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EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, November 8, 1995

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[English]

The Chairman: Ladies and gentleman, given the fact we're under the obligation of being at the vote by 5:15 p.m. and we've got to be efficient with our time, we're going to begin because there is a member of the opposition here.

With your indulgence, Mr. Gleeson, I will attend to a couple of housekeeping matters and then we can run through until 5 p.m..

In order that we may at least have some sense of where we're going - and I want to apologize to members for the somewhat scrambled nature of our scheduling over the last little while. I know it messes up people's schedules and I apologize for that.

It has been useful to have, as we did yesterday, the all-day session, which I think ended in the agreement at least to proceed on a couple of issues. What I want to do now is lay out, to understand as best we can, what we have to get through between now and rising at Christmas. I'm going to ask Chris to help me here.

The basic things we have to get through are Bill C-99, the Small Business Loans Act, which has gone through second reading, and Bill C-88, the Interprovincial Trade Barrier Act. We have a couple of remaining labour-sponsored venture capital funds to deal with. Our colleague Mr. DeVillers wanted us to talk about credit cards. You remember we quite rightly scrubbed him just before the referendum.

We have CLMPC, the Canadian Labour Market and Productivity Centre. I'm not quite sure why we've got CLMPC, but I'm sure it will be very interesting. These are the things on our list. Can anyone remind me why we have CLMPC coming?

The Clerk of the Committee: They're just about to finish their report on access to capital for small business.

The Chairman: That's a good reason. It's an excellent reason.

Mr. Bélanger (Ottawa - Vanier): Do you have on your list as well the Working Ventures Fund?

The Chairman: Yes, they're the two holdovers from the labour funds we haven't talked to.

Mr. Ianno (Trinity - Spadina): Who is CLMPC?

The Chairman: The Canadian Labour Market and Productivity Centre.

Mr. Ianno: Who are they?

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The Chairman: What they have is Shirley Seward and what they're doing is a report on access to capital for small business.

Mr. Ianno: Okay. I'm trying to ask and I don't know how to ask what it is. I know the name. You tried it three times. But is it a federal institution, is it a labour group? Is it seven people who sat together and said they call themselves CLMPC?

The Chairman: Happily, I have the definition for you:

So it's an organization that is created by the government, which has this dual nature.

Mr. Ianno: Why don't they send us the report?

The Chairman: I can't remember who suggested -

The Clerk: They approached us.

Mr. Ianno: So let them send us the report. Then if there's anything new we haven't seen for two years, we can have them come.

The Chairman: We can certainly do that. We've already got one report from them. I don't know whether the committee had received this. It's a March report saying ``Canadian Business Speaks Out on Access to Capital''. I'm just here to help, so if we can redistribute that one to give you an idea -

Mr. Ianno: Maybe for the new members it might be worth while.

The Chairman: That's the March 1995 report, which some have received and some not, I would gather. I haven't received it; I wasn't here. So we might redistribute that one. When we get the report, we'll look at it. If on the basis of the report we want to have them in, we will. How's that?

Mr. Ianno: That sounds good to me.

Mr. Bélanger: Mr. Chairman, I have three points very briefly. Regarding the Small Business Loans Act and Bill C-88 - those are the first two points - if people wish to appear or if we wish to convene witnesses, when are we proposing to do that?

The Chairman: I'm coming to that. We'll have to rejig a bit, but basically the idea is that during the week in which we come back, and indeed the week after that, our regular Tuesday and Thursday sessions are devoted to that.

Mr. Schmidt is working on it from his side and I've asked Mr. Rocheleau the same and I'm asking members as well as the minister. If you have ideas about witnesses, then they should come to us as quickly as possible. We want to know how much time we're going to take so we can allocate time and book the witnesses. At the end of that process we'll do clause-by-clause.

Mr. Ianno: Something totally off the topic now - I don't know if this is an appropriate place for it. The CRTC's ruling on the Bell Canada increase, the $2 or whatever - and I know the minister's asked for anybody who's complaining to petition, and in that way they can deal with it - is there any activity we were precluded from doing here, or would it not be wise, or whatever else?

The Chairman: It would fall within our mandate. We have to decide in a strategic sense, beyond what we have to do, which is to deal with these bills and the things we are committed to do, such as to have back Mr. DeVillers and so on. At some point - this is just a simple update, because I don't want to take too much more time - we'd need, as a committee, to sit down and decide our priorities, because clearly we can go chasing off in a number of directions.

I would like, as a broad strategic direction, to pick up on the suggestion that Werner made in his letter of last spring, which is to focus in the second half of our mandate on high-tech science and technology issues, the new economy, and also all the financing that is related to that. I think there's a taste for that on the committee, and it's really a question of finding the right way of framing the discussion. Whether it'll be framed by someone else, as the minister may or may not make it during the course of this month, whether we will be in a better position to decide how to do that based on the release of the long-awaited science ad technology review, I don't know.

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So I don't want to preclude what we're going to do on that issue, but I would like us to be quite strategic about where the room for manoeuvring is, where we can really make a contribution.

I think we should take note of that as a possible subject, but -

Mr. Ianno: - [Inaudible - Editor] - take the heritage because we're busy.

The Chairman: Okay, fine. And don't forget to give them copyright too while you're up.

So that's the plan, and if you have ideas, please filter them through Chris.

Go ahead, Judy.

Ms Bethel (Edmonton East): In terms of times, are the meetings we have scheduled all on?For November - the ones we have here, they're all -

The Clerk: After November 20, it's just a working assumption that we will meet twice a week, Tuesdays and Thursdays.

Ms Bethel: At what time?Did we ever get that figured out?

The Clerk: It's 11 a.m. to 1 p.m.. Other demands and circumstances -

Mr. Bélanger: That was my question too, Mr. Chairman. Are we going to be meeting twice a week, Tuesdays and Thursdays, 11 a.m. to 1 p.m.?

The Chairman: Yes, with the option of upping the dosage if the work requires. If it turns out we have a long list of people we want to hear from, let's say on interprovincial trade, and we want to have in the provinces, it seems to be a perfectly reasonable thing to do.

Ms Bethel: There's no meeting the first Tuesday back?

The Chairman: Well, I think we should have. I think we should get on with it.

The Clerk: That will require some updating. I'm now trying to get a feel for just where we're going.

The Chairman: I suggest we start with Bill C-99, the Small Business Loans Act. The kinds of witnesses we will want to bring in for the interprovincial trade barriers may be people from further away, but I want everyone to bring the names forward. We can't do anything unless we have some suggested names.

Mr. Schmidt (Okanagan Centre): Mr. Chairman, on that point, we were just exchanging some ideas on Bill C-88 in particular. I think a lot of people may want to talk to that. There are all the self-regulating professional associations, for example, that I think have a vested interest in the subject. Then there are the various trades in the construction field and other fields. They would all have an interest in that particular bill and its provisions.

Those are only two major categories, and just those two particular sectors could include as many as 15 witnesses.

The Chairman: To help us with this task, could I ask the researchers to focus on those new elements of Bill C-88 where there is specific fallout for certain categories, as opposed to just a broad-stroke approach? As you say, it's an infinitely large subject.

Mr. Schmidt: It is.

The Chairman: Let's find out as best we can where the most affected groups will be for this particular round. Does that make sense?

If you could get that to us as soon as possible and let that help guide the calling of witnesses - It's hard for us to visualize exactly who we want until we know the scope of the legislation, and I'm afraid I don't.

Mr. Schmidt: Well, Bill C-88 covers that.

The Chairman: That's what I'm saying. We need a quick and dirty on that.

Sorry to take time for this, but it's important that we update. I know you've been very patient with the adjustments.

Today we're delighted to have Mr. Gleeson here filling in for Dr. Stiller, who is typical of many doctors - not well. He has a terrible back thing.

What we really want to focus on today is the Canadian Medical Discoveries Fund. This is not directly a labour-sponsored venture capital or anything else, but it's a very interesting vehicle that I think we need to know more about in its basic functioning.

So welcome, Mr. Gleeson, and thank you for agreeing to come and fill in for Dr. Stiller.

Mr. Frank Gleeson (Vice-President, Canadian Medical Discoveries Fund Inc.): Thank you, Mr. Chairman. I'm delighted on behalf of the Canadian Medical Discoveries Fund to have the opportunity to address the committee. Thank you very much for the invitation. I do send the regrets of Dr. Stiller, who phoned me this morning in absolute agony, and it's not the first time in the past couple of weeks that this has happened. Anyone who has had back problems probably can appreciate what it's like.

What I'd like to do for the next fifteen minutes or so is give you some background on our fund and, perhaps more importantly, set the context by explaining how we look at the world of venture capital and investment in the high-technology area and where we fit into that domain.

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Venture capital is a very important vehicle for creating jobs, for building the economy, and for creating tax revenues. We have some numbers developed by Mary Macdonald, who is well known for keeping track of statistics on venture capital. The key thing here is that the annual sales growth of venture-backed companies outstrips all other companies that have been formed and built by any other means.

In Canada, therefore, the statistics show that venture-backed companies have outstripped the top 100 companies in North America by a factor of 42% to 29% in terms of creating employment growth in the period 1988 to 1993.

In terms of sales growth they've generated 55% growth per annum over that period, and in terms of export growth they've created 70% export growth in that period.

This is a very significant point; we're really talking about a sector of the economy that's vital to building our future. Through the advent of venture-backed funds and because of some shifts that have taken place in the way institutions invest in this country, individuals have now become the main source of new venture capital. Again, that's a very significant point. Our institutions nowadays are not providing the venture support they may have provided 10 years ago. That's a shift that started prior to the advent of tax-driven legislation, so it's a systemic change.

When we look at U.S. numbers and compare them with Canada's, we can see that the statistics are even more impressive of the power of venture capital to drive the economy. In terms of employment growth, we're looking at 88% annual growth in new companies formed by venture-backed groups for the period 1988 to 1993; in terms of R and D growth, the figure is 69%; and in terms of export growth, we're talking about 171%.

The study was done by Coopers & Lybrand, and in all of these cases the one point they made was that specialization is a real key to success. The aspect of the Canadian Medical Discoveries Fund that we feel is very compelling is its specialization in the area of medical, health, and life sciences; 45% of all investment in the U.S. is in the area of medical health and biotech. That one sector alone is almost half of everything that's invested. We've all heard of the netscapes and all the other major hits that have happened in the semi-conductor and software industries, but they pale in comparison with what goes in to support this one sector.

When we talk about health and life science, we're talking about a $1 trillion market in the United States. In Canada it's a $72 billion sector. When I'm meeting with the brokerage community over and again, we have to reinforce that we're not talking about a tiny sliver of the economy, we're talking about a huge sector of the economy in North America. In Canada we buy $26 billion worth of life sciences goods and services and run a $2 billion trade deficit.

I'll talk in a little while about how painful it is to run a trade deficit when we think about how good we are at research in this country.

Canada is ranked in the G-7, in terms of research productivity, number one - and that means scientific publications per capita. In terms of the efficiency we're number one, and that's scientific publications per dollar invested in research. In terms of effectiveness we're number one, and that's citations of work of Canadians by others worldwide, per dollar spent on research.

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In terms of impact we're number two. We're second only to the United States, worldwide, in terms of the impact of our research. In our major schools and institutions across Canada, bar none, the number one area of investment is medical research. It is our key scientific asset in this country.

These are some examples: insulin is a Canadian invention, the pacemaker is a Canadian invention, and the discovery of the cystic fibrosis gene came out of Canada. We have an enormous pool of talent and a great track record, and all too often it's not commercialized in Canada. That's a tragedy, and that's why we run a trade deficit. It leads to us the age-old problem in Canada that we discover, we sell it out, it's exploited elsewhere, and we buy it back. We have to stop that.

One of the key reasons that Canada has less success than other countries in commercializing is - the availability of capital at the right point in the cycle to commercialize the science and the ability to bring critical mass to adding value to that capital and science. Science alone isn't enough, capital alone isn't enough, but putting it together is what's crucial. We have to build critical mass.

This particular cycle of growth, as it's called, starts with the basic research at the top. Then money that we call ``pre-venture'' capital needs to go in, and I'll give you an example of that here in Ottawa. Mark and I were involved with this group today. We're providing some pre-venture capital to a group of researchers in the area of genetics to allow them to do simple things such as getting patents filed, thinking about forming a company, and hiring a research technician to move the science along and understand the genetic properties of their discovery. That's before we even think about how we're going to exploit it.

The next step is to actually form a company and put venture capital in place. At this stage the kinds of things we have to think about are bringing the right scientific advisers into the company to help them move it forward, attracting the right kinds of people to serve on a board for an early stage science company in the health care area, and putting partnerships in place.

Then we move it through the chain over a period of time to where we can actually grow a significant company, and that's what the cycle of growth is all about. At each stage you bring more to the table, more value is added, and it gradually begins to create critical mass and a flywheel effect. That's what we're really talking about trying to generate.

In the case of the Canadian Medical Discoveries Fund, we think we have three crucial assets to try to generate critical mass. On the one hand we have the Medical Research Council of Canada, which brings excellent science. The MRC sees something in the order of 80% of all medical science in this country through its peer review process. We therefore have no doubt that it's a huge pool we can tap into. The other interesting thing is that we know where all the science is, because there are 16 or 17 schools and research institutions. We don't have to scour the globe. We know where to go and find it.

We have through the alliance with the Professional Institute of the Public Service of Canada a very major union, which boasts five Nobel prize winners in its alumni. With Talvest, which is marketing the fund, we have one of the lead groups in Canada in the mutual fund area to help us raise the money. With MDS, we have Canada's largest self-built, if you will, medical services company and life science company.

The Chairman: I'm sorry, but would you please repeat what PIPS stood for.

Mr. Gleeson: That's the Professional Institute of the Public Service of Canada, one of the founders of the Canadian Medical Discoveries Fund, along with the MRC.

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With MDS, we have a very experienced manager of life sciences. MDS in its own right has a capital pool in the venture area of $200 million. They have invested in somewhere in the range of forty companies across North America, and only in life sciences. None of those companies have failed. They have generated a 40% rate of return on companies they've taken public, and a 30% rate of return on the ones that are still private.

We have the sophisticated management. We have the access to the science. Through Talvest, we have the access to the capital, and we think we have a real winning formula to build critical mass in Canada for exploiting our science.

Anyway, the mandate of CMDF is to commercialize Canadian discoveries by reaching into Canadian research laboratories, by trying to change the culture of how we do business, and by building companies. Secondly - and this one is very important, but all too often it's ignored as a real possibility for Canada - it is to import technology into this country to commercialize here, to build jobs here, to build value here.

We already have one example of a company we've invested in that has done just that. They're based in Victoria, and they're called Stressgen Biotechnology Corp. What they have done, through some very clever thinking and insight, is brought technology from MIT to Canada to marry up with technology here. It's a reversal of the trend, and we were very impressed by that accomplishment.

We're also working on another deal right now - and it will close imminently - in which we're doing exactly the same thing by bringing technology to this country to establish companies here to do research in Canada.

The third area is to invest in established Canadian health care companies with global mandates in order to help them to build globally and to think beyond the borders by which they are currently constrained.

For those who may not be up to the minute on where we stand, I'll give you some examples of what we've done to date. This is our first year. We've raised $17 million in capital. To date, we have invested in five companies, with a sixth that is imminent. They're all displayed on that chart. One is a formation stage company here in Ottawa; two are start-ups, one of which is based in London, Ontario, the other in Toronto; two are expansion, both of which happen to be out west, with one in Vancouver and one in Victoria; and we have one under the category of importing technology, and it will be based in Montreal. We've tried hard already to be balanced across the country, balanced in different areas of science, and balanced in different stages of development.

On Friday of last week, our investment committee approved four additional deals that we're currently working on, so we've committed an additional $7 million of our capital. As I'm speaking to you today, after setting aside money that we have to retain in liquid reserves by statute, our $17 million is virtually fully invested or committed, and in the life sciences area I could very easily invest another $25 million without any hesitation at all on deals that are right in front of me. We could be looking at two or three companies that would be interested in relocating portions of or all of their R and D in Canada.

There is a tremendous wealth of possibilities in the life sciences area in Canada. The message I would really like to leave the committee with is that we see the labour-sponsored legislation as a way of really building our future, and of building excellent companies on excellent Canadian science. That is going to benefit future generations and is actually going to generate significantly more tax revenue than may be forgone by the tax incentives that create the opportunity for people to invest.

So with that, I would like to thank you for your attention. I would be delighted to answer any questions that anyone may have.

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The Chairman: I'm not sure if it's in your continuing document, but the source of the -

Mr. Schmidt: Could we have a copy of that?

The Chairman: I think they're in the package.

Mr. Gleeson: They should be in the green package that you've got there.

The Chairman: Is there a statement here about the source of the initial $17 million? Where does that come from?

Mr. Gleeson: That is all raised by private investors, Mr. Chairman.

The Chairman: How much does MDS have in it? How much has -

Mr. Gleeson: It's all private money.

Mr. Ianno: - [Inaudible - Editor] - the others invest.

The Chairman: But is there a breakdown of that somewhere?

Mr. Ianno: There's a chart.

Mr. Gleeson: The $17 million is all invested by private individuals who have invested up to $5,000 each.

The Chairman: So there isn't a chunk of MDS money?

Mr. Gleeson: Not in this particular fund, no. What MDS is providing is the management of the fund.

Mr. Ianno: So they take a fee, right?

Mr. Gleeson: There's a fee for that, yes.

The Chairman: Okay. Mr. Schmidt, would you like to start?

Mr. Schmidt: I'm rather impressed that you're all invested, because about a year and a half ago, or somewhere thereabouts, we had several venture capital funds before us. They were having some difficulty placing their funds, and a disproportionate amount of their funds was in fact in government securities of one kind or another. So I'm very happy to see that of the $17 million, you are fully invested and you've got -

The Chairman: Or will be.

Mr. Schmidt: Yes, but it is committed, so you might as well be, because that money has to be available. And then you have access to or can see another $25 million.

My question, then, is that if this is the case, why is it that this venture fund seems to be that much more successful when compared with other venture funds that have been in existence for a number of years?

Mr. Gleeson: I think there are three reasons. The first one is, of course, that we actually are able to tap into the network that MDS brings to the table. We are able to see investments and opportunities through that window.

More importantly, however, is that medical research is a huge area. There is a latent demand for what we're bringing to the table in terms of forming companies out of good research. More than anything, I think what it speaks to is the fact that there is such a disproportionate share of good science that leaves this country because there aren't the vehicles to build it in Canada. We're bringing that to the table. As we become more known to people, as they see what we're doing, and as they see the money being placed, more of those opportunities are starting to come to the fore.

I think the third one is that we're proactive. We're not only thinking about taking Canadian science and building on it - and we're quite specialized, so we're really focused on doing that - we're also thinking about where we can bring science into Canada. We're opening up opportunities for ourselves.

In being as broad as they are, I think the other funds may have a complication. We have a focus. We're specialized in an area, we're looking in that area, we're thinking about that area, and we're thinking of making linkages in that area all the time. As we grow, we'll see more deals. I have no doubt about that.

Mr. Schmidt: The other question, Mr. Chairman, is on the relationship between a venture capital fund like this one and the actual research that is done. If I hear you correctly, this is the commercialization of discoveries that are done by the various research sectors. Is that correct?

Mr. Gleeson: That's correct.

Mr. Schmidt: You don't underwrite any particular research yourself.

Mr. Gleeson: No, at this stage of our development we're not bricks and mortar. We don't have labs and we don't do our own research. What I would like to see one day in the future, when the fund is at a critical mass, is for us to be able to say there is an area - For example, Canada is a world leader in the genetics field. Of all the genes that have been discovered, more than 10% have in fact been discovered in Canada.

Mr. Schmidt: That's what Stressgen is all about, isn't it?

Mr. Gleeson: Yes, but they're not commercialized here. There hasn't been a $60 million deal done in Canada on a gene yet, yet we have tremendous researchers in the field. We would love to be able to bring that together in the future to create a genetics initiative. That would be fantastic. We'll be able to influence that in the future as we grow.

Mr. Schmidt: I think there are two aspects to this thing. Clearly there is the access to capital to do the commercialization itself. But there is also the feeding in of those discoveries that are ready to be commercialized but are sort of waiting on the shelf to be picked up. Beyond that, of course, is the basic science research that will ultimately end up in some kind of application.

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I'm wondering what the relationship is now between this venture capital fund, this commercialization over here, and that business over there?As I see the fund, it is highly private at this point.

There is that other one that sees these almost ready to be commercialized. Do you see this as primarily a research function, a post-secondary education kind of function, or is this some sort of collaboration that needs to take place between a fund like yours and the researcher who really understands how to apply this? How do you actually bring those two together? Money managers don't necessarily understand much about science and vice versa.

Mr. Gleeson: We do that in a number of different ways. In the first way - and I don't mean to be trite at all - we have to be very sensitive to our scientific community. They start out with the science; they're not business people. So we need to get them comfortable with the process of commercializing their science and building the business.

We also need to be very receptive to their need to have a lot of control over the direction of the science. So we're not walking in with a swagger and saying, we'll take over your science, thanks. We're walking in and saying, we'd like to work with you to move this science through a process. That process is going to involve patenting it and bringing together some of the best people in the world to work with you to move it forward, add value and then build a company around it. It takes a lot of time.

Mr. Schmidt: You do that?

Mr. Gleeson: We do that. We sit down with them.

Mr. Schmidt: So you're much more than just a straight venture capital company.

Mr. Gleeson: Absolutely, and the process we go through in identifying good science and building the science is very important to us. We have built a scientific advisory board that includes seven people from across North America who are all leaders in their fields: in genetics, molecular medicine and other areas of medicine. This group of people - all scientists - review all the science we look at that we believe has merit. We invite the scientists to meet this group of people.

So on a quarterly basis, or more frequently if we need to do it, we'll bring this team together. We'll invite the scientists to make a presentation of their work, and without exception, the scientists love it. They're just astounded to have this kind of peer group reviewing their work.

From that point forward it gets easier, because now we've demonstrated that we understand the science, we're going to work with the science and we're going to build on that. Through that network we've established, we can find the people in the world who are pros or experts in any field. We can bring them to the table.

Mr. Schmidt: Mr. Chairman, those are all my questions. I'm going to develop more, but I think we should let other people -

The Chairman: So far I have Mr. Ianno and Mr. Bélanger.

Mr. Schmidt: I hope they come back.

The Chairman: Oh, absolutely, wave a hand.

Mr. Ianno: First of all, it's nice to see there is this fund that's starting to come together. Have you communicated at all with the labour ventures group of Mr. Begg? They've invested maybe about $60 million out of about $400-plus million.

Mr. Gleeson: Right. I know them very well.

Mr. Ianno: They're looking for ways of investing. They just have a bit of difficulty right now.

Mr. Gleeson: In fact, we've done three deals with them.

Mr. Ianno: Good.

Mr. Gleeson: What they find about us is that we can explain medical deals to them - and I don't mean that in a disparaging way, but it's not their expertise. Our expertise is understanding the medical area, the science that's behind it, and whether we have something around which we can actually build a business. So they're actually comforted by the imprimatur we give to a deal. And then we've worked with them, so -

Mr. Ianno: What is the size of the investments of the three so far?

Mr. Gleeson: We've done two $4.5 million deals with them.

Mr. Ianno: That's $4.5 million in total, or $4.5 million of their investment?

Mr. Gleeson: Total deals. In total, they were $4.5 million -

Mr. Ianno: How much did they invest?

Mr. Gleeson: They invested about $3 million between the two, out of nine. We've done a third deal that was significantly larger, in which they put in a couple of million dollars.

My own view is that they were unlikely to have done those deals without our being there, and we're currently working on one or two others with them.

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I'm most hopeful that through the next season we'll be in a position to do significantly larger deals because we'll have significantly more capital.

As you undoubtedly know, we can only put 10% of our fund in any one deal. So with the $17 million pool we can only put in $1.7 million.

Believe it or not, it's actually slowed us down. We could be further ahead than we are, because we could make the market with more deals than we manage at the moment.

So right now we actually have to bring other people to the table with us. That has its positives and sometimes its detractions.

Mr. Ianno: Does the medical research group that is involved from the universities get a return, or does the private entity that develops the research get the return?

Mr. Gleeson: Our goal is to ensure that everybody sees this as a win situation. Clearly we have shareholders investing in our fund, so we have to provide a return.

Having said that, I must mention that the scientist has made an invention or discovery. We're buying into that person's brainpower. That person needs to be motivated and to see that this is a positive experience. So there has to be a return for the scientist or the group of scientists, and we're quite flexible in that regard.

There is a third element: the institutions are going through a change process of their own. We're trying to provide them with another vehicle to generate wealth to reinvest in their own institutions. So they're partners with us. Therefore if we're doing a deal where we're building a company and it's an equity deal, they get equity. So they're partners right from day one.

Mr. Ianno: And is the federal government getting a return from the funding they provided to the institutions?

Mr. Gleeson: Well, I believe that the return to the federal government is through the tax base we generate by building successful businesses and employing people. You know, in all cases we're talking about high-tech jobs that wouldn't have been created otherwise.

One company, a start-up we've funded in Toronto out of Mount Sinai Hospital, will have created 15 high-tech scientific jobs by the end of the year. They would not have been created. By the end of next year their plan is to have 30. That's a very significant message, and it's just one small example.

The Chairman: Mr. Bélanger, whose great idea it was to have this meeting.

Mr. Bélanger: Thank you, Mr. Chairman. This is an area I'm glad we - It's the first time for me, the first go-round as a committee member, though it may be the second go-round for the committee, and it's maturing nicely.

It's my understanding that this particular fund is a labour-sponsored capital fund.

Mr. Gleeson: It is, yes.

Mr. Bélanger: Therefore it brings tax advantages to the people from Ontario who invest. Is that correct?

Mr. Gleeson: Yes, it has registration in Ontario for provincial tax credits, but it has a federal tax credit across the country, and we've raised money across the country.

Mr. Bélanger: What is the target for the next year?

Mr. Gleeson: We have a stretch target -

Mr. Ianno: A billion dollars?

Mr. Gleeson: - that we hope we could do, but we would be very happy if we were able to generate $50 million.

Mr. Bélanger: Okay, and eventually?

Mr. Gleeson: I think a fund in the range of $200 million in Canada is a realistic and plausible goal in time -

Mr. Bélanger: In a mature fund?

Mr. Gleeson: In a mature fund.

Mr. Bélanger: Thank you. Do you have a measure, as imperfect as it might be, a yardstick to measure the number of jobs per amount invested?Is there a mechanism by which you can say, if we have $100 million and it's fully invested, we can approximate x number of jobs flowing from that?

Mr. Gleeson: Well, let's see, I would say that in a typical - You know if we're putting a $5 million dollar start-up fund into a company, that company is going to generate at least 30 significant positions within a couple of years. It will do more beyond that.

So if that's a rule of thumb, maybe there's something there that could work. Again, these are early days for us, so these companies will grow on their own once they get their own cashflows.

.1620

Mr. Bélanger: I have three more quick questions. I'm prepared to come back if you - Is it legal for one fund to invest in another - not as you were doing with the Working Ventured Fund in finding deals for them, but could the Working Ventures Fund, for instance, lend you $25 million if you had good deals for them?Is that legal?

Mr. Gleeson: My understanding is that there are some complications involved in trying to do that. I'm not familiar with the legislation to answer specifically.

Mr. Ianno: What they told us - and, Werner, you were there and can correct me if I'm wrong - when we talked about regions like Waterloo and others, is that they have local participants helping to determine what should be funded. They were asking for legislative change and I think they may have got it. With that they can actually invest in a group that will then invest further.

The reason I asked the original question I was referring to - and that is similar to yours - is that I wanted to know if it is possible for them to invest or somehow pass it to you so you can invest it, even if it's just a management fee plus whatever. In effect, I believe that's the same question, for which I don't know the answer.

Mr. Bélanger: We should try to get the answer to that if we could.

The Chairman: If you understand the question, can we find out the answer?

Mr. Anthony Jackson (Committee Researcher): Yes.

Mr. Gleeson: I think it would be very effective because there -

Mr. Bélanger: Can you elaborate a bit on the role of PIPS in your -

Mr. Gleeson: As you know, all the labour funds require an underwriting from a union. PIPS are active on our board of directors, and that includes people such as Bert Crossman, the head of PIPS. It also includes Michael Smith, the Nobel Prize winner, who is part of the union.

We really look to them to help us with encouraging the scientific community to work with us. That's not to say to any of them that they have to work exclusively with CMDF. I certainly don't want to create that impression. This is really a mechanism for all of us to build more wealth in the science and technology area. That's primarily how we're looking to them.

Mr. Bélanger: If there are groups or individuals of whom you may not be aware - and there probably are very few -

Mr. Gleeson: Right.

Mr. Bélanger: - how would they go about approaching this fund for investment consideration once you have more capital to invest?

Mr. Gleeson: They'd only need to call us. We respond to every address we receive. A phone call, a letter, a business plan -

Mr. Ianno: Their money will not be turned away.

Mr. Gleeson: No, absolutely.

Voices: Oh, oh!

Mr. Bélanger: No, I'm not talking about -

Mr. Gleeson: No, it's just the science.

Mr. Bélanger: I'm talking about people looking for capital.

I'll finish here, but I could go on if you're short of questions.

It seems there's a gap in the venture capital field below $1 million. Very few funds, venture capitalists essentially, are prepared to do the due diligence required, which is essentially of the same class whether it's less than $1 million or many millions, and therefore there's a gap.

It's an important gap because it's where a lot of the smaller companies are playing. They're looking for $250,000 or $500,000. They can't handle $4 million or $2 million.

Is there reluctance on your part to do that or is CMDF prepared to do all the due diligence?

Mr. Gleeson: In fact, we're not only prepared, but I'll answer it with an example. That's the example in Ottawa where we provided $75,000 of pre-seed money for -

Mr. Bélanger: ``We'' being -

Mr. Gleeson: The Canadian Medical Discoveries Fund. At the recommendation of Dr. Henry Friesen, the head of the MRC, we took the initiative to visit the researchers here in Ottawa and to work with them.

I think we surprised the researchers when we walked in and said, look, this is important; what you're working on is significant, and we'd like to help move it along.

Mr. Bélanger: May I have your business card, please?

Mr. Gleeson: Sure.

The Chairman: Mr. Schmidt.

Mr. Schmidt: The series of questions I'd like to address now has to do with the high-tech part of the venture capital. There's the commercialization of the genes and all that sort of thing. There's also this high-tech area and the application of high technology to medical - What part of your fund is invested in that part of the medical sciences field?

.1625

Mr. Gleeson: By ``high-tech'', are you meaning device oriented or equipment oriented?

Mr. Schmidt: That's where I was focusing at the moment, yes.

Mr. Gleeson: About one-third of the funds we've invested and about one-third of what we've committed is in that area at the moment.

Mr. Schmidt: How many of that group would be considered to be relatively small industries and how many of them would be larger corporate enterprises?

Mr. Gleeson: Of course, our investments are basically in small start-up companies. But the sectors we are looking at are huge. One, for example, is the automation of screening technology for various cells, particularly for Pap screening, which is subject to error and difficulty. We're looking at an investment in a company that has very advanced technology for the review of those cells. So that's an example of an enormous area of great medical need. It's a human health problem of great need.

Mr. Schmidt: If you go beyond the one-third of high-tech, does this other two-thirds divide into major components or is it pretty well in one sector?

Mr. Gleeson: On the balance of the two-thirds, we're really looking at early-stage and somewhat later-stage drug development opportunities for major health problems. So we probably have half of the two-thirds in the cancer area and the other half in the infectious diseases area. Does that help?

Mr. Schmidt: That does help, because I think it leads into a whole other set of questions that have to do with the increasing costs of medical care. You know the constraints we're under as far as the health care system is concerned.

Is one of the functions of these companies - the high-tech area, we'll start with that one - to reduce the cost per unit of health care?

Mr. Gleeson: Absolutely.

Mr. Schmidt: Could you explain that, because it's a major issue.

Mr. Gleeson: I'll explain that by an example. One of the first companies we invested in in London, Ontario - based on some technology that's come out of the John P. Robarts Research Institute and University Hospital, which is a major teaching hospital. There's a group of researchers there who developed some very interesting three-dimensional ultrasound imaging technology. As you know, ultrasound is currently two-dimensional, and so its diagnostic applicability is limited.

By developing a three-D system and then thinking through where the application areas were, this group focused on the area of prostate cancer. The system they developed not only improves the diagnostic capability of the radiologist or the urologist, but it also reduces the patient's discomfort, the amount of time both the patient is in the hospital and the doctor has to attend, and shifts the actual work from a very expensive radiologist to a much less expensive technologist. So you have better health care at lower cost and at less discomfort to the patient.

Mr. Schmidt: What about the capitalization of this initial purchase of equipment?

Mr. Gleeson: Because it's a software-based system, it's a very modest cost.

Mr. Schmidt: These are very significant kinds of questions in terms of the direction of your particular company, because if that's its focus and direction, I think that's very commendable.

Mr. Gleeson: Absolutely, and it has to be because the pressure on reducing the cost of delivering health care is very significant - not just in Canada, but also in the United States market and in other markets.

Mr. Schmidt: We have some huge international global companies that are in the drug research area. Is there something the big drug companies aren't doing that needs to be done, or just why would you get into that area?

.1630

Mr. Gleeson: The main reason is that drug companies themselves, and it's now being evidenced more and more by the size of the investments they're making in small companies, have really discovered they're inefficient at the basic research. They've followed the same pathways to develop drugs for so long that they're locked into their own research programs and they can't break out.

By bringing in the latest techniques in biotechnology and advances in genetics, smaller companies that are coming out of research labs where they're on the cutting edge can bring real value to the table. What we're hoping is that we can grow some of these companies and then develop them to the stage where they can partner with major pharmaceuticals.

So it's not that every single company we invest in will become a fully integrated pharmaceutical company. We don't have $1 billion to invest in every company, but we'll grow them to this stage.

Look at Biochem Pharma in Montreal. Here's a company whose stock is worth $1.5 billion. It grew out of a lab, and they have a relationship with Glaxo, one of the largest pharmaceutical companies in the world. In fact, I think they are the largest right now.

Mr. Schmidt: Of course, it's the dream of every chemist or any biochemist who's graduated from the university to be able to become that.

Mr. Gleeson: We have Allelix in Toronto, which is an MDS company, with Hoechst. We have Hemosol with a German company called Sresenius in the blood substitute area. You know, the examples are there.

Mr. Schmidt: My final question has to do with the prognosis of the future development. Are our new developments going to come from these large monolithic companies like Glaxo and so on, or are they going to come from these small venture companies that you're starting up?The real cutting-edge stuff that's really going to advance the cause of health, and in terms of making the service better, reduce the cost of delivering that service - will it eventually make it possible for individuals to actually have much more access to developing their own wealth than is the case when they take a career with, say, a Glaxo company?

Mr. Gleeson: My own view is that true innovation and discovery will come from smaller enterprises that are faster and more able to -

Mr. Schmidt: In the past that's come from these big companies. So what proportion is now going to come from here?

Mr. Gleeson: I'm not sure that it's always true.

Mr. Schmidt: No, it's not always true. There's always an exception.

Mr. Gleeson: Much of what big companies commercialize has actually been brought in from little companies. They bring an enormous amount of that in-house.

Insulin didn't come from a big company. It came from researchers who were determined to find an answer, and that's what we're investing in. So that's my prognosis; this is where the future is.

Mr. Schmidt: So we're going to have more and more of these small companies?

Mr. Gleeson: I think so.

Mr. Schmidt: Good.

The Chairman: If I may intervene at this point, there are certainly some very interesting competing trends. You find companies such as Glaxo that are getting bigger through partnerships and takeovers. I was delighted to see you lay out a diagram that showed a little bit of the early-stage, middle-stage, late-stage investments you've made. You obviously have a systems approach to this.

Let me step back from the picture and ask you this question. Thinking about the Greater Toronto area, when I was first elected I remember being struck by the fact - and I in fact put together a group of folks from the biomedical research community to talk about this. There's something like 30,000 people one way or another in the Greater Toronto area engaged in biomedical research. It's an incredible number of people. Even in my riding - I've a huge investment in Sunnybrook.

If you follow through on the discoveries made in those labs - the fall-off rate, the inability to commercialize, the receptor capacity, it's just pathetic. There are Allelixes, of course, but there are not nearly enough.

.1635

I've been running a bit of a volunteer research project on this whole area, which is fascinating. The good news is that there are companies like MDS, which is making all kinds of investments, participating in 34 companies, or whatever it is, and helping out very interesting ventures like MDS/Sciex, which is a mass spectrometry organization that you can see if you drive north on Highway 400 just before you get to Canada's Wonderland - maybe appropriately, I don't know.

But the scale of the problem versus the - Even with the size of MDS, which I think is $700 million as a company, its ventures or its capital fund - whatever it's called there - is only $200 million; yours is $17 million. You say you could function well at $200 million. I guess the sky's the limit.

But if we took a systems approach and said that in order to have a fully viable industry we need to be able to figure out about these start-up companies, we would also realize that it is a system, that it's only through the interrelationship with larger companies that there actually is a market for these things, that they're a distribution system, that there's an ability to take 10 years to get a pharmaceutical product to market, and that at all parts of the equation we make a hash of it. We make a hash of it at the lower end. We make a hash of it when we get a company that is about to go world class, like Connaught BioSciences, where we sold out - it was a company renationalized by the French government, to put it somewhat dramatically.

What is it going to take from a systems approach?Will it be enough if you get to $200 million?What are the missing elements for a systemic answer to this huge problem, which involves not just cash but managerial ability to take a company global and all the rest of it?Put on your crystal ball and -

Mr. Gleeson: Every great journey begins with a single step. So we have to start somewhere. We have to start by building the small companies that are going to grow and that are going to create the opportunities to partner.

When we have examples of success, we will build more success. So I think becoming a system is always something you look at retrospectively and say, now we have a system; look what we have. Look at the U.S. They have the infrastructure. They have big companies, small companies, and lots of venture capital. They have research institutions. They have centres of excellence. They have everything. They have it all. Well, we don't. We're not there yet, because we're not that mature yet in terms of building it.

I think the medical area, of all the areas - and it's clear that it's not the only area in Canada in which we have excellence, but it is an enormous area - is one in which we very clearly have top technology in the world. It does get picked off. It does get taken out of this country.

The first thing in building a system is building critical mass. We have to do that. The next thing, once we've built the critical mass, is to bring management to bear. That is a gap in Canada. It's not that we don't have good people. We have excellent people. We have some of the top people in the world. A lot of them are working in other countries. We have to bring them back to Canada. And to bring them back to Canada, we have to have opportunities to attract them back to Canada.

In the deals I'm looking at doing now, when I sit and speak with people, they're telling me they can attract people back to Canada because they have something to offer. So when we put the deal together with the science, the scientists, and the money, we can bring top scientists back to Canada and we can bring top managers back to Canada. When we start doing that, we will start to build the system.

I think we also have to think beyond just the money that any one group brings to the table, because leverage is very important. Of the deals we've done already, we're looking at one deal in which we're putting in $1 million, as CMDF, as part of a $13.5 million deal. We've put $1 million into another deal that's an $11 million deal.

So those are huge factors of leverage. MDS's historical track record on its $200 million of capital is between 4:1 and 6:1. So that's $1 billion, roughly, for its $200 million. So that kind of leverage is what we also need to be thinking about. That helps to build the system.

So there are lots of elements. We need to begin with getting the critical mass started.

.1640

The Chairman: I realize it's easier to talk about a system retrospectively, but in a sense, in your virtuous circle of growth, it's a system, and you identify weakness there.

From a public policy point of view, have we clearly done something right from your perspective by creating an incentive for people to invest in your fund?

Mr. Gleeson: Yes.

The Chairman: We also have to worry about leverage. In fact, if you read the introduction to the red book, we identify leverage as one of the crucial things we must do, whether it's in social policy where by intervening early with a problem we're going to get maximum leverage to resolve it, or whether it's a tax measure, or whether it's an investment in science and technology, or research and development.

We're the industry committee; we don't have a lot of money. We have to get on with the job. We have a lot of resources out there. It's a national system of resources. It's private; it's public; we have labs; we have the whole thing.

If you were giving us advice on the most - Part of the story is started. If you could identify that part of the system where we would get the greatest leverage for a change of policy or of an investment of some kind, given where we are today, understanding that it might be a different answer five years hence, where would you urge us to concentrate our resources from a policy point of view?

Mr. Gleeson: Number one, I would encourage you to continue this particular program, clearly, as a way of bringing capital to the table. I would encourage you to focus on critical mass and leverage as the two most important aspects of trying to build value. The critical mass, at least in a high-tech area and the new economy area, is a combination of the science and the money.

The other key element for us is the networks of centres of excellence. We think they really do bring something to the table, and they should be challenged harder to bring the science out for us to form companies around. That doesn't cost more money, I don't believe, other than continuing to support them.

The third area is that in terms of leverage there has been a shift away from the big institutions as providing the venture capital, which in my own view and that of others is a systemic shift and hasn't been caused by tax policy. There has been a drop-off. We see it every day in the pension funds and so on.

So we have to continue encouraging individuals to invest. But I think somehow we need to cause those pools of capital that have been generated and that are very large to actually put their money to work. I don't think we need to put more money into the system. Having $400 million or $500 million under management should be enough in tiny little Canada to make something happen. I think that's a very important piece of policy that could be considered somehow in providing the incentive to get that money working.

The Chairman: It's a challenge. This does relate to conversations we had yesterday with the banks - and, I think, future conversations with the banks and the pension funds and all the rest of it.

But is it a combination of - We'd hardly be given any more taxes incentives. Is it moral suasion?Is it browbeating?What's it going to take?Obviously there's a level of discomfort with knowledge-based industries.

But I see Mr. Bélanger may want to chime in here and help me out.

Mr. Bélanger: You just mentioned a figure. Is it $400 million or $500 million?

Mr. Gleeson: Yes.

Mr. Bélanger: Just for the medical side, is that it?

Mr. Gleeson: Well, I was thinking of one of our competitors when I cited that number, in the labour fund area.

To me, one possible piece of policy might be to say, either cap someone's ability to keep taking advantage of tax incentives if they're not placing the money, or you direct them to put the money in the hands of people who place the money.

The Chairman: The other labour-sponsored venture capital?

Mr. Gleeson: Well, they're an existing vehicle.

The Chairman: Right.

Mr. Gleeson: Your preamble cited that funds are a constraint on everybody, so I'm not going to propose back to you ways to spend more money, but try to put the money that's available, that has already been generated by policy, to work. To me, that's important, and we believe -

Clearly, you know where we're coming from; we can move the money.

.1645

Mr. Bélanger: We were mentioning the Working Ventures Fund, and I really hope we'll get them here soon. They have, as of last spring, $479 million, of which $79 million was invested. That's $400 million they are reinvesting in T-bills, for crying out loud. It's not the policy directive.

The Chairman: This is a sort of late-day, somewhat intimate field, so I feel we're having a bit of a jam session here, which is perhaps the most creative thing we can do.

One of the things we can do, of course, is bring publicity to bear and simply ask the question and say ``Do you know Gleeson over here?We should introduce you. We're a dating service. He needs money, you seem to have rather a lot of it. We've given you a bit of a deal. What's cooking?'' I think we can do it without even legislating, by doing no more than saying, ``We're going to keep wondering why. What's the problem here?''

Mr. Bélanger: This is not necessarily directed to our witness, unless he wants to intervene, but perhaps to you and research. Should this someone in the government be asking questions like what is the minimum amount of money that a labour-sponsored venture capital fund should have to operate properly? We have now seen there are 17 funds, and from the presentation we had last week, a whole slew of other funds are coming. Is there a minimum?Otherwise, it's a waste. Are there criteria as to the size of the union that can actually sponsor one?

I know last year a group of individuals - no names - was looking for a union in the national capital region. These people were literally shopping for a union to create a labour-sponsored fund. That particular group has since gone bankrupt. Thank goodness it didn't find a union. Maybe the unions were very adroit at analysing.

The Chairman: Do you have a question for us?

Mr. Bélanger: Yes. There's also the cap. Is there a limit to these funds?Those are the kinds of questions someone has to ask.

Finally, what is the cost to the treasury?

The Chairman: What's the tax expenditure cost?

Mr. Bélanger: Yes.

The Chairman: Madame Pothier may have some information to bear. These are questions we are trying to get Finance to answer in a general way. I had anticipated this to some extent. I suggest we try to find out, first of all, what its intentions are, as much as one can before a budget. I think we should add those questions to the list of things we'd like to find out.

Do you have any information that quickly answers that in part?

Ms Nathalie Pothier (Committee Researcher): There is some information in the Income Tax Act, which I haven't read through yet.

With respect to the conditions for the labour-sponsored funds, there is some information in there, but there is also a set of conditions that were proposed last week, for example, by the group of unions -

Mr. Bélanger: Has the Canadian Medical Discoveries Fund been approached by - what are they? - Crocus, Fonds de solidarité des travailleurs du Québec, and two others?

Mr. Gleeson: We know all of them.

Mr. Bélanger: Were you approached to be part of a group that called itself the true labour-sponsored -

The Chairman: That's right. It had conditions, remember?

Mr. Gleeson: Oh, I see.

Mr. Bélanger: It was essentially saying it was truly driven by the unions as opposed to others who might be -

The Chairman: Front organizations.

Mr. Bélanger: Rent-a-union is an expression I heard.

The Chairman: Shop around, yes.

Mr. Bélanger: Were you approached?

Mr. Gleeson: Not in that context.

The Chairman: We're basically talking about the concept of expert funds. It's the reduction of risk by knowledge, and it's a huge problem that the banks are dealing with. They simply don't have the knowledge to make those same assessments.

Other than MDS, is there anything that even approaches that size?There's another organization in the general medical and medical devices field, and I'm trying to think of its name. It's another set of initials, as I recall. Is there a bell ringing with you on that one?

Mr. Gleeson: Not at the moment, but if it rings I'll let you know.

The Chairman: Okay, I hope I'm home.

Mr. Gleeson: The banks, of course, have to make a culture change, as I'm sure you are aware, in moving away from asset-based valuation to know-how-based valuations. We have our comfort in investing in know-how, not in assets. It's difficult to make that shift. It takes time.

.1650

The Chairman: By the way, by chance I was reading an article from yesterday's Wall Street Journal, and the headline was ``A Germany that Kills Science''. It's a fascinating piece about the way in which the Green Party and various government restrictions are essentially forcing biotech research out of Germany. It seems to be having a pretty good effect on patents as well. It's just having a devastating effect.

I hate to say it, but it strikes me as a business opportunity for Canada if we can satisfy ourselves that we're not dabbling in the dark arts here. I don't want to have a Gresham's law of the lowest common denominator of scientific integrity, but are you hearing anything about these possibilities and opportunities from Europe or from Germany?

Mr. Gleeson: For quite a number of years Europe has had a very ambivalent attitude towards biotechnology. Somehow they have been more concerned perhaps than other nations with a lot of the ethics behind it and a lot of the issues related to creating new organisms and all those types of things. So it's both socially and politically a very difficult issue.

It has long been a concern of German research that they're falling behind North America in biotechnology. I don't know that the battle is over yet, in spite of that article, because there are too many large companies in Europe that have too much to lose and the infrastructure has too much to lose. Biotechnology is going to happen, so they need to be part of it.

Certainly if I were in the shoes of the major pharmaceuticals in Europe, I would be all the more encouraged to look to North America for opportunities, partnerships and alliances. I think over time it's going to be very beneficial for us.

The Chairman: In terms of reasonable regulation and all the things that create a good climate, we're competitive in that regard?

Mr. Gleeson: That's an area I'm not really as close to, so I don't think I'm a good witness for that particular topic area.

The Chairman: Anyway, it's just fascinating to see that again there are lots of opportunities.

Mr. Bélanger: Can you tell us what role the Medical Research Council of Canada had in instituting this fund?In your opinion, are there other organizations such as that one that could be following the example?

Mr. Gleeson: Oh, sure. My understanding is that the MRC was absolutely instrumental in creating this fund and a large part of the vision to bring it together.

In Canada there are other groups that could be similar catalysts. The NRC could be a catalyst to create a fund of this nature. The key thing is that there has to be breadth of opportunity in the area. There's an enormous amount of science in Canada in a lot of areas, so I'd look to the managers of that science.

Mr. Bélanger: Thanks.

The Chairman: Ms Brown.

Ms Brown (Oakville - Milton): Thank you, Mr. Chairman.

I want to come in at the end of this because my question doesn't have anything to do with the fund, which is the main topic for today. I'm wondering if the Medical Research Council ever makes comments to government on some of the initiatives of government if in fact it feels those initiatives are working in the opposite direction?

I'll give you an example. I have some of these very small companies in my riding that have invented and are now producing new medical devices. I can think of two. One has something to do with eyes. It's a lens. They put a new lens in. It's not a contact lens; this is right inside the eye. I forget with the other one is.

.1655

In any case, they are fairly new companies, and obviously highly skilled people are doing this. They've been complaining to me about some new rule regarding a new fee structure, whereby when you have to send something in to be approved, the fee used to be $2,000, and now it's gone up to $11,000, based on some cost recovery system of the government.

These two people are telling me - they are totally unrelated; they came to me at different times - that it's going to literally put them out of business.

In the early stages of the development of a product, each time they sell one to a customer through a doctor or however it's done, they often can improve it based on the experience of that customer or patient. Every time they make the smallest possible change to it in order to improve the product, they have to file again and pay the fee again, which seems to me to be a system that is working against the original development and early improvement of products.

I'm wondering if the Medical Research Council has commented on this new fee structure.

Mr. Gleeson: Again, that's another regulatory type of issue. I truly am not close enough to that area of the Canadian system to give you a cogent answer.

All new companies, particularly in the medical area, face two significant questions they have to answer. One is who's going to pay for the product or service they're bringing forward?The other is what's involved in the regulatory process?They're big challenges. Yes, if the product changes, because it's in the human health area, it has to be reviewed again.

Ms Brown: I understand that, but when something has increased from, say, $2,000 to $11,000, it seems to me it's a really major change.

Mr. Gleeson: It changes where the bar is.

Ms Brown: Absolutely, and it works against the development and growth of these small Canadian companies into something that could become a tremendous asset to our economy. That's why I'm wondering.

Do you work for the council or do you work for this fund?Or do you work for both?

Mr. Gleeson: I work for the fund, in the private sector.

Ms Brown: But Mr. LePage, I believe -

Mr. Marc LePage (Director, Business Development Medical Research Council): [Inaudible - Editor]

Ms Brown: So perhaps I'm directing my question to the wrong person.

Seeing as you are funded by the government - and I realize it's an awkward position to be in - and if in fact you understand the goals of the government, which have to do with the growth of small business and everything to do with the high-tech field being the number one priority, do you feel compelled, through your board perhaps, to comment to the government about changes you see as counterproductive?

Mr. LePage: In the sense of understanding policy, this is what led to our initiating the creation of CMDF and taking that further. That was the commercialization part of it, if you will.

The whole area of regulation is not in our domain. We're in basic science. I guess we would respond if asked to, but in some areas it is a bit out of our area of competence. So in that sense we have not been directly involved in the process.

Obviously it is tied to Health Canada and the Minister of Health. It certainly is a big area. We have not commented yet. It is an issue for the younger companies as they move through the process.

Ms Brown: Mr. Chairman, I don't know what to do about this particular piece of information.

The Chairman: Why don't we get some detail on it, have a look at it and see if it falls into a larger segment?

Ms Brown: Currently it certainly falls into our emphasis on helping small business.

The Chairman: Let's find out the details in both cases, because it's an interesting test case. I think that would be helpful.

Ms Brown: Okay.

Mr. Schmidt: I have a question that centres on the labour venture funds in particular and the cap you put on of about $200 million that you'd like to go to.

It seems to me, in looking at this prospectus, that one of the major features of this thing is the tax advantage to someone who invests in it, especially someone who's in Ontario. For every $5,000 bill, it really costs them about $1,300 or maybe even less than that, depending on the tax bracket they're in.

.1700

So there seems to be a tremendous incentive for people who are wishing to save tax dollars to get involved in a fund like this, and I suspect very strongly that's why the other fund has $600 million in it - they've only found $76 million worth of projects. It's simply a tax dodge. Particularly with the compounding effect with the RRIF and the RRSP - it makes that greater.

My question is, how will you guarantee or assure that the motivation for this venture fund is pure, and that it will indeed fund venture projects rather than simply be a repository of money that's a tax deferral?

You have done it so well. I want the assurance that this will continue to be the case.

Mr. Gleeson: Right. I think we're doing that in two ways. One is that we're demonstrating by actually putting the money to work.

Mr. Schmidt: Yes, you're doing that now, but $25 million, shucks, that's -

Mr. Gleeson: And the second, and I think the most important one, is that we're selling this as an investment in good Canadian science and in building businesses that will have a return. So we believe that very strongly - that we're selling a good investment for people. We're not selling a tax vehicle for people.

Mr. Schmidt: That's nice and easy for you to say and I believe you -

Mr. Bélanger: It's our job to do that.

Mr. Schmidt: I think that's really significant, though, because it very much hearkens back to a tax legislation, I think. And as to the other part, you made a particular point of saying that you were geographically dispersed across Canada, yet the tax treatment in provinces other than Ontario is very different and that's another legislative kind of problem, if you like. But it seems to me that if we as government, Mr. Chairman, want to get serious about providing venture capital for true venture businesses, we should not have such a disparity on tax treatment across the country.

Mr. Bélanger: Does the ``we'' include -

Mr. Schmidt: Pardon?

Mr. Bélanger: I'm just being facetious. Who does the ``we'' include?

The Chairman: If you wonder for whom the bell tolls, that's your airplanes.

Mr. Gleeson: Okay, great, thanks.

The Chairman: We have a vote to go to. Thank you very much for a very interesting afternoon.

The meeting is adjourned.

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