Beyond Basic Research

Government agencies and venture capital firms look to strengthen commercialization funding

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By Amber Lepage-Monette

Though biotech research in Canada can be considered well-funded, many in the industry voice the concern that funding beyond basic research and better preparing research technologies for commercialization lags far behind.

Even the federal government has recently acknowledged that while research funding has been ample, ensuring that research gets translated into commercially viable products has not been as carefully supported. In his 2004 budget speech, Minister of Finance Ralph Goodale remarked that agencies and programs such as Genome Canada (Ottawa, ON), the Canadian Institutes of Health Research (CIHR) (Ottawa, ON) and the Canada Research Chairs provide Canada with excellent research support.

“Now we must focus on bringing these ideas to market; to realizing their commercial potential,” Goodale said. “If Canada is to become an incubator of dynamic new companies, we must do a better job of getting resources into the hands of Canadian entrepreneurs so they can turn great concepts into going concerns.”

Risk Aversion
Rose Eng Wong, a marketing advisor for the Canadian Innovation Centre (Waterloo, ON) and the former president of the Toronto Biotechnology Initiative (TBI) (Toronto, ON), says this sentiment is certainly one she has heard over the years while working for TBI and as a venture capitalist.Wong says when U.S. investors attended TBI events that focused on raising venture capital internationally, they voiced very clear opinions about Canada’s market being “way too small.”

When the U.S. investors were asked why they felt the situation was like this, Wong says their response pointed to the stage the technologies were at in the commercialization pipeline.

“They say, well, for one thing, the types of opportunities that we see in the Canadian market are so early stage that you’re asking investors to fund proof of principle — and we just don’t do that,” Wong says. “From the U.S. market perspective, the companies that they look at are much farther along before they do their venture capital investing.”

Wong says, based on her experience working for venture capital firms in the ’80s and ’90s, many venture capital firms weren’t filling the proof of principle funding gap because the technologies were too early stage, and too high a risk.

“They wanted to cover off all of the risk, all the eventualities, to the point that they just turned away 99.9 per cent of the investments that they saw,” she says.

But more recently, Wong says the venture capital community is starting to come around, with firms such as Genesys Capital Partners Inc. (Toronto, ON) and the Business Development Bank of Canada (Montreal, QC), among others, that are willing to invest in earlier stage companies.

The Government Source
David Brener, PhD, director of Research Translation Programs at the CIHR agrees that a lack of sufficient funding for proof of principle is the current clime in Canada. “It’s what’s missing right now in moving projects that would be commercializable, or have viability,” he says.

“Our universities and hospitals are excellent at creating knowledge, but (what) we haven’t done a real good job of is translating that knowledge, moving that knowledge into practice,” Brener says.

Because this funding gap between basic research and later stage investment seems clear, recognition of the need for proof of principle funding has laid the groundwork for several means to fill this gap.

The CIHR’s Proof of Principle (POP) Grants and Proof of Principle Partner (POPP) Grants, which have now been renamed Proof of Principle Phase I and Proof of Principle Phase II, respectively, provide researchers with funds to fully explore the commercial potential of their work.

Until recently, Phase I provided grants of $50,000 to $100,000 for up to 12 months to help researchers advance their technologies toward commercialization. Phase II is for technologies that have come past the initial proof of principle stage and can bring an interested investment partner to the table with whom the CIHR will co-invest. The co-investment is a 2:1 ratio, whereby the investment partner provides funds and the CIHR contributes half of that total.

Brener acknowledges that some may say that the CIHR’s proof of principle program is a step in the right direction, but the amounts provided for funding are not enough. “I think the comment is fair,” he says.

In recognition of this fact, the CIHR recently increased funding in both Phase I and Phase II of its proof of principle program. Phase I will now provide funding up to $150,000 and Phase II will provide funding up to $250,000.

While the CIHR is not the only institution providing funding for early stage technology development, it is hard to compare funding vehicles for early stage commercial development, because, as Brener points out, the definition of proof of principle is not always clear.

“I think proof of principle means different things to different people, to be fair,” he says.

The CIHR, Brener says, is involved only at the very early stages of commercialization. Brener says proof of principle is needed when it comes to manufacturing, packaging, sales and so on down the line to commercialization.

“We’re at the proof of principle of the knowledge that’s been created from the research institution and getting that knowledge in a format, and the information in a format, that will be recognized by the next player in this complex chain, to be able to pull these things through the commercialization pipeline,” Brener says.

Risk Takers
Three funds that could be considered to be this “next player” are University Medical Discoveries Inc. (UMDI) (Toronto, ON), MedTech Partners Inc. (Nepean, ON) and MedInnova Partners Inc. (Halifax, NS).

UMDI, MedTech and MedInnova were established by the Canadian Medical Discoveries Fund Inc. (London, ON) in order to invest in early stage technologies. UMDI was the original fund, established with a mandate to invest nationally, explains Brian Underdown, PhD, CEO of UMDI, MedTech and MedInnova. Eventually, however, MedTech and MedInnova were established to focus on investment in Quebec and Atlantic Canada, respectively.

Underdown agrees that proof of principle is a multi-layered term.

“(UMDI) does fund proof of principle work, when there’s a clear path to a product or a commercial prototype,” Underdown says.

“UMDI was established to help universities and researchers develop commercialization strategies for research and to protect intellectual property. Not only intellectual property, but to help universities and researchers establish commercialization strategies where one couldn’t really create a company out of the idea because it was much too early,” he says. “Or when the idea had strong commercial potential but didn’t have the breadth that was sufficient to form a company.

“Whereas, the proof of principle program at CIHR is really to do some research to actually develop the product idea, and once the product idea is given some substance, UMDI can take over to develop the commercialization strategy,” he says.

To date, the three seed funds have invested in approximately 55 projects, Underdown says, providing anywhere from $200,000 to $1 million in funds per project.

Because UMDI, MedTech and MedInnova fund technologies later on in the commercialization process, Underdown says the organizations were pleased by the government’s announcements in its recent budget.

Along with acknowledging that development and commercialization require further funding and support, the federal government also pledged funding to support these initiatives. Though details are yet to be finalized, the government announced that two pilot competitive funds will be established to strengthen commercialization of technologies coming out of both university and federal laboratory research.

The first fund provides $50 million over the next five years for research that emerges from universities, research hospitals and the granting councils — CIHR, the Natural Sciences and Engineering Research Council of Canada (Ottawa, ON), and the Social Sciences and Humanities Research Council of Canada (Ottawa,ON).

The second fund covers research that comes out of non-regulatory federal laboratories, and will provide $25 million over the next five years to support commercialization of these technologies.

Both funds will be managed by Industry Canada (Ottawa, ON), and an advisory committee will be established to help design the overall process and evaluation criteria.

Underdown says such an initiative is essential in bridging the gap between early proof of principle funding and later stage commercialization investing.

“The recent federal government initiative is a very welcome addition to the seed-capital scene, because there are a lot of commercially oriented ideas that are present in universities that are still too early for us to invest in exclusively with our own capital,” he says.

“The federal government has got the message that programs like those initiated by the CIHR — the POP and the POPP — are certainly filling a need, and more needs to be done in that area,” Underdown says.

Business Education
Wong also salutes government initiatives to increase funding, but says education is also a factor that needs to come into play when looking at improving commercialization potential.

“There’s no formalized funding for educating scientists on how to prepare a business plan and how to run a business,” she says.

Though programs such as CIHR’s POP Phase I and II programs do provide much-needed funds, Wong says studies conducted by the Canadian Innovation Centre show that researchers may not necessarily know how to best use the time, money or market data they accumulate when trying to prepare for commercialization.

“The inventors that we work with have very low understanding of what marketing is,” she says. “So even when we write them the report, they really don’t know what to use it for . . . they don’t know how to use the information to implement a more reasonable market strategy. Those that do understand it, succeed.”

Wong acknowledges that several universities are beginning to offer MBA programs with biotechnology streams, and that these programs are a great start at educating researchers to become business people, but more education is needed, she says.

“If you want entrepreneurs in innovation, you have to integrate the business training into the undergrad technology degrees so that people understand what it takes to commercialize technology,” Wong says.