Thank you, first of all, for this opportunity to present the biotechnology sector as a Canadian sector to the committee.
I'd like to just briefly introduce myself. I've spent most of my working life in biotechnology, in one fashion or another, from an academic perspective and then as a government regulator, and then over the past 19 years now in the private sector altogether.
I run a small new start-up company here in Ottawa called Eulytica Biologics. It's just getting on its feet. I sold a previous company. I've been a director of BIOTECanada for a number of years, and up until just recently was its chairman for three years.
BIOTECanada is the national organization representing the biotechnology sector here in Canada. In that sense, it represents the interests of over 250 members that really span biotechnology as an industry from research all the way into sales. Its membership is from industry as well as public organizations.
When I talk about biotechnology, really I'm representing the Canadian industry sector that is broadly bio-based; that is to say, it carries out R and D and develops products with biology as a technology platform. That's the glue that binds the industry together. In fact, in that sense, the industry is similar in magnitude to other major industry sectors, compared to automotive, compared to aerospace, compared to information technologies.
We know you're hearing serious stories of several industries in dire circumstances in many sectors of our economy, and certainly the biotechnology industry sector is also seriously affected in the current economic times. What I would like to do is briefly give you an overview of that sector scenario and put it in the context of Canada's current and future national economy in the sense of what the contributions of the biotechnology industry do for that. And Peter will follow up, after my brief comments, with some specific details and with what BIOTECanada sees as proposals for action.
We know firsthand from our members that this financial crisis has had a profound impact on our biotechnology companies and therefore impacts on the continued innovation of biotechnology and, most importantly, on the value generation from that industry to the overall Canadian economy.
As a sector, the biotechnology industry in Canada is definitely entrepreneurial. Companies start out small on the basis of landmark innovations. This might be in health, it might be biofuels, new materials--a number of different areas--and the companies typically have gradual growth over several years, from two or three years to a decade or more, depending on what sector they're in. In particular, the health sector takes much longer to bring a product to market.
Over those years they grow, they hire, they spend their R and D money, and that R and D money will have come from capital investment or from grants. In fact, they tend to spend their R and D money back into Canada.
They might fund research and development, as I said, for more than a decade before they actually show any sales revenue. For Canada that's important, because the biotechnology industry is a new and emerging industry in Canada. So they're at that interim point.
For the most part, they use equity-based investor capital to do that. They're highly dependent on well-functioning capital markets, and, as we know, they are especially vulnerable to a market crisis. In fact, the same is true for companies in biotechnology outside of Canada, that are also actively striving towards a profitable and sustainable knowledge-based economy. That competition outside of Canada is real and in fact validates the basic value of biotechnology as a knowledge-based economy for any given country.
So what's the problem? First of all, as I said, few biotechnology companies in Canada are well-established mainstream producing companies. They're really in the middle of a development phase of products, as a generality, and they are transitioning to commercialization and product sales. That's true whether or not the biotechnology company is developing a cure for multiple sclerosis or breast cancer, or has approaches and products related to new carbon capture methods, or food safety, or biofuels. It's a broad sector in that sense.
When the credit markets seized up as they did last fall, there certainly was less capital that the equity investors wanted to put at risk.
We find that the capital that is put at risk--by VCs, for example, venture capital companies--is dedicated typically to shorter-term, lower-risk options providing earlier returns. In fact, VCs that had been investing in biotechnology are now investing in real estate. It's a very different scenario from an investment perspective.
The perspective for biotechnology is that biotech is a higher-risk investment by nature. It's high-risk, but there are also very high rewards, which comes fewer, at times. That has coloured the overall investment scenario in Canada. The current reality is that there are more emerging technology firms in Canada than ever, frankly, that are operating with less than six months of cash. That's a sobering fact that we have solidly researched through BIOTECanada. The majority of the small and emerging companies have less than one year of cash to survive.
The effect is that companies are closing product development programs at the moment and are starting to cease operations. If you look at the data over the last two months, you'll see employment in the biotechnology sector has decreased by about 8%. We think if this continues, many thousands of direct and indirect jobs are also going to be lost from the sector. What that does is threaten the promising earlier scenario of a healthy future growth of the biotechnology sector, its employment, and its value generation.
This short-term financing issue has also put the historical R and D investment in Canada at risk. Canada is a country that federally and provincially has invested well in R and D. Many innovations are generated, and they have brought breakthroughs in products that are entering our drug registries, put on our plates, put in our cars. The impact on the sector is that we have a risk scenario, and in order to keep that innovation, commercialization, and value generation going in Canada, actions need to be taken.
I'd like to leave it to Peter to provide a few points on this.