From traditional manufacturing or clinical research outsourcing, we have witnessed the emergence of many non-traditional outsourcing activities such as clinical and lab services as well as the growth of more sophisticated company models. This change has been driven by the emergence of specialized technologies, the practice of smaller batch sizes as well as the popularization of the virtual biotech/pharmaceutical companies. These companies have been at the forefront of this change as they subcontract more functions such as research, clinical testing, and manufacturing.
From a more traditional perspective, this has led to an increase in manufacturing capacity. Hence, constant growth in the manufacturing sector has been observed in the last five years, as employment in the Canadian Pharmaceutical Manufacturing sector grows steadily. In 2016, the sector employed close to 28,500 people, and the sector has showcased a steady Compound Annual Growth Rate of 1.30% over the last five years. Furthermore, the annual domestic pharmaceutical production was valued at $9.8 billion in 2016, a CAGR of 1.0% when looking back to 2008. (Source: https://www.ic.gc.ca/eic/site/lsg-pdsv.nsf/eng/h_hn01703.html)
Also, a number of new manufacturing plants in Canada have been built, both traditional pharmaceutical (such as Green Cross Therapeutics and Sterinova), as well as marijuana related plants (such as Aurora and Zenabis). This new capacity has both invigorated the country’s manufacturing sector as well as giving birth to new partnering opportunities.
Concurrently, some manufacturing units belonging to large traditional pharmaceutical companies have been repurposed and privatised. The preservation of the total manufacturing capacity available in Canada has protected jobs and expertise which might have been lost, had these plants been closed down completely. These deals often include supply agreement with the seller, insuring a short-term steady stream of contracts while the new company works to fill the remaining capacity with new clients. The Famar acquisition of the Bayer Plant in Quebec or the Pillar Five privatization of the former Pfizer plant Ontario are fitting examples of this trend.
This has also lead to the rise of CDMOs (Contract and Development Manufacturing Outsourcing), who offer both specialized development and manufacturing capacity. Boasting an integrated service offering, they are quickly growing in both scope and ambition. As we have seen in the US, CDMOs have no reservations about acquiring and converting big pharma assets. For example, Avara, a US-based CDMO, has been acquiring assets from GlaxoSmithKline (USA), Pfizer/Hospira (Italy), Astellas (US) and Astrazeneca (UK).
Finally, the growth of biologics drugs and the marijuana sectors will both have very important roles in the years ahead regarding Canadian pharmaceutical manufacturing sector capacity.
Ongoing NAFTA talks have increased worries in sectors particularly reliant on the US market. More than half of the Canadian pharmaceutical manufacturing production is exported (primarily to the United States) and a significant portion (67%) of the Canadian market is supplied by imports (68% of imports from the U.S.). This could lead to issues for companies which rely on exporting and importing for their regular operations. Furthermore, some companies employ manufacturing models where goods flow seamlessly through the US-Canadian border multiple times during production, so tightening up the border will only mean increased costs for them.
Even if NAFTA talks are successful, cross-border issues continue to create concerns. For years, many companies throughout the life science value chain have lamented the incomplete harmonization between the FDA and Health Canada regulations. While regulatory stringiness varies on both sides of the border on multiple issues, the disparity does make it challenging for the border clearance process – complexifying an already intricate import/export process between the two countries.
Finally, as CDMOs move to increase their presence in both the manufacturing, research, and commercialization functions, there are some growing concerns that CDMOs might be replicating the Big Pharma model, but without the big blockbuster drugs to generate steady streams of revenues. As such, there are challenging times ahead for these companies to carefully define their role in the life science ecosystem, and not potentially overextend their reach.
Overall, the Canadian market remains a land with distinct opportunities, but the next few years will be critical to its long-term development.