Pharma firms see mixed fortunes in Quebec

Québec’s life sciences and pharmaceutical industry has suffered several blows in 2012, with hundreds of R&D jobs being lost. This comes despite the industry receiving hundreds of millions of dollars in government assistance and favourable tax rates.

Both Johnson & Johnson and Sanofi have announced job cuts of 126 and 100 people respectively to their Canadian operations. According to Sanofi, which employs 1700 people in Canada, the majority of the cuts will be in Montréal. AstraZeneca is to review its global R&D operations and is cutting 7300 jobs worldwide by 2014. This will include closing the company’s Montréal research centre, with the loss of 135 employees.

According to the government agency for inward investment, Investissement Québec, the province ranks among the 10 most important health sciences industrial pools in North America. Almost half of Canada’s life sciences industries are concentrated in the Montréal region, which also accounts for the majority of basic and clinical research activities conducted in Canada. This includes over 400 companies, and close to 150 products currently in development in Québec.

R&D erosion

But R&D and manufacturing positions have been eroded in recent years. For instance, US-based Merck & Co closed its world-class R&D facility on Montréal’s West Island in 2010, with the loss of 180 jobs. Figures from Statistics Canada show a 28% drop in the overall number of pharmaceutical, medical and manufacturing jobs in Québec of between 2006 and 2011.

The belt-tightening isn’t unique to Québec: the pharmaceutical industry has been consolidating and cutting costs globally as a result of patent expiries, a scarcity of blockbuster drugs in the pipeline, despite hefty investment, and the challenging wider economic climate. David Griller, a pharma industry expert for Canadian management consultancy firm SECOR, says: ‘In my view, Québec is not being singled out. Firms in the pharmaceutical industry clearly know what they have in their product pipelines and also when patent expiries will occur on existing products.’

Both Canada’s federal government in Ottawa and the provincial government in Québec City have invested significant funds to create and maintain Québec’s status as a life sciences haven. In particular, the province is known for its generous tax breaks. Québec has one of the lowest corporate income tax rates in North America: 26.9% in 2012. Companies can earn provincial tax breaks for up to 40% of R&D employees’ wages and up to 100% of expenses, layered with additional R&D tax credits from the federal government.   

Critics have claimed that these government concessions have not been productive for Canadians. Companies looking for a location will clearly chose one with favourable conditions, but this is no guarantee of retaining these jobs in the longer term.

Growing innovation

‘Twenty-five years ago, Canada made a decision to strengthen pharmaceutical IP [intellectual property] as a way to drive increased international investment - and it worked,’ says Russell Williams, president of the Canadian industry body, Research-based Pharmaceutical Companies. ‘In 1986, innovative pharmaceutical companies invested $93 million (£57 million) in research and development across our country - today that investment has grown to more than $1.3 billion; an increase of 1500%. It was a successful strategy, but a quarter century later our competitors around the world have more than caught up. Canada needs to keep pace if we aim to attract more of the global pharmaceutical industry’s annual research spend of approximately $110 billion.’  

‘The key question for the industry in Québec is: “What will the future hold?”,’ Griller says. ‘Firms are becoming far more discriminating in where they invest and have to pay more attention to emerging markets. In particular, firms have to increase the efficiency of R&D.’ He adds that the simplest way for Québec’s pharma industry to recover from its slump is to move drugs through clinical trials faster, as the clock is ticking when it comes to patented molecules.  

Despite these recent setbacks, the headlines mask a continued flow of life science dollars into Québec. May 2011 saw the announcement by Pharmascience of its $38 million investment in Montréal, which will result in new laboratories, increased manufacturing capacity and the creation of 180 jobs. And this April saw Janssen open a new centre of excellence in immunology, also in Montréal.   

Merck Canada has also ploughed $35 million into the creation of the Merck Lumira Bioscience Fund in Québec this year, which will support early stage biotechnology companies and aims to attract more life science investors to the province. The launch marks the latest contribution by Merck in its plan to invest $100 million over five years in biopharmaceutical R&D in Québec, announced in 2010. The company has already invested $6.8 million in AmorChem, a Québec life sciences venture capital fund, and $5 million in the Québec Consortium for Drug Discovery (CQDM).  

As a result, Griller is upbeat about the province’s prospects. ‘Québec ought to rebound to some extent in the expansionary period. Firms recognise that Quebec’s public drug plan covers more pharmaceuticals than those of other provinces. As a consequence, it should be a preferred location for investment.’