Industry Committee on June 12th, 2012

[Lianne Ing]

The concern we have moving away from an SR&ED tax credit model and going toward something where the funding is more directed is that some group is going to decide the priority areas for investment. The research areas of small companies that are often not on the radar and don't spend huge dollars marketing and may not be the most prevalent name in Canada but are doing very innovative work can easily be overlooked when some other group is deciding what the strategic priorities for research should be. In our opinion, it tends to stifle innovation.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you. That's a very interesting comment. I think it touches on the fact that in all the things we do here our goal always has to be to find the right balance.

I think that's one of the main purposes of this study. It's to look into intellectual property to actually discover and find the right balance between patents and trademarks and everything else we're talking about, so that we are incentivizing innovation and not stifling it through the rules.

Now, on that, I'm going to go across to Monsieur Gagnon.

My comments will follow up on Mr. Regan's comments. You said that a total of $1.7 billion in subsidies goes to the pharmaceutical sector, which gives us approximately $640 million in return.

At the same time, compared to countries like France and Great Britain, at the end of the day, we spend an extra $1.5 billion on the pharmaceutical sector. I cannot believe that we have to spend more money although we have subsidies. We are spending an extra $3 billion to get a return of $640 million.

Do you have a suggestion? You said that we should perhaps consider lowering the prices to be in line with France and other comparable countries? Do you think we should decrease or increase subsidies for the pharmaceutical sector? Do you think that this would be useful? Or would it be possible to invest that money more specifically in innovation?

[Dr. Marc-André Gagnon]

I think it would be only too logical to check lowering prices against comparable countries, and that would have no impact on research and development funding.

For example, in terms of the money we could save, we have to understand how the whole current innovation system works in the pharmaceutical sector; the system is based on commercialization by the major dominant companies that we have talked about. For example, the main goal of any biotechnology company is to be bought by one of those dominant players.

The problem is that dominant companies have a research agenda that relies on me-too drugs. But there is a way to improve therapeutic innovation. I think the way to do that is to have public research. There should be an alternative business model, based more so on public research than commercialization by large corporations. That model would not replace what is being done, but it would complement the work nicely by potentially bringing something new and something different to the current pharmaceutical sector.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you.

Now, of course Mr. Hargreaves is no longer with us, but one of the suggestions he made was with regard to an idea of having smaller fees for patents for small businesses. If we looked at something like that, I would suggest that we look at academia as well, academia as fitting into a bit of a different model. Do any of the witnesses have any comments on that?

[The Chair, Conservative, David Sweet]

It would have to be just a brief comment, as we're over our time.

[Erica Fraser]

There is a system in Canada already called the small entity system, whereby we pay lower fees for universities and small companies, although there again it's kind of risky sometimes for small companies to take advantage of that. The U.S. just introduced something called micro entity status, which is even smaller, and that's based on the number of patents you've filed. If you've filed a relatively low number of patents or you are a university, you can take advantage of even lower fees.

[The Chair, Conservative, David Sweet]

Thank you very much.

Now we'll go on to Mr. McColeman for five minutes.

[Phil McColeman, Conservative, Brant, ON]

Thank you, Mr. Chair

Thank you to the witnesses.

Ms. Ing, you've discussed IRAP and SR&ED. As well, based on the opposition's questions, you've commented on SR&ED. With IRAP, what are some of the ways in which IRAP has helped you fund innovation?

[Lianne Ing]

The IRA program is one we've taken advantage of in a couple of different instances. First of all, they do a very good job in terms of outreach, even to rural communities. We are not located in a major centre, yet we have IRAP technology advisors who are mandated to go out and contact small companies to let them know what services are available through IRAP.

We've had a couple of programs that have been successful through IRAP. The company invests in the technology development, of course, but IRAP provides some additional funding to help accelerate some of that work. We've had some good success there in terms of technology development, which can then lead to a commercial product.

One of the focus areas for IRAP when they are evaluating a proposal is that they are always looking for what the benefit to Canada is going to be. They're looking for a very clear business plan and a commercialization plan. By forcing that thinking into the front end of a program, it really compels the organization to think through its business case. Since the company is also contributing and investing funds in that program, it makes them think carefully about what they apply for, and it makes them select the most commercially promising technologies.

[Phil McColeman, Conservative, Brant, ON]

Are there any add-ons or other ways we can reach the really promising technology companies? Are there any further things a program like this could provide more outreach with?

[Lianne Ing]

As I said, I think IRAP has done quite a good job in terms of holding a lot of information sessions and trying to expand their coverage.

In the U.S., there is SBIR, a small-business program, which is geared directly towards providing funding for small businesses in order to spur innovation. That program has been very successful, in the sense that they actually have separate calls for proposals. They have very prevalent awareness among the business community about the advantages available to small businesses.

The U.S. government also has incentive programs that try to encourage large companies to use small businesses when they're executing large contracts. The use of small business is actually added to the evaluation of a proposal in the U.S., so that certainly helps.

[Phil McColeman, Conservative, Brant, ON]

That would perhaps help IRAP to drill down to the smaller companies and give them more incentive to advance their technologies.

[Lianne Ing]

Yes.

[Phil McColeman, Conservative, Brant, ON]

Good.

I have a question on the SR&ED side of things—also involved with the industry committee—and your comment that stifling innovation perhaps is one of the redirections. SR&ED is obviously offered to a lot of companies. A lot of companies that take advantage of SR&ED find it's very useful for their business models. But a lot of other companies use it just as a business model and don't really produce some of the technologies, the innovations, some of the things that are meant through the SR&ED tax credits.

I wonder if you could comment on that. How could we perhaps do a hybrid SR&ED, or something like that, where we could combine the best results of SR&ED but also eliminate some of the lesser uses of SR&ED that are almost part of a subsidy?

[Lianne Ing]

If you look at the model for our company, I think the SR&ED program has been very beneficial, in the sense that it has allowed us to conduct company-funded R and D, which then qualifies for SR&ED tax credits. We conduct that R and D typically to set up for development of new technology through contracts—not subsidies, but contracts—and often those contracts are performed not only for the Government of Canada but for other governments. In those cases we're bringing revenue into the country in the performance of those R and D programs.

When I spoke previously about some of the suggestions on how to change the model for SR&ED—trying to emphasize more commercialization—the real concern is that if we get into a situation where there is a group somewhere that is trying to define the strategic priorities for research, there is no possible way for them to really know across the country what the most promising technologies are for a range of small and medium-sized enterprises.

The smartest people in the world could sit down in a room and they're not going to be able to accurately predict breakthrough technology that could be the next multi-million-dollar technology for the company. From our perspective, it makes sense to try to provide programs that will encourage promising commercial technologies, but not to try to define what those technologies are by sector.

[The Chair, Conservative, David Sweet]

Thank you very much, Madam Ing and Mr. McColeman.

Ms. Leblanc, you have five minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you, Mr. Chair.

Mr. Gagnon, I would like to quickly go back to what we were saying earlier. The free-trade agreement with the European Union is in the process of being negotiated. In Canada, data protection is valid for eight years. As part of the negotiations, the European Union would like the period to be extended to 10 years now.

Does that meet the WTO requirements or does it go beyond the requirements? What will the impact be on Canada if we agree to extend the data protection period, as the European Union wants?

[Dr. Marc-André Gagnon]

In terms of data protection, we fully comply with the TRIPS agreement. Extending data protection seeks to encourage companies to do research and clinical trials on already existing drugs to see whether or not they could be used for other purposes.

I personally think that it would make sense for us to somewhat extend the data protection period. The major difference between the European Union and Canada is that, in Canada, we often confuse data protection and data secrecy. Health Canada always requires data secrecy on all clinical data it obtains, which is unacceptable. That prevents other researchers from having access to clinical data that are available. And in many cases, those data have been obtained through massive public funding. I don't have a problem with protecting data for intellectual property so that another company does not market something else, but I think that making them secret to prevent researchers from having access to them is unacceptable.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

You said that public research could complement private research. Could you elaborate on that and provide us with some examples?

[Dr. Marc-André Gagnon]

Private research is highly based on coming up with selling points for pharmaceutical products rather than on clinical research that makes it possible to fully understand the safety of those products. When data secrecy is imposed, and the data are produced by companies and then published in medical journals, the data that are going to be published are carefully selected. The trend is to opt for those data that better support the sales pitch they want to make to doctors.

Right now, more than 85% of basic research is currently funded by the public. So it is essentially public, but it is geared towards commercialization by large corporations.

In terms of clinical research, the major public trials carried out in the United States by the National Institutes of Health have largely made it possible to have an objective and neutral idea of the benefits of a product as opposed to its risks. Sometimes, major clinical trials can set things straight in terms of whether a product is actually good or not.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

To continue along the lines of our study and the pharmaceutical sector in particular, how can we develop policies that will lead to the implementation of intellectual property standards, which in turn will generate more innovation in the pharmaceutical sector?

[The Chair, Conservative, David Sweet]

Make it very brief.

[Dr. Marc-André Gagnon]

In my view, having patent policies does not mean more innovation. We currently have an institutionalized corporate welfare system. So what I am trying to show is that patent policies are not necessarily the best tool to improve therapeutic innovation.

In terms of policies, we can set up patents and other innovation policies. There is something simple right now that England or the United Kingdom is trying out. It is called value-based pricing, meaning that you agree to pay for a drug based on its therapeutic innovation. So you will pay for innovation, for the results on health, not for the commercialized product.

In my view, that would be a great way to encourage innovation. You bring us innovation, we will pay for it; you bring us something insignificant, we are not going to pay for that.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Gagnon.

Thank you, Madame LeBlanc.

Now we'll go to Mr. Lake, for five minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thank you, Mr. Chair.

Thank you to all the witnesses today.

I'm going to zero in, Ms. Ing, if I could, on your reference to SR&ED and your reference to concerns you have about shipping costs to direct funding mechanisms of some sort. But one of the things that was interesting was that you seemed to have had a really good experience with IRAP.

I would note that in the most recent budget, the budget we're going to be voting on for hours and hours over this week, one of the measures we've taken is to modify SR&ED. We have maintained significant portions of it but have modified some of it. Part of that transition, in terms of the dollars, has been to double the IRAP program, for example. I think what you're saying is that you like that program, because it's available to everybody. It doesn't pick one sector over another. It's available to everybody. I don't know if you want to elaborate a little bit more on that.