David Allan, principal, Cresswell Advisors

The shameful waste of Canadian discovery and innovation in the life sciences

By David Allan

The Canadian Trade Commissioner Service boasts that "Toronto has the largest faculty of medicine in North America, producing more peer-reviewed publications than any other medical centre in the world". If this is true, and who would doubt the Canadian government, the magnitude of the output from just Ontario's Biotech Ring of Fire alone would awe the world. And that is even before we get to the rest of Canada's powerhouses of academic research in the life-sciences, stretching from Memorial Univ to the Univ of British Columbia.

Peer-reviewed publications — the results of biological exploration — are no less a commercializable national resource than rocks, trees and biotic pools are commercializable natural resources.

Companies that have succeeded in translating the results of biological exploration into medicines of human and agricultural benefit have, in the last ~20 years, risen from economic irrelevance to economic dominance. How dominant? How can you possibly put "biological exploration and its development" in the same sentence as "geological exploration and its development"?

Huge benefit

Just four* foreign-owned biotechnology companies that, only 20 years ago had a combined market capitalization of $1.2 billion, today exceed in market capitalization of the entire mining industry in Canada (as represented by all of Canada's public mining companies and the entire energy industry) or Canada's five largest banks.

Just one of them — Gilead Sciences — exceeds in market capitalization the combined value of Ford, General Motors and Chrysler/Fiat. Just two of them exceed Toyota in value, the world's largest automotive manufacturer.

Gilead's net profits in 2015 were double the net profits of the Royal Bank of Canada — the highest reported by a Canadian company. There is not one single Canadian biotechnology company of any economic consequence. Given the monumental investment that Canadian taxpayers make in basic research this is outrageous.

We have more peer-reviewed papers and we spend something in the neighborhood of $3 billion a year of public money on the supply-side — basic research across this nation. So the absence of a single demand-side translational receptor company of any consequence whatsoever — either financially or, more importantly, in having converted discovery and innovation into products useful for human and agricultural health, is an international embarrassment.

Society deserves a return on its investment. Dr Henry Friesen, former president of the Medical Research Council (and architect of the Canadian Institutes for Health Research) stated on receiving the Life Achievement Award, Life Sciences Ontario in 2005: "Investment in the supply of innovation must continue to grow, but needs to be supplemented with investments in the receptor mechanisms to make the cycle of innovation truly functional and productive".

Canada has plenty of discovery and innovation

There is, by the evidence, no paucity of innovation or discovery in Canada. Nor is there an absence of management skills, or development skills and certainly no absence of clinical skills, given that the very companies that have picked up our baton now perform clinical work in Canada.

There is, equally by the evidence, a perverse and established active discouragement of the single missing ingredient that is able to convert this innovation and discovery into both medical and economic value. That missing ingredient is access to capital. The perversity is Ottawa's consistent refusal, irrespective of the political party in power, to extend to biological exploration the Flow Through Share program. This is the very instrument that has single-handedly been credited with making Canada the world's leading country in geological exploration.

For as long as this country continues to subsidize the flow of capital to geological exploration and development it must, by definition, specifically discourage capital formation for the significantly more important economic and social activity – biological exploration and development. The perversity of this wooden-headed refusal to recognize the factual magnitude of the social and economic impact from translational of life-sciences basic research is staggering.

Consider flow through shares

Given the monumental risks that the translational process involves – that Bristol Myers, Juno, Astra Zeneca and numerous others have again recently confirmed for the illiterati — the solution is for governments to create public policy that fosters and encourages economic activity in the life-sciences. And the public policy should be the extension of one of the world's most envied capital-incentive programs — flow through shares (FTS).

The smell of the red herring of the cost to the treasury pervades Ottawa's resistance to extending this program to the most meritorious of Canada's national assets. The argument is false — the red herring is malodorous. The FTS program simply takes deductions that corporations already have, transfers those to an investor with the resulting expenditure of the capital raised occurring in this country. The transferring corporation subsequently pays tax that it would have sheltered by his own expenditures.

The FTS program is tax neutral other than that it transfers some of the risk of development from investors to the public purse. In the aggregate, however, to assume that Canada's great output of innovation and discovery in medicine would not create corporations of important magnitude is churlish, and contrary to the evidence.

Given the enormous economic consequences that the specific examples above identify, and the short time period in which that consequence occurs, resisting the extension of this program to the $3 billion a year of public expenditure in biological sciences is contrary to the Canadian public interest.

* Amgen is excluded from the list since it was reasonably well established 20 years ago when the average market cap of Gilead, Celgene, Regeneron, and Biogen was ~$350 million.

David Allan is the principal of Toronto-based Cresswell Advisors, an advisory and consultancy firm for development-stage companies in the life sciences.