Health Committee on May 21st, 2013

[The Chair, Conservative, Joy Smith]

You have forty seconds.

[Patrick Brown, Conservative, Barrie, ON]

We had a doctor come in and say that the regulation of medical devices is actually quite good in Canada. Is that your general impression? Have we done a good job of keeping down the red tape?

[Dr. Geoff Fernie]

Yes.

[Patrick Brown, Conservative, Barrie, ON]

Seeing that I have essentially no time, I don't think I can expand upon that.

[The Chair, Conservative, Joy Smith]

Essentially, no.

Now we'll go to five minutes for Dr. Morin.

[Dany Morin, NDP, Chicoutimi—Le Fjord, QC]

Thank you very much, Madam Chair.

My first question is for Mr. Haj-Ahmad.

I very much liked the part of your presentation where you showed us slides that illustrated the run rate of these young companies that develop a new service or product. This requires a great deal of money, at several stages in the process. To my mind, it is comparable to the situation of entrepreneurs who work in the same type of sector. The reality on the ground is quite comparable for young innovative companies, whether in the health sector or other sectors.

These young enterprises and entrepreneurs have trouble making ends meet on a daily basis. There are a lot of lean years, a lot of financial insecurity, before they can move to the next stage. It was also mentioned a little earlier that seeking funding from numerous organizations demands a lot of paperwork.

Moreover, the Canadian brains who design these innovative products wind up losing their intellectual property. In many cases, they sell it to a larger business. In one way, that is a good thing, since that is how things are done in the free market. However, they do so mostly out of disappointment. They want to finally make some money, but this prevents them from bringing their projects to fruition, from going from being small players to being medium players, and then big ones. We often witness this cannibalistic effect.

Would you have any solution to propose to allow them to distance themselves from that model, something that would help these young businesses to develop naturally?

[Dr. Yousef Haj-Ahmad]

Thank you for your question. My French

is not very good, but I understand your questions. Let me respond in English.

Definitely the current model of raising money and starting a small biotech company—I'm talking about biotech—is as presented in the slide: you raise the money through round one, round two, round three, and it keeps on going. People keep going back to the well for more and more money, and they keep burning more and more money. The more money they raise, the more money they burn.

Of course, we see that finally they just want to get out of it. The scientists, the people working in the company, lack security; they know that if they don't get their next dollar, they're all going to be out of jobs. So they're all looking for another job here or there. In my view, this is very important.

Start-up venture capital companies are somewhat guilty in this, because that's what they want: they want a good team to present good science, first; and secondly, they want them to focus on one thing. Obviously, simply by running this kind of company, you're gambling with the lives and the jobs of everybody working for you, because it's all or nothing: you either make it or you go bust.

The model I'm suggesting is simply that it's great to aim high, but you have to think about today and tomorrow. You have to have both the steak and the sizzle. You can't have it all just by saying, we're going to go ahead and make a billion-dollar product and from now until then we're going to starve.

I think that's very important.

My colleague was talking about BDC. I think BDC can play a much more important role, similar to an NRC-IRAP, if they put some team in place to look at intellectual property.

We are living in a time, for example, in which there is a knowledge-based industry worldwide. This knowledge-based industry has formed, but we don't have anything in Canada to evaluate intellectual property. My bankers, including BDC, came to Norgen. They valued the chairs and the tables, the hard assets. They understand those; they gave me money for the tables, the building, chairs, and computers. But none of them gave me a single penny on 25 patents. That is a shame.

In my view, BDC can definitely take a lead, or NRC can take a lead on what the value of these patents is. That would help lots of companies, because there is a tremendous number of patents out in every university.

[The Chair, Conservative, Joy Smith]

Thank you.

Now we'll go to Mr. Lobb.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Thank you, Ms. Chair. We're having a good discussion today.

Dr. Fernie, I wanted to ask you if you could expand on a comment. You said we should build wealth first. You mentioned that in your comments. I just wondered if you could expand on that. I think you're talking about start-up companies or whatever. What does that mean?

[The Chair, Conservative, Joy Smith]

Dr. Fernie.

[Dr. Geoff Fernie]

I don't remember saying to build wealth first, but it sounds like a good idea.

[Ben Lobb, Conservative, Huron—Bruce, ON]

Well, I wrote it down.

[Dr. Geoff Fernie]

I'll take it to heart. I'll tell you something—

[Ben Lobb, Conservative, Huron—Bruce, ON]

It seems this city has that effect on people.

[Dr. Geoff Fernie]

Here's a thought: IRAP is a terrific program, but it is available to companies that already have revenues, and we're talking about doing start-up. If we want to build something from the start, we need something that allows us to get hold of the money to do the job. A tax credit later on isn't particularly helpful. At least it doesn't do the whole thing

To build from the beginning and to build it well first, we need to probably do what they do in the States. You can start an enterprise, and people do start an enterprise through the SBIR and those programs, where the money comes in to match milestones. You can build steadily one step at a time, and they follow right the way through to help you get your customers. Maybe that's what we were talking about.

If I haven't answered your question, I apologize.

[Ben Lobb, Conservative, Huron—Bruce, ON]

That's good.

Dr. Haj-Ahmad, I have a question for you. I think what you're trying to say, and maybe I'm saying this the wrong way, is you have to have some sort of a saleable product or saleable vision to get this thing rolling. You can't just dream for 10 years and fall flat on your face. You have to have something to sell or a reasonable expectation that you're going to sell something in the first three years before you can dream of the pie in the sky.

Is that what you're saying?

[Dr. Yousef Haj-Ahmad]

That is absolutely correct. That's exactly what I'm saying. You may start generating small revenue, and that small revenue over time will grow. You could sell both a product and also services. In a biotech company, there are highly educated individuals. They have lots of talent—people with a Ph.D., an M.Sc., an MD. They can provide the service to other companies worldwide.

[Ben Lobb, Conservative, Huron—Bruce, ON]

I can connect with this because I worked for a software company. They started with six, and now they have 600. They have 300 developers working there now full time. They did the very same thing that you did. They had a saleable product or a reasonable expectation of a saleable product in the near term, and as the business grew, more and more R and D took place.

Am I wrong in saying this? Why is it that this particular sector doesn't do a good job of this? Why is that?

[Dr. Yousef Haj-Ahmad]

You mean the biotech sector?

[Ben Lobb, Conservative, Huron—Bruce, ON]

Yes.

[Dr. Yousef Haj-Ahmad]

The scientists lose interest pretty quickly, very shortly after the VCs enter. Secondly, the venture capitalists themselves, because of a lack of progress, also start to think about exit strategies very quickly.

[Ben Lobb, Conservative, Huron—Bruce, ON]

This leads me to the thought—and this was number one on your possible problems—that the professors may lose interest. If they don't have the money to put behind it, if they need venture capital, isn't it reasonable that they should have to give up a piece of the pie?

[Dr. Yousef Haj-Ahmad]

Certainly.

[Ben Lobb, Conservative, Huron—Bruce, ON]

I don't want to slam any of the professors here, but there are some professors who have a problem with that, aren't there?

[Dr. Yousef Haj-Ahmad]

I agree with you. The professor must be much more committed, and the VCs must also be more committed, to the success of the venture. They cannot have it front-end loaded. They cannot start making half a million dollars from the day the company starts. They have to make money later on when the company succeeds, not in the beginning.