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Corporate R&D spending posts strong growth

Canada's Top 100 Corporate R&D Spenders posted $15.60 billion in combined research and development (R&D) spending in Fiscal 2023. This was a strong increase of 12.4% over Fiscal 2022. R&D spending increased at 69 companies and declined at 31. Combined revenue of 95 of the Top 100 that disclosed their data was $371.89 billion. This produced an overall R&D intensity (R&D spending as % of revenue) of 3.8% in Fiscal 2023.

In Fiscal 2023, the leading corporate R&D spender was once again Shopify Inc., devoting $2.33 billion to R&D (an increase of 19.4%), followed by Magna International Inc. with $1.16 billion (up 37.8%). Open Text Corporation placed in 3rd spot with $918.6 million of R&D spending (up 60.3%). Bausch Health Companies Inc. ranked 4th with $815.2 million (up 18.4%) and BCE Inc. rounded out the top five R&D spenders with $774.0 million (up 20.2%).

$100 Million Club

Thirty-four (34) Top 100 firms each reported R&D spending in excess of $100 million in Fiscal 2023, thus qualifying for membership in Research

Infosource's $100 Million Club. Total Club members' R&D spending was $13.63 billion, accounting for 87% of total Top 100 R&D spending in Fiscal 2023.

R&D spenders tiers

Grouping the Top 100 companies into three 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), three firms emerged as the respective tier leaders: Tier 1 - Shopify Inc. ($2.33 billion), Tier 2 - AstraZeneca Canada Inc. ($97.1 million) and Tier 3 - Essa Pharma Inc. ($28.8 million).

R&d spending growth

In Fiscal 2023, the leading firms for growth in R&D spending in Tier 1 were: AbCellera Biologics Inc. (68.9%), Xenon Pharmaceuticals Inc. (64.3%) and Open Text Corporation (60.3%). The Tier 2 leaders were Semova Corp. (86.0%), Docebo Inc. (44.5%) and Celestica Inc. (36.4%). Tier 3 R&D growth leaders were: Satellos Bioscience Inc. (240.8%), Nano One Materials Corp. (157.3%) and BriaCell Therapeutics Corp. (98.3%).

R&D intensity

Combined Top 100 R&D intensity (R&D spending as a percent of revenue) was 3.8% in Fiscal 2023. Among the 95 firms with complete data, several posted very strong gains in R&D intensity. In Tier 1, the leading firms were: AbCellera Biologics Inc. (462.0%), Repare Therapeutics Inc. (264.2%) and Zymeworks Inc. (188.9%). Tier 2 leaders were: Fusion Pharmaceuticals Inc. (3,390.1%), Theratechnologies Inc. (37.8%) and Coveo Solutions Inc. (31.3%). Heading Tier 3 were: Verses AI Inc. (366.5%), AEternaZentaris Inc. (301.5%) and Exro Technologies Inc. (223.8%).

Regional performance

In Fiscal 2023, 44 companies headquartered in Ontario reported combined R&D spending of $8.91 billion, representing 57% of the Top 100 total, followed by 25 Quebec-based companies ($4.44 billion, 28% of the total) and 31 firms located in Western Canada ($2.25 billion, 14% of the total). Overall R&D growth jumped by a combined rate of 15.3% in Ontario, 12.6% in Quebec and 1.8% in Western Canada.

Industry performance

A selection of industry sectors led R&D spending: 23 companies within the Software & Computer Services sector accounted for 35% of the total Top 100 R&D spending; 32 firms in Pharmaceuticals/Biotechnology combined for 17%; five in Telecommunications Services accounted for 14%, while Aerospace & Defence, with five companies, and Automotive, with three companies, accounted for 8% each. Lastly, four companies in the Comm/Telecom Equipment sector made up 4% of all R&D spending.

R&D spending growth was strongest among these industry sectors in Fiscal 2023: Automotive (up 36.3%), Software & Computer Services (up 19.1%), Pharmaceuticals/Biotechnology (up 13.5%), Aerospace & Defence (up 7.0%) and Telecommunications Services (up 6.5%).

Bucking the trend

Normally, Research Infosource anticipates R&D spending trends to broadly align with revenue trends. However, in Fiscal 2023, several industry sectors diverged from these expectations: the Telecommunications Services sector experienced a combined revenue increase of 10.4%, while posting a combined R&D spending increase of 6.5%. However, the Software & Computer Services sector had revenue gains of 5.3%, while posting a much higher combined R&D spending increase of 19.1%, as did the Pharmaceutical/Biotechnology sector with revenue gains of 0.3%, against a 13.5% increase in R&D spending in Fiscal 2023.

This year and next

Fiscal 2023 was a solid year for corporate R&D. The headline spending increase of 12.4% is a positive sign. R&D spending rose across a majority of companies (69 of 100), which is always a good indicator of health. R&D spending is however a lagging indicator. Thus, it's interesting to consider that the corporate spending that took place in Fiscal 2023 reflects budgeting decisions made the prior year, in Fiscal 2022. That was a year in which COVID-19 was still very much in play, which would have had an outsized effect on health-related research.

Similarly, economic and business conditions prevailing in Fiscal 2023 will drive R&D results for 2024. Those conditions should lead to another strong round of R&D spending to come. Of course, the real challenges for businesses and the economy are to translate R&D spending inputs into the productivity and wealth outputs that are needed to sustain our levels of personal and government consumption. It is not clear that adequate progress is being made on these fronts. Challenges lie ahead.