Evidence of meeting #72 for Health in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was companies.
A recording is available from Parliament.
Conservative
The Chair Conservative Joy Smith
Welcome, everybody. I certainly would like to welcome our witnesses.
With us today we have from the Health Technology Exchange, Mr. John Soloninka, president and chief executive officer. Welcome, we're very glad that you could make it.
From MEDEC, Canada's medical technology companies, we have Mr. Brian Lewis, president and chief executive officer. Welcome.
We have via video conference, from the MaRS Discovery District, Dr. Ilse Treurnicht.
Did I pronounce your name right, doctor?
Dr. Ilse Treurnicht Chief Executive Officer, MaRS Discovery District
Ilse Treurnicht, thank you.
Conservative
The Chair Conservative Joy Smith
Thank you. You'll help me out with this, right? Welcome. We're so glad to have you here. We're very interested in hearing what you have to say.
Dr. Fry, you had your hand up.
Liberal
Hedy Fry Liberal Vancouver Centre, BC
Yes, Madam Chair. I'm very sorry, but on a point of order, just before we ended the last meeting I asked that we discuss the motion that I sent four or five days ago to this committee. We didn't deal with it at the time because we thought we had to go for a vote. I would like to make sure that we deal with it, please, Madam Chair, because it has been five days now since I tabled it.
Conservative
Conservative
The Chair Conservative Joy Smith
Did you want to go in camera now, or would you like to do it at the end, Dr. Fry?
Liberal
Conservative
The Chair Conservative Joy Smith
I think there are two more motions. I don't know whether they're going to be presented today or not, but we will allow time for that. Thank you.
Dr. Morin.
NDP
Dany Morin NDP Chicoutimi—Le Fjord, QC
I would like to ensure that we will keep 15 minutes at the end to discuss the motion, instead of doing it now.
Thank you.
Conservative
The Chair Conservative Joy Smith
Absolutely. Okay, so we'll make sure that you have plenty of time for that.
We'll start with our witnesses. We'll do our first and second rounds of Qs and As and then we'll go into our motions.
We're so happy that you're here. We have the most interesting study on technological innovation and we've been so excited to hear the witnesses who have been here. Every meeting seems to bring something new that we haven't heard before, so we're very pleased that you're with us.
Mr. John Soloninka, president and chief executive officer of Health Technology Exchange, if you would like to start, you have 10 minutes.
John Soloninka President and Chief Executive Officer, Health Technology Exchange
Thank you for inviting me to speak to you today. It's a privilege and a welcome opportunity.
In my first 10 minutes I would like to discuss three main themes: first, that innovation and invention are different, and that difference matters; second, that Canada is in some ways well behind world leaders in medical technology innovation; and third, that there are solutions, we have made progress, and the federal government can play a critical role.
By way of introduction, my organization, Health Technology Exchange, or HTX, is a non-profit financing company managing a $21.4-million early-stage investment fund on behalf of the Ontario government. We have funded 26 medical technology, or med tech, companies aiming at global markets, facilitating about $80 million of investment in the Ontario med-tech ecosystem.
Over my career, I have been very fortunate to lead major health system transformation projects, creating three start-up companies of oncology, radiology, and Internet medical records. For the last two years I've been leading HTX as it assists med tech in Ontario to transform from an invention culture to an innovation culture.
The evaluation and promotion of medical technology innovation, the theme today, is what I and my colleagues, including my colleagues here, as witnesses, with whom I work regularly, do every day.
I'll move now to my first theme, that invention and innovation are different, and that difference matters. Invention is the creation of new knowledge through basic or clinical research, and innovation is transforming or commercializing an invention into something that can be used in clinical practice or sold as a product.
Without innovation, invention of new knowledge will have no impact and generate no return on the investment of public funds or philanthropic donations. We work every day with researchers who are fully committed to innovation, but not all of us in the R and D community share this view on the value of commercialization.
The 2011 five-year external review of CIHR included the rather shocking statement that CIHR-associated scientists’ “attitudes toward industry building a commercial base from research funding almost suggested that this outcome was unseemly”. It appears that our leading research institutions have not been incented to promote innovation, and in some unfortunate cases may belittle it.
This is also the case with our promotion of academic researchers. If there were two candidates for tenure, the first with 30 prestigious first-author papers, and the second, with 15 such papers, and $50 million in market capitalization of companies she helped found, the first candidate would likely get tenure.
Beyond a core of curiosity-based research, research for its own sake, without conversion to practice, is at best a waste of scare resources, and at worst, as I'll demonstrate, a subsidy of foreign commercial interests. Hospital procurement and health insurance systems that pay for technology also create barriers to innovation. Let me share an anecdote I often use.
Imagine a doctor and an engineer in a proverbial garage of a start-up company. They are building a prototype of what they believe is the greatest technology addressing an important problem. It's based on leading research funded by several million dollars of grants from CIHR. That is the Canadian Institutes of Health Research, in case you don't know.
They polish their prototype, get approval for human trials, and they take it to one of Canada’s leading academic hospitals. They say, “We have the leading technology addressing a really important problem. It may cost your hospital $1,000 more per procedure, but it will save 10 times that amount in reduced community care, physician visits, and aftercare, and will dramatically improve patient outcomes. Will you be our launch customer?”
Hospital management responds, “None of our researchers are working on this. It's not really a priority for us. Even if it works, my hospital has no budget or mechanism for buying your innovation. We buy the minimum-cost products under large umbrella contracts in order to manage our input costs. No one rewards us for solving the broader health system problems.”
A little while later, running out of cash and with few sources of local investment capital, the entrepreneurs go to Boston to try to pitch to a venture capitalist. After the pitch, the venture capitalist says, “Oh, you’re from Toronto. I did my medical degree in Toronto. What did the Toronto hospitals say about your technology?” When the company reveals that they could not sell their technology into their own home market, the Boston venture capitalist immediately loses interest.
The technology is eventually sold to a multinational company for a song, commercialized, and sold worldwide. In fact, it's not even sold in Canada because there is no business model that can take advantage of that technology here.
What benefit did we get from our millions in CIHR research and development in this example? Academic papers, yes, but no impact on Canadian patients, no economic growth, and no savings to the health care system.
Admittedly this is a caricature, and I'll have another one later on.
I'll return to this with a more optimistic scenario later, but I think you understand the point.
My second theme is that Canada is well behind world leaders in medical technology innovation, even though we appear to score well on many innovation measures. Over the last decade, Canadians have been proud of several measures and statements about Canada’s business environment. For example, we punch well above our weight and we're third to fifth in rates of academic publications and citations, sixth in U.S. patent awards, third in economic competitiveness, second in G-7 tax incentives, and so on. But these are not measures of innovation. They describe why we should be able to innovate but not what level of innovation we actually achieve.
Investment in research alone, without systematic translation to practice, has low value. Regarding patents, patents for non-commercial inventions obviously have little value, and software often can generate enormous commercial success with no patents at all. Measuring patents by itself is an indirect measure at best.
What are the direct measures? How about production and productivity?
The Canadian med-tech market is about $6 billion. We import $5.1 billion and export $2.1 billion. The total Canadian med-tech production is about $3.7 billion. Only one-third is sold in Canada, and two-thirds is exported. Canada’s med-tech production per capita is on par with that in the U.K. and Italy, and is about 20% less than that of France. However, the United States' and Germany’s productivity is about three times ours, and Switzerland's is 11 times ours. We need to evaluate our innovation not just on the inputs, like the quality of our academic research, but on our outputs, namely the production and global exports of our medical technology.
My third theme is that there are solutions. We have been making great progress. My colleagues in the room here were in Toronto, and they can attest to much of this as well. The federal government will play a critical role. Here are some highlights. In my global travels, Canadian IP and research outputs are as good as anywhere in the world. However, when you look at foreign start-up companies, they tend to differ in three ways from their Canadian counterparts. They have ready access to capital. That critical mass of capital allows them to attract very competent management. Their health systems are often able and willing to participate in innovation and have incentives to invest in bending the cost curve with homegrown technologies.
Now, a side note is that we should never promote homegrown products just because they're homegrown products. That will reward mediocrity and fail on the world stage. However, our serious competitors seek out and promote their world-class innovations at home.
The innovation clusters of Silicon Valley, Boston, Israel, and China were not created out of thin air. They had massive public sector investment priming the pump of an innovation culture. It is a myth that a can do attitude is all that is needed. I am the last person to recommend that throwing more government money alone is a solution, but I am here to applaud the federal government for its $400-million venture capital support plan, and other plans that fund organizations like ours and Ilsa's and so on. The key is to match with private sector investments and follow on. Helping the domestic market to be receptive to adopting homegrown innovations reduces risk and encourages private sector investment.
We are also very supportive of converting part of the SR and ED funding envelope into something like the U.S. SBIR program, along with a re-examination of the criteria for the remaining SR and ED funds. Canadian companies are at a severe disadvantage to U.S. and EU companies, where they have competitive SBIR and framework programs providing multi-million dollars of funding to early-stage companies.
On a different topic, EXCITE is a program in Ontario that is relatively new, globally unique, and generating tremendous excitement in the med-tech community.
Forgive me, Ilse, if I'm stealing a little bit of your thunder here; I hope I don't. It helps companies get to market faster and creates evidence that speeds the adoption of technologies in Ontario. With the Ministry of Health, industry, academia, and government at the table within EXCITE, it also opens the way for Ontario to act as the launch customer for local technologies that successfully meet EXCITE’s objective, third party, globally respected analysis process.
HTX is extending EXCITE through our so-called Harmony project. Harmony will enable small Canadian companies to anticipate regulatory and market requirements for multiple export markets simultaneously. This reduces the risk for these companies, attracts capital, speeds the products to export markets, and accelerates revenues.
EXCITE and HTX are worthy of expansion nationally and ongoing support, as well as of having more formal program linkages with federal programs such as IRAP, SR and ED, CIIRDF, and so on, and we're building those bridges.
So let me return to my small company under a different scenario, under a more ideal scenario.
Based on the quality of their research, that same MD and engineer who are in a garage building their prototype with several million dollars of research funding receive $2 million in a competitive Canadian SBIR grant, and bring on an expert med-tech CEO. They are accepted into a competitive EXCITE program, and EXCITE generates evidence that this is the best technology of its type globally. On the strength of that evidence, the Ontario Ministry of Health funds the technology's implementation at an academic hospital and creates a plan for Ontario-wide adoption. With rapid clearance in three other countries, based on EXCITE and Harmony evidence, customers in three different countries express interest to implement.
The little company now goes down with a local Toronto venture capitalist to syndicate financing with a Boston venture capitalist, and the Boston venture capitalist asks, “What does Toronto think of your technology?” They answer, “They proved it was the best in the world, and are implementing it across a 13 million person province. We comply with and have requests from three other major world markets.”
What a dramatically different story. The company then grows to 100-plus people, becomes internationally successful, selling CIHR-funded technology internationally, improving the health system for Ontario, generating economic wealth in Ontario and Canada.
By the way, I just read in the paper today that Epicel was sold for $245 million to a company right near where we're sitting right now, and it's a story not unlike this.
The scenario is optimistic, but with your support and the rest of the country's support, I think it's very realistic.
Thank you very much, and I look forward to your questions.
Conservative
The Chair Conservative Joy Smith
Thank you very much for your presentation. It was very insightful.
We'll go to Mr. Brian Lewis.
Brian Lewis President and Chief Executive Officer, MEDEC - Canada’s Medical Technology Companies
I would like to thank the committee and the federal government for inviting MEDEC to present today. It was very much appreciated by our entire membership.
I want to give you a little background on MEDEC and the medical technology industry in Canada. John covered some of it already, but I'll go into a few more facts and then talk about your committee and give you the med-tech industry's perspective on a number of elements.
Let's talk about MEDEC. MEDEC is the national association representing the Canadian medical technology industry. We're funded by membership dues. Although we're a national association, we also have three regional offices or presence in Quebec, Ontario, and the west, as well as having our national office.
I think you might know already that the medical device and technology industry in Canada is composed of multinational enterprises and the very important small and medium enterprises that tend to be local Canadian companies as well as being small organizations.
Medical technology encompasses a wide range of health care products; it's very diverse. They're used to diagnose, monitor, or treat diseases or medical conditions affecting humans. There are so many different types of products in the medical technology industry. There are things such as pacemakers, scalpels, and synthetic skin. There are information and communications systems as well that allow medical devices to communicate with host centres. This really does build the possibility for support for community medicine.
It is estimated there are well over 1,000 medical device and technology companies in Canada; the vast majority—we estimate 60%—are small, Canadian-owned companies with fewer than 25 employees, so the ability of these companies to be in many different communities is quite realistic. The industry employs over 35,000 people in Canada, with over 1,500 corporate facilities, and as John talked about earlier, with sales of $6 to $7 billion.
Innovations, enhancing patient care, improving patient access to medical technology, and driving medical economic growth are priorities of MEDEC. MEDEC and our members are committed to being an integral partner in the delivery of high quality and sustainable health care in Canada. It is beneficial for us as Canadians, as patients, and as industry as well in terms of job creation.
We really want to make sure that our industry is there for sustainable health care in Canada and a strong contributor to the Canadian economy, ultimately providing patients with access to proven safe medical technologies. It's the driving factor behind everything we do.
MEDEC also includes a small to medium-sized business division called the Canadian MedTech Manufacturers' Alliance. As well as being regionally focused, we also have a division that is focusing on the unique needs of small organizations. We also partner regularly with other organizations, such as HTX and MaRS, because it is the only way of truly meeting the needs.
The Canadian MedTech Manufacturers' Alliance, or CMMA as we call it, is the affiliate within MEDEC whose members include small to medium companies that have up to $30 million in revenue. CMMA is dedicated to advancing the health care opportunities for Canadian med-tech companies domestically and internationally.
CMMA members are drivers of medical innovation, economic growth, and job creation. We, the broader MEDEC, with the MNEs, multinational enterprises, as well, are committed to ensuring their perspective is always heard by policy-makers in the marketplace.
Let's talk about some of the contributions of med tech in Canada. The medical technology industry not only creates jobs, but it creates good, high-paying, and highly skilled jobs in Canada. At the same time as creating these jobs, we produce products that improve the lives of patients and/or can save lives through higher quality health outcomes.
Medical technologies can also make a large contribution to the sustainability of the health care system. Better patient outcomes or diagnoses often lead to savings in the health care system, because if we have this, we're not going to need as many drugs, as long a hospital stay, or the increased need for care post-treatment.
That's the background on MEDEC and the industry from our perspective.
We understand that this committee is focusing primarily on health technology assessment in Canada, which we refer to as HTA, and also on the general theme of barriers to commercialization and research in Canada.
I'd like to take the remainder of my time to highlight some observations from the perspective of our industry.
Conservative
The Chair Conservative Joy Smith
You have just under five minutes, Mr. Lewis. I just want to make sure that you cover all your stuff.
President and Chief Executive Officer, MEDEC - Canada’s Medical Technology Companies
We will be good, Madam Chair.
We know that patients are going to need better access to the most effective health care in the system. We understand that in Canada we're facing major issues. We need to find ways to control government spending, but at the same time to produce high-quality health outcomes. Medical technology is definitely an enabler in achieving these goals. Many of our member companies have experience in developing innovative technologies around the world. We actually do it in other countries. There are hugely untapped resources in Canada.
One of the things is that technology has been seen as a cost driver, but this misconception is changing around the world as health care systems recognize that health technology innovation is an enabler to delivering high-quality care, as John mentioned, improving access, and making health care systems sustainable. Technologies can definitely improve efficiencies in our system for us and contribute to the health of Canadians. We believe it's important that you utilize this industry as the engine of research and development.
To go specifically to health technology assessment, health technology assessment processes designed to evaluate the unique research, development, and value outcomes of medical devices are essential in the evaluation of these products. We must all play a role in ensuring that it is done correctly. Industry wants and needs to be brought to the table in the development and evaluation of these solutions.
I'll give some examples. John touched on one of them, and I'll talk about a couple more.
For the last few years, MEDEC has had ongoing interaction, by actually sitting at the table in the evaluation, with the Ontario Health Technology Advisory Committee in its role in making recommendations about the uptake, diffusion, or removal of health innovations in Ontario. OHTAC's recommendations are based on a review of results through the lens of decision-determinant framework. It truly is a model process in the world. We have it right here in Canada.
Alberta, through the Alberta Advisory Committee on Health Technologies and the Institute of Health Economics, is also bringing the med-tech industry directly to the table, and we are partnering. We are there at the table and we are helping develop solutions. The EXCITE process, which Ilse will mention more about and John talked about, is also in the same vein.
These are all really important steps, but these are only two provinces: Ontario and Alberta. We still have a long way to go in terms of consistency in HTA, health technology assessment, in Canada. There is definitely an opportunity for better coordination nationally on HTA.
There are some other examples that we must consider when doing HTA. It is crucial that we understand the differences between devices and drugs in terms of how the system of health technology assessment is done. HTA, in settings where it's not being conducted optimally, too often results in an excuse to say no to new technologies in an effort to curb short-term hospital and health care spending. Even when there is a positive HTA, and this is very important in a place such as Ontario where a model assessment process is in place, there are still system problems with the problem of strict hospital budget silos and cost minimization mindsets that hamper the adoption of a product, which may result in increased costs in one department's budget but overall cost savings to the hospital or the total health care system. The current process tends to silo budgets rather than look at the broader outcomes, cost savings, and better health outcomes.
As John mentioned earlier, regarding programs such as SR and ED, IRAP, and DTAPP, we'd like to thank the federal government for this support and commend you for what you've done to support the industry.
The regulatory requirements related to medical devices in many countries, including Canada, are extensive, cumbersome, expensive, and especially difficult for a small business to manage. While we understand the need for rigorous regulatory requirements, we would like to see some form of reciprocal arrangements between countries, or more streamlined processes for devices that have regulatory approval in other jurisdictions. A transition to mutual recognition between Canada and its peer jurisdictions would go a long way to reducing the regulatory burden.
The last topic I want to touch on is procurement. The increased presence of group-purchasing organizations and shared-service organizations, which are large health care product-buying groups in Canada, has created significant barriers to entry for products in the Canadian health care system.
One observation is that the current procurement environment is not conducive to the uptake of disruptive innovative technologies that have the potential to change the way patients interact with the health care system. It tends to favour the large, multinational firms that can supply hospitals across Canada. This procurement process is problematic for Canadian small and medium-sized enterprises that are unable to compete on such a large scale. It is unnecessarily bureaucratic and cumbersome. It restricts access to the end users, and there is a lack of strategic purpose in purchasing. In particular, there is no advantage to being a Canadian firm.
To build on what John was saying, in my role in this job, for the last 14 months I've travelled across the country and I've met with many firms that have sales between $5 million and $15 million. A lot of these particular organizations do not sell a single product in Canada, 90% to 100% of their sales being outside Canada. We have to realize that. As John was saying, to get them to be able to develop their products in Canada and market them in Canada would be a huge advantage.
President and Chief Executive Officer, MEDEC - Canada’s Medical Technology Companies
Okay, I just want to say one thing.
Conservative
The Chair Conservative Joy Smith
There is time for questions and answers and you have some very important information, so maybe what you could do is make sure when the questions are asked—
President and Chief Executive Officer, MEDEC - Canada’s Medical Technology Companies
I've actually covered everything.
Conservative
The Chair Conservative Joy Smith
I thought so. So we'll stop there and go on to our next witness, if that's okay with you, Mr. Lewis. We'll come back with questions and answers. That will give you lots of opportunity.
We'll go on to our next witness.
Would you begin, Doctor. You are via video conference. Can you hear everything?
Chief Executive Officer, MaRS Discovery District
I can hear you very well. I hope you can hear me.
Conservative
The Chair Conservative Joy Smith
Wonderful. You'll have to watch me. I usually make a signal when your time is up. I'm stretching out the time a little bit today because we have the time to do that, but we've gone significantly over, and I want to make sure that the committee members have time to ask their questions and you have time to answer.
You can begin now, for 10 minutes.
