Key Insights
Canadian firms are positioning the country as a hub for pharmaceutical services
Some industry insiders say Canada could be a safe bet amid rising geopolitical tensions
The industry still can’t match the capacity or capability of major centers like China
The bond between the US and Canada is fraternal, with only a few rough patches here and there. Apart from sharing an almost 9,000 km border, the two neighbors enjoy a strong bilateral trade relationship, mostly speak the same language, and share a love for sports.
Lately, the relationship has become strained. US president Donald J. Trump has imposed tariffs on Canadian imports and even threatened to annex the country altogether. Many Canadians, in turn, are forgoing their annual travels to the US in protest.
Still, things aren’t as terrible as they seem. After the US slapped a 35% tariff on Canadian products, Canada’s prime minister, Mark Carney, noted that 85% of the country’s trade with the US actually remains tariff-free. For now, Canada seems to be low on Trump’s list of foes, and some people in the Canadian pharmaceutical services world see an opportune moment.
For years, US and Canadian drug companies have outsourced much of their drug development work to firms in China, India, and Europe that are known as contract development and manufacturing organizations, or CDMOs. China and India tap into low labor costs, offering services at a bargain, while European CDMOs are usually more costly but boast of providing premium services. Canadian CDMOs, some partly funded by the government, aim to position themselves as offering the best of both worlds: high-quality services at affordable prices.
“We’re right beside the US, and if you consider the dollar exchange rate between the US and Canada, we have a low cost of doing business compared to, say, Ireland, which is one of the leading pharmaceutical suppliers to the US,” says Andrew MacIsaac, CEO of Applied Pharmaceutical Innovation, a not-for-profit based in Edmonton, Alberta.
Applied Pharmaceutical Innovation was established in 2017 to provide contract research and drug manufacturing services primarily for Canadian start-ups. Over time, it has stretched its services to US biotechnology companies developing new drugs and generic medicines. Long term, the organization aims to become a manufacturer of its client’s commercially approved, patented drugs, MacIsaac notes. Among the experts advising the nonprofit are Michael Houghton, a University of Alberta professor who won a Nobel Prize in 2020 for his work in the discovery of the hepatitis C virus.
In 2024, Applied Pharmaceutical Innovation, with support from the University of Alberta and $58 million (about $80 million Canadian) government funding, began setting up the Critical Medicines Production Centre (CMPC), a roughly 7,710 m2 facility in Edmonton Research Park. The province is home to several petrochemical companies, which could provide many of the raw materials needed to make active drug ingredients, MacIsaac says.
Construction of the CMPC is expected to be completed by 2026. The site will be capable of synthesizing small molecules needed for anesthetics, antihistamines, and steroids; producing biologic drugs; and completing the drug fill-finish and packaging process. One of the first products to be manufactured at the center will be propofol, a generic drug used as an anesthetic in hospitals.
But for years government funding was hard to come by, says Don Stewart, CEO of PlantForm, a Toronto-based CDMO that makes vaccines and protein drugs using a plant-based manufacturing platform. That is beginning to change, he says. “There is some increase in the baseline funding to build and expand manufacturing facilities, which is beginning to make some difference in the CDMO industry.”
While the Canadian government had begun investing in the drug manufacturing sector before the COVID-19 pandemic, the supply chain snags during that period prompted the government to really ramp it up, says Michael May, CEO of the Centre for Commercialization of Regenerative Medicine (CCRM), a not-for-profit that was set up in 2011.
“In the last couple of years, the government has supported pandemic readiness, which also included manufacturing, and has committed to more academically led manufacturing capability across the country,” May says.
A digital rendering of a large, glass-walled facility with trees and people in front.
A digital rendering of the pharmaceutical services facility of the Centre for Commercialization of Regenerative Medicine outside Toronto.
Credit:
Centre for Commercialization of Regenerative Medicine
Like Applied Pharmaceutical Innovation, CCRM was established to provide mostly Canadian biotech ventures with a domestic source for drug development. “We wanted to make sure that they are not always going to Boston for capital and services,” May says. “There’s nothing wrong with Boston, but the idea was: How do you build a Boston-like ecosystem that is vibrant for commercialization and venture development.”
CCRM has received about $35 million in federal funding over the years, May says. In 2022, it launched OmniaBio, a cell and gene therapy–focused CDMO with roughly $30 million in funding from the Ontario government. And last year, OmniaBio set up a 12,000 m2 manufacturing facility just outside Toronto. While the CDMO has some Canadian biotech companies as clients, most of its business is international. “Among those, about 80% of the clients are US based,” May says.
In recent years a part of CCRM’s funding has come from the Strategic Innovation Fund, which Canada established in 2017 to support domestic research and manufacturing. The initiative now has an overall budget of $7.5 billion and funds 143 projects, 33 of which are related to pharmaceutical manufacturing and life sciences research.
PlantForm has applied to the fund for a grant, which could help the firm boost its manufacturing capacity and potentially increase business from the US. But given the recent cuts in US research funding, Stewart says that his focus is on private industry customers and that he is wary of taking on projects funded by the US government—especially after his company lost financing for a US Agency for International Development–funded project to develop artificial blood components. “There is just so much uncertainty about which businesses will survive and how tariffs are going to affect any products manufactured in Canada,” Stewart says.
“We’re right beside the US, and if you consider the dollar exchange rate between the US and Canada, we have a low cost of doing business compared to, say, Ireland, which is one of the leading pharmaceutical suppliers to the US.”
Andrew MacIsaac, CEO, Applied Pharmaceutical Innovation
Although the Canadian government has boosted funding for the pharmaceutical manufacturing sector, most of the money has gone toward biologics and vaccines. “Investors need to pay more attention to setting up commercial-scale manufacturing of small molecules in Canada,” says John Yao, founder of Hermay Labs, a Canadian contract research organization. “We need to remember that small molecules are a significant share of drugs consumed in the world.”
Yao says his firm has 930 m2 of laboratory space at the Edmonton Research Park, where it produces milligram-to-kilogram quantities of small molecules for biotech companies testing drugs in clinical trials.
Close to 80% of Hermay Labs’ 45 clients are in the US, and Yao sees the potential to expand that customer base. “The time zones aren’t too far apart, and shipping materials between the two countries is fairly easy,” Yao says.
Despite the growing opportunity to expand their US business, industry insiders are well aware of the challenge of emulating the well-established manufacturing hubs in China, India, and Europe.
For example, Stewart notes that Canada’s pharmaceutical hubs are concentrated in just a handful of cities, whereas in China entire provinces are dedicated to manufacturing services. “It is tens of millions of people focused on pharmaceutical manufacturing. Canada doesn’t have those kinds of resources,” he says.
However, MacIsaac sees an upside to Canada’s modest stature, especially given the ongoing geopolitical tension between China and the US: “Because we’re not a huge player in the pharmaceutical manufacturing space globally, we’re not as much of a threat to the United States as more established players elsewhere, in Europe or Asia.” That, he says, “could work in our favor.”
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