Public-Private Funds to Fuel Canada’s Health Start-ups and Entrepreneurs

Do you see health innovation contributing to Canada’s future economic prosperity? If so, what are our strengths and our weaknesses in the health sector?

Health innovation is one of our biggest opportunities and is widely seen as a pillar for Canada’s future prosperity. That’s because we have a strong reputation in healthcare services and medicinal expertise. Also, Canada’s technical and entrepreneurial talent is absolutely outstanding. As for our tax regime for health corporations, I believe it to be very favourable when compared to the rest of the world. These elements put us in a very clear position to prosper in the health sector.

Ironically, Canada’s healthcare system and expertise are renowned worldwide, but health is also one of our industries that is the most disconnected from innovation activity.

“Ironically, Canada’s healthcare system and expertise are renowned worldwide, but health is also one of our industries that is the most disconnected from innovation activity.”

Our health sector has been going through the motions for many, many years now. Part of the challenge is paying for our healthcare with a Single-Payer system. Since our health services are controlled and paid for with our taxes, the private sector has not been incentivized to push for innovation. This results in us throwing money at a stagnant healthcare system without clear innovation objectives or targets.

The way we operate is not sustainable. Our population is aging, which means that our society will be more prone to frailty and chronic conditions. It also correlates with an increase in our healthcare spending projections. If we want to continue providing high-quality and accessible free healthcare services, we need to design a cohesive health ecosystem.

What main challenges should we focus on and how would you propose we resolve them?

There is a multitude of challenges but one of the first ones we should address is how we conduct our medical research. Currently, our Single-Payer system pays many hospitals to do the exact same research. There is no tracking of who is researching what, when, where and how – despite the fact that the funds come from the exact same source.

The lack of awareness is alarming. We are double-spending energy, resources and time, hindering our potential to excel. Our Single-Payer system should be policing the initiatives that are underway. It should be asking basic questions like: “Wait a minute, we have more than two hospitals working on developing a cancer drug to treat this ailment, why are they doing the same thing?” Or saying to providers: “Your hospital has no credentials in this area so why not focus on the specialities you are known for?”

This lack of oversight is wasting billions of our dollars and it’s unacceptable. Healthcare innovators are competing for capital instead of collaborating and accelerating the adoption of our new knowledge.

“I would propose that the Single-Payer appoint a body that will be in charge of monitoring, tracking and allocating projects to the most qualified candidate.”

We should focus on eliminating duplicated efforts. As a start, I would propose that the Single-Payer appoint a body that will be in charge of monitoring, tracking and allocating health innovation projects to the most qualified candidate. We should have one policy per owner of the research, per person who conducts the research and per person who is going to commercialize the research. The intellectual property (IP) could then be pooled into a single database and accessible to all health innovators.

The idea is to stop competing against each other for the same capital, because in the end it all comes from one pocket – our taxpayer money.

How is Canada performing in terms of commercializing our health innovations?

The Canadian health sector’s technical and research talent is absolutely outstanding. But, where we fall short in the healthcare sector is the non-technical talent needed in order to commercialize and scale up our health innovations – we are extraordinarily weak in this respect. I would say that out of all of Canada’s innovative industries, life sciences has the weakest commercialization talent. The reason for this is that we do not have one large life sciences company left in this country at which people could actually train and gain health commercialization expertise.

So, although we have very talented individuals focused on health research those same researchers are usually exactly the worst people to commercialize health innovations. Canada has a lot of entrepreneurial talent that would love to commercialize our amazing health innovations, but they have no idea that a lot of our cutting-edge health research is going on. So one big challenge we must resolve is how to marry our capabilities in terms of entrepreneurial commercialization with the research side of things – and this is a very big conundrum.

“One big challenge we must resolve is how to marry our capabilities in terms of entrepreneurial commercialization with the research side of things.”

To achieve this, I would propose that the Single-Payer tracking body I put forward above appoint the person who will commercialize the research based on their skills. It would define what their standard share of the intellectual property would be. The body would also define and set the standard on how much of that commercialization the government or the taxpayer owns so they get a return on their investment. But the system needs to incent the entrepreneur to commercialize and to actually drive wealth creation.

When it comes to access to capital, do you think there is a much larger lack of funding opportunities for health innovators?

Yes, I do, but the lack of funding happens earlier for entrepreneurs in the health sector. Health innovators do not have the same systematic access to capital that, say, tech entrepreneurs do.

For example, a tech company typically goes through three stages of development. First, a team is in the product development phase. It has seed funding and no revenues. Next, the team moves on to a product and market fit, a Series A raise and starts selling the product on a one-to-one basis. This gives the opportunity to iterate and improve the product. Finally, stage three is when the team is ready to scale and transition from selling on a one-to-one basis to the masses.

“We still don’t have that type of pension fund that can support the healthcare sector. I hope that changes because this is the right step toward developing an innovative framework and to supporting our health sector needs.”

In contrast, for entrepreneurs in the health sector, the first stage is much, much longer. During product development, they must consult healthcare providers on an inconsistent basis and try to maneuver through policy gaps. The first stage is the longest and the riskiest, which exhausts the limited capital they have to begin with. It’s the root cause Canadian companies in the health sector fail to scale. The majority of our health innovators don’t even get to the second stage of development.

For the Canadian health entrepreneurs that do reach the third stage, they have to make a choice: either sell out or continue on to commercialization. The majority of our health businesses that reach the commercialization phase end up selling out to US or European pharmaceutical companies because there are no sources of funding to continue on their own.

Do you think the government should form investment avenues for the health sector specifically? If so, how should that be executed?

I do think that our federal government should establish a national fund of funds, similar to the Venture Capital Action Plan (VCAP). The VCAP encourages investment by private companies in early-stage companies. Its goal is to help small and medium-sized Canadian businesses grow and prosper.

During my time at OMERS, I tried to establish a public-private pension fund and negotiated with both the Governments of Quebec and Ontario to match capital that would support health innovators in the early stages. The plan was to pour $250 million into the fund to trigger growth in the health ecosystem. Unfortunately, we still don’t have that type of pension fund that can support the healthcare sector. I hope that changes because this is the right step toward developing an innovative framework and to supporting our health sector needs.

“Alignment will bring targeted financing into our health ecosystem. We just need to start being cohesive on what our unmet health system priorities are.”

While I believe our government should provide seed funding to spur innovation adoption and decrease dependence on foreign investment, there are also other approaches to consider. If we get better alignment in our health ecosystem among our healthcare providers, technology companies, hospitals, firms, universities and venture capitals we can establish new stable funders. Alignment will bring targeted financing into our health ecosystem. We just need to start being cohesive on what our unmet health system priorities are.