Xenon Pharmaceuticals CEO Interview on Canada’s Reduced Funding Part 2

Part 2:  Simon Pimstone, President & CEO of Xenon Pharmaceuticals Interview

As a large part of the life sciences group in BC Simon Pimstone met with Liberal leader Michael Ignatieff on life sciences and explained the issues of funding, and you would think that it would fit in with Ignatieff’s desire to build a larger knowledge based economy and a louder opposition to the Canadian federal government’s budget would have sent that message on behalf of the life sciences community that it does have greater support, especially in the downgrade in future funding in this area.

The Canadian TV & film industry according to industry reports employed 126,900 FTE’s (full time equivalents) and the value of production was $5 billion in the 2006/2007 years.  This compares to the Life Sciences industry in Canada which produced sales of $1.9 billion but the tax breaks are not equal with the Canadian federal government and provincial government film and TV tax credits allowing up to 53.5% of BC labour expenditures on a yearly basis.

BC universities produce between 3,000 to 4,000 science graduates of which many do not find employment in Canada, yet all the life sciences is asking for is a fair share of funding to continue to find cures for different diseases that helps all Canadians and the world.    The public cost of educating students who end up working in another country is approximately $48 million (3,000 students * $40,000 expected cost of education * 40% funding from governments, estimated) .  This a huge cost only for a single province, not the entire country where the Canadian people are funding scientists to work in other countries at the end of the day.

What’s important is not providing funding on an ad hoc basis but continued basis even if its smaller amounts to foster an environment of innovation and then onto commercialization opportunities through Genome Canada, CIHR (Canadian Institutional  Health Research) and tax incentives.

Our health system is arguably one of the best in the world, some say the United States, but only if you’re willing to pay $2,000 per month.

SRED is a good funding tool starting from 1995, but really now inadequate for Canada’s life sciences sector as drug development takes much more time and money in order to recoup research funding.  It is only good for Canadian controlled private corporations, (CCPC’s) which many are not anymore because they’re too large and Aspreva Pharmaceuticals & Biovail Pharmaceuticals are some of the few companies which have profits in order to recoup some of these research that takes several years to make create a single drug.  A cap limit on SRED would even be more palatable to the sector ie. $100 million if they took off the CCPC eligibility requirement and the threshold are too low with barely any increases  since 1995.

Even if tax incentives, to entice offices in Canada such as providing tax holidays for bringing in new manufacturing facilities where they employ 200 people which are paying income tax now where they don’t pay personal income tax for the first 2 years with a commitment for 5 years residency then people would be paying taxes and spending that income in the country and province.

Allow investments earned from life science investments in 2009 and 2010 to be exempt from capital gains tax but was ignored by the federal government in the budget.   Use some of the carry forward losses that life science companies have accrued and provide a formula where say 1/2 of all carry forwards are eligible ie. 40 million and provide a cash reimbursement for 25% of the 1/2 which would result in needed funding to continue doing research to reaching the milestones.

The facts are that SRED was really designed for large company models, large drug companies, large aerospace companies, not really the Canadian life sciences sector which the majority are small companies from 5 to 150 people.  The inadequacy of updating the Canadian Scientific Research & Exploration Development tax credit system is costing the Canadian economy jobs in the short and long term, but more importantly the potential cures to the various diseases and cancers out in the world.

Written by Richard Wong, CMA     rwong@firstchoicecapital.ca