Innovation Policy

Canada failing to produce industry-leading health tech companies, says new report

Close up of examining of test sample under the microscope in laboratory.
Close up of examining of test sample under the microscope in laboratory. iStock

Canadian governments and universities’ health research and commercialization funding is returning 50 cents on the dollar, according to a new report from the University of Toronto’s Impact Centre.

Public, private and academic sector spending on scientific inquiry and go-to-market support in the medical space amounts to $7.8 billion annually, and the country’s research-based companies have revenues of $3.5 billion, estimates researcher Charles Plant. “That’s [the equivalent of] one good company,” he says.

The Canadian health technology ecosystem is failing to produce industry-leading companies, according to Plant, instead “creating slow-growing entities, and too few of them.” That’s a consequence of a research setup that disincentivizes commercialization, and the overly complex funding, support and approval structures that entrepreneurs face when attempting to monetize their ideas, the study says.

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Adjusting for population, the report obtained, exclusively by The Logic, found that the United States has 2.5 times as many private health technology companies as Canada, and those companies accrued five times as much capital. The difference is even bigger between the leading subnational jurisdictions, with firms in Massachusetts—home of Boston’s booming biotech ecosystem—receiving 43 times as much investment per capita as those in Ontario. Canada underperformed particularly when it came to scaling companies, which the report defines as those with more than $10 million in annual revenue.

Plant, an entrepreneur and former executive at MaRS, says his figures do not show a scarcity of investment dollars as much as a shortfall of eligible recipients. “If there were good companies here, there would be capital,” he says.  

Talking Point

Canadian governments, universities and businesses are spending $7.8 billion annually on health technology research and commercialization, but the sector generates only $3.5 billion in revenue, the report estimates. It also showed that startups and scale-ups attract far less capital than their U.S. counterparts, because there aren’t enough promising companies.

The number of innovative solutions Canada produces that could save money or improve outcomes is constrained by the way the research system works. Academic advancement comes by publishing papers, while hospitals are geared toward patient care; researchers in both settings are not rewarded for monetizing their findings. “There’s an attitude quite often among scientists that commercialization is beneath their dignity,” says Plant.

Those who do want to go that route enter an unwelcoming world. Healthcare is not a fertile field for venture capital investment in Canada, says Jason Tetro, a visiting scientist at the University of Guelph. The public sector delivers and pays for medical services, and “governments typically do not pay top dollar,” limiting the returns for potential investors.

Tetro says getting funding for basic research in healthcare is “impossible,” which causes researchers to tailor their discoveries to particular subsectors in the hopes of receiving financial support from non-profits and others in that particular community. “If you’ve got something that could potentially help someone that has a neurological disease, then you might go to” a multiple sclerosis charity or research non-profit, he says, by way of example. But doing so pigeonholes a company, with VCs unwilling to invest in solutions with relatively small customer bases.

Notably, the Impact Centre report showed more of a gap in the Canada-U.S. per-capita capital figures for the pharmaceutical and medical device subsectors than for software. Zayna Khayat, a future strategist at homecare provider SE Health and an expert on healthcare innovation, says the future belongs to digital solutions that improve healthcare processes as well as frontier innovation like stem cells and neurotechnology. “I don’t think the economic gains are going to come from converting academic IP,” she says, although she notes that Toronto is on the circuit with Boston and Silicon Valley for policymakers hoping to learn how to improve their own research commercialization systems—a sign ours must be working.

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Startups founded around health technology innovations next encounter a complex, overgrown ecosystem of government and not-for-profit programs mandated to fund and support them. The profusion of these solutions has become part of the problem, according to Plant. “Every time they saw a gap, they put up a little program,” he says. A lack of coordination means that companies spend a lot of time and resources going from one to another, picking up small amounts of funding and sometimes contradictory advice.

Responsibility for fixing these issues is spread across multiple levels of government and the public, private and academic sectors, Plant says. And past studies of the country’s underperforming, high-potential sectors—the Impact Centre study singles out the federal Advisory Council on Economic Growth’s report on innovation—have failed to define what progress or success would look like. The Logic reported last week on an internal federal government review that showed that the impact of a third of its $1.7 billion in annual innovation spending was not measured.

Report Methodology

The $7.3 billion in government and academic funding Plant cites is an extrapolation, arrived at by applying the ratio of spending between the three federal science granting councils to total spending, and includes funding for basic research, which is not necessarily expected to produce sellable outcomes. The $3.5 billion in economic activity figure is based on comparing the capitalization of health tech companies to valuation multiples for publicly-traded research-based companies.


Source: The Land of Stranded Pilots, October 2018. Impact Centre at the University of Toronto

“Our whole attitude is, ‘Let’s just do a bunch of things,’” Plant says. Instead, there should be single organizations tasked with assisting the development of startups in specific health sectors. The Council did propose Canada adopt a “focused, sector approach to economic development” in a different report, and identified healthcare as a candidate, although it used agrifood as its example of what such an approach might entail.

The abundance of support programs is a sign of the scale of the challenge. “When all these little intermediaries are gone, then we know we’ve got a well-running commercialization engine,” says Khayat.

But Khayat is also optimistic about health innovation in Canada, and particularly Ontario. The ecosystem has “galvanized a lot faster” in the last two years than in the 15 years before, she says, pointing to the establishment of Baycrest Health Services’ Centre for Aging and Brain Health Innovation with $124 million in funding (SE Health is a partner), and the creation of an executive position for healthcare innovation in the provincial government as among the major contributing events.

A giant healthcare system like Ontario’s is a good place for piloting a new solution, and there’s been progress on that front. “If you look at the volume of demonstration projects, it’s unlike anything I’ve seen,” Khayat says.

But companies then face considerable challenges making actual sales to provincial health systems. Plant says healthcare in Canada is typically funded on a per-procedure, per-doctor basis, meaning that there’s no budget line item under which to book, say, a new device that improves the efficacy of a particular surgery. “You can get a trial fairly easily,” he says, but turning a successful test into a paying client is much less common, which is why the report is titled “The land of stranded pilots.” Khayat says Ontario’s chief health innovation strategist is focused on fixing the procurement problem.

For now, Plant says, Canada is left with a disjointed and inefficient system that hasn’t produced many money-spinning health technology firms. “Every now and then, a good company will be created,” he allows. “But [it won’t be] because we have a good system. Inevitably, it will happen by accident.”