A trip to MaRS that won’t make it
National Post
By Terence Corcoran
As the second day of senseless droning over health care gets underway at the Ottawa health summit, let’s take a look at another fractured piece of the Canadian health care system. The media are full of tales of waiting lists, shortages, rising costs and collapsing service levels—all the things Canadians personally encounter when ill health drives them into the hands of Canada’s monopoly health care bureaucracies. Also failing, but quietly in the background, is Canada’s biopharmaceutal industry.
Consider these indicators:
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Canada produces pharmaceutical and biotechnology inventions at half the rate of the U.S. industry;
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Per capita investment in research and development in pharmaceuticals is one of the lowest in the developed world;
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R&D investment grew 13.5% annually since 1990, compared with 32.5% in the United States;
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Canada has produced only four global leaders in biopharmaceuticals;
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Average wages in Ontario’s biopharm cluster are 38% lower than in the largest U.S. states.
This portrait of industrial mediocrity comes from Roger Martin, dean of the Rotman School of Management at the University of Toronto, and James Milway, executive director of the Institute for Competitiveness and Prosperity. In a new study of Toronto’s biopharmaceutical sector, Martin and Milway work their way through the relatively dismal structure of the industry and arrive at a not-so-surprising conclusion.
Roger Martin is a devotee of Michael Porter’s theory that industrial clusters --autos in Detroit and Southern Ontario, films in Hollywood, finance in London, wine in California—are drivers of economic growth and development. Toronto, in theory, has all the makings of a hot cluster in biopharmaceutals: world-class research hospitals, the fourth-largest medical research community in North America, lots of government funding and private backing, a skilled workforce, and a provincial network of 17 universities that churn out 17,000 graduates in health, science and other professions annually.
With all this and a world-class transportation and communications infrastructure, why the dismal results? In a nutshell, Canada’s health care system. For clusters to thrive, they need a multifaceted system that functions on all cylinders. In Ontario, as across Canada, part of the engine is missing. Federal and provincial governments act as regulators and buyers of the products produced by biopharmaceutical companies. By controlling prices and aiming at reducing costs, the system hampers the development of new products and services.
Canadian officials put great stock in the lower cost of drugs in Canada, ignorant of the impact. Controlling prices is a practice that “creates disincentives for Canadian-based pharmaceutical innovation by restricting funds available for future research and development.” The government’s tendency to pick and choose products so as to save money also hurts the industry. Slow regulatory approval of drugs also hampers innovation.
The point is that bureaucratic and planning control over health care is acting as a silent killer of innovation, not to mention new investment and jobs in the biopharmaceutical industry. Martin and Milway offer a number of solutions to offset the government drag on the system. Increased outsourcing, special government funds to stimulate demand for research in special disease cases, and a government-backed “insurance” fund to guarantee sales for venture capital firms.
Using more government programs to offset the ruinous impact of existing government programs seems like a bass-awkward approach to the problem. So long as current public policy remains fixed on government control of health care, no amount of additional government control can offset the damage that’s being done. These solutions are also likely to produce their own flood of unintended consequences. The only real option is to start to move the government out of the health care business.
The Martin-Milway analysis highlights the risks associated with another program. Downtown Toronto is home to something called the Medical and Related Sciences Discovery District—known locally as the MaRS project. At a cost of $345-million, a section of the city’s old hospital district is being converted into a massive research and development “cluster,” funded by government, universities, biotech firms and a host of local corporations, including the Royal Bank.
When completed sometime early next year, the first phase of MaRS will take up more than 700,000 square feet of up-to-the-minute office and research space where venture capitalists and researchers will churn out cutting-edge science. As the public relations material describes it, Toronto’s MaRS project “will co-locate start-ups and established companies, business and scientific support services, and venture capital under one roof. From this site, scientific and commercialization services will be networked to support researchers and entrepreneurs across Canada.”
Thus will Toronto create a MaRS “cluster,” a driving engine of growth. But the Martin and Milway analysis suggests Ontario and Canada are missing a couple of core elements. So long as governments remain the big buyers of health care biotech, with their dead hand impulses to kill innovation through price controls and other planning devices, there isn’t much hope MaRS will even begin to approach the potential claimed by its backers. And never mind what the Martin and Milway conclusions imply about the plans of the giant drones in Ottawa today to introduce pharmacare.
© National Post 2004
