Industry Committee on May 29th, 2008

[The Chair, Conservative, James Rajotte]

I will call to order the 42nd meeting of the Standing Committee on Industry, Science and Technology.

We have a very short time here with a number of very distinguished guests. We have an hour for our first panel.

This is our national study on the state of science and technology across Canada, part of our western tour. We were in Winnipeg first, on Tuesday, and then in Saskatoon yesterday. Now we're in lovely Vancouver. We had excellent visits this morning to TRIUMF and the NRC's fuel cell institute.

We have two panels here this afternoon. For the first panel, we have representatives of four different organizations.

From the British Columbia Innovation Council, we have Mr. Soren Harbel, vice-president, innovation development. He's on his way, I understand.

Second, we have the British Columbia Institute of Technology, with Mr. James Watzke, dean, applied research, and director, technology centre.

The third organization is Simon Fraser University. The representatives are on their way as well.

Fourth, we have the University of British Columbia, where we were this morning. We have the associate vice-president for research, Mr. Donald Brooks. Welcome. And we have Mr. Angus Livingstone, managing director.

We are now being joined by the representative from Simon Fraser University, Mr. Michael Volker, who is director of the university-industry liaison office.

We have 60 minutes in total. I think you'll find that the discussion with members is a very productive part of the session. We'd like to have 40 minutes for discussion with members, with questions and answers, so we will allow up to five minutes for opening statements.

We will start with the British Columbia Institute of Technology.

[Dr. James Watzke, Dean, Applied Research and Director, Technology Centre and Dr. Tong Louie Living Laboratory, British Columbia Institute of Technology]

Thank you, Mr. Chairperson, and thank you to the committee for allowing BCIT this opportunity.

BCIT is a polytechnic in the post-secondary system. We have a 44-year history of providing career-ready graduates. Approximately 50,000 students come through our doors each year.

Equally important, we have a 20-year history of executing industry-based applied research. Our mandate to do applied research and commercialize is in the B.C. legislation. You might ask how we do this. We beg, borrow, and steal about $3 million from our core budget, and then my portfolio promises to turn that $3 million into $4.5 million under a 50% expense-recovery model.

We're driven by industry pull both in our training and our research and development and commercialization. You'll hear me refer to R and D and C as our model. This orientation is unique to polytechnics in that it requires external validation from industry. We don't do anything at BCIT unless someone in the external community has raised their hand and said “That's a problem we want solved. That's a course we want taught. That's a technology we want you to help us develop.” We call that the total solutions approach.

We are very pleased to take on the problems of our private industry clients that others may not be interested in. We do the proof-of-concept work, the prototyping, the testing, the incremental innovation. We do cost-mistake avoidance. Sometimes these are hard things to put on your curriculum vitae, but we feel very proud of our attempts to help with those kinds of problems.

We articulated our R and D and C model in a recent application to something called a CECR, or centre of excellence for commercialization and research. It was rejected. We called this the “square peg in the round hole” phenomenon. By the way, we will achieve the centre; it just won't be with tri-council funding.

We gladly take on and solve these difficult, less-sexy R and D and C problems, and we know we will not earn a Nobel Prize. However, BCIT has been associated with a number of Canadian commercial successes, and I have four of them listed in my speaking notes. One is called the GlideScope--this is with Saturn Biomedical Systems--the world's first plastic, reusable, video laryngoscope. It helps intubate people who are having airway problems.

The second example is the micro linear actuator. This is with a company called Firgelli. This is a turnkey position-feedback actuator for robots, medical devices, and motion-enabled consumer products.

The third example is Pyng Medical's FAST1. This is an innovative tool that delivers life-saving drugs and fluids quickly and reliably to people in the pre-hospital environment. We call it the fire hose for drugs. It goes into the sternum, and it's saving lives right now in Iraq and Afghanistan.

The fourth example is called the StarGuide GEMM. This is a GPS mobility-enabled module for the real estate market. It is very innovative. It is going to help realtors and their clients be able to figure out which houses they want, all done through a handset.

We appreciate that these successes are not on the scale of QLT or RIM--we do work with RIM--or U of T's invention with regard to insulin, but one humble SME at a time, they do add to Canada's GDP. With proper support, we could generate even more commercial successes. I won't go into them. In my speaking notes I have listed 10 or 11 other products that we weren't able to get to market but that, with the right support, we could.

I will close with the question of what kind of commercialization support BCIT would benefit from.

Obviously we'd like access to funding that allows BCIT to serve the needs of our industry partners and clients, especially SMEs. This funding would need to be timely and nimble. It's very important. If we—and when I say “we”, I mean not just BCIT but the polytechnics—had 1% of the tri-council funding, I think you'd be amazed at what we could do with that.

Two, we'd like to acknowledge our polytechnic performance metrics. Polytechnics Canada, from whom I hope the committee will be hearing in the fall when it heads back east, will be more eloquent about this. We're getting ready to put together a paper on what we think the metrics of polytechnics are, and you will see that they will look different from those metrics of university colleagues and colleges.

Three, we'd like Canada and the federal government to recognize BCIT faculty students and grads as HVPs--highly valued personnel--not HQPs. I can't tell you the number of tri-council proposals I've filled out, and when they get to the HQP part.... We don't have graduate students at BCIT, but we have hundreds of very talented faculty, and I think they deserve to be recognized somehow in the system.

Finally, we'd like Canada's polytechnics, including BCIT, to have the opportunity to prove our economic impact value proposition. In my speaking notes is the URL to our latest economic impact report. Just as an example, my portfolio at BCIT, which is in the $4-million range, is estimated to contribute $77 million of economic impact to our community.

I'd like to thank you very much for this opportunity.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Watzke.

We'll go now to Mr. Brooks, please.

[Dr. Donald Brooks, Associate Vice-President, Research, University of British Columbia]

Thank you very much for inviting us, committee members.

UBC is a leading Canadian research university, routinely placing among the top two or three university recipients for the CFI and tri-council funding. Internationally, UBC is ranked in the top 40 research universities worldwide by three independent rating organizations. UBC is a research and patent powerhouse that attracts leading scholars from around the world.

To effectively support basic and applied science and technology research, the federal government must strike a funding balance between support of research talent for the direct costs and indirect costs of research, or ICRs, and the research infrastructure. To increase funding to any one of these research pillars without a commensurate increase in others is equivalent to supplying funds for a new building but not for the staff or the resources to operate it.

Increases to direct costs of research proposed in the fiscal year 2008 federal budget do not include a commensurate increase in ICR. The tri-council funding increased by $80 million, but the ICR only by $15 million. The accepted value right now is 25% of the tri-council amounts, so 25% of $80 million is $20 million. Similarly, funding for Genome Canada has doubled--the FY 2008 increase of $140 million to defray $280 million in direct costs--yet there is no funding to defray the $70 million in ICRs.

At UBC the most critical research funding needs are for support of scholarly talent and the ICR issue. UBC's immediate priority is to attract more domestic and international graduate students to address training gaps in key industries--for instance, geology, or drug research and development. Canada trails the U.S. in training doctoral students, however, by about 25%. The Vanier scholarships that are coming are an important step in attracting scholars, but there must be an accompanying increase in ICR funding to have a sustained impact in research and industry.

The 25% of tri-council funding currently apportioned to defray the indirect cost of research, which is essential to meet operating costs, is only half the U.S. average of 50%. So UBC endorses the AUCC's proposal to increase tri-council funding of ICR to 40%.

There is a continued need to fund the full cost of basic research at an appropriate level, including ICR. UBC strongly believes that basic research underlies all patents and technology transfers. I'll give you two cases to illustrate the benefits of funding basic research, one of which was mentioned earlier.

NSERC provided funding for Professor David Dolphin's basic chemistry research program that was subsequently found to be relevant to the treatment of age-related macular degeneration, the leading cause of blindness in people over 55. The resultant drug, Visudyne, has been used to treat more than 500,000 people in 70 countries since 2000, and is the largest-selling ophthalmology product ever launched. The spinoff company, QLT, has generated over $70 million in income to UBC, at a 2% royalty rate, based on $3.5 billion in cumulative sales.

The second example coming up is Galvanox. It's a promising new copper-leaching process that is nearing its first commercial field test. This technology dramatically reduces pollution and emissions during the on-site refining of concentrated copper. The first licence will be issued to a B.C.-based copper mining company. Galvanox began as a mathematical modelling exercise in basic research.

Encouraging industry partnerships is vital to supporting higher education and commercialization. A proven means of engaging industry is to establish affiliate programs, such as the 50 extant at Stanford University right now. These programs build a community of interest by cross-pollinating students with companies, research with existing problems, and non-research performers with established research players. This in turn produces industry-savvy S and T students and graduates, guarantees continued exposure to and training in new methods and techniques, provides exposure to international practices, and increases domestic business expenditures in R and D.

Meaningful exchanges can occur by establishing affiliate programs that focus on niche technology sectors and applications. This narrows the scope of industry stakeholders to five to twenty local, national, and transnational companies.

In conclusion, UBC has produced a cumulative total of 129 spinoff companies, 95% of which are B.C.-based. They have collectively generated over $4 billion in sales and over 40,000 employment years, or roughly 2,000 jobs for highly qualified personnel per year.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Brooks, for your presentation.

We will now go to Mr. Volker, please.

[Michael Volker, Director, University, Industry Liaison Office, Simon Fraser University]

Thank you, Mr. Chairman, and thank you to the committee for this opportunity to speak.

Simon Fraser University, like most universities, was in the 1990s a traditional technology-transfer-oriented--i.e., a technology-push-oriented--institution. We take a technology, patent it, and license it to an existing company or a new start-up.

One of our most notorious success stories in this area is the V-chip. The V-chip is now under U.S. legislation, mandated to be in every single television set that is sold in the United States. It actually made its way to the White House, and Bill Clinton and Al Gore were involved in helping us put it into legislation. It's also one of our more notorious and better-known spinoffs.

At SFU, our intellectual property policy is inventor-owned. While the university is entitled to a small percentage on any successful commercialization, it is incumbent on my office to invest time and money in new ventures that are created.

New ventures, in my view, can produce better financial returns than those generated from royalties and licensing fees--i.e., the traditional model. As we've seen, payback on licensing is actually quite minimal. Globally it's well under 1% of R and D expenditures.

The big returns in technology have come from entrepreneurial students, often dropouts--for example, Bill Gates, Michael Dell, Richard Branson, and, in Canada, Mike Lazaridis of RIM.

I remember negotiating RIM's first angel investment back in 1987 when I was in Waterloo, when they were a struggling operation located above the 7-Eleven strip mall. They had no university support. Instead of dropping out of university, maybe they could have been encouraged to stay in. Maybe the university could have given them some entrepreneurial guidance and support. If we could embrace and nurture start-ups such as this, maybe there would be many more RIMs.

Students, in my view, are the instruments for technology transfer. Lazaridis often makes this point about commercialization. His point is that the university's job should be to produce talent for companies like his. While I agree with that, I think it's also important that we encourage more companies like RIM to begin.

Commercialization is synonymous with entrepreneurship. Indeed, the federal S and T strategies identify entrepreneurial advantage as one of three important Canadian advantages. Entrepreneurs are the champions of innovation. Sometimes faculty members become entrepreneurs, but more often than not it is their students who do so.

The internal reward system in universities does not encourage faculty members to pursue industry links to look for industry problems in need of advanced research solutions. Dr. Branda, who is with me today, will speak to that aspect. In fact, he is head of one of our up-and-coming spinoff companies, Switch technologies.

Instead of pushing out technology or developing linkages with industry so that industry can pull technology through faculty liaisons, I believe the operative word here should be “pump”. We should pump up the students by fostering an entrepreneurial environment--i.e., through developing resources, mentoring, angel investors, business connections, access to lawyers, accountants, IP professionals, marketing people, venture capitalists, and other entrepreneurs.

This could be accomplished with a very modest incremental investment, or even the repositioning of current activities. We do this at Simon Fraser University through additional support for the so-called indirect costs of research, along with support from organizations such as NRC, Western Diversification, and Industry Canada.

We have become very active in community-wide, province-wide programs to provide this kind of support to budding entrepreneurs and students. We run mentor panels, business competitions with substantial prize money, and angel networks. In the last decade over 500 companies and entrepreneurs in British Columbia have been helped through this process.

Along with UBC and other organizations, we have created the Vancouver Enterprise Forum, the VANTEC angel network, an angel fund, and many other initiatives. This latter--

[The Chair, Conservative, James Rajotte]

That might be your BlackBerry, if you have one.

[Michael Volker]

Oh, I'm sorry. Speak of the devil--the BlackBerry.

I have one quick comment. One recent initiative we've embarked on is the Western Universities Technology Innovation Fund, which is very instrumental in funding pre-venture capital companies. This is a fund that we set up using provincial tax credits. Without those tax credits it would not have been possible.

There has been a lobby effort by the National Angel Organization to bring this to the federal level to have refundable tax credits to encourage successful entrepreneurs to take these kinds of risks.

The fund that I'm involved with has invested in over 40 companies and has raised in excess of $250 million for these companies.

In summary, I believe universities can and should change their view of commercialization and think not just about pushing technology out but about being catalytic in all fronts of venture creation and economic development.

I believe the government can support this by funding the indirect costs of research and by providing more incentives to successful entrepreneurs to reinvest in new ventures through tax credits. These will provide the commercial stimulus to complement the scientific and experimental development tax credits that are already so effective at the R and D stage.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Volker.

The fourth organization we have here today is the British Columbia Innovation Council. We have the vice-president, innovation development, Mr. Soren Harbel.

Mr. Harbel, you have up to five minutes for an opening statement.

[Soren Harbel, Vice-President, Innovation Development, British Columbia Innovation Council]

Good afternoon.

Thank you very much for the invitation to speak.

The B.C. Innovation Council is a creature of the Government of British Columbia. We are a crown agency under the Ministry of Advanced Education and we live in three specific areas. We operate in the talent space, so looking at the people side of the science and tech industry; we look at the innovation side; and we look at the commercialization side. I'll go through those in quick order.

In the talent space, the province--not unlike most other jurisdictions in the western world--is facing a huge crisis on the people side of the science and tech industry. We have about 9,000 openings in British Columbia in the science and tech space. We have 67,000 kids in grade 11, we have 41,000 kids in grade 1. Whether or not we manage to get all of those 41,000 into science and tech is, of course, a major challenge. Consequently, as we start looking at this the solution is going to be partly homegrown, but it will also have to be grown from outside of Canada. That's one of the issues we're focusing on.

The second issue we're focusing on is the innovation space, where we're trying to encourage kids at different ages to get involved in innovation, not just high marks. We've run a number of things along the lines of encouraging more science fairs and the like in the schools, to encourage them at an earlier age into science and technology careers. As you go up through the system, we award in every high school a scholarship for the most innovative kid to go into university; it's not necessarily the kid with the highest marks.

As we go through the university system we spend a fair bit of time doing match-ups between the different faculties. So we do a lot of the silo-busting of what is normally difficult to do in many environments, which is to mix up the science student from UBC with the business student from SFU to work on a joint business plan to win a particular scholarship--and we're seeing a lot of success--so that science students understand that there is such a thing as price and market and all of those horrible things, and on the other side, the business students understand the implications of what is there in the minds of the scientists.

On the commercialization side we have a number of initiatives that range around the province, where we have nine regional councils. We partly fund the UILOs at the universities and colleges, and we spend a fair bit of time trying to work with these organizations to get as much volume through the system as we possibly can. We look at what we refer to as the garage stream as well as the university stream. And we say “garage stream” in honour of Mr. Hewlett and Mr. Packard, not in terms of anything derogatory.

With the idea that we are trying to create an environment, we're using a variety of virtual boards, mentors, etc., to push a number of companies through, using things like the New Ventures BC business plan competition, to graduate as many organizations as we can from a business plan point of view. And then we have a funding mechanism where they can then, as graduates, apply for either a proof-of-concept or a prototype fund where they can go to take their innovation to the next level.

A key observation on our part is that the tolerance for pain or risk amongst angels and venture capitalists is getting less, and the time from when the innovators run out of money from friends, fools, and family until they hit the venture capital side or the angels is getting broader. The ability to fill that gap is what's going to be critical for us to draw the volume of businesses that we'll ultimately need to be part of the knowledge economy as the western world moves away from manufacturing and the like.

I'll end my remarks there, and I'd be happy to answer questions in the second round.

Thank you.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Harbel.

I just want to make a brief response as the chair.

All of your presentations were excellent. They were all within time and they were all very specific in terms of recommendations. I do want to compliment you for that. The committee is really looking for specifics in terms of what we can recommend, and also for real examples of models that we should look to emulate. I want to compliment all of you for that as well.

We are going to start with Mr. McTeague. I believe you will be sharing your time with Mr. Simard.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I will be sharing my time with Mr. Simard, so I'll just have a very brief question. I'm glad to be here.

Thank you for those succinct and very helpful insights.

Mr. Volker, you referred to funding indirect costs of research. You didn't really have time to give a better illustration of that, but I suppose you're referring to accountants, lawyers, and the soft costs involved with research. Or is there something else?

[Michael Volker]

IP protection, marketing analysis....

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Okay, I've got it.

Let me ask both you and Mr. Brooks, who represent universities, what percentage involvement do you have in breakthrough or innovative types of discoveries, if something is patented or a new breakthrough product is developed at your institutions?

[Dr. Donald Brooks]

I'll let Mr. Livingstone answer that.

[Angus Livingstone, Managing Director, University of British Columbia]

Ultimately we'll end up licensing about 22% of the innovations that we see. We get 180 of them a year on average. We'll get considerable revenue out of only about 5% to 10% of that 22%. So on a technology push model, it's not something that routinely generates large amounts of money in return.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Brooks or Mr. Livingstone, you've also mentioned that we trail the U.S. in grads by 25%, proportionately speaking. Can you explain that? What's the problem there?

[Dr. Donald Brooks]

It's simply the number of dollars and the number of good students—both. We need to be able to attract international students, as was pointed out by one of my partners here. We don't have enough students coming through the system at the very highest level. We look abroad a lot to bring in international students, particularly graduate students and post-doctoral fellows, and that's a direct function of funding. So the support level is a big part of that.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

I was going to say that it backs on to what Mr. Harbel had said a little earlier.

I'm going to pass this over to my colleague Mr. Simard.

[The Chair, Conservative, James Rajotte]

Mr. Simard.

[Raymond Simard, Liberal, Saint Boniface, MB]

Thank you very much.

Mr. Volker, you spoke of entrepreneurs, which is interesting, because it seems to me that our focus over the last couple of days has been on the people who are funding entrepreneurs. But if angels and venture capitalists continue to back off, as Mr. Harbel was saying—with the statistics showing that Canada used to raise about $4 billion a year in venture capital, but it's now about $1 billion—it's going in the wrong direction.

First of all, what should we be doing to encourage young entrepreneurs? Secondly, somebody yesterday recommended that maybe the government should support young start-ups and younger businesses for a longer period of time. For how long should we be supporting these small businesses?

[Michael Volker]

In my experience, and certainly in this community, there's a wealth of accomplished entrepreneurs willing to invest in young new start-up entrepreneurs, people who are willing to put their time and money in.

I run this angel network in Vancouver and have been doing it with my colleagues from UBC for over 10 years now, and there's no shortage of entrepreneurship in this province. There's a huge appetite on both the ideas side—there are many new ideas coming—and the investment side, as there are a lot of investors. In fact, we often refer to the venture capital statistics, as you did, but the private equity capital that's available to these companies is at least double the published venture capital numbers. It's not tracked or reported. Here in British Columbia last year, $300 million was the official figure for venture capital investment. I can point to at least double that in pre-venture capital investments in start-ups.

[Raymond Simard, Liberal, Saint Boniface, MB]

Mr. Brooks, you spoke of several products that you actually brought to market. Galvanox was one of them.

Can you tell us at what point you got the industry partners involved? Was it right at the beginning of the product? At what point was it exactly?

[Donald Brooks]

It wasn't at the beginning for Galvanox. That was a math exercise—but Angus was involved in the licensing, so....

[Angus Livingstone]

These things happen over a period of time.

I'll give you another example, in this case technology that's gone into Westport Innovations, allowing diesel engines to run on natural gas. It sounds like a wonderful idea. It came into our office in 1987. We thought that we would just patent it and turn around and license it to Detroit Diesel Corporation and Cummins, the large manufacturers. But no one would touch it; it was before its time.

It wasn't until the early 1990s when the EPA put out new legislation on emission standards, and this technology started to be picked up in California, that there was a business opportunity. That's when an entrepreneur came along, and the company was born in 1994. It's now listed on NASDAQ. It has sales in California and China. It's doing marvellously well, but we just had to keep that technology alive for the first three or four years, because it was ahead of its time.