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• Top 100 Corporate R&D Spenders
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Top 100 Post Strong Gains

Canada’s Top 100 Corporate R&D Spenders recorded a strong 10.6% gain in their combined research spending in Fiscal 2018. Seventy one companies reported R&D spending growth versus 26 where R&D spending declined and 3 companies had no change. Despite its decline in R&D spending for the third consecutive year, Bombardier Inc. remained the leading R&D spender in Fiscal 2018, reporting outlays of $1.47 billion.

Combined revenue for the 90 companies which reported their revenues in Fiscal 2018 was $391.37 billion, representing a gain of 11.5% on the year. As revenue growth out-paced R&D spending growth, corporate R&D intensity fell slightly to 2.7% in Fiscal 2018 from 2.8% in Fiscal 2017.

Magna International Inc. continued its hold on second spot with a strong 12.4% increase in R&D spending reporting to $761.9 million. Suncor Energy Inc. climbed to #3 with a huge gain of 81.4%, posting R&D spending of $635.0 million. Constellation Software Inc. moved into 4th position with $584.7 of R&D spending, up a substantial 23.0%. Pratt & Whitney Canada Corp. held 5th spot with $552.0 million in Fiscal 2018.

The $100 Million Club

Twenty-eight Top 100 companies - the same as in Fiscal 2017 - reported R&D spending of $100 million or more in Fiscal 2018, gaining a place in Research Infosource’s prestigious $100 Million Club. The Club includes 21 Canadian companies and 7 foreign subsidiaries. New to the Club was Stars Group Inc. The Club members’ R&D spending increased by 10.6% between Fiscal 2017 and Fiscal 2018, and their combined outlay accounted for 79% of the Top 100 total, the same as in Fiscal 2017.

R&D Spenders Tiers

When the Top 100 firms are grouped into 3 R&D spending tiers (Tier 1 - $100 million or more of R&D spending, Tier 2 - $30 million-$99.9 million, Tier 3 - less than $30 million), 9 firms emerge as the respective tier leaders: Tier 1 - Bombardier Inc. ($1.47 billion), Tier 2 - Pfizer Canada Inc. ($98.2 million) and Tier 3 - Eli Lilly Canada Inc. ($29.2 million).

R&D Spending Growth

The leading companies for year-over-year R&D spending growth in Tier 1 were Shopify Inc. (156.8%), Stars Group Inc. (88.8%) and Suncor Energy Inc. (81.4%). Tier 2 growth leaders were Titan Medical Inc. (154.1%), Medicago Inc. (96.3%) and Clementia Pharmaceuticals Inc. (59.8%). Tier 3 leaders were Aptose Biosciences Inc. (197.9%), IMV Inc. (117.6%) and Acasti Pharma Inc. (101.4%).

R&D intensity

Overall research intensity - research spending as a percent of revenue - was 2.7% for the 90 firms that provided complete data for Fiscal 2018. However, many firms comfortably exceeded that ratio. In Tier 1, Shopify Inc. posted R&D spending at 32.6% of revenue, followed by BlackBerry Limited (24.2%) and Sanofi (15.2%). Tier 2’s leader were Medicago Inc.’s with R&D intensity of 1,254.1%, followed by Arbutus Biopharma Corporation (974.5%) and at ProMetic Life Sciences Inc. (200.2%). In Tier 3 Intellipharmaceutics International Inc. (631.9%), POET Technologies Inc. (261.7) and Espial Group Inc. (48.0%) recorded out-size R&D intensity. Ratios of these magnitudes in Tier 2 and Tier 3 indicate start-up and early stage companies.

Regional Performance

In Fiscal 2018, 43 companies headquartered in Ontario reported combined R&D spending of $6.0 billion accounting for 46% of the Top 100 R&D spending, followed by 32 Quebec-based companies ($4.86 billion, 37% of the total) and 24 firms located in Western Canada ($2.17 billion, 17% of the total). Regional shares were essentially the same as in Fiscal 2017. R&D growth jumped by a substantial 16.0% in Ontario and 14.3% in Western Canada, but was more muted in Quebec (3.1%).

Industry Performance

In Fiscal 2018, 18 companies in the Software & Computer Services sector accounted for 23% of the total Top 100 R&D spending, up from 21% in Fiscal 2017. Six Aerospace companies accounted for 18% of the total, down from 20% in Fiscal 2017. Twenty-six Pharmaceuticals/Biotechnology leaders spent combined 13% of the total, same the year prior year, whereas 4 Telecommunications Services firms represented 10% of Top 100 R&D spending, the same share as in Fiscal 2017. Nine Energy/Oil & Gas companies accounted for 10% of the total, up from 9% the year before.

In Fiscal 2018, R&D growth was especially strong in the following sectors: Electronic Systems & Parts (25.4%), Energy/Oil and Gas (21.2%), Software and Computer Services (20.7%) and Communications/Telecom Equipment (18.1%).

Bucking the Trend

Normally, Research Infosource expects R&D spending trends to broadly align with revenue trends. However, one industry ran counter to expectations. Although combined reported revenues of the Top 100 firms in the Pharmaceuticals/Biotechnology sector declined by -4.2%, firms’ combined R&D spending rose by 13.3%. Three other sectors met or exceeded expectations. Energy/Oil & Gas company revenues rose by 21.3% and their R&D spending grew by 21.2%. In the ICT - Services sector combined companies’ revenues grew by 8.8% and R&D spending expanded by 18.0%. In ICT - Manufacturing revenues expanded by 7.7% and R&D spending increased by 12.8%.

This Year and Next

All in all Fiscal 2018 was a very solid year for corporate R&D performance. Total R&D spending grew by 10.6%, and many firms and sectors posted substantial gain in their R&D spending. This picture does not fit with doom-and-gloom commentary about the health of corporate research in Canada.

That is not to say that all is rosy. Canada’s corporate R&D spending statistics have always been skewed by the performance of one or two large Canadian multinationals such as Nortel, BlackBerry and more recently, Bombardier. The era of large-performer dominance may be coming to an end as our “national champions” fade. In the long run a country’s R&D performance is the result of two factors; the number of companies “in the game”, and the total of their R&D spending. And those factors are in turn influenced by overall economic and business conditions and government policies. Overall economic conditions are currently strong, but near-term and medium-term prospects are not positive. Government policies are very much in flux as an election looms and as research and productivity issues are seen to be largely absent from political discourse. Innovation policy is essentially running on fumes and any new initiatives – should they emerge – will take time to have effect. The bottom line: lower expectations for the foreseeable future.