Proceedings of the Standing Senate Committee on
Banking, Trade and
Commerce
Issue 52 - Evidence, May 13, 1999
OTTAWA, Thursday, May 13, 1999
The Standing Senate Committee on Banking, Trade and Commerce met this day at 11:00 a.m. to examine the present state of the financial system in Canada (equity financing).
Senator Michael Kirby (Chairman) in the Chair.
[English]
The Chairman: I see the President of the Vancouver Stock Exchange in our midst. Perhaps, Mr. Johnson, you would tell us what is going on in the junior exchanges. This committee, for a variety of reasons, has been supportive of the whole notion of junior exchanges. Where does that stand in light of the recent announcement, within a month of which the presidents of the Toronto Stock Exchange and the Quebec Securities Commission are no longer in their jobs? Are you next? Can you give us a run down on what has happened with the proposed plan?
Mr. Michael E. Johnson, President and Chief Executive Officer, Vancouver Stock Exchange: We are still working to push the agenda forward. We are working on the concept of how we want to incorporate the national junior market. We will then work with our commissions to ensure we move forward with the appropriate regulatory approvals. We will then move on from there.
This is a real test of the CSA model and how it supports the industry. We expect that the Alberta and B.C. commissions will take the lead in the structure and rules for the junior market, and that commissions in other provinces will adopt those same rules.
In the future, a listed company, such as a mining company from northern Quebec, could come into the regional office of the junior market in the Montreal exchange and be able to conduct its corporate finance activity and be approved for listing on the junior market. That stock would then be eligible for trading across the country. This is quite different from the universe as we know it today.
Furthermore, if there were a dispute and the company wanted to appeal to the commission, it would appeal to the Quebec Securities Commission, which would apply the standards agreed to and which were set out by the Alberta and B.C. commissions. This would be a unique structure.
We expect to see more national firms participate in this market. In Vancouver, because of past reputations and problems, national firms have tended to be benign. Almost 100 per cent of listings and financing, and 65 per cent of the trading is generated by local firms.
The discount arms of the national firms facilitate about 30 per cent of the rest of the trading. That involves filling client orders. They are not trying to actively promote that business. Should they participate in this junior market, they will bring with them a portion of the institutional funds in Toronto and elsewhere, and that will increase market activity.
Our market is unique in that it is 80 per cent retail investor and 20 per cent institutional investor. Of that 20 per cent, 13 per cent of the money comes from Europe. A few years ago, when the market was what we considered to be a roaring bull market, prior to Bre-X, institutional investment represented 35 per cent of the total market, and 20 per cent of that money came from Europe. The play coming from both the Canadian and U.S. institutions was considerably less. This creates a major opportunity where funds will be available for junior companies.
We recently developed a number of products in Vancouver. We adopted a junior capital or capital pool program from Alberta. That is a much improved process for the formation of a junior company in that you have people who are experienced in raising seed money for the start of a venture. Typically, entrepreneurs have trouble raising money. By marrying that young entrepreneur, who may have no experience in the public markets, with the experienced venture capital pool group, you bring an improved governance to the process and improved access to the markets. It makes the entrepreneur's task easier.
We recently introduced a small financing exemption program which makes it possible for a company in the market with a current AIF file to tap the market for up to $1 million in any 12-month period, as long as it does not exceed 20 per cent of the capital based pricings consistently. If it is issued to the public, the shares are free trading; if it is issued to insiders on what is considered the "pro" group under the new conflict of interest rules, then the four-month hold period applies the same as for the AIF provisions.
A number of unique products exist today, provincially, and we would like to see those extended across the Canadian marketplace.
Under this agreement, we would also be taking on the operations of CDN, another group of companies. Today, however, for Revenue Canada purposes, that is not considered to be a public exchange. Investors in those private companies enjoy the lifetime, tax-free capital gains of up to $500,000. As private companies, they are eligible for certain research and development grants.
On the basis that the junior markets are important to the development of the Canadian economy -- and, that is the sector where the most job creation is found -- we will be lobbying for the same kind of treatment to be extended to junior markets.
The Chairman: What is your time-frame for becoming national, that is, being able to handle issues from across the country?
Mr. Johnson: We hope to have membership approval by the end of June.
The Chairman: That is VSE membership approval?
Mr. Johnson: Yes, and ASE, because that approves the merger of our two exchanges. We are inviting Winnipeg, a small exchange, to join us. We signed an MOA with the other exchanges under Canadian capital market restructuring to do with taking over the operations of CDN from Toronto.
You have probably read in the papers about the opportunity to provide regional servicing in Quebec through the offices of the Montreal exchange.
We expect to start working with the commission by June 1 and, by September, we hope to have the regulatory approvals in place so that we can start to consolidate the exchanges by mid-October. Most of this will be accomplished prior to going into a blackout period for Y2K; and we would operate CDN, as it is, from Toronto until next April. We would then bring that into play so that it becomes one integrated system.
The Chairman: We have other witnesses scheduled for this morning, but I wanted to take advantage of Mr. Johnson being here. Thank you very much. We will watch your progress with great interest.
Our witnesses this morning, from World Heart Corporation are Mr. Rod Bryden and Senator Keon. Thank you both for coming here today.
I want to say, first, that we are not entertaining any issues related to the taxing of hockey teams; and, second, some of you may not know that, for a long time, Rod Bryden has been involved in the issue of the role of public policy vis-à-vis business development in Canada. As a matter of fact, Rod, on behalf of the feds, and myself, on behalf of Nova Scotia, negotiated what was known as the DREE agreement which led to the development of the Halifax waterfront project in 1972. Mr. Bryden has obviously been involved in these issues for a long time.
Since you have actually done it, we want you to provide us with a realistic view -- as opposed to a concept -- of what role public policy could play in encouraging equity investment in small business or medium-sized business.
Perhaps Senator Keon could tell us what happened before Mr. Bryden and other investors got involved; and perhaps Mr. Bryden could tell us what changes in public policy would have made it easier or more attractive for people to become involved.
The Honourable Wilbert J. Keon: The financial planning information will come from Mr. Bryden.
At the outset, I will give you a brief history of the background to this, including some of the difficulties we encountered, why we needed a Rod Bryden, and what I think World Heart will do for our country because of the combined efforts of the University of Ottawa Heart Institute and Rod Bryden.
World Heart Corporation, currently owns a technology called a HeartSaver VAD, which, for practical purposes, is the left side of an artificial heart. However, a lot of other expensive technology is associated with this. At one point, there was a total of about eight patents for the HeartSaver VAD in the marketplace. Some of the most versatile patents are on equipment that can, with wireless technology, transmit power and information from inside and outside the body; and then it can be relayed anywhere in the world by hard wiring, fibre optic technology, or satellite technology.
This is something new and different. It was developed to make the artificial heart possible. In the long run, it may be more valuable than the heart itself as it is coupled with emerging technologies.
The concept of an artificial heart has been around for a long time. I did my thesis on that subject at McGill in 1963, and I have been doing research on it ever since. The concept is not new. It was a matter of the global community coming forward with the necessary research and development to develop this concept into a workable model.
In the early days of my career I worked at various laboratories and, when I came back to Ottawa, I continued to do research in this area as a personal endeavour. However, I could only undertake a project of this magnitude by having the backing of the University of Ottawa Heard Institute. Frankly, from a research point of view, the institute it is bigger and better than anything else in Canada.
As we would submit our applications to the Medical Research Council and National Research Council, the reviewers would tell us that, although this was great science, we could not afford it. We had to limp along with under-funding for a number of years.
When, in 1982, we put together a consortium with the University of Utah and created a $25-million proposal which was jointly funded by the National Institute of Health in Washington and the Canadian funding bodies, we were on our way. We doubled our research space at the Heart Institute and devoted a floor to artificial heart research. We recruited Dr. Tofy Mussivand from Cleveland who was the other missing link in the piece. This would not have come about without Dr. Mussivand's participation. I am sorry he cannot be here this morning. He is a very interesting person and, in my opinion, has no peers in artificial heart research anywhere in the world.
We had four or five competitors then. In getting Dr. Mussivand here we accomplished two things: We got what I thought was the most dynamic fellow in the field into our laboratories; and we also pretty well neutralized one of our major competitors which was the Cleveland Clinic. Then we were down to four global competitors.
Globally, there are now about five of us in this race. We made a conscious decision to leap-frog the interim technology. In other words, we decided to use other people's interim pumps to get the necessary information from the patients, from the clinical research point of view, but the we would put all of our eggs in one basket and build the ultimate implantable pump, the HeartSaver VAD, which would, for at least five or six years, capture most of the global market.
I mentioned that we received $25 million back in the 1980s. That carried us along. We have had some private donations. We received some corporate money out of America. St. Jude Medical gave $5 million, and Medtronic gave another $4 million or $5 million. We were able to carry on but, in the early 1990s, we realized we either had to come up with a saviour -- such as to my right -- or we had to sell this technology to an American or European company. We had to come up with some body in the world of business and finance who could put together a financial structure that would allow us to keep this in Canada.
Senator Austin: Senator Keon, when you say St. Jude and some others put in some money, how did that money go in? Were they buying equity in your venture?
Senator Keon: No.
Senator Austin: You were not selling equity up to this time.
Senator Keon: That is correct. Let me explain because it is important to understand this.
In these endeavours, you start out with your basic research. The granting bodies will fund you for 10 years or so. Then you reach a point where they tell you to get an industrial partner if the product is ever to get to market. Basic funding is available from the granting bodies, but industrial partners like St. Jude want to see what you are developing. They come in with major money which is matched by the Canadian granting bodies.
The next phase is the tough one. When you have built the product, you must get it out of your labs, into a factory, and onto the market. A large amount of capital is needed to do that. You are no longer eligible for grants or matching funding. All you can do at that point is sell the patents to someone who can afford to buy them.
Senator Austin: I understood you. At one time I held shares in St. Jude. I know they are a company with profit motives. How did they give you money? They are in this field of materials for heart surgery. Did they give you money without asking for something in return?
Senator Keon: They were interested in our product and in owning our product, but they would have built it in Minnesota. While they funded us along the way, we were not prepared to sell all of our patents to them outright.
Senator Kenny: Could you elaborate on that? Did they just send you a cheque and say, "Go for it"? What do they get in return for the money they put in?
Mr. Roderick Bryden, President and Chief Executive Officer, World Heart Corporation: To answer from the corporate side, the investigation into artificial heart technology, specifically ventricular assist, cost NIH between $400 million and $500 million over the decade ending five years ago. They are still putting some money into that, but not much.
A number of companies, including Medtronic and St. Jude decided that there were too many publicly-funded projects out there for them to try to compete with a project where they would be one of 35. Everybody else would be funded by NIH and they would be funded by their own research funds. Instead of trying to do that, they put seed money into a number of other projects for no reason other than being informed, being involved, knowing what was going on so that they could bet on the right one at the right time.
Senator Kenny: It was an unconditional grant and all they got in return was information?
Mr. Bryden: Right.
Senator Keon: That is correct.
Mr. Bryden: Medtronic did the same thing. Baxter did it in other places.
Senator Kenny: How did you reach the conclusion that you had to go to Mr. Bryden? Tell us about the dead ends that you encountered first, before you decided you had to find somebody like Mr. Bryden.
Senator Keon: We could go to somebody like Mr. Bryden who could raise capital in Canada, build a factory in Canada, and have the product marketed out of Canada. Alternatively, we could sell the patents and the technology to a foreign company. Those were our two choices.
Senator Kenny: You had nothing of value that you could pledge as collateral for a loan.
Senator Keon: We had nothing worth the magnitude of money that we needed to be competitive, no.
Gordon Henderson approached Mr. Bryden in 1992. He came and had a look, but he was a little gun-shy at first. It took him three or four years, but he eventually got into it. The rest is history. I will let him tell you about it.
Mr. Bryden: I will come back later and explain my view of the artificial heart business as a one-time lawyer, a one-time executive in the technology industry, a one-time executive in the paper industry, and present owner of a hockey club.
The Heart Institute had several financial alternatives to develop its VAD. First, they could take the product to commercial production by association with an established medical devices business. That was the lowest risk, highest probability of success option. It was also, as are most options which are low risk, highest probability, the lowest return option. It was also an option which would have followed the path of how the pacemaker was developed. That was built by Medtronic, although it was largely developed by the NRC. When Medtronic sold the first pacemaker, it had revenues of $25 million and was a small company in Minneapolis. It is now the largest medical devices company in the world with revenues of $4 billion. Its revenue streams are still principally based on pacemakers or defibrillators, another type of pacing device. It could have copied the development and distribution of insulin out of Toronto. The product is the largest single revenue stream of the Eli Lilly company which had a market valuation last week of $74 billion.
The HeartSaver product could have been licensed to Medtronic, St. Jude or Baxter. The result would have been a revenue stream on royalties to the institute and the development of a major segment of the industry in the United States.
A second alternative, which they tried, was to associate with an established company that did not have a medical product and provide that company with a lead product to allow it to get into the medical products business.
In the early 1980s that might have been a winner as a strategy because multi-product line companies were prevalent, and the market was still funding them. However, in the 1990s, investors became more focussed on individual sets of risks so they would ask, "What business are you in?" The Heart Institute had an agreement for a potential investment of $50 million with CAE.
This product would become a key product in a medical devices unit under the umbrella of CAE, but not owned by it. The details had not been settled but there would be a $50-million investment. CAE changed management and their view was that the capital markets did not respond well to a business-in-flight simulation and artificial hearts, even if both were great.
The alternative of a new product line in an established business that is not a medical devices business is tough to sell. It is tough for the company that absorbs this product to do well in the capital markets, even if the product does well.
Another alternative was to establish a subsidiary company which would be controlled by the Heart Institute's research corporation or some other entity under the Heart Institute, hire professional management and seek minority investment in that business to carry forward the commercialization. That is a very tough sell because your minority investors say, "Are we in the business of making money or saving lives to do goods things?" If you are in the business of saving lives to do good things, you do not necessarily make the same judgments you would if you were in the business of saving lives as a commercial endeavour. The drive for quality and service are the same, but the dynamics are different. It is more difficult for a company to attract capital when that company is controlled by a not-for-profit organization.
The last option was to form a company which would take what appeared to be a world leading technology, put it together with established and recognized management, and create a company which would fund itself from third party equity from the first day. That was my suggestion to the institute. Their response was they would do it if I would make a commitment to it as well. Subsequently, we agreed that I would commit several years and some money to being the focal point around which that new entity would be created. The World Heart Corporation was the result.
Should I take a minute, Mr. Chairman, to describe this business?
The Chairman: Yes, please.
Mr. Bryden: It is dramatic but, at the same time, quite simple.
One of the major causes of death in the world is heart failure. In general, that is the inability of the heart to pump enough blood to support the body satisfactorily. That is usually because the left ventricle is failing. That is the side of the heart that does the work of pumping the blood around the body.
Left ventricle heart failure accounts for over 75 per cent of all the cases of heart failure. The condition is inevitably fatal unless a human heart transplant is obtained in the latter stages. Although the pace can be delayed somewhat by drugs, drugs do not stop it.
In Canada, last year, about 44,000 people who suffered from heart failure died. The death certificates did not always indicate heart failure, some might show the cause of death as being kidney failure. A wide range of reasons might have triggered the death, each of which resulted from the fact that an organ had not been satisfactorily supported with blood flow for some period of time. The trigger of death may be something other than heart failure, but heart failure would have been the underlying cause of death.
There were 166 hearts transplanted last year in Canada. Of the 44,000 people who died, 166 could be treated with current technologies. The supply of hearts is not increasing.
In the United States last year, 400,000 patients were in need of transplants but only 2,300 hearts were available. In Western Europe, the numbers are about 80 per cent of the U.S. numbers, and they had about 1,000 hearts.
While the transplant technology and treatment process is very effective, it is extremely limited in its impact. It is for that reason that there is a potentially large commercial market for a fully implantable ventricular assist device that would allow the recipient to return to a normal lifestyle.
It is that fact that caused me to decide that I would commit a decade to try to build an international-scale company based initially at least on that technology. It is that opportunity that has made it relatively easy to finance it in the equity markets.
We incorporated the company in April of 1996. At that time the concept of the HeartSaver had been proven, including working prototypes and tests in animals. An electronic ventricular assist device was designed. The device took advantage of a transcutaneous energy transfer where a wire is attached to a battery, and the power flows up to a coil that sits on top of the chest. It can be used abdominally, depending on the convenience of the patient and the choice of the surgeon. Under the skin and tissue is a comparable coil, but there is no perforation between the two and power is passed by magnetic conduction between those two coils. This results in power moving from the battery outside to power the device inside. It is that technology that allows the individual who has an implanted device to go swimming, take a shower, or to return to a normal life. There is no hole or incision to enable the power to enter the body that can be debilitating and can open the door to infection.
The device is smaller, by about one-half, than any other device that can produce the required amount of blood flow. That reduction in size resulted in the device being implantable in the chest cavity. It is shaped to fit the inside of the chest wall. As a result, it slips down inside the chest wall, is anchored to the rib cage, and does not interfere with the lungs or heart.
The natural heart remains in place. The device is connected by a short tube to the bottom of the left ventricle. Another tube is inserted from the device to the aorta. Blood flows into the device and is pushed into the aorta, allowing the patient to have normal blood flow.
As the device is in the chest, there is no reason to have a hole for air. In order for fluid to flow from one chamber to another, there must be a difference in pressure. Since the device is inside the body, it would be at the body's pressure, as is the heart, and the blood would not flow. If you lie down, you would die. It would flow by gravity, but it would not flow by differential pressure.
The only way to get the differential pressure is to have an opening to the air so you get the atmospheric pressure for the device. If it were installed else but the chest, you would need a hole for the air. Every other device requires a hole for the power and a hole for air, both of which debilitate the patient and leave the patient at risk to constant infections.
This device is small enough that the flexible chamber, a volume displacement chamber, flexes against the lung which is at atmospheric pressure. Therefore you do not need another hole; you already have the one through which you breathe. The simplicity of that design dramatically changed the effect of substituting the heart's action for the device.
The manner in which this company approached the market has one distinguishing characteristic you should keep in mind. What we have done could be an indication of what other companies might do. When our company was incorporated on April 1, 1996, we already had 10 years of dedicated development on this product. We had already spent $30 million on our product, plus another $15 million on in-kind services, such as the facilities at the clinic and the doctors who worked on the product and which were not in the direct investment cost. We picked up a product with 10 years research and about $45 million in costs invested in it. Within three years it was going into the first patient. Our financing requirement was at the end of a long period.
The problem initially faced by the institute was that, although they were at the end of that long development period, it was a brand new company going into the commercialization phase and. For that reason the company tended to be treated like a start-up company with no regard to its long history. Part of our challenge was to cause the structure to associate its history to show that this was the eleventh year in a twelve-year program, not the first year of a new company. You could not give the stock away in the first year of a new company with a product not yet approved for use.
For financing, we went to angels, if you can call myself, Mike Cowpland and Mr. Cunningham angels. We raised $1,700,000 in one day from four phone calls. My approach was to tell whoever I called that I was doing it, Mike was involved, and ask them if they wanted to be involved. They would make a commitment to get involved and then they would ask what it was. It happened in that order.
We raised $1.7 million for the Heart Institute, which enabled them to speed up the pace at which they was working because government funds had dried up and the institute was down to a small staff and proceeding slowly. Yet, it was close to commercialization; time was valuable. We put most of the $1.7 million into the institute to speed up the pace of bringing it to finalization. The remainder was to prepare for a public offering of stock. We did our first share offering when the company was only eight months old. We did that on Nasdaq, a small capital market for $14 million in Canadian dollars.
That was all bought retail except for one U.S. investor who had made money on stock he bought from me before. He remembered me. He described the circumstances of our encounter and, we made our presentation, he promptly fell asleep and stayed that way throughout our presentation. His assistant listened to it. His was the only order we received from the institutions. He did not hear the presentation at all, but he remembered he made money on my advice before, so he gave us an order for $500,000.
Senator Austin: Why did you not choose the Canadian capital markets? Why did you choose the U.S. capital markets?
Mr. Bryden: Because, in order to have a security that would be attractive and could be reasonably priced, it had to be liquid. The CDN is not a credible exchange. That is not liquidity for any practical purposes.
In order to raise, as an initial investment, $14 million or $15 million, it had to be on the Toronto Stock Exchange. That is not to say that it is a large amount for the TSE; it is not. However, as a start-up company raising that much money, the investors would not have considered it, unless it would trade on the Toronto Stock Exchange.
The Toronto Stock Exchange has a requirement from which certain pharmaceutical companies have an exemption, or they are prepared to consider exempting them. You must have three years of cash in advance before they will list you. This measure is for fear of having people trade the stock only to find that one year later it is out of business because the company ran out of money.
I did not want to raise three years of values because the milestones on this product were clear. Everything happened as I thought it would. After less than one year we were taking a major step to reduce the risk and shorten the time to market, therefore the value would be higher. If we could go another year, that would be another major milestone, further shortening the time to market and reducing the risk, the value would be higher. In that way, I funded three years for three issues at three different prices rather than having to fund it all at a very low price. For that reason the TSE was not an option.
It is not a criticism of the Canadian market to recognize that there are about 10 times as many people, a percentage wealthier at the upper end than Canadians, in the U.S., so the pool of capital in any category is more than 10 times larger. That means, if you have the same percentage of people prepared to take a risk with their capital with an early-stage company, there are 10 times more of them in the U.S. It is not necessarily that we are more conservative, it is only that we are not as many as in the U.S.
With this company we would appeal to a narrow niche of the market; those who buy $100,000 lottery tickets, where the odds are somewhat better because the payoff is better. They are betting that maybe they might increase 20 times their money and if not they lose their money. There is that kind of money in Canada, but there is more in the United States. We will not pass federal legislation to change that. It is merely the dynamics of the size. You can probably have a cigar bar in New York City and do well, but you would not do well anywhere in Canada because there are not enough people to fill your cigar bar.
It was not a structural problem, although the TSE's three-year rule is inappropriate for a medical device company and probably for others as well. It prevents bad press for the TSE, but it unnecessarily sets rigid limits. Even if we had been able to do that, I do not think the money pool is large enough in Canada.
Senator Austin: Was there any negativism about the fact that it was a Canadian company and that the manufacturing process would take place in Canada?
Mr. Bryden: None at all. They are only interested on whether the company will succeed and how much money they will make. If you could find a way to patent the devil -- they would buy shares in him. There is a so-called ethical fund movement in the United States to which this does appeal. However, generally speaking it is a pure financial analysis: Is it legal and liquid? Is there any reason why we should not be in it? Is there a national policy against it in the United States? Other than that, it was not a factor.
It would be if we were doing something in Ottawa outside the technology areas. We benefited from the fact that the Ottawa Heart Institute is well regarded. It is in a group with the Cleveland Clinic and other top facilities in the United States. We had good references. They could check with the Cleveland Clinic who would sing our praises. The doctors were well known, so the credibility was there. Furthermore, Ottawa is a community that has had experience with the United States making a lot of money from buying shares in early stage technology companies established here.
The Chairman: Why did it take from 1992 until April of 1996 before the company was incorporated? Why the four-year time lag? Is there any change in public policy that would have shortened that time frame and accelerated the process?
Mr. Bryden: Yes, there is a very substantial gap in Canadian public policy, specifically in the medical area. That gap should be easy to fix given the public support to put dollars into medical research and also the level of pay back.
The allocation of medical research funds in Canada is primarily weighted toward basic research. As it moves closer to having commercial value, there is a declining pool and a reducing level of willingness to allocate funds on the basis that this is something that might make money and it should be funded independently.
In most areas, the Americans' rugged, independent process of government is that they fund the winning companies heavily. They bought the computer industry through the defence sector, which is why we do not have any computer industry in this country, and they are buying the medical devices industry through NIH. The National Institute of Health is funding the clinical trials by our principal competitor right now. We have no money to fund our clinical trials and I do not know of any place where I can apply for it. However, it is a different case in the states, where one company has a contract with NIH for their preclinical work and another one dealing with cardio systems has a direct non-refundable grant from NIH to fund their clinical trials.
What stalled the growth between 1992 and 1996 was that the product was five years away from being at the stage where one could do preclinical trials on it. If I had been asked if I would invest in something that NIH had funded -- and it had $400 million sprinkled all over the best institutions in the United States -- and something that would take five years before it would have any commercial value, I would have responded that I did not know what discount rate one would apply to those kind of dollars because those are not investment dollars.
There will be a huge pay-off both to the industrial sector in Canada and to the cost of our medical care system. It will cost more to maintain a patient in the last year of life than it will to fix that patient with a HeartSaver and supporting treatments. The person will be back to living a normal life instead of being dead. There would be a huge pay-off to government. However, as the process got closer to success, the government money dried up. It did so far too soon. The project was then stalled at a point where it almost went to a U.S. company which would have been funded by NIH to get it through to the clinical-use stage.
There is a big gap in device funding in Canada, which is one of the reasons there is no medical devices industry in Canada. The dollar figure is minuscule. I hope World Heart Corporation will build one.
We just did another share issue and we got the deal done. However, a factor that affected our pricing is that, when a dollar is invested in World Heart Corporation, we spend part of that dollar doing the actual work. If you invested the same dollar in one of our competitors in the states, that work would be paid for by a non-refundable payment by NIH. A dollar of equity is not worth a dollar in our company, it is worth about 80 cents. The other 20 cents you should not have to pay because that is being given by the government of the United States to your competitor, and they fund very heavily.
It was only four months ago that we were advised that medical devices are not eligible for the Technology Partners Canada program because we are not biotech -- that is, we are not biological. CIHR published a definition at our request which stated: "Devices are biotechnology. They are a means of dealing with that most intricate of biotech organisms, namely, the human body." We were excluded from that program.
This reflects the absence of recognition of our device and the fact that the medical devices industry is still open. It will become one of the most rapidly growing industries in the world. Canada has a chance to be there but, if we sit around for another five years, it will all be in the states just like the computer industry and most of the aircraft industry, which they also bought with government money.
Senator Austin: Mr. Bryden, how do you deal with your fiduciary role as a CEO and director and accepting that additional cost burden of staying in Canada? If you moved the company to the U.S. you would pick up the 20 per cent that you mentioned, your return to your shareholders would be accelerated, and your dollars would go further. What we have heard from both you and Senator Keon is your determination to keep this invention and investment focused in Canada. Why is that?
Mr. Bryden: We are publicly funded. We have done two more issues, the second one being done institutionally. We did not offer in the states at all. After one year -- when we got over another hurdle and we had established a liquid market -- we were able to do our second issue for another $14 million. That was all institutional and almost all in Canada, with two buyers in Europe.
We also did another one, which we closed last Tuesday. That was a true cross-border deal between Canada and the United States and we did not file in Europe. It was 55 per cent institutional, 45 per cent retail, and about 60-40 Canadian-U.S. in both groups. The Canadian market does respond; you just have to work with it in a way that fits.
Senator Austin: Are you listed on the Toronto Stock Exchange?
Mr. Bryden: Yes. When we put the equity in the bank last year, that gave us three years' advance funding, so we listed on the Toronto Stock Exchange then.
We decided not to include a poison pill. There is nothing that would prevent a takeover other than keeping the price high enough so that it will be too expensive. Companies did not get big and rich by buying assets for more than their worth. If we can commend our management, our technology and our growth rate to the marketplace, it will pay a price for our stock, when traded separately, that is worth what it is worth. If Medtronic wanted to buy it, then they would have to pay double because the investors would wonder why they should I sell it at a 25 per cent premium. They know that, if they hold it for three months, they will have that back and will still own the stock. If investors have confidence in the management and technology, and if you can market it well enough to keep the value up, then you can avoid a takeover until you get big enough and become too expensive to be taken over.
If we stumble, however, it will be bought. That is a certainty. Because we do not have a poison pill, a shareholder knows that they have either one of two ways to win. Either this independent management can do what they intend to do, drive the company and get good value; or it will get picked up by one of the American companies which will get the NIH money. To date, that has been an acceptable response. I think we would have had a lot of trouble financing this publicly if we included poison pills to prevent a takeover and sheltered ourselves behind the Canadian flag, causing people to trade off return for being Canadian.
In the long run, I think we can produce the same kind of returns in Canada. We are proceeding rather than waiting to find ways to get government money because the pay back in this particular company is very large. It involves billions of dollars of revenue and multiples of that in capital value. If you can be confident that you have a process that can carry to conclusion, then it does not matter whether someone is prepared to subsidize $10 million of your costs in one year. It matters only if you do not have alternatives to the subsidy. It also matters to a lot of companies who do not have the combination of factors that we have in WorldHeart, namely, an absolutely terrific and internationally recognized sponsor in the Heart Institute and a market which, on a stand-alone basis, has a reasonable prospect of creating a Canadian Medtronic. People will buy that because the pay offs will be huge. The pay offs will be smaller if the market needs $200 million. You must have your costs in line to get that funded because it is a modest value.
We are unique in a number of ways, but we must risk the prospects of a bid at any time when the rate at which we can grow the value falls below the rate that Medtronics could grow that value if they simply absorbed our product into their company.
The Chairman: You responded to my question on public policy changes with a particular reference to changes in public policy with respect to the funding of medical research as it got close to producing something that was marketable. I wish to move outside the medical field for a minute. What lessons do you think you have learned if, for example, someone were to approach you today with a new idea in software or something that is not a device but is effectively intellectually driven as opposed to having a product? What changes in public policy would be required to expedite that process, or is it an entirely different sort of process? You have had some experience with those in other cases, of course.
Mr. Bryden: This is a banking committee. There is some evidence to suggest that a financial sector which is completely managed by our banks through the various functional subsidies -- whether it is a venture arm or a retail brokerage arm or a full-service brokerage arm or an insurance arm, or whatever it is -- tends to push early-stage companies into private venture capital funding, allowing that stage to be captured at a very high rate of return by the venture capital source.
I do think that there is a period in the growth of early-stage intellectual companies where they require the flexibility that comes from the principals, the visionaries, driving the business in a relatively unfettered way.
If that is to happen, it is unlikely that it can be done if those visions are funded by only two or three relatively large pools of capital. Large pools will, of necessity, protect the terms under which they lend their capital so as to manage better. They may want to get more rationality and more predictability out of the early stages than is healthy.
Facilitating publicly-traded venture capital in Canada would be a huge step forward. It is not something the underwriters like because the deals are all small and not very profitable. Making 6 per cent on $100 million is better than making 6 per cent on $10 million because you probably have the same risks and do the same kind of work anyway.
It is difficult then to do the public deals. However, if you have a publicly-traded venture pool available at early stages, it means that nobody has had a binary risk. Typically, they can invest and, if they do not like it, they can find someone to buy it, perhaps at declining prices. Over time it goes to zero but you share risk and you have some liquidity.
It is possible to have the risk spread over a large number of people, rather than over two or three large funds. It changes the way funded companies operate. The people who have the vision stay in charge longer. However, there comes a point where you need structured business management and other attributes which the visionary does not necessarily have. A successful visionary will recognize that need and willingly become part of a more structured organization or sell the company into a more structured system.
Presently, our venture capital pool is not too small. There is lots of venture capital out there, but it tends to be very high priced, that is, it commands a lot of the equity in return for the money. It also tends to be somewhat more interventionist than may be healthy for the growth of new products and new ideas.
The Chairman: Is it more interventionist than the U.S.?
Mr. Bryden: It is not more interventionist than the private venture capital industry in the U.S. Both are absolutely identical. However, there is an earlier stage of available public capital market in the U.S. through the Nasdaq small cap. There may well be regional ones with which I am not familiar.
I am participating right now in one Nasdaq small cap. company that is doing a public financing in the U.S. Its best alternative here in Canada would have been about $3 million of equity at about one-eighth the price per share. Instead, we will raise $10 million U.S. at eight times the price per share. It will be done in 90 days. It would have taken us forever to do the alternative in Canada.
Senator Austin: Do you have a view of multiple voting or restricting voting? Does it advance the cause of most small enterprises to keep the original group in control longer, or does that deter the angel or the venture capital company from supporting the venture?
Mr. Bryden: I personally do not like multiple-vote shares. It is possible to separate financial return and the sharing of that from control in a more clear and up-front way by structuring classes of shares. Then you would have preferred shares. The person who wishes to have control would, perhaps, not get much until the first-class shareholders have had a big return.
If you are unable to satisfy the aggregate of a large number of investors, you cannot keep control of your business. In each of the cases that I am aware of, where it has been necessary to use the voting power, a third party is standing back and saying that the best interest of neither the company nor the investor is being served by that multiple vote.
Typically, companies with multiple votes continue to be harmonious and successful. They will be just as harmonious and just as successful without a multiple vote because the people have confidence in the leader and would still vote for him even if they had a vote.
If you go to public markets, you take the risk of losing control in the event you cannot satisfy the public, unless you are able to find blocks of shares to maintain a proportion to preserve some control.
We did early on in WorldHeart. Between what I own, what the Heart Institute owns, what Dr. Mussivand owns, and what Mike Cowpeland owns, we continue to hold less than 50 per cent, but the shares are large enough to prevent a takeover by someone unless they deal with us. As the company gets large enough, that will not be practical. However, it can protect us through an early stage.
Senator Austin: We have seen that the creators, the originators of the new technology or the new venture, need the money but they do not want to lose control so they choose to split the votes. They want 10 votes for every one vote the investors get. While I share with you a bias against it, I want to put the bias aside to see whether pragmatically it helps at the start-up level and into the second stage to have that split.
Mr. Bryden: It should not be prohibited by legislation, although it is in some jurisdictions. It is a tool that should be available at very early stages, possibly, in private venture capital.
Again, the real control that venture capital exercises in a company at the early stages is the same approach that banks typically use to try to manage the businesses to which they lend. If you need $3, they will lend you $2. If they see that everything is all right, they may give you the other $1. You know you must go back to the bank for the money you need, and the bank is in control because you need that last dollar.
The venture funders typically will not fund, in one pool, the company through to success. They will fund it through one stage. The control aspect arises not because of their votes, but because, if a group of venture funds already exists in a company and they will not participate further, the company would need good luck to get new funders involved. Why would new people come into a company when the existing funders are not putting in any more funds and the company is in need? You need to satisfy those who came in first.
You must satisfy the public market as well, but typically there is a price at which you can do that, as long as you report it honestly. The public market will not forgive misrepresentation, but they will forgive almost anything else, as I can witness. As long as the facts are clear, you typically can fund through the public market.
I do not know that maintaining voting control by multiple votes would broadly make much difference. If it is prohibited under the Canada Business Corporations Act, it should not be. I do not think it is in the act, but it may be covered by legislation in some provinces.
Senator Meighen: On the question of control, we have had some evidence that, in the United States, there is a greater willingness on the part of founders to part with some of their control through equity issues. That does not seem to be the case in Canada. Is that, in your view, a good thing or a bad thing? Is it due to what I understand to be the roll-over provisions of certain qualified investments whereby you make your profit and you put it into another qualified investment? We have heard evidence that the negative side is that you are favouring one industry over another, that that may have a distortive effect, and we should avoid it as a matter of public policy in Canada.
Mr. Bryden: It would be a huge step forward if we could make an adjustment in the qualified investment rule. I have been an investor as well as a person seeking investment. In the very early stages, you expect multiples on your money, if the company is successful. Once the company has arrived at the later stages, it may still experience rapid growth of even 50 per cent a year. Typically the capital value, once it stabilizes, will change at close to the growth rate. You may have invested $1 million and it is now worth $10 million, and it is growing at a rate of 50 per cent. There is nothing wrong with that investment.
If you sell that investment, however, you cannot divide that $10 million into 10 ones; you can only invest $6 million, or whatever is left after tax. Even where the owner of the capital is a risk taker, his capital tends to be tied up because he is liable to pay too much in taxes. There may be lots of capital to provide an alternative investment, but he cannot free up that capital. Effectively, the flow of reinvestment has been cut off.
It would make a big difference to the pace at which new companies would get money if investors were able to reinvest in the early stage with the profits made from investing in the early stages of another company. The profits are, rather, stuck in a maturing fund where growth rates go down. That is the price of not paying taxes early.
Senator Meighen: I said that in the United States there seems to a greater willingness to sell equity early on, but you have indirectly answered that and perhaps you can come back to it later.
Are you suggesting that, as a matter of public policy, this roll-over aspect should be extended to every industry? If I had the greatest new parking metre that I was trying to sell all over the world, under the American program I would not qualify for a roll-over, but I would if I were in IT. Should we target this, or should it be across the board?
To what extent is the capital gains and the general tax situation counterproductive to investment at the early and middle stages of the growth of a company?
Mr. Bryden: If you changed the percentage win rate on Lotto 6/49, it probably would not change the sales. If the jackpot is a zillion dollars, you will probably buy the ticket for that reason.
Senator Meighen: It is not taxable, either.
Mr. Bryden: That is true, but my point is that on sourcing venture capital and equity investment, I am not at all sure that a reduced tax rate on the gains would change the decision on whether to invest. It is a different decision process. You do not know whether you will double your money or quadruple it. If someone offered you a four and a half times increase by improving your tax rate, would you care? Can you even calculate it?
I think it would be an inefficient use of money. It is a good question whether you would change at all the availability of funds in a particular risk category by changing the percentage rate of return.
Senator Kolber: You are the only one who has said that in eight days of hearings, but it is interesting that you have.
Mr. Bryden: I am sure that is true, because it is a somewhat academic response. I would love to pay no tax on the money I make in World Heart, but would I have had a different view about the investments I have made over of the last 10 years if I had had zero tax going in? The answer is no, because you are making a judgment about the risk of winning or not, where you are dealing with multiples and not percentages. I do not know that changing the tax effect will make any difference in the judgment made.
Senator Meighen: I understand your point, but I think I heard you say that we are disproportionately less inclined to invest in the early stages of a company here in Canada than they are in the United States. There must be a reason other than that they are robust.
Mr. Bryden: I said we are not necessarily disproportionately less, that there are 10 times as many of them and they are richer. Their pool may be 15 times the size of ours. With an individual investment opportunity, you would have 15 times as many people, if you had the same percentage hit rate, willing to invest in your product. That is why, as I said, you can run a specialty shop in New York that you cannot in Toronto, because New York is that much bigger. It may well be that the same percentage of people in Toronto would buy whatever your goods are as would buy them in New York, but there are more of them in the pool. I do not know that we are less willing to take risks. Certainly Canadians buy lottery tickets at a great rate.
Senator Meighen: Could you comment on the question of extending the roll-over provision across the board as opposed to targeting?
Mr. Bryden: I do not have a firm view on that subject. I believe that the society of Canada is going to continue to have a high proportion of its workforce employed in trailing technologies, rather than leading technologies. The front edge will be very important, as it always is, but there will be more people working in the middle and the back of the technological cycle than at the front.
If we take a disproportionate share of our resources and try to have a higher share at the front edge, we will have a problem matching the employment opportunities with the people who need to be employed, and we will be, disproportionately, funding the ones with a higher miss rate. Therefore, I am not so sure that balancing only in that area is a wise idea.
I do think that we should be able to look at the major growth segments in the world at any point in time. It happens today that the two largest growing industries in the world commercially are entertainment and health services. That is where more disposable income in the world has gone throughout the 1990s than anywhere else, and that is continuing. Canada should recognize that and attempt to ensure that it is not only a huge consumer of those services but that it also produces a proportionate share so that we can continue to afford to be consumers.
We are wrong in failing to support the medical industries generally. We pour our money into the services but do nothing to be able to afford to continue to pay for them by supplying the drugs and devices that we will use.
I also think we are wrong to drive hockey out of Canada.
Senator Kolber: I am staggered by your answer on capital gains tax. I am reminded of the story of the fellow who is going to play poker. His friends say that poker is a dishonest game and he says that it is but that it is the only game in town.
You are saying that a Canadian venture capitalist has the gambling spirit in his blood and if he has to pay 40 per cent, so be it. However, the corollary surely must be that a lot of venture capitalists are leaving our country. The first tranche of money you raised was on Nasdaq and those guys will pay 20 per cent on it. Canadians investors will pay 40 per cent. That does not ring right.
Mr. Bryden: I understand that is not a common view from my side of the table, but I am saying that they are bitten by the bug and will do it any way.
There is an overall structure of rates of return available to people, whether individuals or groups, such as those who invested with me in the Corel Centre and the hockey club -- Chase Manhattan Bank's investment arm. When faced with a zero risk at 4.5 per cent, an investment-grade corporate risk at 7 per cent, and structured equity funding in an early stage with predictable companies at 15 per cent, they will allocate some share of their funds to investments where they are trying to earn multiples on their money.
These people do not have an analytical capacity to be able to assess whether the probability is two to one, or three to one. They seek an average target rate of return. That average target rate will affect the tax rate in the jurisdiction in which they are operating.
When they come to make judgments about investing in early stage companies, which is the venture capital to which we are referring, and they are looking to make five or six times their money, they make a judgment. The basis for that judgment would not be affected by a difference of 20 per cent in the U.S. as opposed to 36 per cent in Canada. I am not at all clear that that would significantly affect the flow of funds.
I have not seen a shortage of available venture funds in the aggregate in this country. There is a problem in that we have a structured venture fund industry in Canada which tends not to invest in a whole category of investment that needs support. If there were a way in which smaller deals could be funded with less risk and more liquidity, people would be less likely to write it all off when they are discomforted and then sell it, leaving somebody else with a better return. That would change dramatically the availability of risk capital in those categories.
Senator Keon: Mr. Bryden has said that there is not a shortage of venture capital funds in Canada. That is true, but there is a huge problem for people with medical-scientific backgrounds accessing venture capital funds.
Throughout my career, I dabbled along with businessmen in joint grants because I did not know anything about the business world. I trusted that they would look after the business end of things because I knew nothing about it. I survived because of people like Mr. Bryden.
Certainly, many of my peers in Canada have allowed great discoveries and technologies to slip out of the country because they did not know how to access venture capital. A person goes through the system with the basic grants, the combined university/industry grants, and then they do not know where to go. Venture capital can be hard to find.
Senator Kroft: When you did your first Nasdaq offering, did you use a Canadian or an American investment bank?
Mr. Bryden: We used an American bank that specialized in small deals to the retail market. We also had a very small share of that in Canada. The Heart Institute is so widely recognized that, when the rumour spread that there was a public share offering of World Heart Corporation shares, our phone in Ottawa began to ring. People wanted to buy the stock. Our response was that it was being sold on Nasdaq, and we provided the phone number. That aggravated people to no end.
We then went to Merrill Lynch -- as they now are, it was Midland Walwyn then -- and asked them how small a deal they would do so that we could sell some shares in Canada. Some people felt betrayed in that they had donated to the Heart Institute for many years and, although stock was available, they could not buy it. Midland did a small deal for us here, and almost all of the shares were bought in the Ottawa retail market. The U.S. $10 million, Can. $14 million, offering was done by a small securities firm in New York.
Senator Kroft: Although we have been looking at the leadership group in this enterprise, both from the scientific side and from the financial side, I would like to know how many people are in your total employ, in the project?
Mr. Bryden: There are about 180, of which maybe 95 are full time.
Senator Kroft: I want to explore the linkage between this project and the potential of this company. I am also concerned about the "brain drain." I am fascinated by the fact that the Americans, unlike any other nationalities, have found and understand some connection between science and entrepreneurship. They recognize that those worlds need not be lived in isolation and, in fact, when they are brought together, two and two equals five, or even 10. In Canada, we have traditionally adopted the view that if you are in one world, you cannot be in the other.
What are you doing, or do you feel might be done, to attract, not only retain, talent? You obviously attracted your key researcher. What role does this play in the retention or attraction of scientific and technical talent?
Senator Keon: You have hit on something very important. WorldHeart is retaining people simply because we have allowed them to own stock in World Heart Corporation, and they have the option of getting rich.
We recruited two people out of the Cleveland Clinic, Dr. Mussivand, and the other I will not name because he has gone back to the Cleveland Clinic. He also did very well in another sphere in the Heart Institute. He developed a reputation as the leading person in the world in what he did. However, one day the Cleveland Clinic phoned to say that they wanted this man back. A guarantee of U.S. $1 million was on the table. We were paying him $262,000.
We were able to allow Dr. Mussivand to invest in the company, but I cannot divulge any details because I am CEO of the Heart Institute and I would be in a conflict-of-interest situation. We can allow employees to buy in, and Dr. Mussivand owns a large portion of the shares and that is keeping him in the country.
Senator Kroft: Does that attitude exist amongst your young researchers? Is there an entrepreneurial or a profit motive operating; and do you believe that does, in any way, inhibit the purity of their scientific research?
Senator Keon: No, it does not. Many people thought that would be the case, but I have never thought that. They find it exciting that they can look forward to owning some of the discoveries.
Senator Kroft: We are looking for public policy direction which will address the needs of our young scientists. Can you suggest any policies or concepts which would encourage this resource of commercialization?
Senator Keon: There have been attempts in that direction in recent years. I would commend John Manley for his work on this since he took office. I have talked to him about it frequently.
There has to be a milieu whereby scientists can have some sort of direct interface with people such as yourself, because they have no idea how to get at venture capital when they need it. They are caught out when their discoveries are taken only so far and they cannot take them any further. They must then sell them to the highest bidder.
We must think about putting processes in place in Canada. I have been working at this for a long time, encouraging the Medical Research Council to fund not only pure science but to fund medical industrial science with industrial partners. People like Mr. Bryden are now sitting on boards of the CCIH and on the boards of the Medical Research Council. We are getting there.
The financial world is a foreign world to young scientists and they have no idea how to access it unless the milieu is provided.
About 15 years ago at the Heart Institute, we invested in a full-time business officer to do nothing but speak to people like Mr. Bryden about the people in the institute who had something interesting coming along. They now have somebody to talk to. That is what set us apart from many other institutions. That is why, for our relative size, we draw such a huge amount of funding.
Senator Kroft: My concern is we are on a very tricky road. I believe that there is enormous potential in a partnership with universities, which is where the bulk of our research takes place, as opposed to a partnership with independent institutes. That is more reflective of the European model. I see the potential for joint ventures or interaction between the industrial or financial world and the universities and associated institutes, with the universities being used as a place to stimulate research and to bring human and financial resources together.
At one of our children's hospitals there was a story of a young doctor who decided part way through her assignment that she no longer shared the drug companies' enthusiasm for a particular project. Those kinds of ethical dilemmas do arise. They may be related to biotechnology where genetic research may cause concern.
We hear about the negative aspects of this issue and that is, perhaps, changing the idea that universities can remain, appropriately, places of pure research and not be perverted by the need to raise funds and the profit motive. This is a policy area that I am intrigued by. What is your position on this?
Senator Keon: Surely we cannot be concerned about the integrity of Oxford, Cambridge, Harvard, Princeton, Yale and UCLA. They have all been in this business for years. Canadian universities are just getting into it. We have been spoiled in Canada because of having only government funding of higher education and research and not having industrial partners.
Mr. Bryden: There may not be enough recognition of the difference between the research and the development portion or stages of technology. The reason St. Jude, Baxter, Medtronic and others were providing significant amounts of money to the Heart Institute early on was that they thought it would produce results. They wanted to be close to it, to know what was going on, and to make appropriate judgments with a view to participating in one or more when it got to the development stage.
What the researchers were doing was not something they wished to direct. What they were trying to do was to ensure that the work was being done. Someone would find something of value, and then they would move to try to capture that in some fashion.
It seems to me that that is exactly what basic research is intended to do. That is, to allow and encourage a scope of freedom and to fund it well, expecting that, out of a large amount of effort, some meaningful advances will be made. Those will then go into a stream where it does require focussed investment. If you do not want to turn people's attention to the details of developing this product and making it commercial, and would prefer continued basic research, then you should not join a company such as ours, World Heart Corporation. You should stay in the research arm of the cardiovascular devices division and come up with the next project. Other engineers who are working in our plant will take that and turn it into a deliverable product.
If there is an appropriate recognition of the value of basic research, industrial support for funding need not interfere with it. Their own self-interest would suggest that they should not be interfering.
Senator Kelleher: I am intrigued by the point Senator Keon was making, Mr. Bryden, that there are probably sufficient funds around but there is a real problem with the people who have these discoveries and innovative ideas reaching and accessing the people who have these funds. I was glad to hear Senator Keon raise this point since it is something I have been suggesting all along. This appears to be a real problem.
Does Senator Keon have any specific suggestions as to how we can help people like him in his field to determine where to go to obtain this money. I have been suggesting that somebody should set up some courses. I do not mean a three-year MBA course, but rather some sort of a short course for these people to understand paths of access for these funds. Do you have any specific suggestions, Senator Keon?
Senator Keon: A course of that nature would be a good idea. As part of the curriculum for scientists, businessmen should come in and speak this foreign language to them. In that way some contacts could be initiated.
I have been pushing to get businessmen on the various scientific boards. Scientists resist this. They think it is a contamination of their pure science. However, we will not be globally competitive unless we do this because scientists will operate in isolation.
Senator Kelleher: I have noticed in the papers lately that there is a lot of money available for all sorts of projects from Canadian Heritage. Have you applied there for any funding?
Senator Keon: No, I have not. I will think about it, though.
Senator Austin: In listening to our witnesses, we might also consider two other companies, Ballard and QLT. QLT is Dr. Julia Levy's company. They are both feeling their way through science and the capital markets at the same time.
Since my colleague, Senator Kelleher, has introduced a facetious note, I will follow him with a similar observation. I thought that, given the record of the Ottawa Senators hockey team this year, you were going to experience, Mr. Bryden, a number of additional opportunities for the World Heart Corporation if you got too close to the Stanley Cup.
Mr. Bryden: That is why we decided to exit early. It was all in the interest of the health of our citizens.
Senator Richard H. Kroft (Acting Chairman) in the Chair.
The Acting Chairman: I would like to thank both of you very much. It has been an extremely interesting and valuable morning for us. We look forward to building on what we have learned here.
The committee adjourned.