This chapter focuses on identifying ways that the federal government could promote technological innovation in Canada, including funding research and development activities; addressing obstacles to commercialization by increasing access to venture capital and business expertise; and fostering collaboration among academic institutions, industry, governments, health care organizations, and patient stakeholders through public-private partnerships.

A. Research and Development

According to the Organisation for Economic Cooperation and Development’s (OECD) 2002 Frascati Manual, Research and Development (R&D) consists of three forms of research: basic research, applied research and experimental developments.[194] The Committee heard from witnesses that in order to promote the development of new health technologies, it is important that the federal government maintain its funding for basic health research.[195] Basic research is defined by the Frascati Manual as the “experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view.”[196] According to scientists appearing before the Committee, basic research is the source of the development of innovative health technologies, as they are derived from efforts to understand the basic laws of physics, chemistry and biology and apply them to important medical questions.[197] They explained that the development of their innovative drugs and devices had resulted from their basic research.[198] They further articulated that funding for basic research needed to come from public sources, as the funding of basic research is often considered too risky for industry to invest in, as there may not be an immediate financial payoff from these efforts, as one witness noted: “Canadian venture capital companies will not take this risk. This is the role of government to seed innovation in the laboratory, even when you do not know what it will yield or when it will yield it.”[199] Furthermore, the Committee heard that if basic research in Canada is funded by international companies, Canadian researchers could also lose their rights to commercialize their discoveries.[200]

The Committee heard that it is also important to foster applied research, as well as experimental development research, in order to promote innovation in Canada. Applied research is defined by the OECD’s 2002 Frascati Manual as original investigation applied towards a specific objective or problem, while experimental development is the application of existing knowledge towards the production of new materials, products or devices, or processes or systems.[201] According to Mr. John Soloninka, President and Chief Executive Officer of the Health Technology Exchange, it is also necessary for federal research granting agencies, such as CIHR, to focus on supporting research that transforms basic scientific knowledge into something that can be used in clinical practice or sold as a product in order to receive possible returns on the public investments made in basic research, such as improved health outcomes for Canadians, economic growth, and savings to health care systems.[202]

The Committee’s study revealed that it is necessary to provide incentives to Canadian academics to foster applied and experimental development research in Canada. A written submission provided by Dr. D. Lorne Tyrrell from the Canadian Academy of Health Sciences explained that there is some reluctance on the part of Canadian academics to focus on how to translate their discovery research into innovative applications, as the academics believe that they either lack the experience or knowledge necessary to do so and/or believe that innovation is secondary to basic research.[203] Consequently, the brief explained that there is a need for a cultural shift in the mindset of Canadian academics to focus on translating their research to realize commercial benefits.[204]

Witnesses provided some recommendations in order to promote applied research and experimental development in Canada. They suggested that academics receive training and support to help them write patent applications, as well as have universities include patents as part of the criteria for tenure for professors.[205] The Committee also heard that academics face high patent application costs ranging from $10,000 for initial patents and up to $80,000 to file patents world-wide.[206] Similarly, other witnesses recommended that the Canada Research Chairs Program include “Canada Innovation Chairs” to recognize achievements in the commercialization of research.[207] Finally, Professor Adam Holbrook, Associate Director for the Centre for Policy Research on Science and Technology at Simon Fraser University also explained that there is a need for a common intellectual property regime in Canadian universities, as intellectual property regimes in academic institutions are inconsistent across the country.[208] Consequently, the Committee heard that industry is reluctant to partner with academic institutions on research and development projects.[209] He therefore recommended that federal research granting agencies develop national intellectual property guidelines that could be adopted voluntarily by universities.

B. Commercialization and Venture Capital

Commercialization is the means by which an idea or prototype is transformed into a market-ready product and is the core of the process by which an invention becomes a business innovation.[210] Witnesses identified ways that the federal government could promote the commercialization of health technologies, including increasing access to venture capital and business expertise and promoting collaborations among academic institutions, industry, governments and health care organizations through public-private partnerships.

1. Access to Venture Capital and Business Expertise

Witnesses identified access to venture capital and business expertise as one of the main challenges facing the commercialization of health technologies in Canada.[211] According to Mr. Paul Kirkconnell from the Business Development Bank of Canada (BDC), a federal Crown corporation, the amount of venture capital available in Canada declined over the past 10 years from a high of nearly $4 billion in the late 1990s to $1.5 billion in 2012, because of the global financial crisis.[212] The Committee heard that a shortage of start-up and seed-stage capital in the life sciences in Canada means that many innovative ideas remain in the laboratory.[213] Start-up or seed-stage capital is used to fund activities in the early stage of commercialization, such as applying for patents, proof-of-concept,[214] product development and initial marketing.[215] According to Dr. Ilse Treurnicht, Chief Executive Officer of MaRS Discovery District, seed-stage capital is critical because it brings the new product to a level where it becomes less risky to invest in and can therefore attract further investment from venture capitalists either in Canada or abroad.[216] She further noted that it is at the seed stage that governments typically step in because it is the most difficult stage, a stage which other witnesses referred to as “the valley of death”.[217]

The Committee also heard from witnesses that once small companies pass the initial start-up stage, they continue to face challenges accessing venture capital as they grow.[218] Consequently, they license their products to other companies outside the country, which often leads to a relocation of jobs and economic benefits of the innovation. For example, the Committee heard how Canadian researchers developed a micro CT scanner technology and established a company called EVS to commercialize their product. However, the researchers were unable to raise enough capital to grow the company resulting in it being sold to General Electric, which eventually sold it to another company, Gamma Medica Inc., which moved the company and its jobs to California.[219]

In addition to accessing venture capital, Dr. Treurnicht also explained that start-up companies require sophisticated business expertise to execute partnerships with large companies, deal with intellectual property issues, attract capital and have an understanding of and be able to translate a highly specialized science to the business community.[220] Mr. John Soloninka from Health Technology Exchange explained that in comparison to the United States, Canada lacks this type of management talent that has experience bringing companies through the commercialization process.[221] Therefore, these witnesses suggested it was necessary for governments to focus on training in this area, or provide opportunities to attract individuals with this talent to Canada by building collaborative partnerships focused on innovation and commercialization.

The Committee heard that the federal government was addressing these challenges in several ways. Mr. Kirkconnell from the BDC explained that his organization is providing financing opportunities for the commercialization of health technologies.[222] The Committee learned that BDC has an internal fund that provides direct funds to help new companies involved in health care innovation grow and find new markets. BDC also has a Strategic Investments and Initiatives team that helps mentor early stage entrepreneurs and a Canadian Technology Accelerator program that helps health care start-ups in Canada connect with health care companies in the United States. He further explained that BDC also helps develop venture capital in Canada by investing in funds managed by venture capitalist companies, which in turn invest those funds in Canadian start-up companies. In support of this aim, the Committee heard that the federal government announced the creation of the Venture Capital Action Plan, which will provide $400 million in funding to support private sector investments in early-stage risk capital, and to support the creation of large-scale venture capital funds led by the private sector.[223] The Committee heard that $125 million of this fund would be devoted to the health care sector.

Witnesses also explained that the federal government provides support to health technology companies through a program run by the National Research Council Canada called the Industrial Research Assistance Program (IRAP),[224] which provides small- and medium-sized enterprises with technical and business advisory services, financial assistance, and networking and linkage services.[225] While witnesses very much valued IRAP, they also offered some suggestions for its improvement. Two witnesses recommended that IRAP develop expertise in evaluating health technologies.[226] One witness suggested IRAP consider providing funding to start-up companies for the clinical trials that they need to undertake to prove the clinical effectiveness of their products prior to regulation by Health Canada.[227]

Many witnesses also suggested that the federal government examine the feasibility of similar programs offered in the United States through the National Institutes of Health, including the Small Business Innovation Research Program and the Small Business Technology Transfer program.[228] These programs were seen by witnesses as being effective in supporting commercialization, because the programs focus on financing small companies in the more challenging seed or start-up stage.[229] These programs also promote the procurement of new health technologies by local health organizations.[230] Finally, witnesses also explained that the federal government could examine other options for financing small start-up companies, such as tax credits for academic institutions, hospitals and other investors supporting these projects.[231]

2. Public-Private Partnerships

The Committee heard that the federal government could also promote the commercialization of health technologies by fostering collaboration among academic institutions, industry, health care organizations and governments. The Committee learned how different types of public-private partnerships in Canada are succeeding in promoting the commercialization of health research. For example, witnesses highlighted the MaRS Discovery District, which is a not-for-profit public-private partnership that is funded through the federal government’s Centres of Excellence for Commercialization and Research .[232] It is a partnership consisting of 15 academic institutions, including research hospitals, that work together to create a pipeline of research discoveries that are commercially relevant and viable to partner with industry. MaRS provides start-up companies emerging from its pipeline with mentoring and business training and education. It also administers a seed-fund provided by the Government of Ontario to support these new companies. Since its beginning in 2008, MaRS has launched more than 20 new companies, one of which, Xangenic, has expanded after raising over $10 million in venture capital financing to develop point-of-care diagnostics for infectious diseases.[233]

The Committee heard about the University Health Network’s Techna Institute, which focuses on developing new health technologies designed to meet the needs of health care organizations and health care practitioners by bringing together academic clinicians, engineers and industry.[234] Written submissions to the Committee also described the Centre for Drug Research and Development (CDRD), which is a national not-for-profit drug development and commercialization centre funded by the federal government that works with a national network of affiliated universities and teaching hospitals to identify Canada’s most promising drug discoveries.[235] CDRD’s Ventures Inc. (CVI), the Centre’s commercial arm, funds these discoveries to the point of third party investment. CVI has raised $135 million since 2007 from both public and private sector partners in the pharmaceutical industry to advance projects towards commercialization.

Finally, several witnesses suggested that the federal government could also bring academic institutions, health organizations, health care providers, patients, governments and industry together on a much broader scale in multi-stakeholder partnerships to work together to address the common challenges facing health care systems across the country, such as chronic diseases and the aging of the population.[236] One witness, Dr. Pascale Lehoux, Canada Research Chair on Innovations in Health from the Université de Montréal, suggested that this collaboration could be achieved by the federal government establishing an intersectoral health innovation development body driven by the health portfolio, which could focus on creating better alignment between technological development done by industry and the needs of health care systems.

C. Committee Observations and Recommendations

The Committee’s study identified several ways that the federal government could promote technological innovation in health care in Canada. Witnesses stressed the importance of continued federal funding for research and development activities. The Committee heard that it was important to foster applied research that has commercial application by focusing on intellectual property rights in academic institutions, including the development of standards in this area; training for academics in patent applications; the inclusion of patents in criteria for tenure; and addressing the costs academics face in filing patents. To promote the commercialization of health technologies, witnesses highlighted the importance of improving access to venture capital and business expertise. In addition, witnesses highlighted how public-private partnerships were successful in promoting the commercialization of health research in Canada. The Committee therefore recommends that:

20. The Government of Canada continue to fund research and development activities in order to promote technological innovation in health care in Canada.

21. The Government of Canada continue to fund not-for-profit public-private partnerships focused on the commercialization of health research through its Networks of Excellence of Canada Program.