Health Committee on May 21st, 2013

[The Chair, Conservative, Joy Smith]

Can we let Dr. Paige comment? He's been trying to get your attention, Mr. Lobb.

[Dr. Chris Paige]

This is a really important set of questions, but I would say that no one size fits all. It depends a lot on the company. The model that's been presented is an excellent model where both services and products can be developed. Sometimes we have start-ups where that's not possible. You're absolutely right: the professor has to give it up. But some professors want to be involved, and others don't. As an organization, it's our responsibility to make sure that the discovery moves out. If the professor wants to make the discovery and leave it alone, he or she will get less, but we'll still run with that by getting the right people involved.

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

Can I ask a quick question? I know I'm running out of time.

The professors who are doing this research, do they teach classes as well, or are they strictly focused on doing research?

[Dr. Chris Paige]

In a hospital sector there's much less teaching involved. They do a little bit of teaching, but it's mostly research. It's not all research on what they're discovering.

[The Chair, Conservative, Joy Smith]

Thank you very much.

Thank you, Mr. Lobb.

Mr. Kellway, it's your turn.

[Matthew Kellway, NDP, Beaches—East York, ON]

Thank you very much, Madam Chair.

Thanks to all of you.

The picture that seems to be emerging after all the discussion we've had so far, whether you're looking at private sector entrepreneurial activity or at hospitals, is that there's an enormous unexploited opportunity for innovation.

The finger seems to be pointing at you, Mr. Kirkconnell, since you're the representative here of venture capital. Dr. Fernie even tried to let venture capital off the hook by saying there is some stuff that's too small, and you've said that's actually not the case.

I understand the high capital requirements, and there was some suggestion that the problem was high risk too, but after all the discussion it seems as if return on investment is pretty secure. There are going to be some failures here and there. If you can disabuse me of that impression, please do. But it just seems as if there are great opportunities out there for people who apply the right skills and the knowledge—not just looking at the chairs and tables, but understanding the business and the science to get out there and start making lots of money out of health care innovation.

[Paul Kirkconnell]

Oh, would that it were so easy.

If you look at the last 10 years of performance in the industry, you would be disabused of the opinion that IRR or return on investment is secure. The industry hasn't performed particularly well. I think the industry is evolving to new models that will address some of the high-capital, high-risk return, home-run models.

Some of them involve the smaller funds, targeting smaller applications that you can get. You can't put as much money to work, but you can get very high IRRs, and you're seeing more and more of that. I think in pure biotechnology you're seeing more investing and repurposing of molecules or of proteins. In other words, you have the safety data, the first clinicals didn't work out, but it's a much cheaper, better, easier path to market if you can find a different application. It's not just sitting there to be taken.

I think the current class of venture capitalists, if I can refer to them that way, are the survivors of the last 10 years. They tend to be fairly aggressive managers of risk. That's good, and it's going to be good going forward.

The last thing I would say is that we shouldn't confuse—because they are completely different questions—investing equity into the development of innovation of companies and using IP, an intangible asset, as security for a loan, the way you would a building or chairs or what have you. I think that was the example given. Those are just very different financial arrangements.

[Matthew Kellway, NDP, Beaches—East York, ON]

Dr. Paige, Ms. Power, or Dr. Fernie, how do I square that circle? Or am I misunderstanding something? I'm under the impression that coming out of UHN, for example, there's lots of opportunity for innovation here, and perhaps a closer relationship with venture capital would reap great rewards.

[Dr. Chris Paige]

Again, I sound like a broken record. There's not just one way of doing it. Access to venture capital is good, and the higher the risk venture capitalists are willing to take, the more they're going to look at us. But we want to de-risk our products for them, and that's where government plays a huge role. The grants have stopped funding it; it's no longer something interesting from the point of view of basic science. You just have to do the next two years of development work to de-risk it to the point where the private sector wants it, either a big company or a start-up with some investor dollars. You can't say there's just one thing that needs to be done.

[The Chair, Conservative, Joy Smith]

Mr. Kirkconnell.

[Paul Kirkconnell]

I'm a Mr., yes. In venture capital that's a rare thing. Most of us are doctors.

First, I would agree that closer collaboration, the interaction in the cafeteria, is important. You want to encourage that sort of thing. I'll just leave it there for the moment. I was about to take you off to a bad place.

[The Chair, Conservative, Joy Smith]

Ms. Block.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you very much, Madam Chair.

I would like to welcome all our guests here today. It has been a very good discussion, and this has been a very lengthy study for our committee, but one that has served to identify many of the opportunities and challenges that we regularly face when it comes to technological innovation in the health care system. We've covered topics and had witnesses talking about subjects from juvenile diabetes all the way to end-of-life care. I think most recently, in the last number of meetings we've had, there has been a common thread, highlighting the need for us to build capacity and high functioning alignment among researchers, industry, providers, consumers, and maybe I'll throw in educators and investors, and maybe that's implied in some of the other categories.

You've highlighted recommendations. You've talked about some incentives that could be in place. Mr. Casey, you talked about hosting conditions. I'm wondering if there are implied barriers in your recommendations. If not, what are some of the barriers we face in building a high functioning alignment among these different pieces? Perhaps I'll leave it at that and ask any of you to answer that question.

[The Chair, Conservative, Joy Smith]

Mr. Casey, would you like to comment on that?

[Andrew Casey]

Yes. I wouldn't say there are barriers. I would say we need to be very vigilant, because some of the other comments are exactly right. There are a number of different ways to skin this cat, if you will. No magic bullet is going to solve all this.

When I talk of hosting conditions, what I'm talking about is all the different levers that governments—I say “governments” in the plural because it's not just at the federal level, it's also at the provincial level—have at their disposal to nurture the industry in the country. I have 250 members, and there are more than that in this country who would tell you, and in answer to some of the other questions, that there is a thriving sector in this country. We have a long history of innovation in this country. My member companies and others that are not members of my association have done phenomenal work. They've grown companies of all shapes and sizes. Some have grown to be enormously successful.

I'll give you one example. Enobia is a company that developed an enzyme replacement therapy for bone disease. They developed that from the bench and sold that property for a billion dollars—that's with a “b”—and that money is now going to get reinvested into the economy and start up new companies.

There are very successful models. We've done it successfully in the past, and we have to be sure we're keeping up with the competition out there. We have to punch above our weight. Canada is a small country. We're not a big enough market to drive a lot of the decisions that are being made on a global scale, so we have to find new ways to attract investment. It's sometimes not good enough just to “keep up with the Joneses”. We've got to get ahead of them and become more attractive for capital.

[The Chair, Conservative, Joy Smith]

Would anyone else like to comment?

Dr. Paige.

[Dr. Chris Paige]

I would totally agree that the industry is stronger than people think it is, but I will still talk about my disappointment in seeing potentially very important products not receiving funding at that level between when the academic funds stop and when they're de-risked enough for industry to take over. We need something like an innovation fund that can accelerate something from the lab, I'll call it, into the marketplace.

I think an acceleration fund is absolutely essential.

[The Chair, Conservative, Joy Smith]

Mr. Kirkconnell.

[Paul Kirkconnell]

Maybe it doesn't meet the accelerated fund example, but by way of example, one of the things we've done with graduates coming out of accelerators...classically, people who've started some sort of engineering-type IT project get accelerated, they graduate, they're not venture ready, and what happens then? In a number of those programs, we're putting a convertible notes program in place whereby we can provide them with capital, $150,000, or $250,000—it's different by program—small amounts of money. For young start-ups those small amounts of money can fill those gaps, and I would say, to the example of punching above our weight or whatever, we're the only institution in the world that offers anything like that, and people are copying us.

[The Chair, Conservative, Joy Smith]

Thank you.

Mr. Lizon.

[Wladyslaw Lizon, Conservative, Mississauga East—Cooksville, ON]

Thank you very much, Madam Chair.

I would also like to welcome all the witnesses who came here this afternoon.

Many of you mentioned the difficulties or barriers, whether they're local or interprovincial, in implementing any commercialization. If I can ask you something a little bit in reverse, when you decide to do the research on a certain topic, are there communication lines open? How do you check whether there is something like this already, or maybe there's somebody else working on the same topic? Basically, what I'm asking is, are there cases where sometimes we're trying to reinvent the wheel?

[The Chair, Conservative, Joy Smith]

Dr. Paige.

[Dr. Chris Paige]

Much less so than what you might think, for two reasons. One is, in this age of Internet and PubMed searches, one really has at one's disposal a vast body of information from all around the world. At the research level, I think you really are aware of what's going on.

When you get to commercialization, the first thing our commercialization office does, if we bring a disclosure to them, is try to find out if there is competition. Is there space in the market? Is somebody else doing that? Although you don't know everything in the commercial world because some of it is not public, I don't think reinventing the wheel is one of our barriers here, or that we're wasting a lot of money reinventing the wheel.

[Wladyslaw Lizon, Conservative, Mississauga East—Cooksville, ON]

Would anybody else like to comment?

[Dr. Geoff Fernie]

Yes, I would reinforce that. Success rates now are well below 20% in federal granting agencies, and without idiots applying.... I mean, really top-rate scientists are applying. One out of five gets funded, so I don't think there's much chance of you getting funded for something that's already been done somewhere.

What is a little irritating and disappointing at times is that you might be turned down on the grounds that this is really development and not research. That's something that I find happens to me occasionally. The cost of prototypes and things like that are easily excluded. That's where it comes back to this agency, which maybe takes things a bit more to the applied side.