A recent comprehensive review of Federal support for R&D, Innovation Canada: A Call to Action was published in October 2011 with recommendations to improve support for innovative Canadian companies and facilitate their growth into large, competitive global businesses. The findings indicated that investment in post-secondary research as a percentage of GDP was greater in Canada (0.7%) than other G7 countries (2010 figures); in contrast, private sector investment in R&D in Canada lags behind G7 nations, with the gap between the US and Canada growing as investment increases in the US and decreases in Canada. The April 2012 Federal budget, which committed $1.1B over five years for direct R&D support, with an additional $500M available for risk-capital, was the government’s first response to enable better translation and commercialization of post-secondary R&D investments to produce new products, processes and services that stimulate economic growth and generate high-value jobs.
A bullet point summary of the programs supported in this strategy is provided below with brief commentary on the implications for Canadian-based early-stage start-ups.
Support for risk capital
- $400M for early-stage risk capital funds
- $100M to the Business Development Bank of Canada (BDC)
Venture capital for biotech companies is virtually non-existant in Canada. Any stimulus to support early-stage capital is welcome and important to limit the migration of Canada’s best companies south.
Industrial Research Assistance Program (IRAP)
- Support through IRAP will double with an additional $110M allocated annually from 2012-13
- “concierge service” to help SMEs to effectively access Federal innovation programs
NRC-IRAP is an essential early source of funding and other support for early-stage companies. This resource can support R&D and is an important validation of the company and its technology for follow-on investors.
Western Innovation Program
- new program offering financial aid to SMEs in Western Canada
- managed by Western Economic Diversification Canada
- consistent with existing programs in other regions
- Business and Regional Growth program in Quebec
- Business Development Program in Atlantic Canada
- Southern Ontario Development Program
- no funding level indicated
This is a new source of money for companies in the West. Western Economic Diversification traditionally supports infrastructure in academic institutions and not-for-profit organizations, which provide much needed access to services for start-ups. Examples of organizations supported include the Centre for Drug Research and Development (CDRD), Alberta Centre for Advanced MNT Products (ACAMP) and the British Columbia Pre-Clinical Research Consortium. It would be interesting to hear the thoughts of those who have accessed the existing programs in Quebec, Atlantic Canada and Southern Ontario.
Industrial Research and Development Internship Program
- $14M over two years
- graduate students undertake research with private companies
- administered by MITACS
The MITACS Accelerate provides early-stage companies access to graduate students, their professors and university infrastructure to support R&D programs. To be eligible, it is important for companies to have their own facilities, which can be a problem for nascent start-ups still operating in the labs where the technology was initially developed.
Business-Led Networks of Centres of Excellence
- $12M annually to make the NCE program permanent
The Quebec Consortium of Drug Discovery (CQDM) is an example of a Business-Led Networks of Centres of Excellence, which specializes in facilitating the commercialization of academic/private sector early-stage drug discovery innovations. These centres often provide start-ups access to infrastructure, equipment and expertise.
Canadian Innovation Commercialization Program (CICP)
- an additional $95M will be made available for 3 years from 2013-14, and $40M annually thereafter
- the Canadian government purchases innovative products and services through the CICP program
- the government acts as an early customer and validates the technology
This is a great source of early revenue and customer feedback for a start-up. Those unfamiliar with government procurement procedures should allow plenty of time to understand and navigate the process. MERX is the on-line portal for applications and provides details on seminars that potential applicants can attend to better understand the opportunities and process.
The National Research Council (NRC)
- $67M in 2012-13
- focus on business-driven, industry-relevant applied research
The NRC research facilities relevant to biotech are numerous and include nanotechnology and biotechnology centres. These centres provide start-ups with access to infrastructure and expertise, and the possibility to be located near the NRC R&D facilities, for example, the Industrial Partnership Facility at NRC-BRI in Montréal.
Scientific Research and Experimental Development (SR&ED) Tax Incentive Program
- program provided > $3.6B tax assistance in 2011
- Federal government proposes to “streamline and improve” SR&ED
- savings incurred will be directly invested into direct programs to support innovation
- current eligible expenses are salaries, materials, overhead and capital expenditures
- capital expenditure will be removed from SR&ED-eligible expenditures from 2014
- from January 1, 2014 the proxy overhead will be reduced from 65% to 55% of direct labour costs
- the eligible SR&ED expenses that can be claimed from arm’s length contract payments will be restricted to 80% of the total cost to remove the application of the tax credits to the profit portion of the contract
- general SR&ED investment tax credit rate will be reduced from 20% to 15% on January 1, 2014
- further investments will be made in the administration of the tax credit to make it less complex and “more predictable”
The SR&ED program is a great incentive to establish a high technology company in Canada. In addition to Federal Tax credits, the provinces have their own incentives to R&D investment by the private sector. The proposed changes to SR&ED limit eligible expenses and it remains to be seen, whether the other initiatives in the budget will buffer this change. For early-stage companies, which are capital constrained and often operate using a capital-efficient model, the removal of capital expenditures from the tax credit is less likely to have an impact on their SR&ED credits.
Post-Secondary and Private Sector Research Collaborations
- from 2012-13, $37M per year will be invested in CIHR, NSERC and SSHRC to support industry-academic research partnership initiatives
- $60M to Genome Canada to support a new applied research competition in human health and sustain the existing Science and Technology Centres until 2014-15
Genome Canada supports genomics research and centres that can provide essential services and expertise for start-ups. The Large-Scale Applied Research Project competition provides a foundation for companies to collaborate with academic centres to develop genomics-based commercial products
Canada Foundation for Innovation
- $500M over 5 years for the acquisition of advanced research infrastructure
The Canada Foundation for Innovation (CFI) is an important source of government funding for universities, hospitals and research institutions to upgrade essential equipment and access the latest innovative products to support cutting-edge R&D. Universities are a great resource for early-stage start-ups to access and leverage infrastructure in a cost-efficient manner. Any initiative that enables the best technology to be present in Canadian academic institutions is provides a competitive advantage for start-ups and established biotech companies.
The support for CFI, MITACS, Genome Canada, the Centres of Excellence program and the research councils provide access to infrastructure, equipment and expertise that are an essential component for validating nascent technology and starting a company using the leverage start-up model.
As a co-founder of an early-stage start-up in Vancouver established using the leverage model, the additional funding to NRC-IRAP and the CICP program, as well as the introduction of the Western Innovation Program are the highlights. The revised criteria for the SR&ED – lowering of the eligible overhead from 65% to 50%, and the reduction of the general tax credit to 15% – are regrettable.
How will these changes impact your business? And does this budget make Canada a more, or less attractive place to start a biotech company?
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