This service is primarily available to the following industry sectors:
“Life sciences” is defined by Life Sciences BC as follows: “Life sciences is comprised of scientific fields that involve the scientific study of living organisms.”
This is broad in some respects, including in-vitro diagnostic devices, biotechnology and the research sector in healthcare, but it is also narrow in that excludes the medical device industry.
Wikipedia defines it as: “Life sciences comprises the branches of science that involve the scientific study of life …for example, the mind – neuroscience. Life sciences discoveries are helpful in improving the quality and standard of life, and have applications in health, agriculture, medicine, and the pharmaceutical and food science industries.”
Health Canada defines it as follows: “Industry players include small and medium-sized companies developing diagnostics, biopharmaceuticals, pharmaceuticals and medical devices, as well as global companies with research, development and manufacturing operations in Canada, serving both domestic and international markets.”
To me this is the most appropriate definition and the one we will use in the context of our initial target market for this Program.
Historically, the life science industry is characterized by the following key parameters:
Regulated – the industry is heavily regulated, by international, federal, provincial or state, county or district, and health region authorities. For technologies to be cleared for human use, they must demonstrate safety and efficacy. The threshold for these two criteria is the risk level. For example, a band-aid is a class 1 low risk medical device and therefore subject to the lowest level of regulatory controls. In contrast an implantable heart valve is a class 3 device in the US and EU and class 4 in Canada. This means it is high-risk and subject to the highest level of regulatory controls. In the middle is a broad range of products, including for example ultrasound, a class 2 diagnostic device. Risk classification is usually driven by the intended use. For example, if a speciality ultrasound device claimed to be able to improve the safety and efficacy of heart valve placement, then it would be considered a high-risk class 3 or 4 device. For developers and manufacturers, these regulatory burdens are costly and increase time to market. Therefore, these companies need to understand their regulatory pathway and budget accordingly. In the context of the Market Validation Program, this would be one of their key go to market hypothesis that needs to validated early on their path to market.
Reimbursed – drugs and devices are expensive, which creates a heavy financial burden on reimbursement agencies. Therefore, they require compelling clinical evidence of clinical utility and financial payback. The extent of this evidence may exceed that of the highest risk products, even if the responsible regulator deems it low to medium risk. An example of this is a low-risk male urinary incontinence product that is affordable but over time would exceed the cost of diapers. In Canada, each province needs to make a decision on whether to pay for this. In the US, the Center for Medicare and Medicaid Services (CMMS) will decide. In Europe, each country in the EU will decide. Regardless of who the payor is, they will want to see compelling clinical and health economic outcomes that demonstrate this new expenditure is eclipsed by the savings generated. In this example, the new product may be shown to reduce urinary tract infections, a common complication of diapers. If his can be adequately demonstrated in a double-blinded controlled clinical trial, then the payors may decide to fund this. However, the process with bureaucracies like CMMS can take years or even decades. Once again, companies entering these markets need to plan for this.
Manufacturing – drugs, devices and related life sciences products are not simple or cheap to manufacturer. They are regulated and must meet certain standards. For example, medical device manufacturing must be fully compliant with ISO13485 in Canada, the EU, Australia and many other countries. In the US, they must be fully compliant with the FDA Code of Federal Regulations’ Quality System Requirements (21 CFR Part 820). As well, there are many other standards that need to be met. To comply with these requirements again takes time and money, so companies must anticipate this. They also need to forecast what their Non-Recurring Engineering (NRE) costs will be – for molds, jigs, production equipment, Quality Systems, etc. Finally, they need to project their Cost of Goods (COGs). NREs can be expected to be at least $10,000, often in the hundreds of thousands of dollars, and for high-risk medical devices or pharmaceuticals, millions of dollars. COGs, or unit costs, need to be understood early in the development process, because this determines the price that the company can go to market. If the COGs is not competitive, then neither will the sales price be competitive, and the chance of success is greatly reduced. Time, money, planning and utilizing the Market Validation Program tools are all essential considerations.
Distribution – unlike consumer goods, especially electronics, the distribution channels for life sciences products have traditionally been risk-averse and slow to pick up new products. This is at least in part due to the constraints #1 – 3 summarized above. On a continuum from direct sales (expensive but highly controllable by company executives) through exclusive or non-exclusive licensing, agency and general distribution arrangements (less expensive but harder to control), there are no easy answers. What works for one product likely does not work for another product. Market type changes everything, including which channels are most likely to be effective. The stage of market entry makes a huge difference – upon early entry, direct sale is usually required. Over time, if successful, this typically needs to evolve in to some sort of third-party sales arrangement, or often a shared responsibility – with manufacturer and distributor sales representatives. Finally, in the 21st century, there also needs to be a strong, well thought out and well financed, digital marketing strategy. Again, the Program can help here.
The life sciences industry has been somewhat moribund and is now faced with a fast-changing future, much of which it will have little control over. Some key trends driving this are as follows:
Strains on the public purse – the average expenditure on healthcare in the OECD countries is about 10% of GDP and increasing disproportionally to GDP. In the US, the highest of any OECD country, this percentage is closer to 15% of GDP and increasing at a faster rate. Ironically, the US has what the OECD reports is the second worst healthcare delivery system in the OECD, second only to Mexico – the only other system that is not primarily funded from the public purse. The US, although they make much about their private healthcare system, pays 55% of all healthcare costs through CMMS and another 15% or so through the Veterans Administration, for a total of 70%. This is completely comparable to Canada, where about 70% is paid through provincial medical service plans, which fund hospitals, primary care, most diagnostics, but not drugs or dental. In Europe, where many countries include drugs and dental, the public expenditures may be 90+%. However, regardless of jurisdiction, every country struggles with how they will continue to pay for so much publicly, as the burden increases at a rate that exceeds GDP.
Aging populations – throughout the developed world, baby boomers are aging and expected to live longer than their parents, thanks to improvements in healthcare, wellness, diet and lifestyles. The impact on healthcare expenditures will be profound, especially in countries like Canada, where we are over-invested in acute care hospitals and under-invested in extended care or palliative care facilities. The harsh reality is that with drugs and devices we can now extend life by not just years but decades. What we have not been so good at is making the tough bio-ethical considerations about when to withhold these interventions. Does it really make sense to perform open-heart surgery on someone in their nineties, just to extend their life a few years? These operations cost over $100,000 and are now done routinely, because the pre-operative, operative and post-operative care has improved so much that the risk of mortality in these procedures is really low. So, we do it because we can, but should we?
Chronic disease explosion – diabetes, obesity, cardiovascular disease, some cancers, dementia and other chronic diseases have become a sort of combined contagion that costs our healthcare delivery systems vast amounts of money. In the US, obesity now affects 1 out of 3 adults, and soon diabetes will too. Advancements in cardiovascular and cancer disease care have greatly extended lifespans for people living with these diseases. As people’s bodies are propped up and drugged up to live longer, their brains ultimately begin to fade, with dementia, Alzheimer’s and other cognitive impairments increasing daily.
21st technology convergence – the convergence of wireless communications, big data and the power of decentralized super-computing has put powerful medical devices in the hands of the consumer. This will lead to the democratization of healthcare for millions of people, including millennials in the developed world, who expect to do everything on their smart phone, and people of all ages in the developing world, who cannot afford legacy medical devices but can easily access 21st century solutions. For example, a Holter monitor – sold for tens of thousands of dollars today and used for decades by cardiologists to check on patients cardiovascular health while at home and going about their daily routine, has now been effectively replaced by a $100 gadget a patient can buy at their local drug store and produce hospital-grade EKG tracings, using an application on their smart phone.
First, we need to define what biotechnology is. According to Wikipedia: “Biotechnology is a broad area of biology, involving the use of living systems and organisms to develop or make products. Depending on the tools and applications, it often overlaps with related scientific fields. In the late 20th and early 21st centuries, biotechnology has expanded to include new and diverse sciences, such as genomics, recombinant gene techniques, applied immunology, and development of pharmaceutical therapies and diagnostic tests. The term “Biotechnology” was first used by “Karl Ereky” in 1919, meaning the production of products from raw materials with the aid of living organisms.”
Although most people think of biotechnology as something new, one of the earliest applications was brewing beer, which requires the fermentation of yeast. This is an example of biotechnology dating back thousands of years. In the more recent biotechnology revolution of the seventies and eighties, scientists began to unravel nucleotide sequences and ultimately the entire human genome. Since this was first done, at a cost of $2 billion, competitive prices on the Internet are now as low as $1 thousand. There are also applications in agriculture and clean-tech, such as biodegradable plastics, or use of biological controls in place of insecticides. In the life sciences industry, two of the biggest applications are pharmaceutical therapies – so called large molecule drugs, because biologics are bigger molecules than chemicals; and in-vitro diagnostic tests, which rely on biological reagents and controls. Because biotechnology is a subset of the life sciences industry, all of what has been said in the earliest section of this submission also applies.
According to IBIS World 2020 Biotech Industry in the US – Market Research Report Update: “IBISWorld’s analysts constantly monitor the industry impacts of current events in real-time – here is an update of how this industry is likely to be impacted as a result of the global COVID-19 pandemic: The COVID-19 (coronavirus) pandemic has resulted in increased investor uncertainty, which is likely to limit industry revenue in 2020. Biopharmaceuticals are likely to grow as a share of revenue over the five years to 2025, as this segment will be least impacted by declining investment levels in 2020. Several major companies, including AbbVie and Gilead have tested drugs for their potential to treat coronavirus.”
In a related open-market report by Deloitte Insights “2020 Global Life Sciences Outlook”, they describe the “Leading biotech IPOs of 2019” as follows: 10x Genomics $390M, BridgeBio Pharma $349M, Gossamer Bio $317M, Turning Point Therapeutics $191M, SpringWorks Therapeutics $186M and Alector $176M, for a total of $1.6 billion, suggesting a robust US investment market in the US in 2019. They go on to detail “Biotech’s blockbuster flotations in US markets” with 12 companies posting a “market cap at float” with a combined value in 2019 of $43 billion, again suggesting a very robust biotechnology market.
In my opinion, there is no doubt that COVID has had, and will continue to have, a very significant impact on the life sciences industry, including biotechnology. However, it seems that the very strong 2019 and the comments quoted above, suggest that the market will rebound in 2021. What I have seen with my life science clients, only one of whom is in biotechnology (Genome BC) is that they have had a short-term revenue and financing shortfall, because anything short of a diagnostic, therapeutic or vaccine for COVID is currently of no interest to healthcare practitioners and their institutions. This will pass as these COVID pharmaceutical solutions are discovered, tested for safety, proven for clinical efficacy, approved by regulators and marketed world-wide.
According to Grandview Research: COVID caveat: “Biopharmaceutical innovators are at the forefront of the human response to the coronavirus pandemic. A significant number of major biotech firms are in the midst of a race to investigate the Sars-Cov-2 genome and prepare a viable vaccine for the same. As compared to the speed of response to SARS/MERs, the biotech entities are investigating SARs-Cov-2 at an unprecedented rate and a considerable amount of funds are being put into the R&D. With multiple candidates in trial, the public and private sectors are anticipated to work in unison for the foreseeable period, until a vaccine is developed for Covid-19. The report will account for Covid19 as a key market contributor.”
“The global biotechnology market size is expected to reach USD 727.1 billion by 2025, at a CAGR of 7.4% according to a new report by Grand View Research, Inc. The emergence of certain key themes in the market is expected to drive growth in this industry to a lucrative extent.
This kind of takes my breath away, because it represents about three times the growth rate for medical devices and any industry projected to reach three-quarters of a trillion USD in just five years is an industry we all want to participate in. The Report describes four major growth areas: regenerative medicine, genetics in diagnostics, synthetic biology and the application of artificial intelligence in the R & D process. These areas are beyond the scope of my knowledge and that of this submission.
My local biotech client, Genome BC, offers the following synopsis:
“Genomics hold the promise to improve our quality of life while providing opportunities for economic development and environmental improvement for the benefit of society. Every living thing has a genome which holds the secret code of life within. From the food we eat, to the medicine and cures we seek, to the environmental sustainability of natural resources we depend upon, genomics is the heart of life sciences in British Columbia. Genomics is at the core of the cutting-edge science and technologies that are driving growth, productivity, commercialization and global competitiveness. Genome BC’s investments into genomics research is powering BC’s bioeconomy by generating jobs, creating and advancing new companies and attracting national and international investments to help address challenges facing BC’s key economic sectors — forestry, energy and mining, agri-food, fisheries and aquaculture, and health.”
What I have learned is that the genome holds the key to personalized healthcare, which delivers the right drug at the right time to the right target, substantially improving the quality of clinical care and doing so at a greatly reduced cost. For example, some chemotherapeutics for cancer are now known to only work on certain genomes – about 50% of the population. By limiting treatment to these people, vast amounts of money are saved, since many of these drugs cost in the order of millions of dollars per year per patient, and vastly improves the quality of care. In retrospect, delivering debilating drugs to people who have no chance to benefit seems inhumane.
Much of what has already been documented in this submission for the life sciences and biotechnology industries holds for the healthcare industry. Again, it is helpful to start with a definition: “The healthcare sector consists of businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients.” Investopedia.
“The healthcare industry (also called the medical industry or health economy) is an aggregation and integration of sectors within the economic system that provides goods and services to treat patients with curative, preventive, rehabilitative, and palliative care. It includes the generation and commercialization of goods and services lending themselves to maintaining and re-establishing health. The modern healthcare industry includes three essential branches which are services, products, and finance and may be divided into many sectors and categories and depends on the interdisciplinary teams of trained professionals and paraprofessionals to meet health needs of individuals and populations. The healthcare industry is one of the world’s largest and fastest-growing industries. Consuming over 10 percent of gross domestic product (GDP) of most developed nations, health care can form an enormous part of a country’s economy.” Wikipedia.
To clarify, biotechnology is a subset of the life sciences industry and the life sciences industry is a subset of the healthcare industry. The portion of the healthcare industry not covered in the previous two sections of this submission is the actual delivery of care. In other words, literally, the health care, deploying life science, biotechnology and other tools. In Canada for example, we have 14 public healthcare delivery organizations – one for each province and territory and one for the federal government for care of indigenous communities. In addition to this we have broad private care coverage, including dentists, alternative care providers, extended care homes, home nursing services, pharmacies and some private surgical day-care centers. Hospitals and physician services are paid for out of the public purse and account for close to 70% of all healthcare expenditures. Dentists and drugs are about another 20% and the remaining 10% would be everyone else. Therefore, the focus on this section will be on hospital and physician care.
By way of background, it may be helpful to outline the basic principles of the Canadian healthcare system and how that applies to reimbursement for medical procedures and devices, which is a key driver of the industry. The foundation of the Canadian system is Medicare, the unofficial name for Canada’s publicly funded universal health insurance system. The formal terminology for the insurance system is provided by the Canada Health Act and the health insurance legislation of the individual provinces and territories.
Under the terms of the Canada Health Act, all “insured persons” (basically, legal residents of Canada, including permanent residents) are entitled to receive “insured services” without copayment. Such services are defined as medically necessary services if provided in hospital, or by ‘practitioners’ (usually physicians). Approximately 70% of Canadian health expenditures come from public sources, with the rest paid privately (both through private insurance and through out-of-pocket payments). The extent of public financing varies considerably across services. For example, approximately 99% of physician services, and 90% of hospital care, are paid by publicly funded sources, whereas almost all dental care is paid for privately. Most doctors are self-employed private practitioners.
Provincial Responsibility for Delivery of Health Services
Under the Canada Health Act, each province and territory is responsible for delivery of health services, consistent with the Act. In BC, the Medical Services Plan (MSP) administers Medicare. The BC Ministry of Health, Medical Services Commission provides a Physician Payment Schedule, effective April 1, 2010 which captures various surgical procedures, including for example under the section 36 heading of “Urology”. See Appendix A – Canadian Physician Payment Codes – BC and Ontario.
In BC, as is the case across Canada, these fees are professional fees only, since hospitals are not reimbursed by procedure, but have global budgets for surgical procedures. In the Preamble to this Payment Schedule, “Section 8. Appliances, Prosthesis and Orthotics”, they state: “The cost of prostheses, orthotics and other appliances are not covered under MSP. Such devices, where insertion in hospital is medically/surgically required and where the devices are embedded entirely within tissue, may be covered under an institutional budget.”
This makes Canada somewhat unique, in that hospital budgets are “global” – based on prior year expenditures and subject to provincial ministry of health budgeting, and this creates considerable pressure on expenditures, since the hospitals have been under-funded for many years. To quote one Chief Medical Officer at a leading Canadian teaching hospital: “We operate at about 105% of capacity with funding at 92.5%, ensuring an on-going structural shortfall of about 12-13%.”
Other publicly-funded jurisdictions like the EU use some type of activity-based costing, which funds hospital based on actual patient and case load. This is also how the US fundamentally functions, albeit in a much more complex array of public and private funding mechanisms. To summarize for the EU:
Medical Reimbursement and Procurement in the UK and Europe
The UK represents a $200 billion healthcare market with 81% of this directly funded through the National Health Service, 80% of this is funded through taxation and 75% of the NHS budget goes to Primary Care Trusts who are responsible for delivering health care services within a local area, which are grouped in to Strategic Health Authorities. The UK has a “Drug Tariff” that lists all drugs and devices approved by the Secretary of State that must be supplied and reimbursed throughout the NHS. In the Drug Tariff, there is for example a section Part IVB – Incontinence Appliances, which is referenced in Appendix B – UK NHS Drug (& Device) Tariff, beginning with its home page.
Compared to Canada, which does not directly fund specific devices, the UK has a device listing. To get new devices listed, the NHS created NICE – National Institute for Health and Clinical Excellence in 1999 to promote clinical excellence by reducing variation in the uptake of new technologies (Newdick, 2005). It provides guidance on technology appraisals, clinical guidelines and interventional procedures. Since January of 2005, if NICE guidance supports that a particular technology be made available by the NHS to a certain patient group(s), then health care organizations are obligated to do so within three months from the date the guidance is issued (Mason and Smith, 2005). NICE is the body responsible for Health Technology Assessment (HTA) in the UK and serves as a model for other HTA systems across Europe and abroad (Sorenson, C. and Kanavos, P.; 2009; London School of Economics, Health and Political Science; “Financing Medical Devices in France and the UK”; European Health Technology Institute on Socio-economic Research.
In the UK, much like Canada and any publicly funded healthcare delivery system, the challenge for suppliers is to convince surgeons, buyers and administrators that the incremental cost per procedure will be more than offset by the savings in reduced length of stay and/or readmissions, thereby demonstrating a positive return-on-investment, which typically must be seen within the same fiscal year.
Caveat – The scope of this submission limits our ability to investigate other European jurisdictions. Given that NICE is recognized as the European leader in new technology assessment and that in the UK and Canada there appears to be no reimbursement for the particular medical device in this example (male incontinence appliance), it may be reasonable to conclude that this will also be the case in other major European countries, although this may be reviewed later if time and budget allows.
The US healthcare market is much more complex, driven primarily by the complexity of their reimbursement quagmire, as summarized below by Princeton Group, a sub-contractor on our market assessment projects:
Reimbursement Policy Review
The key elements of reimbursement policy are coverage, coding, and payment. All three of these elements are essential if adequate reimbursement is to be achieved for medical procedures and devices in the United States.
Coverage refers to the process and criteria used to determine whether a product, service, or procedure falls within a defined benefit category and is ultimately reimbursed. The most powerful and influential entity in the coverage process is Medicare. Given the size and scope of Medicare, this coverage process is often critical to the survival of a new technology. The importance of Medicare coverage policies influences the private-sector insurance market. Private payers follow Medicare’s lead in applying cost control policies. In many cases, if Medicare does not cover a new technology, the likelihood of its being covered by other payers is remote.
Underlying payment and coverage decisions for medical technology is the process of coding. Codes are systems of number and descriptors that identify procedures and products. Developed through the efforts of such organizations as the American Medical Association (AMA), the American Hospital Association (AHA), and the Centers for Medicare & Medicaid Services (CMS), codes can be important for technology manufacturers and providers because they enable an insurer to recognize and process claims involving the use of a product. Thus, a code can contribute to product coverage and payment.
Once products or procedures have a defined benefit category and are covered, they are eligible for payment. This introduces a new set of methodologies to determine the exact payment amount, as well as a new set of incentives that influence the use and development of medical technologies. These payment methods depend on where the technology is used, by whom, and the kind of treatment service that is provided.
The health insurance industry is comprised of thousands of third-party payers, each with its own policies, rules and regulations. The benefits available to groups or individuals vary and the definitions for medical exclusions, coverage policy for investigational devices and pre-existing conditions are almost certain to differ among comparable policies. This variability makes it difficult to predict coverage policy for new procedures, or new medical devices. However, most insurance carriers, including Medicare, use common criteria to determine whether a device or procedure is “reasonable and necessary” (the ultimate test of inclusion). At a minimum, Medicare, and most other payers, require that the technology be: • Safe and effective as demonstrated by FDA approval; • Non-experimental or investigational, supported by published peer-reviewed literature, technology assessment, with endorsements from physician specialty groups; and • Appropriate for the patient’s circumstances supported by FDA approved labeling, peer-reviewed literature and practice guidelines.
Ultimately, Medicare and other payers are interested in answering questions about the benefit offered by a new technology usually in comparison to currently available treatments. They answer these questions during technology assessments. When dealing with nee therapies, technology assessments focus on how the treatment affects patient outcomes and physician behavior.
Two pathways are available for Medicare coverage – local and national coverage policy. Obtaining a national coverage policy is optimal because local policy must follow a national coverage decision. In addition, the process can be much easier to manage. However, attempting to garner a national policy can be risky. If the clinical evidence does not demonstrate safety, efficacy, improved outcomes and cost effectiveness, then a non-coverage decision may be implemented. If this occurs, all of the local Medicare contractors must follow the decision.
Predicting the future of the healthcare industry is difficult, because the history, current situation and future outlooks vary vastly depending on the country. Also, as indicated previously in this submission, healthcare is an inordinately complex industry with many different parameters affecting its trajectory. Some of the universal parameters were summarized earlier (cost constraints, aging population, impact of 21st century technologies, etc.). In my opinion, the following are things to watch for:
1. The emergence of telemedicine, which is happening now at an accelerated pace because of COVID.
2. The burden of chronic disease overwhelming public payors to the point that they just say no. Consider that the adult obesity rate in Mexico is now about 50%, with all the concomitant health issues this is associated with. Perhaps at some point the Mexican health authorities will just say we will not provide funding support for related procedures, devices or drugs, until you lose a certain amount of weight, through this government approved program that we will pay for. Basically, an intervention, not unlike what may be done with chronic drug overdose patients.
3. The combined fiscal pressure and global population pressure (expected to reach a maximum of 9.8B by 2025) will cause a fundamental change in how healthcare is delivered, taking it out of the hospital and in to the home. This will be available by consumer medical devices, supported by smart phone apps. Also, drugs will be prescribed based on individual genomic analysis, greatly reducing costs while greatly improving efficacy. Developing world quality of care will improve dramatically while developed world care quality levels out.
4. Payor models will evolve with a mix of patient pays, private insurer pays and various public agencies pay. How this is done will vary greatly by jurisdiction, with the EU and US deploying very different models. Smaller countries like Canada will need to adopt a system nation-wide that mimics a much larger proven system. China will have its own solution and perhaps Africa will develop a pan-continental system.
“The technology sector is the category of stocks relating to the research, development and/or distribution of technologically based goods and services. This sector contains businesses revolving around the manufacturing of electronics, creation of software, computers or products and services relating to information technology.” Investopedia
“A technology company (often tech company) is a type of business entity that focuses mainly on the development and manufacturing of technology products or providing technology as a service.
“Technology”, in this context, has come to mean primarily electronics-based technology. This can include, for example, business relating to digital electronics, software, and internet-related services, such as e-commerce services.
Information-technology (IT) companies and high-tech companies comprise subsets of the set of technology companies.” Wikipedia
What can we really say succinctly about the history of the technology industry? It’s a massive industry that has undergone tremendous changes over a short period of time and this pace of change continues at an accelerating rate.
Although the industry may be known for its ability to launch innumerable start-ups, it is also a land of incredible market dominance by The Big Five, as referenced in Wikipedia:
1. Facebook $1,676 billion market capitalization (mc)
2. Apple $1,576 billion mc
3. Microsoft $1,551 billion mc
4. Amazon $1,433 billion mc
5. Alphabet $980 billion mc
Total $7,216 billion or $7.2 trillion US, equal to about 17.5% of the S & P 500
US and European authorities are currently investigating all of these companies for alleged abuse of market dominance positions and violations under anti-trust legislation. Pundits suggest that the average Jane or Joe could not properly function in today’s world without utilizing the products or services of these companies. We have become addicted to the stickiness of today’s wireless and mobile computing products, which have become a sort of lifeline to most everything we do, from buying tickets to the movies to self-diagnosing disease states. From a marketing position, we cannot afford to overlook these companies or the countless start-ups who hope one day to be purchased by them.
To project the outlook in tech is really quite speculative, so our comments are limited to the following. Current trends are not going away, one of the most important being the rise of artificial intelligence. Robots are taking away blue- and white-collar jobs and will continue to do so at an accelerating rate. Robots can beat humans at chess and go. They can also beat humans in differential medical diagnosis and ditch digging. As the cost of these innovations continues to drop dramatically, while computing power increases exponentially as defined by Moore’s Law, their will be more and more uptake and an increasing number of applications. The other awesome impact on the future of tech is globalization. Consider the following from Wikipedia:
There were also two Chinese technology companies in the top ten most valuable publicly traded companies globally at the end of the 2010s – Alibaba and Tencent. Smyrnaios argued in 2016 that the Asian giant corporations Samsung Electronics, Alibaba, Baidu and Tencent could or should be included in the definition. Together, this has been referred to as “G-MAFIA + BAT” also including IBM. While a dominant presence in the mobile telephony marketplace, Samsung Electronics is presently dependent on the Android ecosystem, in which Google has major influence, hence Samsung is not included in the BAT formulation.
“BATX” is also used to refer specifically to the large internet companies in China. “BATX” stands for Baidu, Alibaba, Tencent, Xiaomi, the acronym for the four biggest tech firms in China. The term BATX is used to refer to the biggest tech giants in China, counter-standing by GAFA (Google, Amazon, Facebook, Apple)] in United States. BATX are few of first tech companies started in the 2000s in the rise of Chinese tech revolution and became widely used among Chinese netizens. Notably, in the recently years after 2015, some other tech companies like Huawei, DIDI, JD and ByteDance have also became some of the up-and-coming biggest tech giants in the industry.
Other big technology companies on a global scale include Samsung Electronics, Intel, IBM, Cisco Systems, Tencent and Oracle. Along with Apple, Google, Facebook, and Microsoft, they completed the list of top ten technology companies in the world at the end of 2010s, according to the Forbes Global 2000 list published in 2019, an evaluation based on annual sales, profit, assets, market capitalization, and overall market valuation.”
Given the reach, ambitions and treacherous tactics of the Chinese Communist Party (CCP), this development is significant and should be fear-inducing. For example, Huawei, a dominant global player in 5G wireless infrastructure, is widely viewed by the Five Eyes – US, UK, Canada, New Zealand and Australia – as a cover for CCP international electronic espionage on technology in all five countries.
This service is primarily available within the following locations:
San Francisco is the number one life sciences hub in the world. It is also just down the west coast from Vancouver, just a two-hour flight. South of San Fran is the Silicon Valley. This greater metropolitan area is home to a wide array of technology start-ups, including many in the life sciences, as well as the headquarters for four of the Top Five – Alphabet/Google, Amazon, FaceBook, and Apple. Google and Apple are now big and emerging players in life sciences and the other three are likely not far behind. According to NDF Research:
“The entrepreneurial culture of Silicon Valley in the 1970s meant that the Bay Area was bound to become a major Life Sciences hub once genetic engineering was invented. The creation of Genentech in 1976 kicked this off in a serious way. The Bay Area has never looked back in the four decades since. Today they are headquarters to Gilead Sciences, Intuitive Surgical, Agilent Technology, BioMarin Pharmaceuticals, and Medivation. Their three leading universities provide significant life sciences’ education and research: Stanford, University California Berkeley and UCSF. Greater San Fran population is 7 million people.”
Based on California’s GDP from life sciences, and San Fran’s proportion of life sciences jobs, we estimate the San Fran life science GDP in 2017 at $47B, with 82,500 life sciences jobs in San Fran, averaging $119K/job. The state also attracted $7.6B in funding for the life sciences sector. The only apparent downside is a shortage of housing in San Fran.
Speculating forward to today, from the 2017 data provided above, there is no slow-down in-sight for the Bay area as the dominant global hub for life sciences in 2020. According to the San Fran Chamber of Commerce, the life sciences sector contributed: $114B output, $34B increase in labor income, 68.6B GDP, 302,000 direct or indirect jobs, $10K exports (2015), $112K/year average earnings, 300 life science firms, $1.4B in R&D investment from NIH, and UCSF received $0.6B total funding. According to US New and World Report in February of 2020: “Economic Growth Makes San Francisco the Best Performing City in the US”, ranking first in the 2020 Best Performing Cities Index by the Milken Institute. San Fran last topped the list in 2014 and was in fourth place in 2018. It topped the list this year because of its “skilled workforce, abundant venture capital, and innovation and entrepreneurial culture support”, as well as its “expanding tech and biotech industries and high-tech GDP growth.”
US cities today are of course struggling with COVID, since the US is the worst affected country in the world. However, San Fran has done well with COVID, as reported in the August 2020 issue of WIRED magazine: “In the first two months of New York city’s outbreak, more than 14,700 residents died. San Fran has a tenth of the population, so the comparable death toll would’ve been 1,470. The actual number was 35. On April 7, New York’s worst day, 597 people died. On San Fran’s worst day, three people died. San Fran is one of the most densely populated cities in the world, yet it maintained a far lower mortality rate than less dense cities nationwide – 5.9 deaths per 100,000 residents. The figure for Dallas was more than six times that; for LA and Boston, 17 times; Chicago, 45.”
San Fran is well positioned to continue to dominate as the world’s leading life science cluster over the next five years and they have done better with COVID than the world’s second- best city – Boston. Given this, we think that the drivers of the life sciences industry are what will drive the near future outlook for San Fran. According to Life Sciences Outlook, US, 2019 by JLL – which takes a real estate focus on the industry, the top four trends are:
“1. The promise of new therapeutics: breakthrough science is driving demand for real estate.
2. Life sciences companies are raising more money at a faster pace than ever before.
3. Talent is mission critical for growth but clusters face specific workforce challenges.
4. The clusters are clustering, as each cluster finds a unique real estate solution.”
San Fran’s greatest constraint is housing availability, and because of this JLL ranks them ahead of Boston. All other rankings we could find place San Fran first, and given Boston’s COVID problems, which predated the JLL Report, we think San Fran has the advantage over Boston, provided they solve their housing crisis.
“Starting in the 1990s, the city of San Francisco, and the surrounding San Francisco Bay Area have faced a serious affordable housing shortage, such that by October 2015, San Francisco had the highest rents of any major US city. The nearby city of San Jose, had the fourth highest rents, and adjacent Oakland, had the sixth highest. Over the period April 2012 to December 2017, the median house price in most counties in the Bay Area nearly doubled. Late San Francisco mayor Ed Lee has called the shortage a “housing crisis”, and news reports stated that addressing the shortage was the mayor’s “top priority”.”
According to NDF Research, and many other sources we referenced, Boston is number two in the world for life sciences, as summarized here:
“The elite status of Harvard and MIT combined with Boston’s historic role as a leading healthcare and financial centre created a worthy competitor to the Bay area on the US East Coast from the early 1980s. The success of Biogen cemented the Bay State as a strong No. 2 to the Bay Area. Boston is home to 4.7 million people, and two major educational institutions: Massachusetts Institute of Technology and Harvard University. It also has the following major life science company headquarters: ThermoFisher Scientific, Biogen, Boston Scientific, Vertex Pharmaceuticals, Waters, Hologic, Alnyan Pharmaceuticals, PerkinElmer, and Tesaro.” Wikipedia notes many more companies, including Genzyme, Sage Therapeutics, Amgen, Deciphera Pharmaceuticals, and the Big Five: GlaxoSmithKline, Merck, Novartis, Pfizer and Sanofi.
According to Wikipedia: “The biotechnology industry in Boston dates back to the 1970s, when genetic engineering was developing. Biogen was the first company in Boston focused on biotechnology.
In 2008, the governor of Massachusetts announced the Massachusetts Life Sciences Act, promising $1 billion to further the development of the biotech industry. Massachusetts is among the top states for biotech jobs. Further, the biotechnology industry emerged thanks in part to university research and a decision in the late 1970s by the Cambridge City Council to allow DNA experimentation.
In 2016, venture investment in Massachusetts biopharma companies was $2.9 billion, and more than half of the biotech companies in the state receiving venture capital were located in Cambridge. When Cambridge and Boston were considered together, they received more than 80% of the funding in the state. Seven teaching hospitals are located in Boston, contributing to the research efforts. Five of the top six NIH-funded independent hospitals in the United States are located in Boston.”
Greater Boston’s life science industry is renowned for the 1,000 biotechnology companies that are domiciled in Boston and in neighboring Cambridge. Biotechnology in healthcare is another name for modern pharmaceuticals , about half of which are biologic or large-molecule, hence the term biotech.
According to WBUR, Boston’s National Public Radio news service: “Ever since Biogen was born out of MIT and Harvard 40 years ago, the region has succeeded at turning biology into business. But the biggest growth has come in more recent years, with an explosion of jobs, financing and construction. Eighteen of the top 20 drug companies now have a major presence here, as well as all 10 of the top medical device companies, according to the non-profit Massachusetts Biotechnology Council (MassBio). More than 11 million square feet of lab space has been built in the last decade, bringing the total to more than 28 million square feet. Venture capitalists spent $3 billion in 2017 alone in hopes of turning scientific inventions into profitable products.”
In 2020, the US biotechnology industry is expected to decline by 4.5%, but will still contribute $108.2 billion to the US economy, according to Biotechnology in the US Market Size 2005-2026 by IBISworld. Even thought shrinkage is unfortunate and unusual in any technology sector, this may well be due to COVID and longer-term forecasts continue to be bullish, for many of the reasons mentioned earlier in this submission.
According to HULT International Business School, the future holds the following challenges: “The Greater Boston area has established itself as a world leader in fields like life sciences research and drug development, but now it faces the test of staying at the top. Challengers to the region’s dominance are emerging at home and abroad. Tax breaks have made California even more attractive to biotech businesses, while Texas has invested hundreds of millions of dollars in strengthening its foothold in the industry. In South Korea, meanwhile, new laboratories are being built and scientists are needed to fill them. Developments like these led Robert Coughlin, chief executive of the Massachusetts Biotechnology Council, to tell the Boston Globe that he is ‘sweating’. ‘It’s hard to stay on top. Either you continue to improve or you go backwards,” he said.
Another puzzle for the industry to solve is the limited supply of lab space. With new businesses starting up at such a rapid rate and major companies increasing their presence in the Boston area, real estate is at a premium. In the second and third quarters of 2014, the vacancy rate for the life sciences sector in Cambridge was just under 14 percent. This has been roughly consistent for the past year or so and is the lowest the rate has been in the past decade, according to commercial real estate company Transwestern. Eric Smith, a partner at the firm, told the Boston Business Journal that this is the tightest he has seen the market in terms of available space.
Despite these challenges, any industry boasting constant innovation, fierce competition, guaranteed demand, and a healthy flow of financial support is well-placed for success. The biotech sector in the Boston area has these features in abundance. Last month, the Massachusetts Life Sciences Center (MLSC), a quasi-public state agency, announced that it would provide up to USD2 million to early-stage life sciences firms. A panel of experts will select companies to receive up to USD200,000 each. Pamela Norton, manager of the MSLC’s programs, said this will ‘fuel the entire continuum of companies, from the earliest to the latest,’ the Boston Herald reported.
Factors like high costs for labor, taxes, and rent are often cited as possible obstacles for big businesses with growth plans in Boston, but the city has proven it can be a major player in the global competition for biotech and pharmaceutical jobs. Dr. Christoph Westphal, a partner at Longwood Fund, an investor in biomedical companies, said the city has transformed itself from a research capital into a center of corporate expansion and development. ‘Other cities that vie with us – San Francisco, London, Paris, the New York/New Jersey region, cities in Switzerland or Germany – often have more significant hurdles of their own,’ he wrote in the Boston Globe. ‘In healthcare, we have shown that Boston can be a key global player. We look forward to the day when this is also true for other innovation-based industries.’”
Melbourne, a coastal city in the province of Victoria with a population of just 4.3 million people, is one of four Australian cities in the top 25 NDF Research list for global life sciences and it ranks fourth overall (New York City is third and we did not include it, given that we already have two major US cities and their current COVID challenges). Also, according to NDF,
“The Victorian gold rushes of the 19th Century made Melbourne into a leading city of the British Empire for a while, but the long-run effect of the wealth creation of that period was to channel a great deal of money into medical research, through labs such as the Walter and Eliza Hall Institute. The 1985 bull market in effect gave birth to the Australian biotech industry by allowing two biotech companies to go public that would be pivotal to the growth of the Life Sciences sector in Australia – Melbourne-based Biota in December 1985 and Peptech in January 1986.” And the future looks rosy, because they have good people, companies and a strengthening ecosystem. The province of Victoria, which is where Melbourne is located, boasts the following:
• “45 cents on every dollar in R&D tax incentives
• Two universities in the world’s Top 20 biomedical rankings
• 53% of all ASX-listed Life Science companies
• 40% of Australian medical research funding
• $1 billion cancer care hub for R&D
• 4,700 medical researchers
• Phase 1 clinical trials can begin within 1 week of regulatory submission
• Monash University ranked #1 in Asia-Pacific and #4 worldwide in Pharmacy
• Australia’s largest brain collaboration
• Home of the cochlear ear implant and the bionic eye”
We were surprised to see Melbourne, with a population of just $5M, rank in the top five cities in the world, with San Fran, Boston, NYC and San Diego (#5). Overall, Australia, a country of just 25.5 million people, seems to punch way above its weight, with four of the top 25 cities in the world for the life sciences industry. Sydney ranks #7, Perth #17, and Brisbane #25.
The life sciences industry in Australia overall is largely composed of SMEs (small to medium size enterprises), which make up 86% of the industry. In pharma, there were 162 small enterprises in 2017 and 164 in 2019, 68 medium enterprises in 2017 and 136 in 2019, and 51 large enterprises in 2017 and 40 in 2019. There are 161 publicly traded life science companies on the ASX with a total market capitalisation of $170 billion, or on average, $1.05 billion per enterprise. Of these 161 companies, 67 are medical technology or digital health, 52 are pharma and 16 are food and agriculture. This is markedly different than the four of five US cities – San Fran, Boston, NYC and San Diego – who have some SME’s but also many large corporations, much bigger than these Australian public companies. For example, J & J is the world’s largest pharma company and trades on the NYSE with a total market capitalization of about $397B. Merck, the fourth largest global pharma company, also trading on the NYSE, with a market cap of about $233B. Combined, these two companies alone equal a market capitalization of $630 billion, which dwarves the life sciences industry on the Australian exchange. Regardless, the life science industry is not defined by size only and its future is dependent on innovation, research and development, and new product market entry. This is the forte of SMEs.
The life sciences industry grew by 16% from 2017 to 2019, according to numerous good online sources. Melbourne is known for its booming biotech industry, particularly in cell and gene therapy. Companies like J & J, Roche and Siemens Healthcare are active. All of this bodes well for the future. To get to the future, cities, countries and industries must first navigate the COVID pandemic. McKinsey and Company forecasts only low to moderate COVID impacts on healthcare. There is currently $106 million in funding provided to ten of 74 life science start-ups in Melbourne, according to Tracxn Technology Private Ltd, who follows the life science industry internationally.
According to one source: “The Australian biotech market, which was valued at nearly $23 billion last year, is expected to see some positive growth to $25.2 billion by 2025, according to a GlobalData analysis. The growth, which was called modest in the report, will primarily be driven by “good market access to pharmaceutical drugs, increasing awareness of the need for the early detection of lifestyle and chronic diseases, the subsidized cost of prescription medicines through the Pharmaceutical Benefits Scheme (PBS) for all eligible patients, and the annual addition of new drugs to the PBS drug list.” Chris Nave, chief executive of the Medical Research Commercialization Fund and head of venture capital group Brandon Capital, pointed to the growing biotech landscape in Australia in a recent column posted on The Pharma Letter. Nave said the pharma industry growth in Australia is being spurred on by sound government policy in the form of the R&D tax incentives, as well as $376 million from the government-initiated Biomedical Translation Fund (BTF). The company’s biotech sector has seen strong government support for the past century, Nave wrote, which has benefitted the company’s medical community. In his column, he touted not only government investment, but also Australia’s clinical trial programs, strong patent and regulatory law and access to capital as strengths of the industry which ‘provide Australia with a generational chance to supercharge this already important industry.’ In his piece Nave pointed to the growth of venture capital in Australia, which is providing more capital than has been available before. But Nave noted there are shortcomings in the country’s biotech sector as well. First, when compared to the available capital in the United States’ two leading biotech hubs, Boston and the Bay Area, ‘the level of risk-tolerant investment capital in Australia remains severely inadequate. This lack of capital has traditionally seen promising Australian medical discoveries leave our shores early in development to access these larger pools of capital, with little economic benefit to Australia. With the advent of the federal government’s Biotechnology Translation Funds and the Medical Research Future Fund (MRFF), hopefully, this intellectual property drain will be arrested,” Nave wrote. The United States is the largest source of foreign investment in Australia, with approximately $860 billion in investments, according to one University of Sydney study. In turn, Australian companies tend to invest more in the United States than any other country, including China, which has a growing relationship with Australia.”
We could not find any reliable resources predicting the Australian healthcare market. However, we did review a KPMG video for the Australian market which speaks about the same market opportunities and challenges that we see pan-globally. They describe a tipping point, driven by fundamental power shifts, where big pharma is no longer dictating and the government and insurers are, with a focus on patient-centric outcomes. They then describe the shift in funding support toward cures, not on-going treatments. Finally, they talk about decreasing demand for traditional products and continued downward pricing pressures. KPMG highlights three emerging segments: pharma-technology, genetics, and immunotherapy. They conclude with three archetypal business models: pharma flex – 21st century supply chain management, virtual value chain orchestration, and niche specialists – who follow a disease from cradle to grave with laser-like focus.
Toronto, Ontario ranks #8 globally after Tokyo (#6) and Sydney (#7) and is Canada’s largest city with a metropolitan population of six million people and 20% of Canada’s GDP, equal to $0.348 trillion (Canadian dollars, roughly two-thirds of a US dollar). The life sciences industry employs 30,000 people and contributes $2B to Ontario’s economy, according to provincial sources. It includes big corps like J&J and Sanofi, and a host of start-ups. According to Deloitte’s 2019 report on Ontario’s life science industry report – a selected snapshot of relevant data:
• “30,000 employed in Toronto & 90,000 in Ontario total
• 6,140 firms
• 35% employ less than 10 people
• 60% employ 10-100 people
• 5% employ more than 100 people
• 38% medical device firms
• 42% pharma firms
• 11% research
• 9% agriculture
• $56.8 billion in provincial revenue
• Ontario represents 51% of Canada’s national R&D life science research spending
• Ontario ranks third for all of Canada and the US, after California and Florida, and before Texas and North Carolina
• In 2014, Canada’s R&D spend as a ratio of GDP was 0.9%, Ontario’s was 1.1 and Quebec’s 1.4, versus 2005 OECD averages of 2.5, with Canada then at 1.5% and Israel at 4.0%
• Access to capital is the number one issue identified by life science entrepreneurs”
Greater Toronto has always been the nexus of Canada’s manufacturing industry, which has waned over the past decade or so, as manufacturer’s have had to face global competition from low-cost Asian suppliers. Also, since 2016, uncertainty in US-Canada trade relations have further undermined Toronto area manufacturers. The tech sector, and life sciences in particular, have been logical alternatives to ensure that Toronto’s economy remains robust.
According to Life Sciences Ontario, company life science success stories include major global corporations, such as GSK, Merck and Stryker, as well as numerous start-ups. At least 20 world-class life science companies have a major presence in Ontario and most of these are in Greater Toronto. The University Health Network and The University of Toronto are part of an extensive network of clinical research, clinical practice and R&D establishments that provide education, training and invaluable data to the industry. Two of the top ten international business schools are in Toronto. Consider this from the provincial government investment website:
Why Roche chose Toronto: “Exceptional talent drives success in the highly competitive life sciences market, but it’s not always easy to find the scientific and business talent you need to in