INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, May 5, 1998

• 0905

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call the meeting to order pursuant to Standing Order 108(2), a study on a document entitled “Leading in the Next Millennium”.

We have with us today several people from the National Biotechnology Advisory Committee. Mr. Strachan is the president and CEO.

I will turn this over to you now, Mr. Strachan, to introduce the people you have with you, and you or or whoever is going to do the presentation can begin the presentation.

Mr. Graham Strachan (President and Chief Executive Officer, Allelix Biopharmaceuticals Inc.; National Biotechnology Advisory Committee): Thank you very much, Ms. Whelan. I'd like to thank the committee for giving us an opportunity this morning to review with you the sixth report of the National Biotechnology Advisory Committee, which was presented to Minister Manley a few weeks ago and has recently been published.

The committee is composed of 19 members broadly representative of all sectors of the community involved in biotechnology. I'd like to introduce some of the members of the committee who are with me here today: Ms. Suzanne Hendricks, president of the National Institute of Nutrition; Dr. Edna Einsedel, a professor at the University of Calgary with a particular focus on socioethical issues that are related to biotechnology; Professor Jim Friesen from the Banting and Best Institute at the University of Toronto; Richard Glickman, president of a biotechnology company in Victoria, B.C.; Mr. Brian Gray, a lawyer and partner in the firm of Blake, Cassels; and Dr. Michel Chrétien, the scientific director of the Loeb Institute here in Ottawa. As for myself, in my day job I run a biopharmaceutical company in Mississauga, Allelix Biopharmaceuticals.

If it's agreeable to the committee, I propose to present a brief overview of the whole report, put it in the context of biotechnology—what biotechnology is all about—and then ask the lead authors of the various chapters to summarize for you the key findings in these respective chapters.

This report was requested by Minister Manley. Back in March 1997 he asked us if we would benchmark the status of biotechnology in Canada in an international perspective. How did we compare with other countries?

He was also interested in getting advice on the future role of the committee in relation to the public input, public communication, and public awareness of this technology.

The report itself contains some 40 recommendations that identify the specific changes that members of the committee felt government should act upon to accelerate the diffusion and commercialization of biotechnology in the country. Of these 40, I think there are six key recommendations.

There is a need in the country at all levels—that's at the political, government, academic, university, and industry levels—to work together and cooperatively with the Minister of Industry to provide a focal point for biotechnology.

The availability of highly qualified personnel is one of the constraints that is impeding the growth of the industry in Canada at this point. This really goes to appropriate educational training in our universities and colleges and also to measures to ease and facilitate immigration procedures.

Let me turn to support of fiscal policies. The very nature of biotechnology and the long lead times between the laboratory bench and the marketplace, 10 to 12 years, mean that you need appropriate fiscal policies to encourage the growth of companies in this sector.

This is a science-driven industry. It depends upon leading-edge, cutting-edge science and technology, and therefore measures to reinforce and strengthen the scientific base are very appropriate. That was why the committee was encouraged by the recent budget initiatives to increase the grants to the various federal granting agencies, the Medical Research Council, NSERC, and the like.

• 0910

We do need a globally competitive patent system and also a regulatory framework. There is also a need to engage the public in a dialogue about this technology, its benefits, and some of the risks that inhere with it. We believe this could be led by a renewed and expanded advisory board that addresses these social-ethical issues and facilitates public awareness and input into public policy.

Just to put biotechnology into perspective, this is a buoyant sector in Canada at this time. It's expanding, growing rapidly. There are probably about 11,000 or 12,000 people in the core biotechnology sector, industry and companies, with about 20,000 to 22,000 employees if you include indirect contributors to the sector.

Today there are upwards of 200 core companies. Most of them are Canadian-owned, and this is actually an opportunity for Canada to grow a home-based industry that can compete in global markets.

The jobs in this sector tend to be high quality. There is a high ratio of graduates, Ph.D.-level people, and the revenues, the sales growth in industry, is very significant.

That's illustrated in this graph you are now looking at. You can see there's a very marked increase, about 20% per annum, in sales and exports of vaccine products, agricultural products, biopharmaceutical products in general.

You might well ask, why should we be interested in trying to encourage, to facilitate, a biotechnology industry in this county. Biotechnology is a strategic industry. It pervades a number of the traditional sectors. If at first glance you envisage biotechnology, you think of health care, but in fact biotechnology is very pervasive in agriculture, forestry, in the food sector, and also in the environmental area. It's very important in bioremediation and other sectors of the environmental sector.

It offers the opportunity to create many high-quality jobs. I'll illustrate it by a Montreal company, BioChem Pharma. Five or six years ago it had 50 to 55 employees. Today, thanks to the success of its lead product, it has about 1,500 high-quality jobs.

This industry is at a point where it's in transition, moving from a research base into commercialization. That means manufacturing, distribution, marketing, all of which add many high-quality jobs. And this is the point when the industry really needs to maximize its leverage and input from government. That is quite critical.

I mentioned earlier that this sector provides an opportunity to build new Canadian companies that access global markets. I think it's important to keep in mind that the impact of the biological sciences on traditional industries like health care, agriculture, and the environment is at a very early stage. If you compare it to the semiconductor industry, you have to go back some 30 years. I think you would all agree that semiconductors have had a very marked input into society, commercial life, and of course they have been very successful for economic growth.

I stress that biotechnology today is really in its infancy and just beginning its exponential growth. By facilitating industrial growth in the country we'll ensure that we'll get a return on our research and development expenditures that we've made over many years in the life sciences.

Biotechnology is already a real.... It's big and it's growing. Let me just give you some success stories from Canadian technology, in the first instance in the health care sector: BioChem Pharma, with its AIDS drug, 3TC; and we at Allelix, working on new approaches to treating osteoporosis, which is a crippling disease affecting many women in our society. Other companies like StressGen Biotechnologies, which Dr. Glickman heads, are involved in cancer therapies. Biomira out in Edmonton is involved in some very cutting-edge approaches to cancer vaccine. A Vancouver company, Inex, is involved in blood-clotting technology.

• 0915

If we turn to agriculture, you can see that Canada actually is one of the world's leaders in agricultural biotechnology. It's particularly clustered in Saskatchewan, thanks to the joint initiatives of the federal government and the provincial government to encourage the transfer of technology from the national research councils, the plant biotechnology institute, and the university there to really foster the growth of dynamic entrepreneurial companies. That has resulted in the beginning of a product floor for canola products and microbial fertilizers.

The government has recognized the importance of biotechnology and its ability to facilitate economic growth in the country. This was an excerpt from the throne speech a couple of parliaments ago.

The Standing Committing on Finance has recognized the importance of granting councils and the research agencies in providing the scientific base and infrastructure in this country, which is essential if we're to catch up with economic growth and commercialization.

Once again, I will just summarize the six key priorities that the NBAC would recommend to government.

There is a need for the biotech champions at all levels of our society. There should be programs to stimulate highly qualified personnel with a rate-limiting stake, particularly in the management, manufacturing, and downstream ends of biotechnology as you begin to approach the marketplace. There is need for support of fiscal policies, including tax policies and financial policies, to encourage the cluster of phenomena that we have seen in agriculture. Dr. Chrétien is going to address these in a few moments. A globally competitive regulatory framework and patent protection are also required, as well as the need to encourage, foster, and facilitate public acceptance of this technology.

Thank you very much. I would like to turn this over to Dr. Glickman, who will summarize some of the commercial aspects.

Mr. Richard Glickman (President and Chief Executive Officer, StressGen Biotechnologies Corp.; National Biotechnology Advisory Committee): Thank you, Graham.

I am going to try to talk about the transition from the research to the commercialization, which is what's occurring in this country now.

Mr. Werner Schmidt (Kelowna, Ref.): Will these copies be made available to us?

The Chair: You should have received it in your office yesterday. Sorry about that, Mr. Schmidt.

Sorry, Dr. Glickman. Would you like to continue.

Mr. Richard Glickman: It's not a problem. I'll start again. It took that punch out of my delivery.

First, I want to try to sort of focus in on the commercialization issues. That is, you have an industry. Canada has been very strong at research. We have good researchers. The question is, how do you create value for Canadians? How do you get the payback for the investment we make?

So I'm interested in really focusing on the difference between encouraging activity that presumably rules the government and the kind of short-term activity that we create, versus creating an industry in the vision that's required for that industry.

I think there's really a key point when one looks at, let's say, the S and T strategy in this country and the short-term nature of some of that versus the longer-term nature of actually creating industry. So I focused on what it takes to create industry versus activity.

To put it in perspective, I think biotech in general has come to a critical point in this country in its development. In 1996 we as an industry raised over a billion dollars in the public markets. That's a lot of money going into the industry, but it's not a lot of money when you think of what it cost to take a product forward.

Currently, with about 35 products in clinical development in Canada, we require about $1.6 billion a year to flow into this industry just to keep it going with the current products. That doesn't include the novel products that will be entering the pipeline. So this is a very capital-intensive industry.

It's a very competitive industry, and like any other knowledge-based industry its greatest assets are its people. Without people, this industry goes nowhere and we don't get a chance to participate in the significant opportunity that biotech represents.

So we have two key issues facing the industry. In short, one is continued access to capital and the other is improved access to highly qualified, skilled people.

Now, if you take a look at how this industry grows, it's important to understand that from a medical context.... I'll use the medical context because it's the easiest, but I think what we're talking about here can be applied to other aspects of the industry, be it agriculture or otherwise.

• 0920

If you take a look at the kinds of royalties and returns you could expect if you're a company, for example, developing a product, if you do the basic research, like a university does, you'll often see a royalty rate of about 2% to 5%. Assuming it gets done inside, you have a $500 million product, which is about the average size of a product to be successful in this industry. You have about $10 million flowing back into the system, into Canada, that you could tax, and that's the pre-expense.

If you take a look at taking a product further into the development cycle, such as in the phase 1 trials, you could maybe garner a 5% to 10% royalty. If you develop a product and you take it into phase 2 or phase 3, you could increase the percentage you could bring back into this country.

The reason we are looking at royalties and percentages is because this industry has grown through partnering. Very few biotech companies have an ability to take a product from the bench all the way through to the market.

In terms of building an industry for us, the goal is to build as many companies that have an ability to drive that process as far into the development cycle as possible. That will give us the return to our country that will make the return for our investors, the Canadian people, in terms of their support of basic research in this country, as well as in the type of R and D tax credits that we get in promoting the development of products in this country.

So the question is, how do you get to that point in time? If we recognize that partnering is a key element in building our industry, what kind of environment do we need in Canada to encourage the revenue-generating activities of those partnerships to occur on Canadian soil?

There are lots of examples where people in Canada will develop research, take it to the point of commercialization, move it to the U.S. operations, and have it commercialized from that base, instead of the Canadian base. We lose, and we lose again and again. There's a reason we keep losing, and if we don't address it, you won't build the industry.

So now that you sort of get a grasp that this whole industry is built on partnering, the key in the long term is to build as many companies that have that ability to take products as far into the development cycle as possible.

What we hope in the future then is that we can take those companies that are the success stories—and they don't need a partner for their second or third products. Their second or third products can be built on their base, on their international marketing capabilities, on their ability to develop true world-class competitiveness, in which case we don't share the opportunity; in fact we own the opportunity. I know that in my organization we talk about sharing our first product. We talk about owning the balance of them.

So we have to think of our intellectual property in this country as a resource, the same way we did with forests, the same way we do with mining. The only difference is that instead of shipping out lumber, we have to ship out furniture. In our case, we have to ship out a finished product, or as close to a finished product as possible, if we're actually going to generate any real return to our country.

So what do we need to succeed? First, it's access to highly qualified skills for us. In Canada we have very good researchers. Although we've lost a lot of good researchers, we still have a very good research base. What we don't have, though, are experts in drug development. When you think about what goes on in Canada, we do some clinical trials, but we don't actually develop drugs per se.

So what we do in my organization, which I think is representative, is we try to bring people to this country. Where do you bring them from? Where is the expertise? It comes from Europe and it comes from the United States.

Obviously we have problems there. We have a huge differential in the dollar. We have a huge tax differential. That tax differential is so large right now that it's making it impossible for me to recruit to this country.

I recruit individuals. I pay them one and a half times the Canadian salary norm and they still whine, because the tax rate is still so much higher that they cannot operate within our current environment.

We have to find a way to bring that expertise into this country and keep it here long enough to transfer those technical skills to Canadians, whether they be business skills or scientific skills. They have to be here long enough to do that. That's a several-year period.

What we propose in the NBAC report is to take a very hard look, first at marginal tax rates, and I know that is a tough one. Second, how do you come up with some mechanism that allows foreign workers to work in our country for a period of time to perform that function for us and then move on, because they clearly aren't going to stay here long term. I think the premium is just too large. I'm a very proud Canadian and I'm willing to pay a premium to live here, but that premium differential between the countries right now is so large that in the knowledge-based industry it's not going to work.

What's going to kill this industry, what has the potential to damage this industry, is the same thing that's going to damage the computer industry and software in this country. It's the same problem, and yet we never really address it, because it's a touchy topic in terms of how you deal with and reward success in terms of business in this country, in terms of taxation.

If you look at the issue of competitive corporate taxes, for instance, I think the Mintz report talks a little about how to make Canada more competitive.

I reviewed portions of that report in the context of biotech and found that particular report in fact to be sort of a very academic exercise. It talks about shifting capital around and moving it around a tax base. It doesn't really talk about really changing the effect of marginal tax rates in this country. It is just sort of hiding it and shuffling it.

It talks about a significant reduction in the R and D tax credit. So the one thing we do good in this country in research—and having a 35% R and D tax credit that could be improved—they want to reduce. Why do they want to reduce it? Because we're so much above the rest of the world. We should be like the rest of the world; we should reduce that.

I would say that if we're going to reduce the R and D tax credit, then we should at least bring the rest of the taxation in line with the rest of the world so at least we can be competitive. They want to make us competitive on the downside, but this is going to be even more competitive on the upside.

• 0925

I was actually quite disappointed with the report. I thought it was actually very poorly thought through in the context of business. I noticed the technical committee on that report had no industry involvement on it whatsoever, and it really looked like an academic exercise. I was really disappointed.

I will now deal with the last topic, and that is improved access to capital. In the U.S. now, when you look at the decisions made to promote this industry, or other industries where investment is required, you've seen a significant drop in capital gains, down by 20%. If you keep your money in the company longer, it goes down to 15%.

So what are we doing in Canada? We have these huge rates. How is that an incentive to investment in a high-risk sector? So if you want, what we have to accomplish is continued access to public capital. We're going to have to deal with how we deal with our capital gains tax in this country in order to make us competitive. Without doing that, I'd rather put my money elsewhere, at a lower risk.

So there's an incentive to take risk in the U.S. system right now, They've recognized that. Yet we continue to lag behind, and we're certainly not addressing that.

I remind you that we're looking at $1.6 billion of public money required keep this industry growing if we're going to make it as successful as it can be.

The last point deals with the issue of partnering. I mention that this industry is often built on partnering, and corporate partnering is a key cornerstone to building this industry.

We in this country do not yet understand how to deal with our intellectual property, how to deal with cross-border issues. For example, when we—and I'll use us as an example again—did our last transaction, we did a $20 million joint venture with Genzyme to do gene therapy in humans. We located that vehicle in the United States. That was very painful. I fought hard. I had little choice but to put that vehicle partly into the United States. Part of it's in Canada, but we're dealing with base tax rates. It just was a much better long-term situation for us to do that.

The other thing we're seeing, as well, is a movement of technology into the U.S. that you develop. So you develop technology early. You license it out to other companies that you own into the U.S. marketplace, you build your businesses down there, and the real benefits come down there.

We have to do things in this country in order to keep that technology in this country with respect to partnering, with respect to how we position ourselves.

We recommended a study on partnerships, how to make Canada a more competitive place to do the value-creating activity associated with partnerships.

One last comment on a point that I skipped over deals with the R and D tax credit system. I have to point out that the current system we have for R and D tax credits, which is a really excellent system, is not particularly well suited for biotech. Biotechnology has a seven- to ten-year life cycle. As a company you grow, and you go through your early years. You develop your products. You have clinical potential, for example, in the medical area.

So what do you do next? You have to go raise more money. Where do you get it? You get it from being a public company. So you have to go from being a private sector company with a 35% credit to being a public company with a 20% non-refundable tax credit. That doesn't work for us considering that we have another seven or ten years more before we actually generate revenue. The current system makes little sense for developing biotechnology products.

Nonetheless, the R and D tax credit system is one of the strongest things we have going in our country. It's one of the things that brings people to our country, which we can build upon. It just needs to be modified to work for this particular sector.

Those are the keys. There's some tough stuff here, but if you want to be competitive, you have to take these things seriously and you have to work for changing these fundamental areas. Without doing that, you'll have an industry, but you won't be a world leader in an industry and you won't be competitive.

This has the potential to revolutionize and to bring in significant capital to this country if we do it right, because we have the fundamental base resources. We just need to be positioned competitively.

Mr. Graham Strachan: Dr. Friesen will perhaps address the strong scientific and technical infrastructure.

Dr. Jim Friesen (Professor and Chair, Banting and Best Institute, University of Toronto): Thank you, Graham. Well, a lot of what I'm going to say builds on what both Graham and Richard have said. My job here is to tell you about the importance of the research base for the biotechnology industry in this country and to urge you as parliamentarians to give maximum support to your government research-granting agencies.

That chart up there says it all. The yellow bars are the per capita funding in the United States by the National Institutes of Health, which is their equivalent of our Medical Research Council. As you can see, they're rising, and they're rising steeply.

If you look very carefully, the gray bars, which start out much smaller and end up even smaller, are what we're spending per capita.

Graham talked about international competitiveness, and so did Richard. We cannot be internationally competitive in biotechnology if we are not internationally competitive in the fundamental research that underpins it. I'm talking about the research that 10, 15, 20, 25 years from now is going to end up in the kind of breakthroughs that Richard's company builds on.

• 0930

We have had very recently some very encouraging news. The Medical Research Council has had a small increment. I think we can say that the decreases have been halted. But you can see that even with that we are eight-fold lower than our major international competitor. We have had some other programs, such as the Canadian Foundation for Innovation, which is a good start, but I would say that's only a beginning. If in the long term we are going to have a competitive biotechnology industry, I repeat, we must have a competitive science base.

Harold Varmus, who is the president of the National Institutes of Health in the United States, the largest health research funding organization in the world, has said that the reason for the success of the U.S. biotechnology industry is the National Institutes of Health, meaning that the long-term generous support of fundamental research has paid off in that country big time in its biotechnology industry.

I would point out that it is the role, I believe, of government to provide the level playing field from which our industry can beat the world. There is no other part of this society that is capable of providing that long-term patient infrastructure upon which to build an industry. The private sector can't and won't do it because their job is to take research that has gone this far and take it the next step to commercialization. I'm talking about the research that gets you from here to the point where it can be commercialized. I think there is only one part of our society that has the capability and the duty to do that, and to do it adequately, and that is the government. Therefore, I urge you to support any initiatives that come along to increase the support of the federal granting agencies.

I would also like to point out that biomedical research is moving very strongly in the direction of genome research; that is to say, viewing entire gene complements of entire organisms as a set of information from which to draw information and from there to synthesize new applications. That thrust is moving extremely strongly in Europe and the United States. I think we've fallen very far behind in this country, and that is a vehicle upon which we can move into the next decade of research.

I would just like to say that supportive research impinges on a lot of other issues, three of which are listed at the bottom of the slide there: high-tech, well-paying jobs, the training of youth, and keeping our health care at the leading edge, because we can both attract and retain the best biomedical researchers and clinician scientists.

As Richard was talking I was leafing through something I picked up at the airport last night coming in. It's Time Magazine and the story is “The Brain Drain”. The brain drain is an old story, but it's reviving. It's really true. I just jotted down the names of four or five top researchers in the Toronto area alone who have left for the United States in the last two to three years and have taken very significant research findings with them to pursue elsewhere. The reason I was leafing through this is that some of Richard's proposals rang a bell. That's because I had read them, a few modest proposals, many of which are very similar to the proposals Richard made. I think they bear very serious consideration.

I would just close by saying that we do have a very high-quality research base, as Richard said. It is in danger of erosion. We are really in danger of losing the stars of that research base because they are the ones who go first.

In my department at the University of Toronto, I have just hired two exceedingly good young researchers. One came from the Massachusetts Institute of Technology, one of the top labs in one of the top world universities. The only reason he could come is because he came with significant U.S. funding guaranteed for four years because of his connection with MIT. The other one is a Canadian home-grown talent who did a significant amount of his training at Stanford in California. He gets invited to go down to give seminars on his work all over the United States and the world. He comes back and says, “Jim, how can I compete with those guys? The people who did their research during the training period on the bench next to mine have similar jobs to me and they're getting four times as much research support. How can I compete?” The answer is he's not going to stay and compete in Canada very long. If he's really serious about his career, he's going to move elsewhere. Please, we have to stop that or we will not have a biotechnology industry in the next 10 years.

• 0935

Mr. Graham Strachan: Now I'll turn it over to Brian Gray to deal with market access and regulatory and IP issues.

Mr. Brian Gray (Partner, Blake, Cassels & Graydon, National Biotechnology Advisory Committee): Good morning. I'm a lawyer, so I have the rather boring topic of the regulations and intellectual property issues.

We do have a good regulatory system in Canada, but we think we can make it better. The theme we looked at was a comparison of our regulatory system with our major trading partners', because we look at the regulatory system and the intellectual property system as a potential source of competitive advantage for Canada.

I think of an automobile. If as Canadians we make an automobile more efficiently, of a higher quality, in a more timely manner, and in a more cost-effective manner, that automobile will generate wealth for Canadians and jobs for Canadians. We looked at the regulatory system just as you would look at an automobile.

If we produce a regulatory system that is more efficient and produces a higher quality product in a more timely fashion and in a cost-effective manner, this will be a competitive advantage for Canada. So we asked ourselves how we can do this and what we should do to improve the system, which as a base is already a good system.

The first thing was to try to establish some kinds of standards to compare ourselves with our major competitors, our major trading partners, and by that I mean primarily the United States and the Europeans. Surprisingly enough, there are really no standards now established for regulatory approvals. When we compare ourselves with the United States, although there have been significant improvements in the last couple of years, particularly on the agricultural side, we are still significantly lagging behind the United States in approval times. In some cases it has been estimated that for every day lost in approval it can cost as much as $1 million in lost sales.

So we said we should try to consider how to streamline the system, how to make it more competitive in a cost-effective way. A couple of the ideas we are recommending are actually being implemented to a large extent by the regulatory authorities.

You would think joint review packages, to create and examine the same data so that the drug approval that has to take place in a number of countries is organized and coordinated in a consistent manner, would be self-evident, but this is only now being done.

A mutual recognition of approvals—the same products have to be examined in a number of jurisdictions. There's no reason we can't work more effectively with the regulatory authorities in other countries to create mutual recognition.

Transparency is important to the quality of the automobile or the regulations. Transparency allows the regulatory system to be probed, to be understood, and also it's important to the perceived quality of the regulatory system, which is important, as we will see later on when we talk about socio-ethical issues.

To briefly turn to intellectual property, there again the quality of our patent system compared with that of our competitors was a focus of our committee. How can we achieve a quality patent as a competitive advantage for Canada? Perhaps conversely, how do we make sure we don't have a patent that is unduly broad or unduly restricts the Canadian market compared to our competitors' market?

We focused on procedures that exist, such as a European opposition procedure to allow a challenge to a patent in the patent office. Many patents are unimportant, but those that are important often could benefit by return to the patent office in a challenge in an opposition procedure. We gave an example of a patent that was issued but had an anti-competitive effect.

We wanted to allow the patent office to focus its resources on situations in which patent owners are trying to achieve broader protection in Canada than in the United States and Europe. We don't want to be giving broader patents to Americans, to put it bluntly, than the Americans can get in their own country. So we want to make sure that our patent system focuses on patents of appropriate scope. It may be that when people are trying to achieve broader protection, the patent office ought to have the resources to devote to that examination.

• 0940

Finally we briefly looked at market access questions under the OECD. We ask that those be examined and continue to be examined to ensure that genetically modified products do have significant access to our major trading partners.

Thank you.

Mr. Graham Strachan: Thank you very much, Brian.

Most applications of biotechnology are life enhancing. I think of some of the modern therapeutics, such as erythropoietin and GM-CSF.

A few applications do raise significant social and ethical issues. I'm thinking here, for example, of cloning. The committee did spend a fair amount of time under the leadership of Dr. Edna Einsedel on examining how other countries address these issues and facilitated public input into this debate.

Edna, I'll turn this over to you.

Dr. Edna Einsedel (University of Calgary; National Biotechnology Advisory Committee): Thank you, Graham.

If Brian has the boring topic, I think I have the sensitive or controversial topic, depending on your point of view.

I'm pleased to have this opportunity to address the committee. I will talk briefly about the social aspect of biotechnology, which I'm sure you know is absolutely critical to successful commercialization. If you don't have public acceptance, you will not be successful in the marketplace.

If you look at this chart, you can see, when you compare Canada with the United States and four other European countries, that we have an important advantage when it comes to public acceptance on biotechnology. You can also see, however, that Canadians do make choices about the types of applications they support. They tend to be much more supportive of medical applications than of food applications, for example.

At the same time there is positive acceptance of biotechnology, this acceptance is tempered by concerns and anxieties. For example, some Canadians are anxious about the risks that some applications carry with them. How is my safety ensured by the regulatory structure? How is my privacy protected when it comes to genetic information? How do you address the ethical issues that arise from such research activities as cloning? What are the long-term impacts on the environment? These are just a few of the questions some Canadians may be asking.

You only have to look at the recent experience with other technologies to see there are levels of public mistrust, concerns, and anxieties that need to be addressed. Unless we have mechanisms for addressing these public questions, unless we make provision for increasing public awareness and understanding and for encouraging the public to participate in these discussions, we will not be successful at the commercial end of the endeavour.

We have recommended the creation of an advisory body that is more broadly based than our current advisory body. That body will be charged with facilitating these public discussions and addressing the key questions surrounding the socio-ethical challenges. We believe this body is going to play a very important role in addressing these public issues.

Some of the astounding genetic advances that have occurred in the last decades are also accompanied by profound social and ethical consequences.

When we sit at the table to contemplate how we might sustain these advances in a socially responsible way, we urge you to ensure that the public has a place at this table.

Thank you.

Mr. Graham Strachan: To follow Dr. Einsedel's comments, one of the questions Mr. Manley asked the committee to consider and to make some recommendations on was the future role of an advisory committee. It is clear the commercialization of biotechnology and the movement of the technology from the laboratory into the marketplace do raise issues that the NBAC, as originally constituted and with its mandate, doesn't adequately address. These are the social-ethical issues on the public input into decision-making.

• 0945

After looking at various models, some adopted in other countries with mixed success, the committee's recommendation is that we stick with a single, unified advisory committee whose membership is broadened to include people with particular expertise, in addition to the expertise the committee already has, in social-ethical considerations, the environment, and the areas of public communication such as public awareness and consumer issues.

The objective would be to try to stimulate a national conversation, a national debate, on these very important issues that do relate to a very few commercial products of biotechnology and by no means to all of these products.

The committee felt the expanded NBAC should continue to report to the Minister of Industry, since that is the minister who brought us the span of responsibility in the biotechnology arena. However, the other cabinet ministers whose portfolios also involve biotechnology should play a role in the discussions and deliberations of the committee.

The committee saw the IHAC, the Information Highway Advisory Council, as an appropriate model to consider in reconstituting the NBAC and how the NBAC might operate.

In essence, the committee is recommending a single, unified committee but with broad participation and particularly strengthened in the areas of social-ethical considerations and public participation.

Finally I'd like to touch on one aspect in encouraging the economic growth of biotechnology in the country. A very interesting phenomenon is the impact of clusters, of bringing together a network of people, of interest, relating to specific fields of biotechnology. There are two particularly interesting success stories. One is in the Montreal region; that one has been very successful in encouraging particularly the health care companies to stimulate the growth of biotechnology in that area. The other is in Saskatchewan, which I referred to earlier, where there's a cluster of ag-biotechnology companies; it probably is a leader in the world.

Dr. Chrétien is going to elaborate on this cluster phenomenon and its importance.

[Translation]

Dr. Michel Chrétien (Scientific Director and CEO, Loeb Institute, Ottawa Civic Hospital; Laboratory Director, Clinical Research Institute of Montreal): Madam Chair, members of the committee, I would like to make one clarification; I am now Laboratory Director at the Clinical Research Institute of Montreal as well as Laboratory Director at the Loeb Institute of Ottawa. I share my time between these two positions.

It is always a good idea to examine various operating models to see how decisions could be made in the future. We therefore spent time examining issue tables, also called industrial clusters, on which we worked for a number of years following initiatives by successive ministers of Industry and Commerce of Quebec, who favoured this global approach by industrial cluster or issue table, as I said.

Over at least the past 10 years, there have been seven or eight issue tables that were established, and purely by coincidence, in most of them, they dealt with biotechnology, the pharmaceutical industries, the diagnostic industry, bioelectronics, and the mineral and environmental industry. In all these industrial clusters, biotechnology always came up, which made it a good model for concerted effort for us.

These issue tables met regularly. Among the participants were innovative pharmaceutical companies, generic pharmaceutical companies, the Department of Industry and Commerce, which was in the vanguard of these initiatives, and in the biomedical sciences field, the Fonds de la recherche en santé du Québec.

At each of the meetings of these issue tables, different partners appeared to discuss various subjects. There were representatives from universities throughout Quebec, as well as representatives of the most important research teams in each one of the universities.

• 0950

At almost every meeting, there was also the Biotechnology Research Institute of the National Research Council, which is truly involved in every one of these aspects and had the advantage of being able to offer, incubators to the industry for launching new technology, sometimes to small companies.

There were always representatives of the Ministry of Industry and Commerce, who also organized these meetings and reported on new developments. Naturally, this dealt with anything regarding medical care, but also the environment, agriculture and even aquaculture, which meant that all aspects were covered.

The table in which I participated was the biomedical or pharmaceutical one. At the end—and I think the other tables went through the same exercise—we had to create and find a way to concentrate the information, therefore come up with a single address where people could go so that whatever group they belonged to, whether they were academics or industrialists, Canadians or foreigners, they could obtain all necessary information and perhaps create various new groups, entities and alliances.

Our particular table created PharmaVision Quebec Inc., a health care technology reference centre, which now has very well-known offices and which has had new budgets allocated, thus demonstrating the new concerted efforts of the various partners. The innovative pharmaceutical companies provided a substantial proportion of the total budget of PharmaVision Quebec. Pharmaceutical companies that manufacture generic products also contributed. The ministry provided a generous matching subsidy, as did the FRSQ.

You will note that PharmaVision Quebec Inc. is a single wicket that anyone can go to, from any sector, to obtain up-to-date information and find out about new developments that can occur in the highly important sector of biotechnology in general and biomedical technology in particular.

Thank you for your attention.

The Chair: Thank you, Mr. Chrétien.

[English]

Mr. Graham Strachan: Putting the NBAC sixth report in context, there is another initiative, this one government driven, to review the 1983 national biotechnology strategy. This is under way at the moment; public consultations have been held across the country. There's also an interdepartmental working committee to reach consensus on a renewed strategy.

The NBAC report, the sixth report, is really one of the several inputs to this consultative process. Over the balance of the year the government is considering three elements for a new strategy: the framework, what would be an appropriate advisory body, and how to encourage and facilitate public participation.

The NBAC hopes the standing committee will share with us in recognizing the importance, from the standpoint of economic growth in this country, of a renewed and revitalized biotechnology strategy and an appropriate agenda for entering the new millennium. We hope that ultimately, after due deliberation, debate, and consultation, you might consider endorsing the report's key recommendations, which have been laid before you today, and at the appropriate time convey that endorsement, if you so decide, to the minister.

We believe it is important that the key recommendations, the six identified earlier, do get implemented over the near term. It's very important from the standpoint of jobs and continued growth. I hope you have been convinced this morning that biotechnology is real: it's here today, and it needs appropriate encouragement to make the transition.

The advisory body is going to be an important vehicle in the future for, as I say, facilitating public input and debate and making sure that correct economic policies are adopted. We certainly need to get the public participation right.

• 0955

Thank you very much. That is the completion of the presentation. We'd be very pleased to try to address any question members might have.

The Chair: Thank you very much, Mr. Strachan. I want to thank you and the members of your committee for your very thorough presentation.

We will begin with questions from Mr. Schmidt, please.

Mr. Werner Schmidt: Thank you very much, Madam Chair.

Thank you very much, Dr. Strachan, and the rest of your august group of learned friends and business people. It's great to have you here.

The knowledge you collectively have demonstrated is really something to deal with. I wish we had the time to dig into each of those six chapters more fully, because I think there's something in each of them that needs to be pursued further.

I'd like to start with the cluster idea, and I'd like you to explain in a little more detail just exactly what the cluster issue is. Is it primarily one of consultation and providing incubators for small companies, or is there something more to this than that? Innovation Place, in Saskatoon I think, does provide a lot of incubator-type activities; those activites go on there.

I was also quite impressed with your PharmaVision Inc. If you could address that in a little more detail, I think it might help me understand it.

[Translation]

Dr. Michel Chrétien: The idea behind industrial clusters or issue tables is to bring together the main stakeholders around a single table to discuss its principle objectives, to assess the problems that can arise and to attempt to find solutions, which in this kind of exercise must generally bring partners closer together.

[English]

Biotechnology is an industry in which basic research is the start. Then there's a lot of transfer technology through different players until you have a product.

[Translation]

If we want to accomplish important things in this area, not only do the partners have to talk to each other but they have to understand one another. In that sense, at the end of the exercise, establishing a single wicket for a sector allows the partners to achieve the objectives they have set.

At the first stage of this type of concerted effort,

[English]

it's important to have budgets, and budgets coming from the different partners have described PharmaVision Québec inc.

[Translation]

The phone number is known. We know who the director general is and we can call him any time. He creates new associations.

This is similar to one of the main recommendations that we had made, that of having a champion for biotechnology in Canada who can bring together various stakeholders in light of the responsibilities he is given. What is also very important is that he could also raise public awareness of the benefits of biotechnology and moreover, refute erroneous information that can sometimes be detrimental to biotechnology.

In this new millennium, I often compare biotechnology to what chemistry was at the turn of the century. The major problems of Canadian industry, at the turn of the century, largely concerned chemistry. In my region, there was a lot of heavy industry at the beginning of the century. In Shawinigan, there were many that used electricity. Naturally, chemically-based industries cause pollution. We are still experiencing some of those effects today.

• 1000

Biotechnology by definition makes use of biological materials which probably—but one never knows—do not pollute, especially since biotechnology is used to alleviate pollution. Therefore, in my opinion, over the next 20 to 30 years, biotechnology will certainly be a crucial sector of the Canadian economy in terms of value added. I think it will be the driving force of industry in the coming decades.

[English]

Mr. Werner Schmidt: Thank you very much.

I suppose the other question I have is on the measurement of the success of these collaborative adventures, these cluster groups. It seems to me that if we really are going to move ahead and make biotechnology the champion—and I'm very much in agreement with the tenor of the presentation made here this morning. I think it is the future growth area, but how do you measure the success?

You can point to one, PharmaVision, as an example. There's Innovation Place in Saskatoon. You can point to a whole lot of developments in the canola field, for example. But how do you now measure into the future?

I note in particular the biotech strategy task force that's now in operation. I know that some people who wanted to get into some of the consultation, who were very interested and wanted to go, were disallowed. There were supposed to be members of the public. They had heard about this, wanted to sit at the table, and couldn't. They were told no, that's none of your business, you can't come. How do you measure the success of these things?

Mr. Graham Strachan: I can try to address that. A number of NBAC members weren't allowed to participate in the strategy and discussions either. It was quite a separate initiative.

Mr. Werner Schmidt: Exactly.

Mr. Graham Strachan: But let me try to respond.

Mr. Werner Schmidt: It doesn't help to create a good relationship.

Mr. Graham Strachan: No.

On the substantive issue, you can measure the success in five or ten years by the number of companies who started, the revenues that have been generated, and the number of jobs that have been created, which in Saskatoon is quite considerable. How are these findings disseminated to the farmer? How is the farmer able to apply them? Is he able to reduce his use of chemical fertilizer, for example? Is he getting higher yields? Is he getting a greater variety of crop, with perhaps improved oil profiles in the case of canola? So I think there are number of yardsticks you can apply in three, five, or ten years' time to know whether or not the measures today have been very successful.

Coming back to Saskatoon and the cluster phenomenon, it's a very interesting point. A similar agricultural base to Saskatoon exists in Guelph, Ontario; it's probably in other parts of the country too, but Guelph is the one that comes to mind. It's one I'm most familiar with. You don't have the similar cluster or the similar growth of agricultural biotechnology as a commercial presence in Guelph as you do in Saskatoon. I would argue that is because there was not really the collaborative effort, the networking, the building up of related expertise in Guelph that there was in Saskatoon. It was quite a deliberate and very successful strategy.

Mr. Werner Schmidt: Yes, I understand. I would like to move into another area if I might.

The Chair: This is your last question, Mr. Schmidt.

Mr. Werner Schmidt: Thank you, Madam Chair.

If you can tell me, I'd like to know why we are so far behind in the gene research that I think was referred to. Is it simply a question of money, or is there a cultural issue involved as well?

Dr. Jim Friesen: You've hit two nails on the head. I think it's both. I think perhaps, though, the more fundamental one is a cultural issue, because I think if the cultural and social will is there, the money will flow from whatever sources are appropriate.

I've asked myself that question many, many times. I don't know the answer to it.

We always tend to compare ourselves to our neighbours to the south. Of course we tend to make that comparison when we'll come out on the better end of it or if there's a lesson we can learn that will end up flowing something in our direction.

The U.S. has also had a history of a resource-based society and economy, but I think they also have more of a kind of star system in almost every aspect of their society. I think that shows up in science as well. They appreciate stars, they appreciate real productivity and real accomplishment. They have a system that rewards it, and that system is the National Institutes of Health in this case.

• 1005

We don't have it. I don't know whether it's because we have been such a resource-based economy for so long that we've thought, “Well, it's worked in the past, so why doesn't it continue to work?” I think, however, we have entered a knowledge-based economy and we are now in a globally competitive situation. I think both of those are relatively new, and I think they are probably still a bit of a shock to our country and haven't really percolated down. I think we do require a sea change in the general viewpoint, which will in the end be reflected in changes of levels of support and attitudes.

The short answer is, I don't know the answer to your question either.

The Chair: Thank you very much, Mr. Schmidt.

Mr. Shepherd, please.

Mr. Alex Shepherd (Durham, Lib.): Thank you very much. I enjoyed all of this.

Mr. Glickman, in the area of financing R and D, first of all you talked about the cyclical aspect of bringing these things on board to the time when they're profitable. At the same time you're making a recommendation of increased capital cost allowance, which of course will be directly related to taxable income. It seems a little inconsistent to me.

Mr. Richard Glickman: I think it depends on where you're looking whether or not there's a wealth tax, whether it exists within that, how it's handled by a particular province, how in general we, let's say, apply or acquire novel technologies or change our technologies to keep up. A longer depreciation time actually may, in some cases, slow down a company's ability to adopt novel technology as quickly as they would if they could write it off a little more quickly, particularly as it relates to some aspects of wealth tax.

It's probably the only question I didn't want today.

Some hon. members: Hear, hear!

Mr. Alex Shepherd: We'll try another one.

We'll get into the basic area of R and D tax credits, and once again the cyclical problem. You're talking about how we create some liquidity here. Is a bigger answer to that the ability to sell these things, discount them? I think in a sense your recommendation says “use them”; to me, that says the government should be refunding them, not against taxable income but just giving them somehow.

Mr. Richard Glickman: There are several key points.

First, right now for private companies you have a 35% refundable tax credit. It exists. That is fine as long as you're private. The problem begins when you go public. The idea is that they have another source of capital right now, so they no longer fall in the same category. The idea is that historically most companies that have gone public usually have revenues and usually are profitable; it therefore makes sense that at that time you could change over to a different tax system, rather than having a refundable credit.

In our case we still have this ongoing requirement for capital. It's harder to define the difference between a company that is spending $20 million a year on R and D but is still not profitable and a company that's spending $20 million privately on R and D. What's the difference between those two entities in the context of where they're going and what their requirements are? They're actually the same.

Going forward, we recommended that you treat them the same so you don't have this problem of accumulated tax credits. Going forward the answer is to treat the entities that are pre-profitable, early commercial entities, public or private, similarly, because we are all having the same problems. In fact you really want to encourage those companies that have gone public and are driving the process of moving up the chain.

The second point then comes down to what you do about the people who have accumulated, in some cases, up to $90 million worth of these R and D tax credits; they're sitting on the books, but they can't use them because they don't have any profits. It's therefore really a useless system for them. What do you do with those?

There are several things you could do. You could ignore them and wait until they become profitable. You could say here's a company now that's very vulnerable, stock prices are highly volatile, and as they fall down in value.... Let's say it runs down to $200 million market capital, which wouldn't be unrealistic for some of these entities, and yet they're sitting on $90 million worth of R and D tax credits. When do they become appropriate to buy out and take over and pick up all of the R and D tax credits that are sitting there? When do they become more vulnerable? If you're trying to build an industry, why do you want to leave your companies with that kind of vulnerability?

The alternative would be to find some way to use it more beneficially. There are two ways you could use that capital more beneficially, in my mind, and that is to say, it's sitting there. These companies either have taken the research—you've invested it—to the point at which it looks like it's going to fly, yet they may need manufacturing capabilities or they may need some encouragement to continue to commercialize it on Canadian soil in a more development-oriented way through partnerships.

• 1010

Can you not take some of that capital and use it to specifically fund commercialization programs versus just R and D? In other words, it's accumulated. It's not helping that particular organization today, yet they have needs, so can we apply that capital to those needs today and actually make a difference of moving them down that cycle and therefore giving you that circle and pay off?

For example, if you're able to move a company down to phase 2 or phase 3 before they partner, or into manufacturing, do you end up with a situation where you have a 30% return for that organization so that the money then feeds right back into the system and you come out ahead, if it actually works? If the product is successful, you'll come out ahead by helping them fund some of this commercialization at the later stages. That's the short answer to your question.

Mr. Alex Shepherd: I guess the question, looking at it from government revenue and expenditures.... Clearly the reason why it's set up that way is that governments can justify that at least it's getting some tax dollars when applying.

Your issue really is that this is fine if we have a profitable company and we're already 10 years down the road, but what happens in the early stages of this? This is my real question: is there way to develop some liquidity of these tax credits? In other words, at one time we talked about selling them to other companies and so forth and actually injecting capital into those emerging companies.

Mr. Richard Glickman: That's certainly feasible. I think the government was there at one point in time. I think they backed off that approach years ago because of difficulties in terms of policing how this is utilized. Clearly, that would be more optimal.

Maybe, Graham, you have a significant comment here.

Mr. Graham Strachan: Yes, I think that would be a highly appropriate way of going about it. But I guess 10 years ago that type of approach was tried and there were some terrible scandals.

I think the way to address this is to say that companies can only get liquidity and use these tax credits in respect of genuine R and D that has been done and conducted and audited before in fact these credits appear on your books and can be used. Under the previous system, as I understand it, you could actually sell credits before you had earned them.

Mr. Alex Shepherd: Actually, we would like to think that the real problem was defining R and D. Obviously, we're dealing with that anyway. That's enveloped within the system. So if that system worked, then we must be able to authorize them. Therefore they could be used as a saleable credit.

One last question. As for the deviation between 20% and 35%, is that appropriate or should it be higher?

Mr. Richard Glickman: I looked at the Mintz report. They were suggesting deductions on both counts in fact.

I think my preference really would be the 35% across the board. I think when you look internationally and competitively, the R and D tax credit system in this country really has been effective. I think it's one that is acknowledged. I know that when I work within the U.S., there are groups that look at Canada seriously on the basis of that for their research. When they look at the later stage of how to take the technology transfer out of that vehicle and back into the development sites, that's where they run into trouble, and it keeps certain people away.

So I think if you enhance the R and D tax credit system and support it and then look at the balancing act of how technology is moved around and how intellectual property is dealt with in terms of cross-border activity, you can have a greater influence on developing value in Canada.

I don't think anything can be done in isolation. It's not just R and D tax credits. It's got to be done in combination with the whole strategy that looks at how you bring activity into this country, how you bring finance into this country, and how you keep those value-creating activities sustained on Canadian soil once you've made that early investment in the R and D. Just doing the R and D alone, without looking at those other issues, doesn't get you to where you have to be.

The Chair: Thank you very much, Mr. Shepherd.

[Translation]

Ms. Lalonde please.

Ms. Francine Lalonde (Mercier, BQ): I thank you all. This was very interesting. I will start by underscoring my interest for Mr. Chrétien's presentation because it dealt with something that is extremely high profile in Quebec and which developed as a result of needs. Among others, there is the success story of BioChem Pharma, which was born out of the growing pains of the Institut Armand- Frappier. Luckily, the Fonds de Solidarité and the government were there at the time. Eventually, it became a success story.

• 1015

Given that experience, Mr. Chrétien, what should be most urgently changed? That's my first question.

My second question may be for any one of you or for the chairman. Among all the recommendations that you made, which ones are the priority? Personally, I would tend towards funding basic research. I hear too much about what's going on in universities and the research centres not too be extremely worried. In research, it's like demographics. If you don't act today, you realize something is wrong in 20 years and in 20 years you'll have to wait 20 more years before any action is taken. It therefore seems to me that that's one priority.

With regard to marketing and growth problems for these companies, can we say that there is a difference, as you seem to point out in your report, between biotechnology companies and others? It seems to me there isn't, and I get the impression that the problems you've raised could also be true for other similar businesses.

Dr. Michel Chrétien: Thank you, Ms. Lalonde. I will try to answer some of your questions. I'm speaking somewhat slowly for a good reason, because

[English]

I speak fast in both languages, so sometimes the transcripted notes reflect what I say. On top of that, I don't pronounce my h's. The last time I was at a committee like this, 10 years ago, I said something in English very rapidly about the whole MRC. The Hansard reflected the word “old” instead of “whole”. The French translation said the “good old MRC”. I have to be careful.

[Translation]

With regard to the priorities or most important recommendations, we have to point out this is a plan.

[English]

It's a blueprint on which we spend a lot of time and a lot of consultation.

[Translation]

Since it is a plan, you'd need a champion to answer one of your questions, mainly what is important and what the priorities should be. We have to find a champion who will dissect that and then put a plan of action on paper. To my mind, that's the main recommendation. It is necessary to carry out these new changes.

There was also a question about which industry was the most important. Some might think that it's the pulp and paper industry, others that it is the aluminum industry. In our view, it is biotechnology. There's a fundamental reason for this.

Let me come back to the previous example. At the beginning of the century a clean energy source was found, electric energy, and it was the basis of development, but it produced polluted residues in the end.

[English]

As much as electrical power was the driving force behind the industrial development of the first part of this century, now it's the brain power.

[Translation]

The basis of biotechnologies is first and foremost knowledge. I'm in full agreement with Ms. Lalonde in supporting basic research because brain power constitutes the foundation of new technologies. Brain power is not a source of pollution. Fortunately the products resulting from it are likely to be biodegradable. So in my opinion we have to find a champion who will be able to put this plan into action.

Ms. Francine Lalonde: Thank you. Let me say as an aside that in Quebec people will be looking for a Quebec champion and a Canadian champion, but that's another debate.

Dr. Michel Chrétien: Biotechnology knows no frontiers.

Ms. Francine Lalonde: You're absolutely right. Then of course there's the US.

• 1020

I also asked what your priorities were in other fields. You identified five of them. There's genetic research and the particular sensitivity that implies. I'd like you to talk to us a bit about the priority in that area. Would it amount to widening this committee and conducting a debate? Do you think that is the way of proceeding or should it involve scientists examining their own culture? If there are fewer scientists involved, why is that so? Are the possibilities not as great? At the beginning you need a core group and people who are determined to do something. Mr. Frappier was very stubborn for a long time before the products actually were developed and the Institute turned into a large business. Can it be said that a strong culture has not yet developed around this kind of research?

[English]

Dr. Edna Einsedel: Le me address the public consultation aspect, and perhaps my colleagues can talk about the scientific culture.

We have recommended, for example, a more broadly based advisory body that can facilitate the process for involving the public, but that is certainly one mechanism by which public involvement and public understanding can increase.

This has to be a very broadly based effort. The government cannot do this by itself. Industry has to be involved in the public education process as well, and certainly formerly the Canadian Institute of Biotechnology, now the BIOTECanada group, has had a history of doing communication programs. So you have to have industry involvement.

The scientists themselves have to get out of the labs and start talking to the public. B.C. is a very good example where scientists in the school programs exist. Scientists are encouraged to get to the classrooms and talk to students, for example.

This effort has to be broadly based. People who are involved in the industry have to participate in this process, but at the same time the process has to be facilitated by some structure and we think the advisory body is a good way to start.

Dr. Jim Friesen: If I understood the one part of your question, it is why it has been difficult to translate genetic research into genetic business.

There are at least four requirements you need for any high-technology science research to be translated into a business. You need to have, of course, a strong science base. The people who are doing that science have to have both the ability and, in a sense, the drive, the need to find people on the business side. You need to have business money, capital. And you need to have business management and development skills.

Of those four, although we are in danger on some of them—for instance, the science base—we are beginning to put in place at least three of them. The third part of the puzzle, which is venture capital to develop this, has just in the last three years really blossomed in this country.

This gets back to the personnel issue, to the human resources issue. We are still very short of people like Richard. He can take a scientific idea, develop it, manage it and bring it into a company. Let's face it, he can do all the business aspects that the scientists who are research scientists don't know how to do and who are not particularly good at because that's not their job. If we had more people of that kind, we would in fact be moving more rapidly to take the science to business.

[Translation]

Ms. Francine Lalonde: How do we get more people like you? I was going to ask my last question. It will a short one.

[English]

Mr. Richard Glickman: You notice it wasn't one of us who said this. These people who work with me know better.

To answer your question, it is related to one of the topics I thought was the most important recommendation; it deals with taxation.

At the end of the day, a lot of what we face...you made a statement, well, why is it different? Why is biotech any different in building a business? Quite frankly, to a large extent, our problems are very similar to those of other companies.

• 1025

One has to look at what's different about biotechnology and why it may require certain assistance. One issue is the long development time—seven to ten years for a product, it's not like software...to the cost. Do you know that on average it costs between $250 million to $500 million U.S. to develop a single product? That's the crux of the issue. We don't have the quality of the people here in this country right now who know how to develop these drugs. They don't exist because as a nation we never did it historically. That's okay; we will bring them in, we will train them and they will grow with the industry.

The other issue is that when it comes to understanding how this industry grows and the nature of the partnerships that are required for our companies to survive, it's very different from other businesses. Therefore, one has to look at a new paradigm on how you build the businesses and how you grow them.

If you look at that, it really does set apart what is a biotechnology company and its growth problems versus, for instance, a software company or others. As a consequence, if one really believes in the industry, one has to look at that with a very clear picture of what those differences are. When it comes down to marketing at the end of the day, assuming you do it all the same, assuming you get that far in Canada, then the issues you will face will be very similar to other competitive organizations in terms of being competitive globally. To get there, there are some significant differences.

The Chair: Mr. Peric.

Mr. Janko Peric (Cambridge, Lib.): Is there any progress on embryo transplants as well as xeno transplants? Is the pharmaceutical industry supporting xeno transplants?

Dr. Jim Friesen: Graham can answer from the industry standpoint better than I can. That's not really my scientific field, but just from what I've read and seminars I've gone to and so forth, my understanding is that, yes, there is a strong research push worldwide to be able to modify the protein structure on the outside of certain tissues such as heart and kidney from animal sources. This is so they will not be recognized as foreign when put into a human body and therefore will not be rejected. I don't think it's anywhere near clinical trials yet, but from the genetic point of view there are certainly some very logical approaches leading in that direction.

Mr. Janko Peric: You're talking about xeno, but what about the embryo transplants?

Dr. Jim Friesen: In humans?

Mr. Janko Peric: Or animals.

Dr. Jim Friesen: Yes, there has been embryo transplantation in the cattle industry, for example, for a long time. In fact, Canada was a leader in that starting some 15 or 20 years ago. It's done very commonly in experimental animals.

Mr. Janko Peric: What about the swine industry?

Dr. Jim Friesen: Embryo transplants in swine in particular I'm not aware of actually. I know there are other important biotechnological applications to the swine industry such as eradicating poor meat quality and so forth.

There's an example in the book here. It is associated very closely with a certain genetic quality of pigs to keel over and die when they're frightened. That's being eradicated through biotechnology.

Dr. Michel Chrétien: The use of animal tissue for human disease.... The pig seems to be the closest genetically to the human. That's why, for example, for years now heart valves are being replaced in humans by pig valves—we call it a biological transplant—with excellent results from 20 to 30 years of good work.

Sometimes they replace the middle valve; that was the first to be used 30 years ago in the first years of heart surgery. Sure enough, the people in medical research are extremely interested in this approach, when it's been possible, because the valve is a neutral tissue that happens not to be rejected by the human. It's been used extensively on a daily basis in all cities where there is heart surgery.

• 1030

Mr. Janko Peric: Apparently Dalhousie University is involved in working together to establish research on that.

Dr. Michel Chrétien: If you can genetically change some of the proteins on the cell membrane to neutralize this foreign type of structure, it may become possible. We're doing a lot on that, but it's a bit far from general use. But there are some that are already useful on a daily basis.

Mr. Janko Peric: Does the pharmaceutical industry support it?

Mr. Graham Strachan: There are companies involved in trying to develop, for example, liver.... There's a great shortage of liver for liver transplants. Can you adapt, extend, or modify the pig's liver so that you can use it to avoid the rejection that Dr. Chrétien and Dr. Friesen mentioned?

The Chair: Thank you, Mr. Peric.

Mr. Schmidt, did you have a question?

Mr. Werner Schmidt: Thank you, Madam Chair.

I'd like to move into the other section, which has to do with the operation and the relationship between different sectors in the medical area and the biotechnology and chemistry that's involved. Clearly there's a relationship between the length of time it takes to move a product from basic research to the point where it's a commercial product.

It reminds me so much of what the pharmaceutical industry is also concerned with. The time period—you are just about the same length, from what we've heard.

What is the relationship between the biotechnology industry, which is relatively new vis-à-vis the pharmaceutical industry? Is there cooperation in terms of the overall plan, particularly with regard to the planning we're talking about—this grand plan—and the champion for biotechnology, the champion for pharmaceuticals? I think we need champions in both areas, although the pharmaceutical industry is so well developed and has so much money now that it could buy its own champion.

What is the relationship between those two industries? They do have a lot in common. Many of the things you mentioned here about the intellectual property, the regulation, the international, the concentration of packaging and things of this sort—can you comment on this?

Mr. Graham Strachan: I'll try to comment on that one.

The two sectors are in the health care area, and to a degree in agriculture with nutraceuticals and things—

Mr. Werner Schmidt: It's going beyond that now.

Mr. Graham Strachan: They are coming together, because the pharmaceutical industry depends on identification of disease targets for new therapeutics. What are the causative factors in, for example, heart attacks, high chlorestral levels or schizophrenia?

The value of the genomic work that Dr. Friesen touched on is that it enables you to pinpoint at the genetic level the cause of schizophrenia, for example. It's at the very early stages, but we're moving toward that. What is the generic basis of Alzheimer's? A lot of excellent work is being done at the University of Toronto on the causative factors of Alzheimer's and the genetic component of it.

Once you understand the genetic basis of the disease, then you've identified targets for therapeutic intervention, targets the pharmaceutical industry can use in designing drugs to alleviate the disease. So biotechnology in that sense and the pharmaceutical industry are very much coming together.

Mr. Werner Schmidt: Okay. Coming back to the cluster idea, do they sit at this table as well?

Mr. Graham Strachan: Yes, they have a role. As Dr. Glickman mentioned, a critical element in the growth of all successful biotechnology companies is the linkage, strategic partnership, alliance or collaboration between the biotech company as the innovator and the pharmaceutical company as the translator—in other words, taking the innovation and making a drug out of it at the end of the day.

Mr. Werner Schmidt: Could a financial relationship also be established—not necessarily should, but could? The pharmaceuticals are really interested in what the biotechnology people are doing in certain areas. Is there a fiscal or financial relationship here that could be explored?

Mr. Graham Strachan: Yes, and one of the factors in Bill C-91 and the other patent legislation, and I know you've been involved in the debates.... The established pharmaceutical companies are funding a fair amount of research and development work in the biopharmaceutical sector in this country, so there are financial links and financial ties.

• 1035

Mr. Werner Schmidt: Okay, we now have a third term here. We have bio-pharmaceutical, pharmaceutical, and biotechnology. Could you help me understand the differences among those three?

Mr. Graham Strachan: Yes. Bio-pharmaceutical refers to the companies or sector applying biotechnology to pharmaceuticals. So it's a segment of biotechnology and of the pharmaceutical industry, and they've come together.

Mr. Werner Schmidt: That's very encouraging. The National Institutes of Health in the United States combine a lot of things. On the graph you showed us of the MRC and the NIH, the numbers do not compare directly. More money is going into health care research in the United States than here, I grant you that, but it's not as big a difference as the graph would indicate. We've gone through that one in other quarters, but the point is that if that is happening in the industry, if that is happening among the scientists who work in the two fields, then I see a lot of hope developing for this basic research that needs to be done. Everybody now recognizes the absolute essential role of basic research, which leads me to the third area.

Mr. Glickman, could you help us figure out the relationship between this basic research money and the commercialization? There's a huge area in between that usually falls short. Venture capitalists are moving into that area, but even they don't attack an idea that is barely past the basic research stage. They pick up things that look about 80% sure to make a profit. It's the group in between there. Where do we get money to do that?

Mr. Richard Glickman: I think we've seen some significant changes taking place in the Canadian arena in the context of seed financing, the early stage. First, basic research truly has its function and its role, and it should never be tampered with, because it is the future, and we don't do enough there.

How do you translate that from the earliest research, not to the point where you look at a product that got the headlines somewhere that someone wants to run with, but the idea of taking an idea, a prototype, and driving that process? I think we do it the same way we encourage the development of labour-sponsored capital funds, and they have available capital.

I think the issue around seed capital has been the big hole in Canadian innovation. We have seen groups like Ventures West, the Bank of Montreal, and the Royal Bank start to put funds together to fund seed applications. I think it would be wise to look at ways to encourage the sort of labour-sponsored venture fund seed-type pools that would help to address the capital shortfall that exists between early innovation—helping someone get their intellectual property in order, helping them take that first or next critical step, the killer experiment they don't have financing for that has to get done to determine whether they have an opportunity. That's what seed capital should be used for, and that is where we still have a significant hole in our country. That could be addressed though.

Mr. Werner Schmidt: Where is the pool?

Mr. Richard Glickman: There are a variety of pools out there right now, but they're still very small. It is not a high-priority area because the risk element of those pools is very high. Traditional venture groups don't play in the pool, although they are starting to. It's groups like CMDF, the universiy medical.... A number of those are starting to evolve out there, but we need more incentive there to create additional pools for that early stage.

The Chair: Thank you, Mr. Schmidt.

Mr. Murray, please.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you.

I've enjoyed listening to you and could listen for hours.

I'd like to be a little negative here in terms of the idea of a national champion, to take a different approach to this. I do not want to sound too cynical about it, but I don't think it's just a question of biotechnology. I think we need national champions for all knowledge-based industries.

The national champion has to be a person or group that has the ability to really yank the rug out from underneath the status quo. I think we're talking about major changes, and I think part of the problem we have in Canada is that we have an anti-elite bias. I guess it comes back to the star system that Dr. Friesen was talking about.

I've often messed with this question of how you keep knowledge-based workers in Canada. It usually comes down to individual decisions. It's the individual trying to maximize their wealth, their standard of living or whatever. I think we have to get to the point where—I'm not trying to make a speech here, I'd rather hear from you—marginal tax rates can come down dramatically. But I think we're fighting this bias, if you will, in that those who work in these industries tend to be often in the top 1% or probably 5% at the very least of income-earners in Canada. You therefore have this jealousy factor out there if there is special treatment of these people. On the other hand, I think a lot of us would say yes, we should do whatever we can to encourage these people to stay in Canada.

• 1040

I just want to throw that out to you, if you have any sense of how.... I mean, this kind of incremental change we are talking about with the industry committee helps, but I think you have to address the societal problem if you want to change this.

Dr. Jim Friesen: Mr. Chairman, I would just say a word. It's only my own opinion, of course, but I think everyone in Canada is proud of the fact that we in fact have struck a pretty good balance, and we have paid a lot of attention to societal causes. I think a lot of us think we've done a better job than some other countries that are really quite near to us geographically.

The downside is that we haven't also developed the other side, which is to acknowledge our real stars, to recognize when there really is a place where you have to make a special investment, and recognize it as a special investment and give it special treatment. I think this area is one of those.

Encouraged by the disappearance of budget deficits, we now, thankfully, are about to enter an era when perhaps we can think about how we can invest some of those tax savings that are starting to accumulate in coffers not far from here. I hope that on the basis of that, some of these special area decisions will be made in the right way.

Mr. Ian Murray: Mr. Glickman, did you want to say something?

Mr. Richard Glickman: Just that it's a tough one, and I struggled with this—even coming out here and deciding whether it was worth flying out, to be quite frank.

What we're talking about—at least what I believe is required in this country—are very significant changes to the way we operate. I'm very much a believer in our national health care system and in the way we operate as a society. Nonetheless, I recognize the reality of the world we're working within. I do know that it's knowledge-based. It's broad-based, as you said. We must be able to be competitive. We must be able to bring people into this country, and we must keep the people we want to keep here, if we're going to be at all competitive.

The question that needs to be asked is if we are not competitive, what is the reality of our world looking like for Canada, going forward? What's that reality? What's the risk of that reality versus the risk of the political fallout that comes with making changes that will affect a small number of people at least on an interim basis? How do you truly create wealth?

I really believe strongly that we have to take a look at the hard realities. We have to figure out how they can fit into our Canadian system, and we're going to have to give up certain things in order to be competitive. But we have to decide what our values are and what's really important to us.

It's a big question, and I didn't expect that we would, you know.... Just to share my feelings, I do accept the fact that change has to come. They call me a socialist at work because of the way I operate the organization, the way I believe in sharing and in the involvement of everybody. It's just the way we operate at building our business and in how we share the wealth and how we share the opportunity.

Nonetheless, we have to be realistic in terms of how we apply and how we are competitive, particularly in the tax arena. We have to bite the bullet. Someone has to stand up and make the change. So far, I'm not too optimistic.

Mr. Ian Murray: Am I out of time? I seem to be giving a speech, I guess.

The Chair: Thank you very much, Mr. Murray.

[Translation]

Ms. Lalonde, did you have another question?

Ms. Francine Lalonde: Mr. Glickman, you didn't completely convince me because you are already involved. How exactly did you reach this stage? What is it in your experience that made you able to understand how a scientific product can become a commercial one? Taking your experience as an example, we can perhaps help other people do likewise.

I'm not a great advocate of the type of changes you refer to because there is a certain quality of life related to the kind of values we share to a large extent in Quebec and in Canada. What exactly encourages people, either scientists or businessmen, to leave? Wouldn't it be because they don't have the right tools to do their work? I think that your young scientist can put up with the salary difference provided he has proper support for top quality research. I think the same is true for physicians. They are able to put up with the difference in pay but they must at least be able to work in good conditions. I think the same is true for business people. I don't want Quebec to become a part of the United States. If the solution is to join the US, it's up to Canada to decide but I don't think that's the right approach.

• 1045

[English]

Mr. Richard Glickman: I don't think that's in fact what I'm implying here. I mentioned I was very proud to be Canadian. I do believe in our system. I think we believe it.

We talked about our wonderful programs, our social programs. The reality is that the programs you believe in so much are not sustainable, and they will not be sustainable going into the future. With the changing dynamics of our population, with the growing and aging population we have, we are not going to be able to maintain what we believe is this idealistic state of health care. In fact, it is declining and continues to decline. So I don't buy into the fact that we can just go with the status quo and expect to be able to maintain the things that represent our values. They're not going to exist.

So I really believe that, number one, because I do fundamentally believe in the values that we grew up with as Canadians. I believe in the values we operate from in terms of access and universal access. I don't think I'm trying to talk about threatening those. I'm talking about how you build enough of a healthy economy to be able to support those. It's a different thinking on that issue.

On the second issue, there's no question that scientists and business people will pay a premium to live in Canada. I'd happily pay a premium to be in this country, over.... This is where I want to live. But I have shareholders. I have people who buy into my organization, to whom I provide a vision. I have to deliver to them the reality.

What I needed to do to make this work was to create a U.S. company. So I have a Canadian company and I have a U.S. company, and I do certain development work south of the border to facilitate the growth of the opportunity for our people. I did not want to do that. I wanted to keep it all in Canada. But I did what was right for my shareholders. And many other corporations, if you look at what's happening, are in that similar arena right now. We have to address this in order to be able to build what is value for Canadians long term.

Look at physicians. Why do they go elsewhere? They go elsewhere because they want the best equipment. They want to be leaders in their field. They want to lead. And where can they get access to the equipment, the surgical equipment, the resources? They go south. They go to where they can get that.

That's what people want to have. It's not just the bottom line. For some people it's bottom-line dollars, but for a lot of people it's the tools, as you said, to get the job done. That has to be addressed if you're going to be at all competitive and keep people here who can lead, and not only lead, but just deliver required services.

[Translation]

Ms. Francine Lalonde: That's along the lines of what I was saying.

[English]

The Chair: Thank you.

[Translation]

Ms. Francine Lalonde: You realize that I refrain from speaking English out of principle but I know it sometimes creates problems. I've nothing against the excellent work done by our interpreters but it sometimes makes the discussion complicated and I am quite aware of that. I was saying that professionals, whatever their profession, expect to have the proper tools to do their work. What is required for high-tech may be too expensive but I'm sure they want the proper tools to do their job. They do not necessarily expect the same salary.

I have one last question.

[English]

The Chair: Okay, Madame Lalonde. Briefly.

[Translation]

Ms. Francine Lalonde: In view of the sensitive nature of genetic research, shouldn't there be a debate so that we can establish certain limits beyond which we will not go? Isn't the uncertainty due to the fact that right now everything is quite vague? This creates a certain unease.

[English]

Ms. Suzanne Hendricks (President, National Institute of Nutrition): Okay. I guess I'm given the task of answering in French.

[Translation]

That is exactly what we are suggesting. There is a need for public dialogue but we cannot assume that it will only take a day and the matter will be settled. This kind of dialogue and transparency is a continual process and that is why we suggest the creation of an advisory committee with a general view of science, one made up of scientists, jurists and specialists in ethics. So this will be a group of thinkers, of visionaries, of people with leadership who will be able to play this role of a champion. People must know that some of us are aware of the kind of society to which people aspire and are willing to discuss these social problems.

• 1050

That is a very important factor. There must be transparency as well as a dialogue to inform the public. The quality of the dialogue will depend to a large extent on the trust people have in the members of this committee and the quality of the information they receive. It is something that must constantly be maintained.

Reference was made previously to priorities. I think it is essential to have a group like this as an umbrella organization for all the action that is undertaken. When you talked about a champion, I thought of the cluster approach. The people who are at the origin of these clusters, which still exist, particularly in Saskatchewan, are people that champion the cause of biotechnology. Today we are adding another dimension, that is the relationship with the public, so that such topics can be debated.

We are talking about a dialogue because it is important not to polarize the debate. We are talking about a public conversation or dialogue so that thinking can evolve and we can make together our choice together, as a society.

The Chair: Thank you.

Mr. Bellemare.

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): My question is for Suzanne Hendricks.

On page 83 your committee recommends:

...that all the competent regulatory authorities take immediate steps...

There seems to be some urgency.

...to adopt a flexible, streamlined and coordinated attitude with respect to the regulatory approval of the new multi-functional foods and drugs that comply with the health and safety standards. Can you explain this recommendation to me? Why is there this urgency? I'll then have a further question to put.

Ms. Suzanne Hendricks: Our recommendation is that we have a mechanism allowing the regulatory process to take place more smoothly, so to speak, for it to be more streamlined. There would also be an opportunity for some products to be given the fast track treatment. It must be recognized that there are various ways for a product to obtain regulatory approval. There must be a certain uniformity among the various departments so that people submitting new products for regulatory review know exactly what to expect. Perhaps our legal experts could add a few points to this.

Brian.

[English]

Mr. Brian Gray: The question is in many respects similar in a certain way to Mr. Schmidt's question that the confluence of pharmaceuticals and biotechnology.... We have in a sense a merging of the technologies of farming and pharmaceuticals in biopharming. We have the ability to create pharmaceuticals in biological products such as agricultural products and in animals, and to use those to create pharmaceuticals.

The result of that convergence of technology is that there are a number of governmental departments that can regulate this type of biopharming, this type of multi-descriptor food, if you will. They could be regulated as a drug. They could be regulated as an agricultural product. There are environmental questions with respect to it.

• 1055

So the plea we make here—and this is not unknown already to the government, who are examining this now—is that there be a coordinated strategy for dealing with these new products, because we feel that if we are the first to get it right, it will be a competitive advantage for us.

Mr. Eugène Bellemare: Given the fact that our nutritional labelling is very poor, in my estimation, for food products—perhaps this question is good to you, or perhaps it's really for the National Institute of Nutrition—if you're going to be producing food products, should the consumers at the grocery store not know that this product was produced biotechnically, and hence that this be put down on a label?

[Translation]

Ms. Suzanne Hendricks: What is particularly important, and this was recognized by the Canadian government, is that when there is a health risk resulting from the biotechnological modification of a food, for example, and this food is likely to provoke allergies, then the product should be labelled to inform consumers of this possible allergy hazard.

Likewise, if an oil, a particular plant or a food product is modified and ends up with a different nutritional value than the original product, then the label must indicate the nutritional value of the product or indicate in some way that this is a different type of product.

In other cases where there is no health risk, then we advocate voluntary labelling. The manufacturer could indicate that this product contains elements resulting from genetic engineering or does not contain any such elements. This is what we refer to as the positive or negative voluntary statement when there is no health risk. In order to promote public confidence manufacturers should probably be encouraged to make use of this voluntary mechanism.

[English]

The Chair: I have to apologize. We have to end this meeting because we now have another group coming in. I agree with you; we could be going on in this line for quite a long time.

I want to thank the committee for being with us today and for presenting their report in the very thorough presentation it was. We will be having further meetings on this, and there will be an opportunity for members to ask more questions with other individuals. I want to thank you again, and we look forward to working with you in the future.

Mr. George Strachan: Thank you, Madame Chair. On behalf of the members, I would like to thank you for listening to us and hope that ultimately you would be able to support the recommendations and advise the minister.

The Chair: Thank you very much, Mr. Strachan.

The meeting is now adjourned. We'll be meeting again this afternoon at 3.30 on another issue.