Building Canada's Future

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Cat. No. Iu155-2005E-PDF
ISBN 0-662-41810-7
54318B

Contents

• A Year in Review
• What We Do
  • Portfolio Summary for TPC
  • Portfolio Summary for TPC-IRAP
• How Canadians Benefit from TPC Investments
• TPC's Share of Project Success
• Program Management Update
• This Year's TPC R&D Investments
• Success Stories
  • Powering Up! Cellex Power Products Inc.
  • Fighting Infection, Saving Lives - MIGENIX Inc.
  • To See at Sea - Offshore Systems Limited
  • Fuelling the Future - Hydrogenics Corporation
• Financial Statements

A Year in Review

Technology Partnerships Canada (TPC) is a Special Operating Agency of Industry Canada, established in 1996. With a mandate to provide funding support for strategic research and development (R&D) and demonstration projects that will produce economic, social and environmental benefits for Canadians, TPC invests in innovative technology R&D projects being undertaken across the Canadian economy.

Partnering with industry, TPC acts as a catalyst by investing strategically to accelerate the successful development of key technologies. Canadians benefit from these investments in their everyday lives through enhanced medical and biotech technologies, improved transportation efficiency and safety, and progress in environmental technologies that reduce greenhouse gas emissions and offer solutions for sustainable development.

By investing in ideas early on, when risk is higher but the potential for reward is greater, TPC is helping promote important R&D that might otherwise take place elsewhere in the world or not at all. With the potential to generate invaluable innovations and eventually bring them to market, and the ability to enhance Canada's role as a leader in technology development, these investments hold the promise of returns to Canadians that far outweighs the financial risks involved.

The year 2004-2005 saw a great deal of activity within TPC. In all, 31 projects received investments towards innovative R&D into environmental, enabling, and aerospace and defence technologies. Among the R&D being conducted, these investments hold promise of better antibiotics for health care, improved landing gear and, in turn, enhanced safety for aircraft, and a reduction in vehicle emissions through the development and adoption of hydrogen fuel cells as a power source for a wide variety of applications.

Again this year, TPC continued to review its operations and conduct recipient audits, and incorporate lessons learned to improve internal operations. To strengthen its audit function, TPC established an independent audit committee.

In addition, an integrated planning process has been developed and adopted. To ensure TPC staff have the specific administrative knowledge needed, a training plan was developed and instituted. These measures allow TPC to improve the efficiency and effectiveness of its operations, and its ability to respond to industry and Canadians.

What We Do

Through its R&D and demonstration investment programs, TPC is a key instrument for encouraging innovative technology R&D in Canada.

Under the TPC R&D investment program, TPC makes conditionally repayable contributions to enterprises in Canada engaged in research and development in areas of technology that promote innovation, commercialization, sustainable development and increased investment.

These investments target precompetitive projects across a wide spectrum of technological development. The program focusses on key technology areas such as environmental and enabling technologies, which includes biotechnology and health-related applications, plus aerospace and defence technologies as well as manufacturing and communications technologies.

TPC Industrial Research Assistance Program

TPC is also partnered in a co-operative venture with National Research Council Canada's Industrial Research Assistance Program (IRAP) to deliver the TPC program to Canadian small and medium-sized enterprises (SMEs); these are defined as firms with fewer than 500 employees. This partnership encourages innovation across the country by investing in projects with authorized eligible costs of $3 million or less. TPC and IRAP each provide 50 percent of the budget for the TPC-IRAP program.

This Year's Investments

In 2004-2005, TPC signed 31 new projects for an investment commitment of $256.5 million. Through the TPC-IRAP program, 40 projects were contracted for an additional $15.7 million.

As of March 31, 2005, these investments bring TPC's total R&D portfolio, including the TPC-IRAP program, to 693 projects, totalling more than $2.8 billion, of which $2.1 billion has been disbursed. Of these projects, 88.6 percent target SMEs across Canada.

These projects have leveraged an additional $11.1 billion in private sector innovation spending (almost $4 for each dollar invested by TPC), which means TPC has facilitated investment decisions totalling $13.9 billion.

Hydrogen Early Adopters (h2EA) Program

In fall 2003, TPC announced it would participate in the Government of Canada's commitment to invest in a hydrogen economy through the Hydrogen Early Adopters (h2EA) Program. A five-year, $60-million initiative, the program consists of demonstrations of hydrogen and hydrogen-compatible technologies.

The Government of Canada is committed to working in partnership with industry to build a solid "Hydrogen Team" as it builds a hydrogen economy. Working together, government and industry are fostering the development and early introduction into the Canadian marketplace of hydrogen and hydrogen-compatible technologies such as fuel cells and those used to produce, store and distribute hydrogen.

In conjunction with other Government of Canada agencies, h2EA has begun working with Canadian industry on the development of concepts such as "hydrogen villages" and "hydrogen highways" across Canada. These consist of communities where the power source for domestic use or transportation is based on hydrogen.

These projects will contribute toward the development of a hydrogen infrastructure in Canada, developing the skills, standards and supply mechanisms required to support a hydrogen economy. Canada's growing expertise can influence the worldwide hydrogen industry as it looks toward finding increased applications for hydrogen technologies in our daily lives.

In 2004-2005, the program made its first four investments, with a total commitment of $13.27 million in hydrogen and hydrogen-compatible technologies demonstration projects. As the h2EA program is a separate initiative, it is not included in the TPC R&D totals listed previously.

Portfolio Summary for TPC

TPC Projects 2004-2005

TPC Projects Overall

TPC Commitment 2004-2005 ($ millions)

TPC Commitment Overall ($ millions)

• ^* Work will take place in more than one region.
• ^** Including Supplier Development Initiative (SDI).

Portfolio Summary for TPC-IRAP

TPC-IRAP Projects 2004-2005

TPC-IRAP Projects Overall

TPC-IRAP Commitment 2004-2005 ($ millions)

TPC-IRAP Commitment Overall ($ millions)

How Canadians Benefit from TPC Investments

TPC's investments are designed to encourage private sector investment in innovative R&D and advance the technological capabilities of Canadian industry. The focus is on the kinds of key technologies that can improve the lives of Canadians by contributing to our health, safety and quality of life.

In order to maintain a strong economy, we need to create an environment where companies of all sizes and a variety of industries can grow and be successful. TPC investments help to create that environment by supporting innovation across Canadian industry. New partnerships, new skills and new ideas are all benefits of TPC investment.

Focus on Innovation for Health and the Environment

TPC invests in technologies that help to find solutions to some of Canadians' key concerns, including enabling technologies in biotechnology to cure and treat illness and improve our health-care system. These are projects that will improve our well-being and our environment as well as preventing, or protecting us from, pollution.

Developing a Stronger Aerospace and Defence Sector

TPC has been a key instrument in the Government of Canada's ongoing commitment to the continued growth and development of the country's aerospace and defence industry. TPC's investments help ensure that Canada maintains its status and competitive edge in this industry - a critical driver of jobs, opportunities and wealth for Canadians - and allow it to contribute to the growth of hundreds of suppliers across the country

Encouraging SMEs to Fulfil Their Potential

TPC encourages the development of SMEs in all regions of Canada. Each dollar invested by TPC leverages additional investments both nationally and internationally, which encourages SMEs to grow, exploring good ideas and developing them into practical technologies. New alliances and working relationships are encouraged and developed among suppliers and industry, increasing Canada's overall innovation capacity. TPC investments are vital to these companies, helping them move ahead with the speed and scope required to succeed and become leaders in their fields.

Keeping Skills and Ideas in Canada

Finally, by supporting R&D activities and technological innovation, TPC attracts and retains highly paid, skilled employment in Canada. Creating and keeping these knowledge-based jobs in Canada is essential for sustaining our economy and the well-being of communities, because these workers make significant contributions that benefit all regions of Canada and all sectors of our economy.

TPC's Share of Project Success

TPC invests in higher-risk R&D initiatives that may encounter technical failures, enterprise hardships, market shifts and previously unforeseen competition. This means TPC faces, at a minimum, the same kind of risks faced by equity investors in emerging and advanced technology companies.

Projects advanced with TPC's investments have the prospect of commercial success, which TPC takes into account. Success in the marketplace, however, may not begin for several years. Depending on the project, commercial success may not achieve its full potential for 20 years or more, so the valuation of our portfolio payments will vary with markets and factors that affect the pace of innovation and adoption of technology.

Payments from projects that have completed the R&D or work phase and that are currently showing financial returns are continuing to grow.

In fiscal year 2004-2005, payments to TPC totalled $38.2 million (including $5.6 million from TPC-IRAP, but not including warrants* received), an increase of 36 percent over the previous year's level. The total cumulative payments as of March 31, 2005, amounted to more than $115.4 million; of this total, $101 457 356 came from TPC projects and $13 947 975 came from TPC-IRAP.

*Acquiring warrants from private sector partners is one of the various payment options TPC uses in its investment strategy. Diversifying payment methods supports risk management and can generate additional returns for the Government of Canada.

Payments to TPC

• Totals collected as of March 31, 2005 = $115.4 million.
• Totals include TPC-IRAP investments.

Through forecasts of the market and of the likely pace of success of innovation in Canada, payment expectations are subjected to regular assessments and are amended to reflect the uncertainties and risks that characterize continuously changing market conditions.

As at the end of fiscal 2004-2005, the payment forecasts for 2005-2007 are:

• 2005-2006 = $52 576 000
• 2006-2007 = $76 697 000

Program Management Update

In 2004-2005, TPC undertook a number of changes to be more responsive to the needs of industry and to streamline operational processes. These changes were supported by program evaluation studies.

To capture a more comprehensive picture of the program's achievements, a performance measurement initiative is being developed that will focus on its broader public policy benefits.

Recognizing TPC as a key instrument supporting leading edge R&D, the Minister is reviewing the balance, scope and focus of TPC activities to ensure that they can provide optimum support for innovation in Canadian industry.

To improve its internal operations, TPC has established an audit function and an independent audit committee and has enhanced its already stringent audit plan. An integrated planning process has been adopted. Since TPC began reporting to the Operations Sector of Industry Canada in September 2004, implementation of our strengthened planning process is being aligned with theirs.

Performance tracking was automated by deploying new project performance systems. These included systems for measuring audit coverage, cash flow and project summary reporting.

As part of its operations, TPC responded to a total of 74 requests for information and documentation through the Access to Information Act. Although this was a reduction from the 93 requests received in 2003-2004, it is estimated that the volume of the records, consultations and staff involvement remained relatively the same.

Finally, in 2004-2005, TPC took a number of steps to educate its client base about their obligations to, and ensure compliance with, the Lobbyist Registration Act (LRA) and the use of contingency fees. With respect to client education, we have enhanced our website to highlight rules around lobbyists and contingency fees. We have implemented processes to send information letters at every stage of the TPC application process to clients reminding them of their obligations. We have improved our contractual agreements to more clearly identify TPC requirements on these issues.

In addition to client-focussed measures, we introduced a number of internal activities related to the LRA. These included a mandatory training program for all TPC staff, and the development of an enhanced process that requires client certification at each of the stages of the TPC application process.

This Year's TPC R&D Investments

In 2004-2005, contracts were signed for 31 R&D projects, valued at a total of $256.5 million.

Enabling Technologies

Three projects totalling $22.6 million.

Environmental Technologies

Four projects totalling $29.89 million

Aerospace and Defence

24 projects for $203.95 million (including Supplier Development Initiatives).

Supplier Development Initiative

The following SMEs received assistance from the Aerospace and Defence Supplier Development Initiative (SDI). This three-year program was designed to help SMEs improve their technical, quality assurance and management systems or capabilities in order to better position them for growth beyond their current tier in the aerospace and defence supply chain. The SDI program concluded on March 31, 2005. During the three years in which it operated, this $30-million initiative provided assistance to 49 companies.

This Year's Hydrogen Early Adopters (h2EA) Investments

Four projects for $13.27 million

Success Stories

Powering Up! Cellex Power Products Inc.

Today, lead acid batteries are used to power many lift trucks, golf carts, mining vehicles and other industrial utility vehicles. Cellex Power - a Canadian company - is hoping to change that with help from TPC.

These industrial batteries contain lead and acid and can weigh over 1000 kg, giving rise to workplace safety and recycling issues as well as logistical challenges. In contrast, hydrogen fuel cells offer an environmentally friendly, clean and sustainable power source alternative.

Cellex Power of Richmond, British Columbia, has recognized this opportunity and - through $9.5 million in funding assistance from TPC - is completing the R&D required to reduce the costs and improve the reliability, longevity, durability and performance of its hydrogen fuel cell power units for small industrial vehicle applications.

While initially focussed on battery replacement applications, in the longer term Cellex intends to expand and adapt its fuel cell power units for use in a variety of applications across the industrial and utility vehicle market, including some that currently use internal combustion engines.

Combining leading-edge R&D and a drive to continuously innovate, companies like Cellex Power are working hard to change the way Canadians power the future.

Fighting Infection, Saving Lives - MIGENIX Inc.

With the costs of health care rising, and the growing prevalence of drug-resistant, infectious bacteria, the need for effective infection treatment options has become a real concern for all Canadians. Through a $9.3 million investment from TPC, MIGENIX Inc. of British Columbia is working to provide a reliable, cost-effective and durable treatment solution.

It is estimated that national health-care costs due to antibiotic resistance total $700 million annually. Many strains of bacteria once treated with antibiotics are now resistant to conventional antimicrobial drugs. The result has been a limitation in the options available for treatment and an increase in the number of deaths due to infectious disease.

As a new-generation drug alternative, MIGENIX's lipopeptide-based drug derived from amphomycin - MX-2401 - represents a high degree of innovation and hope. Lipopeptides are derived from a family of antimicrobial agents active against aerobic and anaerobic Gram-positive bacteria and thus are effective in combating a wide variety of infections. In addition, MX-2401 is expected to have a low likelihood of rapid development of resistance and a low likelihood of cross resistance.

It is expected that the first indication for MX-2401 would target complicated skin and skin structure infections, which include deep wounds, surgical incisions and diabetic foot ulcers. Promising a more effective treatment, more rapid recovery from infection and a longer-lasting antibiotic treatment option, the potential benefits for patients and for our health-care system are evident.

To See at Sea - Offshore Systems Limited

With maritime operations transporting goods and people across waterways increasing around the world, the need for improved navigation tools has never been greater. Add to this the potential for threats to the safety and security of Canadians from maritime sources as well as the need for an accurate and effective means of detecting, mapping and displaying what lies on and in our waterways.

Offshore Systems Limited (OSL) of North Vancouver, British Columbia, is responding to this critical need. Developing advanced technologies that will make Canadian - and international - military marine operations safer, Offshore is integrating high-performance mapping and imagery displays and is developing tools to enhance the identification of threats and obstacles on and in the water.

By converting paper charts to electronic ones, OSL delivers highly sophisticated digital navigation systems that enable ships to navigate more easily and accurately as well as to move faster and more securely with fewer groundings and collisions. Costs are reduced through decreased maritime incidents, and increased operational effectiveness. In addition, the ability to review and exchange these critical navigational data during military operations will enhance the interoperability of armed forces, thus improving their capacity to assess and respond to existing and emerging threats in our waterways. Finally, by providing electronic maps and navigational tools, OSL offers users paperless navigation.

On the leading edge of navigational mapping systems, OSL has committed itself to developing the navigational mapping tools that today's maritime environment demands. By providing innovative technologies, OSL is helping Canada's maritime sector successfully meet the challenges of the environment in which it operates, and is assisting the military in defending the safety and well-being of all Canadians.

Fuelling the Future - Hydrogenics Corporation

At the unveiling of Hydrogenics' HyLYZERâ„¢ hydrogen refueller at the Canadian National Exhibition (CNE) in August 2004, the audience recognized that the hydrogen fuel cell industry in Canada was taking an important step forward.

Through an investment made under the Hydrogen Early Adopters (h2EA) program, Hydrogenics and its consortia partners were unveiling a demonstration project that would highlight the capabilities of the fuel cell industry in Canada and the potential for early market adoption of hydrogen as a fuel source in several key industries, including fleet and light mobility transportation and backup power generation.

The Toronto HyLYZER at Exhibition Place is the city's first public hydrogen refuelling station. Capable of using electricity generated by the on-site wind turbine to produce hydrogen, the HyLYZER has been used to refuel a range of fuel cell-powered demonstration vehicles all powered by Hydrogenics' fuel cell power module technology. At the unveiling of the refuelling station at the 2004 CNE, these demonstration vehicles included a forklift, a John Deere commercial work vehicle and a GEMâ„¢ "neighbourhood" electric vehicle.

Starting in summer 2005, the refueller will service a small fleet of fuel cell-powered John Deere work vehicles to be used in daily operations at Exhibition Place. In addition, this hydrogen station may be called into service to refuel zero-emission Purolator Courier electric/fuel cell curbside delivery vans, such as the one going into service in summer 2005 in downtown Toronto, to demonstrate commercial fleet applications of hydrogen and fuel cell technology.

Through demonstration projects like this, Hydrogenics and its consortia partners - John Deere, Greenlight Power Technologies, Purolator, Bell and Emerson - are encouraging awareness and acceptance of this sustainable, renewable and potentially zero-emission fuel source in Canada, and are proving the capabilities of this growing industry.

For Canadians, the potential is limitless and the future is promising as these demonstrations prove the effectiveness of hydrogen and hydrogen fuel cells across industry, thus offering Canadians a viable green energy solution for the future.

Financial Statements

Note (1) Program Operations includes funds for TPC and IRAP-TPC, as well as administration of repayments.

Note (2) Figures represent amount collected or forecasted to be collected, in the previous year. Repayments collected in a given year are deposited in the Consolidated Revenue Fund, which are then made available to TPC the following year through its access to repayments authority. Contrary to repayment amounts listed in prior year Annual Reports/Year in Review, the figures above include the portion related to repayment administration.

Note (3) IRAP-TPC projects have a shorter disbursement phase than those of TPC, which in part would explain the relatively low future years commitments.