Dr. Pierre Coulombe, NRC President

2009 Ivey Global Health Innovation Conference, Fairmont Royal York Hotel

Toronto, Ontario

November 24, 2009

Good morning ladies and gentlemen.

It is a pleasure to be here and to speak  to a matter of great interest to all of us at the National Research Council—a subject that goes to the raison d'être of the institution I lead.

As a very productive and internationally respected scientific research and development agency, NRC is best known for its scientific breakthroughs – the heart pacemaker, medical isotopes for cancer treatment and synthetic meningitis C vaccine. A great deal of our talent and our energy is devoted to what the OECD defines as innovation –the application of creative new ideas.

Like many others, we recognize that innovation is of immense importance to our nation's economy; that it is both directly and indirectly the key driver of labour productivity growth and the main source of national prosperity. At NRC, we view innovation as a process that begins with new science and technology – the essential kick-start to innovation.

Several years ago I struck a task force from the private sector and academia. I wanted advice on NRC's role in Canada's innovation eco-system – how Canada's premier research organization could best contribute to strengthening it.

That task force took a system-oriented approach in their analysis– an approach that recognizes that while businesses play a central role in developing and applying innovations, they are never alone. Innovation also depends on other institutions, other organizations, and supporting infrastructure in a city, region, or nation. It is the interactions among all participants that determine the outcome. And increasingly, on a national scale, the outcome is determined by the international links that participants develop and share.

A simplified view of Canada's innovation eco-system looks like this:

The private sector undertakes and funds R&D. It applies and adapts R&D to commercialize, sell and export goods, services and processes. It is a significant source of funds – as corporations, as investors in venture capital and as angel investors.

Governments set the framework through legislation, taxation and policies. They are regulators; they provide specialized infrastructure. They determine the pool of highly-qualified personnel through education, labor, human resources and immigration policies. They fund, undertake and support R&D.

Universities and colleges educate the essential highly-qualified personnel. They conduct research and transfer their research discoveries to the private sector.

Bridging organizations such as industry associations and networking organizations connect the players.  A key part of NRC – our Industrial Research Assistance Program  (IRAP) – performs the same function.

This is a simplified view of Canada's innovation eco-system. In reality, many participants don't fit neatly into these categories. NRC, for example, has a firm footprint in each one. We are in many ways a complete innovation microcosm, bringing innovation to markets.

First and foremost, we are an agency of government and conduct government-funded research. However, some 44% of our revenues flow from fee-for-service and other interactions with the private sector. Proactive in transferring our research discoveries to private companies, we have a strong record in generating licensing arrangements and spin-offs.

Much of our work is collaborative – with industry and with  university researchers. Many of our research institutes are located on university campuses, which facilitates collaborations and the exploration of joint opportunities. The high quality of our research institutes makes us a "go-to place" for guest researchers – about 1,500 of them annually. Several of these are Ph.D. or post-doctoral students.

We also partner with industry.  Last fiscal year, the total value of our active Canadian collaborative agreements was $372 million. During the same period,  the total value of our international collaborative agreements was $179 million.

We are a bridging organization for SMEs, in particular through NRC-IRAP, which provides advisory services, technological expertise, networking opportunities and financial assistance.   We are also a bridge to our counterparts in other countries and their highly-qualified personnel.  As we focus on Canada's innovation eco-system, we should not overlook the reality of globalization.

There is no shortage of critics of Canada's innovation performance. The Conference Board of Canada gives it a "D" – a score unchanged for decades. By the Conference Board's recent tally, Canada ranks 13th worldwide in innovation; 6th among G-8 countries.

The OECD produces a great many surveys – the latest relevant one in the form of science and technology indicators that show Canada in 14th place for R&D expenditures as a percentage of GDP – lagging behind such countries as Belgium and Iceland.

Last spring, the Council of Canadian Academies also handed down its report on business innovation in Canada. It paid particular attention to labour productivity growth and our near-bottom rank among 18 OECD countries. The Council ultimately links that poor performance to weak business innovation.

The root causes are the subject of considerable debate. The fact remains that as a percentage of GDP, business R&D in Canada declined by 20% between 2001 and 2007 and has consistently fallen below the OECD average.

On the positive side, Canada ranks 7th for its share of global business expenditure on pharmaceutical R&D. It grew from $200 million in 1988 to more than $1.2 billion in 2003, largely as a result of government policies including patent law changes and additional government funding for research.

Despite that private sector growth in R&D, universities, teaching hospitals and federal and provincial governments still contribute the lion's share of funding.

It is worth noting that $6 billion on health-related R&D represents fully one-quarter of all R&D spending in this country, according to the OECD. Last year, we spent just under $24 billion in total; industry funded less than half of that amount; governments less than one-third.

Of that $6 billion spent annually on health-related R&D, government funding of basic and pre-commercialization research accounts for more than half. Big Pharma's clinical research in health care facilities also accounts for a large share. Generic firms spend about $70 million annually. And biotech and medical devices firms spend, in total, a few hundred million dollars a year.

Government policies and private sector investments combined have produced stunning growth in our pharmaceutical exports – from $1.5 billion in the late ‘90s to $6.8 billion in 2007. But as the Canadian Council of Academies points out, the domestic economic impact has been limited, and even in areas where Canadian research has been successful, commercial exploitation has tended to take place outside our borders.

Two years ago, our own task force came to similar conclusions. It found that our private sector had a weak record of commercializing new or better products, services and processes in comparison to other industrialized countries. It also observed that Canadian firms are less likely than those in other countries to put new technologies and ideas to work in their own operations.

That being said, there are strong indications that at least in the health sector, the R&D landscape is about to change out of necessity.

We have identified an innovation gap in the pharmaceutical industry – a gap we believe that NRC, working with BioPharma, can help fill.

We came to it as a result of our own renewal strategy, a plan to take us to 2011 and beyond. That strategy aims to strengthen Canada's innovation system with a new research focus – a new focus on three urgent national priority areas. Health and wellness received first mention, alongside sustainable energy and the environment.

The following year, the Prime Minister released the federal S&T Strategy. Again, health was highlighted as one of four national priority areas, worthy of targeted resources and new partnerships. Later that year, NRC announced the key sectors of focus for our organization. Bio-pharmaceuticals was #2. The industry is not just on our radar, and on the Government's radar, it is a key part of our flight plan. As we began to develop a BioPharma sectoral strategy, we identified how we might assist firms facing the following innovation gap.

Big Pharma is faced with patent expiry on some $115 to $220 billion worth of its branded drugs between 2007 and 2012. It has few new blockbusters in the pipeline. As a result, there is enormous pressure to bring new drugs into the system.  Most of the ‘easy discoveries' have been made. New approaches are required to meet unmet medical needs. In fact, these new approaches are already emerging as trends.

Our review of technological trends shows a shift in the industry away from traditional screening for small chemical entities and toward the development of molecular therapies and biological molecules targeting novel untapped molecular targets and new mechanisms of action. We have also seen that co-development of drugs and diagnostics has become more prominent.

One key issue for the biotech industry is the urgent need to mature technologies further in Canada – to bring them to the point where they present a solid business opportunity to people with the financial means to bring them to market.

There is also a manufacturing challenge – several challenges, in fact. We need to increase productivity of existing facilities and technologies. And we need to develop new approaches, new tools and new strategies. New bioprocesses must be faster and less costly.

At NRC, we are working with the biopharmaceutical industry to collaborate on the innovations that the pharmaceutical industry urgently needs – demonstrating, I believe, the principle of strength through partnership.

Let me give you an example of what we achieve through collaborations. Through our Genomics and Health Initiative Cancer Program, we have developed cancer-fighting therapies that our partner, Alethia Biotherapeutics, found promising – so promising that in April it exercised its option to license the worldwide therapeutic and diagnostic rights to Clusterin-specific antibodies.

We have been working with Canadian and non-Canadian companies for some time. Between 2000 and 2008, some 37% of 179 companies that develop therapeutics turned to one or more of our life sciences institutes for assistance. In all, over that period, NRC's life sciences clients paid some $100 million for institute services – the bulk of that from BioPharma companies, and the lion's share from international firms.

I would like to take this opportunity to touch on the value of technology clusters in Canada's innovation system, —an initiative that we actively promote across the country.

We support 11 in all, including four that are health-related – the Plants for Health and Wellness Cluster in Saskatoon, the Biomedical Technologies Cluster in Winnipeg, the Nutrisciences and Health Cluster in Charlotteown and the Life Sciences Cluster in Halifax.

The Winnipeg biomedical technologies cluster, in particular, has seen dramatic growth since the early 1990s. Investment in that cluster has created nine spin-off companies and commercialization support organizations. With sales of more than $400 million annually, it is now recognized around the world for its medical devices and life science industries.

In Halifax, cluster partner ImmunoVaccine Technologies has been named one of Canada's top 10 life science companies by a panel of venture capitalists from Canada and the U.S. The company is working on a cancer vaccine – a vaccine that in animal testing has eradicated tumors. There are scores of other success stories emerging from these clusters!

With respect to vaccines, you will have heard of Dr. Harry Jennings' dramatic success in the fight against infant meningitis. The work of his NRC team has saved the lives of countless children around the world. It also paved the way for other vaccines to be created. Now we are engaged in research into another promising vaccine. It is collaborative research with Novartis Vaccines on lipopolysaccaride-based vaccines that could spawn a whole new generation of vaccines to combat bacteria. With antibiotic resistance on the rise, new approaches to combat infectious diseases are more important than ever.

In the field of medical devices technology, we are merging scientific expertise with engineering solutions. We are exploring biosensors, implantable biomaterials, surgical robotics and simulation and more. It is a fascinating field. We have already fostered two spin-off companies – IMRIS and Novadaq Technologies Inc. that raised more than $125 million from venture capital and public IPO markets.

This summer in Halifax, a neurosurgeon made medical history by being the first to remove a patient's brain tumor with the aid of a virtual-reality neurosurgical simulator.  That technology was developed at NRC. It combines a series of sophisticated MRI scans to show surgeons an individual's anatomy and all key areas of concern prior to performing the actual operation. Seven prototypes of the system are expected to be in use across Canada within the next 18 months. It could well be used worldwide within three to five years.

Then there's the NeuroArm, a high-precision robotic arm that can perform brain surgery, guided by a sophisticated imaging system and a surgeon's skill – at the computer. NRC partnered with Dr Garnette Sutherland, professor of neurosurgery at the University of Calgary, as well as with MacDonald Dettwiler and Associates, to develop this revolutionary concept.

These promising technologies, and others that lead to more personalized medicine, are some examples of what NRC and its partners can deliver to foster innovation in Canada.

We are keenly aware that more is needed to take discoveries from the lab to the loading dock and we are working on that too. As I mentioned earlier we have our Industrial Research Assistance Program that is of great interest to many small and medium-sized Canadian firms.

We provide non-repayable contributions to Canadian SMEs interested in advancing new technology into commercialized services, products and processes in Canadian and in international markets. We also provide mentoring support and invest, on a cost-shared basis, in research and pre-competitive development projects.

In fiscal year 2007-2008, NRC-IRAP contributions to Canadian firms exceeded $80 million, including $2.3M to the pharmaceutical industry. This year is different. The federal Budget 2009, Canada's Economic Action Plan, designated an additional $200 million over two years to NRC-IRAP.

We have countless success stories. In 1993, an NRC-IRAP Industrial Technical Advisor began working with Angiotech Pharmaceuticals in Vancouver. The fledging company needed technical expertise, and links to the private sector and the university community. Within five years, Angiotech had developed technology to help control chronic inflammation and angiogenesis and had signed a $32-million licensing agreement. Then came another breakthrough in the field of coronary stents. Today Angiotech has about 1,500 employees worldwide with operations in Canada, the U.S. and Europe.

Another NRC-IRAP client put it succinctly. ViRexx Medical Corp. President and CEO, Dr. Tony Noujaim said, I quote: "NRC-IRAP does the due diligence to ensure that it is investing in sound, reputable science. Having the NRC-IRAP ‘stamp of approval' makes a real difference to investors."

To sum up, I acknowledge that Canada's innovation performance has long been lackluster but I do not share the gloomy prognosis. With the benefit of intimate knowledge of our S&T community and its remarkable advancements, I am far more optimistic.

I do feel there is a sense of urgency, however, to prevent further decline given the current economic climate. As the OECD pointed out in June, innovation risks being hit hard  as the capital to finance it grows scarce.

Here in Canada, the government has pledged to invest $5.1 billion in science and technology as part of its Economic Action Plan. Part of that involves funding research infrastructure projects and support for the state-of-the-art equipment and laboratories required to conduct research. As I have mentioned earlier, new resources totaling $200 million over two years have been allocated to NRC's Industrial Research Assistance Program as part of this plan.

Business schools such as the Richard Ivey School of Business also have an important role to play by producing business managers, venture capitalists, and innovative health administrators that have the knowledge and skills to successfully tackle the challenges of commercialization of health-related innovations.

Historically, business R&D spending and patent filings have been in parallel with GDP – slowing markedly during economic downturns. However, and it is a big however, countries whose governments increased R&D investment during downturns have reaped substantial economic rewards as those investments bore fruit. It is an example worth following.

Thank you.