Quebec's life sciences industry has fallen victim to a global decline in the sector despite hundreds of millions of dollars in government assistance.
This week, two global industry giants, Johnson & Johnson and Sanofi, announced layoffs of 126 and 100 people, respectively, at their Canadian operations as part of global streamlining efforts. J&J's job cuts, announced Tuesday, came at the research and development centre connected to its plant in Montreal's East End that makes feminine hygiene products. Sanofi, which employs 1,700 people across Canada, said Wednesday that most of its cuts would affects its Montreal operations.
The job cuts are a double blow to the Quebec industry, which has shed thousands of research and development and manufacturing jobs in recent years, including 180 positions when Merck & Co. Inc. closed its world-renowned research and development facility on Montreal's West Island in 2010. According to Statistics Canada, pharmaceutical and medical manufacturing jobs in the province declined by 28 per cent from the end of 2006 through last October, from 10,422 jobs to 7,549.
The latest losses come amid consolidation and cost cutting around the globe as the industry responds to the combined pressures of economic downturn, expiring patents and fewer blockbuster drug introductions, by shedding workers and closing plants.
In Canada, decades of direct and indirect support from Ottawa and Quebec City, including funding for research bodies and venture capital funds, has not been enough to shield the industry from these global pressures.
"This is a worrisome trend, but it's not happening only in Montreal," said Michel Leblanc, head of the Board of Trade of Metropolitan Montreal.
"It's part of a global problem," added David Griller, a partner with Secor Consulting in Ottawa specializing in the life-sciences industry.
A pamphlet from the Quebec government's investing arm, Investissement Québec, boasts that "tax credits for R&D expenses [are]among the most generous in the world," with companies able to earn tax breaks for up to 40 per cent of R&D workers' salaries and up to 100 per cent of expenses – on top of a R&D tax credits available from the federal government. Foreign scientists also get a break on their personal income taxes.
The global industry has steadily increased spending on research and development – to $68-billion (U.S.) in 2010 from $48-billion in 2004 – but without any increase in productivity: The number of drugs submitted for approval to the U.S. Food and Drug Administration has remained constant at about 30 a year, Mr. Griller said. "So the cost per product has been going up to the point where it's unsustainable."
The declining yield of research dollars – marked by a shrinking parade of new blockbuster drugs in recent years – has accompanied consolidation and cost cutting that has triggered significant job cuts.
"The pharmaceutical industry is under a lot of strain, globally," said Paul Karamanoukian, Ernst & Young's Canadian life sciences industry leader. Companies that were built around blockbuster offerings face new challenges as patents expire and consumers opt for cheaper, more effective drugs. "The old business model is under pressure."
Jeff Connell, vice-president of the Canadian Generic Pharmaceutical Association, which has criticized some of the government support for brand-name companies, says while the latest job cuts are "bad news for Canada," they also show "that all the concessions [from governments]have not been a productive policy for Canadians.
"Chasing brand-name drug companies' investments with taxpayers' money is a fool's errand."
Mark Milke, a senior fellow with the Fraser Institute, said Quebec has persistently been "the worst offender out of all the provinces when it comes to corporate welfare," giving billions of dollars a years in direct and indirect subsidies to businesses.
He added that companies in the industries that receive heavy state support, such as automotive, aerospace and life sciences, "will say the same things in Mexico or Europe or Canada: 'Give us this money and we'll create jobs in your jurisdiction.' But there's no guarantees these jobs will stay there in the long term."
Despite the declining fortunes of the life sciences sector, Mr. Leblanc pointed out that research and hiring have increased at university labs and medical centres in the province. "It helps to partly compensate for the closing of these labs. It's an encouraging sign," he said.
With files from Richard Blackwell.