electrical Systems
More power is required with backup generator support (e.g. to store samples in freezers) – not all buildings have enough power supplied to them to support a life sciences use.
Plumbing
Life sciences facilities tend to require more sinks and highly filtered water, often needing on-site de-ionization systems and point-of-use ultra-purification.
Waste Disposal
Much of the waste that labs generate (i.e. biohazardous and chemical waste) cannot be disposed of easily in municipal waste – requiring an outside contractor to dispose of the various waste streams.
Facility & Equipment Management
Managing the facility and specialized equipment such that work can continue uninterrupted is important and requires experienced staff – adding to the owner’s overall operating expenses.
Lab Construction Costs
