Productivity: Innovation think-think
makes recommendations
As we all know, there has been a lot of discussion lately about Canada’s track record on innovation and productivity. By now, most of us have heard that the Conference Board of Canada’s latest report gave Canada a failling grade on innovation. We’re 14^th among 17 peer countries in the OECD.

Canada's productivity pace has slowed to a crawl of 0.7 percent
That report is certainly not the only one to address the issue. It seem everyone remotely connected to industry has been pointing out that Canadian productivity is down. And life sciences is one of the worse sectors showing such a decline. Over the last decade, Canada’s productivity pace has slowed to a crawl of just 0.7 percent or half the pace we set in the previous two decades. This pace is dramatically short of the nearly 10 per cent growth rate in productivity racked up by the United States over the same period of time.
 
What to do about this embarrassing shortfall? Being Canadians, we formed a national think tank to discuss the issue. The group brought together in October 2009 featured more than 50 leaders from the private sector and academia and the project was co-chaired by GlaxoSmithKline Inc. (GSK) CEO Paul Lucas and former Liberal Deputy Prime Minister John Manley. Discussions went on for a long time and resulted in the formation of the “Coalition for Action on Innovation in Canada (CAIC)”. The group identified seven key themes to take action on innovation including improving tax policy; nurturing start-ups; strengthening business academic links, building the innovation talent pool; reshaping framework policies; developing innovation clusters; and ensuring effective ongoing advocacy for innovation.  The plan was released as a nine-page report.

Starting from the observation that Canada is not globally competitive on a number of fronts in relation to innovation, the plan focuses on correcting the situation as quickly and painlessly as possible. When rolling out its recommendations to different industry sectors, the Coalition asks stakeholders through their own strategic and advocacy plans – to take the innovation discussion to their own board rooms to decide what they’ll do to move the recommendations forward.

Government should focus on removing obstacles to innovation
Predictably, the report calls on government to take action – but not in the traditional sense. Essentially, the report recognizes that government can’t just close the innovation gap by throwing more money at the problem. Rather than asking for federal and provincial governments to spent, the report calls tax relief. Tax cuts for investors – to increase the flow of capital to innovative companies; tax relief for individuals – to increase the flow of talent; and increased financial support for research institutions  – to stimulate commercialization of discoveries.

Stressing the fact that it doesn’t expect government to contribute more cash into the research pot, the report instead calls for government to ensure the right policy framework is in place, to remove impediments and align incentives. The report’s recommendations for government action focuses on removing obstacles to innovation, or on realigning existing resources to get a bigger bang for the same buck.

Says the Coalition’s chairman: “This means creating a policy framework that is supportive to industry. Take intellectual property for example, you just have to look at a simple chart to realize that Canada lags behind in terms of its intellectual property protection framework for pharmaceuticals compared to other countries. If we’re going to be major players in the innovation game, we need to create a friendlier operating environment.”

Also of concern says Lucas, is the fact that Canada’s reputation as a world leader in clinical trials has suffered with continued year over year declines throughout the last two decades Another concern is that Canada places 20^th out of 25 countries in OECD rankings, in terms of the percentage of pharmaceutical products that receive reimbursements from provincial government drug programs.

Lucas bluntly explains: “I guess it comes down to two things: the pharmaceutical policy framework is not supportive enough of innovation and it does not support us competing on the global stage. The healthcare system looks at pharmaceuticals as a cost, and not as an innovation to drive better patient outcomes and reduce costs in other parts of the health care system. It is important to recognize that brand name pharmaceuticals represent only 7 percent of the total healthcare bill. So, despite the fact that pharma is a major investor in R&D and an incubator of high-value, high paying jobs, Canada’s research-based pharmaceutical companies are not seen in that light by our biggest customers, the healthcare sytems of Canada.”

Where is the incentive to innovate in Canada?
Lucas goes further explaining that on the one hand, Canadian governments and citizens are investing both in health sciences research capacity, but on the other hand provincial procurement policies, though the drug programs, are discouraging the commercialization of new medicines and capturing the potential fruits of this research.

“We’re not buying or nurturing the fruits of pharmaceutical innovation in Canada the way other countries are. We rank 23^rd out of 29 countries in terms of actually buying our products when we bring them to market. We rank 26^th out of 29 countries in terms of countries for first class products. If you’re a major pharmaceutical company working on a global scale, or a start-up trying to operate in Canada, you can do all this good work, you can innovate, you can create products, but the reality is that Canada’s probably not going to buy your product. And so there is a dichotomy. The major consumer in Canada for pharmaceuticals is the government drug plan, but if that drug plan doesn’t buy your product, you’re not going to be successful from a financial point of view as a business. Put simply, if the government of Ontario told Ford Motors they we’re allowed to sell their cars in Ontario, do you think Ford would invest in Ontario? It’s the same in the life sciences business, and there’s the dilemma, that if you’re a pharma company, why would you actually invest here if your know that the jurisdiction probably isn’t going to buy your product?”

Another area that Lucas feels needs improvement is with the help of government policy makers is Intellectual Property and patent protection.“Whether I’m a small start-up company or a major pharma company, when I bring something to market, the patent protection that I get here in Canada is not equivalent to what I get in other western nations. So I ask, where is the incentive for me to actually innovate in Canada? Why not move to some other country that provides me with better protection for my intellectual property?”

While a major part of the Coalition’s recommendations are about creating a more favourable environment for investing and innovating, the responsibility of the business community and academia is to drive these recommendations and to actually implement them.

“That’s who they’re designed for primarily. Obviously, public policy does matter but industry needs to lead the way because it’s industry that’s not innovating the way it needs to in Canada. If you step back and look at all the money that’s being invested by governments in research and development in our universities both federal and provincial, they’re investing billions of dollars. The intent of that investment is to create innovation, ideally to create start-up companies that will then be successful in creating jobs and wealth. What we’re asking is that the private sector and the people who are in this field to get together and figure out how to fix this problem. In the name of innovation in Canada, they need to find a way to help these companies emerge.”

The issue is much bigger than just the life sciences sector
“I think the biggest challenge will be overcoming the lack of focus on business’s part to address the issues. The issue is much bigger than just the life sciences sector. If the industries and companies in Canada don’t embrace the need to innovate, then they won’t innovate which is a serious potential problem because if we don’t innovate, we will become poorer both as a country and as individuals. We won’t pay as much tax, and therefore we won’t be able to fund our healthcare and education system. This is bigger than most people think.”

The release of the report could not be more timely. Frustrated that Canada doesn’t seem to be getting enough results from the roughly $7-billion it spends every year on R&D, directly and through tax breaks, the Government of Canada launched its own think tank to conduct a comprehensive review of all existing federal support for business R&D and to see how this support can be enhanced to make sure federal investments are effective and delivering maximum results. It is the Coalition’s hope that this expert panel will take their suggestions to heart and help in the implementation of its Action Plan for Prosperity.

This text was edited from an article published in Biotechnology Focus. For more information visit www.actiononinnovation.ca