Proposal to accelerate commercialization of bioscience research gathers steam as scope widens to include partners

Fate to be decided over the next year

Dr Fraser Mustard and a group of influential colleagues are preparing to tackle one the most vexing dilemmas facing Canadian health research. With the recent creation of the not-for-profit Canadian Biotechnology Commercialization Initiative (CBCI), its backers hope to avoid the so-called valley of death that has stalled or diluted the commercial potential of promising research as it moves from the lab bench to the marketplace. If CBCI achieves the necessary buy-in, it’s confidence it can help move products to market and fuel a new wave of biotech spin-off companies.

The concept of a virtual national institute for the commercialization of Canadian bioscience research was hatched more than two years year ago and has evolved to include other partners as well as an ever-growing estimation of public funding required to make it fly. A prestigious board of directors has been assembled and is chaired by Harry Swain, a partner in the Sussex Circle consulting group whose career has encompassed merchant banking and a mid-90s stint as DM at Industry Canada.

“The process of growing major enterprises out of the research enterprise is tricky. We’re trying to get around the valley of death,” says Mustard. “It’s a complicated jigsaw puzzle and you have to make sure all the links are doable. When you look at this from a national perspective linked to national capabilities, it makes sense.”

CBCI’s primary function would be to provide funding for prototyping and proof-of-concept work on promising but high-risk biosciences research, encouraging company formation and and successful introduction of products into the marketplace.

Mustard has instrumental in the creation of several novel bodies for the dissemination and exploitation of promising research, among them PRECARN Inc and the Canadian Institute for Advanced Research. The concept for CBCI was originally based on a combination of the PRECARN and the Networks of Centres of Excellence (NCE) models. But that concept has been expanded and now stresses capacity building. As such, CBCI necessarily involves a mixture of public and private funding, with careful consideration as to how valuation and IP are distributed amongst the various players.

BRIDGING THE GAP

The estimated cost for this assistance ranges from $300,000 to $2 million, but CBCI’s backers contend that the value it could add to intellectual property (IP) is enormous. Without it, start-ups would have to focus on a single product to generate cash flow and sell off ownership far too early, diluting valuation and hindering its ability to grow into a viable, multi-product firm.

But if a company can take its IP through to Phase Two clinical trials and prove the underlying science before significant dilution, it will be in a far stronger position to negotiate with large pharmaceuticals to provide funding for further development, regulatory approval and distribution. From a policy perspective, relatively modest funding of development and scale-up work will help to maximize the value of government’s growing investment in bioscience R&D. CBCI could also be instrumental in facilitating technology bundling, essentially consolidating small Canadian firms into a single larger entity that’s better equipped to enter the competitive global marketplace.

“The mapping of the opportunity and the need for this kind of initiative has progressed a long way. We have identified potential partnerships and we’re developing synergy with other players,” says Mustard. “To make it happen we’ve got to get the base in the country to come together to make it work.”

Mustard says what is most important is developing a culture that recognizes the value of bioscience research and the role of public funding in company creation. He points to Alberta and Quebec as possessing the necessary culture of innovation.

“The high risk component involves public funds and the dollar amount is going up,” he says. “I can’t say how much at this point but we need to be highly creative. You have to scale it against competitive forces in other parts of the world. If you had a Quebec culture in place, it would be easy. They have a creative technology and innovation culture.”

As part of its evolution, CBCI has entered negotiations with Inno-Centre Canada (ICC), a highly successful, Quebec-based technology mentoring and commercialization organization seeking to establish a national network (see page 3). Although nothing has been decided, both sides assert that there are clear advantages to combining forces in the area of life sciences, and a unified voice asking the federal government for funding. Two Inno-Centre principals have joined the high-powered CBCI board (see chart) which is meeting next week to plan its next moves in the coming months — a period one insider has described as the time when the fledgling organization has to “fish or cut bait”.

“It should mean more technologies are turned into spin-offs and that it is absolutely great.” says Inno-Centre president Claude Martel. “It could play a leadership role in building the critical mass we all need in this country … It needs to proceed carefully and ensure there’s a buy-in of the scientific community but I see great potential between CBCI and Inno-Centre. We see great technology that needs money before it can make a business case and needs to go further before it can attract capital. By working with CBCI, we could spin off two or three times as many companies.”

As CBCI gathers steam, the projected federal funding requirement has at least doubled from the $6-8 million annually estimated just one year ago (R$, April 4/01). And that’s where the challenge emerges. Ottawa is set to embark upon a highly visible consultation on its two innovation strategy papers, and existing proposals are being folded into the process. For proposals that are time sensitive, the speed with which the government completes its consultations and begins to fund new initiatives is critical.

“Commercialization has been subsumed into the process. We’ll see how (the proposals) fit into the larger context,” says Dr Andrei Sulzenko, senior assistant DM for Industry Canada’s policy sector. “Commercialization will be a key issue for discussions with universities and colleges and the business community. There are several individual proposals but we don’t have an organization framework to deal with them yet.”

Commercialization is inextricably tied to the government’s goal of doubling federal R&D investment by 2010 and becoming one of the world’s top five R&D performing nations. The last Speech from the Throne stated that: “The Government will … accelerate Canada’s ability to commercialize research discoveries, turning them into new products and services.”

ROCKY ROAD

CBCI had a rocky genesis when the idea was first floated more than two years ago by individuals associated with the Protein Engineering Network of Centres of Excellence (PENCE). It was originally conceived to counter federal pressure on the NCE program to devote a greater share of scarce resources to commercialization. But it quickly ran into resistance from the university research community, particularly university industry liaison offices (ILOs) which viewed the proposal as an intrusion on their territory. Those objections seem to be resolved for the time being, with CBCI backers insisting that its role is to complement rather than compete with university ILOs.

“I’ve raised the issue with CBCI,” says Dr Peter Morand, a senior advisor to Inno-Centre and a member of the CBCI board. “We’ve got to get universities and the NCEs to buy into it. We’re using their IP. It will become much less of an issue if we find ways to ensure that the universities will benefit from this.”

Morand, who entered the venture capital industry after a five-year stint as president of the Natural Sciences and Engineering Research Council, says he is working on a proposal for a special government fund that would give universities the value of their equity in IP, which would solve the problem of universities diverting scarce funds toward commercialization. The fund would need at least $50 million to start and he plans to pitch the idea to the CBCI board to see if it can be integrated into its business plan.

“It would be like a Quebec pension fund and could be a goldmine for government,” he asserts. “If spin-out is successful, the benefit would flow back to the fund, and then the fund could exit and get its share.”

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