Thank you for the opportunity to participate in this very well conceived program.
It takes 10-15 years, and approximately 1.5 billion dollars to commercialize a biotechnology product.Venture capital, the primary source of fundraising for Canada's emerging biotechs, has dropped 75% since the beginning 2007.Eighty per cent of Canadian biotechnology companies are privately owned. The majority of the sector is made up of SMEs: 50 per cent of biotechnology companies have less than 20 employees, and 80 per cent have less than 100 employees.As of January 2010, 70% of Canadian biotechs reported they had close to one year of cash on hand.The biotechnology sector is typically more sensitive to market movements than other sectors. Canada's publicly-traded biotechs are still recovering from the global economic downturn - as of April 1, 2010, the market capitalisation of Canada's publicly-traded biotechs is 15% lower than pre-market crash levels. To encourage Canadian retail investors to invest in LSVCCs, the federal government and some provincial governments offer tax credits. Currently, the federal government offers investors in LSVCCs a 15% tax credit on a maximum investment amount of $5,000 per year - worth up to $750. Some provinces offer further 15% tax credit on top of that. Together that can add up to $1,500 in tax breaks. In total, a $5,000 investment would cost $3,500 when you take the tax credit into account. The idea behind LSVCCs was first proposed in the Canadian province of Quebec in 1982. The province was in the midst of a recession and the lack of capital in small and mid-sized companies had caused numerous bankruptcies.In response, the Quebec Federation of Labour proposed a &quot;Solidarity Fund&quot; at a provincial economic summit conference in 1982 to help the provincial labour movement create a locally-controlled healthy and sustainable economy. The intention was to lure venture capital to smaller Quebec firms.This new type of fund slowly began to spread across the rest of Canada during the 1980s. But it wasn't until the late 1990s that LSVCCs became truly noteworthy outside Quebec, thanks in equal part to generous tax breaks from federal and provincial governments and attractive returns.
According to KPMG, Canada 痴 R&D environment ranks first in terms of cost competitiveness for biomedical R&D amongst the G7 nations. Canada has established the fastest rate of growth in external patent applications and in industry investment in R&D among G7 countries. Canada provides 20-year patent protection for pharmaceuticals, ensuring a favourable and stable investment climate for innovation. Recent amendments to data protection provisions in the Food and Drug Regulations, will benefit innovative drug companies by guaranteeing a minimum of 8 years of market exclusivity for their products. A further 6 months of protection is available to drugs, which have been subject to paediatric studies.The country has many other strengths. Overall, as a location for manufacturing, Canada has the lowest costs to establish and operate a manufacturing facility when compared to all other G � 7 countries. Federal taxation offers a 20 percent non-refundable tax credit for public companies and a 35 percent refundable tax credit for private companies on current R&D expenditures, including capital expenditures on R&D and machinery and equipment. The Scientific Research & Experimental Development (SR&ED) program provides tax incentives to eligible companies that develop new or improved technologically advanced products or processes in Canada. When these incentives are combined with similar tax credits from Canada 痴 provincial governments the after tax cost of R&D expenditures can be reduced by as much as 60 percent. These generous incentives mean Canada has the lowest effective tax rate amongst its major competitors. Scientific Research and Experimental Development (SR&ED) Tax Credit Program The Issue The SR&ED program restricts refundable tax credits to companies classified as Canadian-Controlled Private Corporations (CCPCs). As a result, non-CCPC companies are moving their research investment out of Canada. Removing this restriction for refundable tax credits would stimulate more research investment and jobs by non-CCPC firms and create almost $1 billion in value to the Canadian economy. Recommendation 1.We recommend removing the current CCPC restrictions on SR&ED for refundable tax credits.2.Increasing the expenditure limit for refundable credits from $3 million to $10 million. Background The SR&ED investment tax credit program was established in 1985 before international free-trade agreements and although some changes were made in the 2008 federal budget, the program does not reflect today's global business environment.The program penalizes public or non-majority-Canadian-owned firms (ie. Non-CCPC). If a company is a CCPC, it is eligible for a refundable tax credit of 35% on up to $3 million of annual R&D spending. If the company is not a CCPC, it receives tax credits of only 20% on its R&D expenditures and these are not refundable.Public companies or those whose majority ownership is located outside of Canada face a competitive disincentive to build research capacity and do work in Canada.Two-thirds of Canadian biotechnology jobs and investment in research and development come from non-CCPC companies.Non-refundable tax credits are not useful to most biotech companies as they report no taxable income, and are several years from profitability. Raising capital is a primary concern for these companies.When a Canadian company successfully attracts international investment it loses valuable refundable tax credits even though jobs, research and innovation are still conducted in Canada. This can, and has, lead investors to relocate activities and jobs outside of Canada.BIOTECanada estimates that removing the CCPC restriction would cost an additional $75 million per year (2% of the value of the program), but would create close to $1 billion in new wealth and economic gains.*
IVEY ENTREPRENEURSHIP CROSS-ENTERPRISE LEADERSHIP CENTRE Medical Technology Innovation Public Policy Drivers for Innovation & Adoption of Medical Technologies <ul><li>Jeffrey S. Graham </li></ul><ul><li>Borden Ladner Gervais LLP </li></ul><ul><li>416-367-6174 </li></ul><ul><li>[email_address] </li></ul>
Outline <ul><li>The current Canadian public policy environment </li></ul><ul><li>Investment incentives </li></ul><ul><li>R&D incentives </li></ul><ul><li>Procurement incentives </li></ul><ul><li>Proposed direction </li></ul>
Investment Incentives <ul><li>Provincial (Illustrative): </li></ul><ul><li>Ontario Venture Capital Fund </li></ul><ul><li>Health Technology Exchange </li></ul><ul><li>Ontario Emerging Technologies Fund </li></ul><ul><li>Ontario Innovation Demonstration Fund </li></ul>
R&D Incentives <ul><li>SR & ED - Federal 20% non-refundable tax credit for public companies and a 35% refundable tax credit for private companies. </li></ul><ul><li>Granting programs and agencies: </li></ul><ul><ul><li>Genome Canada, CIHR, NRC, NSERC, IRAP </li></ul></ul>
Procurement Incentives <ul><li>Provincial Plan Listing Decisions </li></ul><ul><li>Quebec “15 year rule” </li></ul>
Proposed Direction <ul><ul><li>Implementing an effective right of appeal for innovators within Canada </li></ul></ul><ul><ul><li>Enhancing innovator Data Protection to U.S. and EU levels </li></ul></ul><ul><ul><li>Implementing a Patent Term Restoration system similar to that of our G7 competitors </li></ul></ul><ul><ul><li>Improving Health Canada regulatory review performance; </li></ul></ul><ul><ul><li>Targeting higher public reimbursement rates for innovative medicines and vaccines. </li></ul></ul><ul><ul><li>Expanding the definition of eligible research to better capture all aspects of clinical research, including all investments in clinical trials, as well as complementary investments in other forms of research partnerships not currently eligible for SR&ED credits; </li></ul></ul><ul><ul><li>Create flow through shares program for medical technologies; </li></ul></ul><ul><ul><li>Consideration of a refundable wage credit for R&D workers to better target and sustain employment in innovation. </li></ul></ul>