Observations and conclusions

Key findings of the study

Project recipients and key informants saw WD as an important partner that brings financial resources to the table. Project recipients and key informants recommended that WD increase the amount and type of funding available to support the development of the life sciences cluster. The type of funding requested included supporting research from the inception stage through to final commercialization. Suggestions for funding included providing continuing investment in infrastructure and research, funding for pre-commercialization activities, and funding to for-profit companies from the seed capital stage to late-stage funding.

Project recipients and key informants look to WD to provide leadership in the evolution of the cluster from its research base to actual commercialization.

Observations

Throughout our interviews with project recipients and key informants, a theme emerged regarding the ability of Western Canada to benefit fully from research activity. At present, it appears that Western Canada lacks the necessary infrastructure to sustain the complete research life cycle from research discovery through proof of principle to full commercialization.

In Figure 11.1¹ below, we provide a visual representation of the research life cycle from inception to commercialization. The figure is divided into two sections. The top half represents the research life cycle as experienced in Western Canada today with the bottom half representing what the research flow could look like if investments were made in proof of principle activities.

The top half of the figure illustrates how research flows from basic to applied research before entering the knowledge pipeline. Once the research begins to flow through the knowledge pipeline there are few mechanisms and funds available to undertake the necessary technical and market assessments to bring the research into a finished commercial product. Typically, research that shows commercial promise is taken out of the research environment before it matures and is either licensed or spun off to form a company. Spin-off companies typically spend significant resources trying to raise money to fund further product development. The funding gap leaves the research vulnerable to being purchased by organizations from outside Western Canada. One key informant described this as "Off-balance sheet R&D" where Western Canada feeds the international commercialization pipeline. Once the research has been purchased by an external organization, it may no longer be available in Western Canada and any economic value that does come from successful commercialization is lost.

The bottom half of Figure 11.1 illustrates a research life cycle that includes an enhanced knowledge pipeline process where applied research could undergo a rigorous proof of principle process before commercialization. During this process, there would be an opportunity for the research to undergo further technical and market evaluation to determine its acceptability and readiness for commercialization. Results of the evaluation would determine if further development was required prior to deciding on the appropriate vehicle for commercialization. In this scenario, the research would have matured into a definable technology or product with an identifiable market of potential end users. When commercialization does occur, the increased economic value of the technology would lead to greater benefits for Western Canada.

WD has already funded several projects that follow this approach and include the Centre for Drug Research & Discovery in British Columbia and the POS plant in Saskatchewan. One project recipient suggested that further investments to support the proof of principle concept could include product development centres for medical assistive technologies.

Figure 11.1

Measurable benefits of the projects: support of the six innovation objectives

From our analysis of interview responses and the results of the economic impact analysis, it is clear that WD's investment has had an impact on Western Canada's life sciences cluster. WD has played a valuable role as catalyst for many projects by bringing government partners to the table. Another important role WD has played is working with project recipients to provide strategic advice and to guide proposals through the application and funding process.

Without WD's investment support, many of these projects would have been cancelled or not have proceeded as planned. Many of these projects have contributed to the expansion of research and innovation capacity of communities. This was especially true for areas outside of major urban centres, such as the investment in the University of Northern British Columbia's (UNBC) medical school. In that case, the project outcomes have made a significant impact to the community. In addition to strengthening the research capacity of the UNBC, expanding the research infrastructure has created a focal point and enhanced the regional status of the community.

Current Perspective of WD's Role

WD has been a vital player in the life sciences community in Western Canada. The organization delivers important resources to support the development of the cluster and is highly regarded. Overall, WD's investment in life sciences has been successful as reported by project recipients and key informants.

At present, WD is seen as taking a reactive approach to the cluster. Interview respondents indicated that WD could to more to support the development of the life sciences cluster.

Future Perspective of WD's Role

Suggestions from project recipients and key informants regarding WD's role included providing more dollars per investment and increasing the funding to cover longer-term horizons. WD could focus additional dollars on the process of commercialization by working closely with organizations from project inception through to commercialization. WD could also provide more direction for the life sciences cluster by taking on a leadership role that includes setting priorities and developing strategy.

Forecast for the Canadian life sciences cluster

In 2006, PricewaterhouseCoopers in collaboration with BIOTECanada, published the first annual forecast of the Canadian life sciences industry². Industry participants were asked about their vision for the Canadian industry and what they considered to be key business challenges over the next two years.

Eight key findings were identified as being useful for industry and government to use as guidelines to shape the future of the industry. These key findings support the comments made by project recipients and key industry informants.

• Securing financing is critical to the success of Canadian companies. Sources of financing indicated continue to come from strategic partners and Canadian and U.S. venture capitalists
• Stronger sources of capital investment for seed and early-stage companies. Companies spend valuable time chasing scarce dollars instead of building their businesses. The formation of seed and early-stage funding would provide start-ups with greater resources and time to bring their products further along the value-chain
• Canadian companies estimate profitability within three years. Profitability is an indication of product commercialization resulting in revenue generation and positive cash flows. Three years to profitability also suggests that with companies in the later stages of development, the industry is maturing
• A more sustainable business environment is needed if Canada is to reduce corporate flight. Forty-eight percent of respondents indicated they were planning to either move all or part of their business outside of Canada. The favoured destination is the U.S. with the east coast then California, the most highly-rated destinations
• Merger & Acquisition is a preferred exit strategy for Canadian private companies
• The Canadian life science industry needs increased interaction and exposure with foreign capital providers. The most challenging issue for Canadian life sciences companies over the next two years will be raising capital of any type. The more exposure to capital providers will expand the options available to support the growth of the industry
• Experienced management is considered critical for future success but the current level of resources is not available to build teams. Resources are used to invest in R&D, working capital, and operations before any other use
• Governments can take a number of positive steps to influence industry success. Respondents ranked the following as their top three actions that government could take to improve Canada's ability to compete globally: facilitate increased funding of companies; create more favourable tax incentives for investors; and increase funding of research institutions.

Opportunities for future investment

Project recipients and key informants were asked to rank what they considered to be the top three priority areas for WD investment in the life sciences cluster. Both groups indicated their first priority for future investment was additional support for applied R&D leading to commercialization.

For the second ranked choice, project recipients indicated the creation of physical assets (building and equipment) as a priority. Investment in physical assets would also include support for ongoing operations for existing facilities and refurbishment of older sites.

The third ranked choice for project recipients was to invest in skills and knowledge development. Suggestions made as to the type of skills and knowledge needed were in the areas of technology licensing, marketing and company formation. Key informants continued to focus on commercialization suggesting that investments in technology commercialization and adoption were priorities. Of equal ranking for the key informants was the need to increase linkages among innovation system players.

Table 11.1 - The top three priority areas for WD investment in the life sciences cluster by key informants and project recipients.

	Key Informants Rank	Project Recipients Rank
Applied R&D leading to commercialization	1	1
Creation of physical infrastructure for research (buildings and equipment)		2
Enhance technology commercialization and adoption	2
Increase linkages among innovation system players	2
Invest in skills and knowledge development		3

In the PricewaterhouseCoopers forecast mentioned previously, one of the questions asked respondents was whether the federal or provincial governments should focus on specific sub-clusters within the industry. No clear consensus emerged instead, the 37 out of 85 respondents said "no" while 25 were "unsure".

Respondents answering yes to this question were asked to list their preference of two sub-clusters that should have government focus. The list generated represents a cross-section of life science research areas and functional areas such as finance where government should focus.

Recommendations for future investment

The following suggestions were compiled from the interviews with project recipients and key informants as suggested opportunities for future investments for WD in the life sciences cluster:

1. Take more risks with the types of projects chosen for investment
2. Allocate larger amounts for projects
3. Support the creation of a life sciences fund for seed capital
4. Fund projects whether for profit or not, at the proof of principle stage to determine the commercial viability of research discoveries and establish the relationship to the end user
5. Work with appropriate stakeholders to identify and invest in projects that increase the supply of highly qualified people in skills related to proof of principle and commercialization activities including: sales & marketing, legal, licensing and other company formation skills
6. Get the good news story out about Western Canada's life science industry through various marketing initiatives, including allocating a percentage of individual projects as marketing dollars
7. As part of greater communication activities, clarify WD's mandate and objectives with potential project recipients, the life science community, the broader public in Western Canada and internationally
8. Advocate for the life sciences cluster at the federal level and partner with other federal agencies to deliver coordinated support for the cluster
9. Advocate for improvements to Canada's immigration process to make it easier for recruiting highly qualified people from other countries either for permanent employment positions or as visiting scientists
10. Follow existing projects and provide investment and support with the product or service through the life cycle using a strategy similar to what venture capitalists (VC) are doing with industry. In other words, VC's are investing in later-stage activities where there is a chance for commercial success and return on investment
11. Assess the effectiveness of dispersing investments across a broad spectrum of life science areas and determine whether a focused approach on specific areas would ensure greater success
12. Develop technology transfer models that perform a similar function to the Centre for Drug Research and Development (CDRD). Other examples include how US universities are evolving their technology transfer offices to be more effective. US universities are now setting up endowment funds to develop science within the university such that an investor would consider its acquisition or beginning clinical trials before licensing the technology to the private cluster.³

Conclusions

Public support of research and development is based on the principle that increased investment will lead to employment growth and greater economic activity. As shown in Figure 11.1, WD has focused its investments in knowledge and research infrastructure which are at the initial stages of the innovation life cycle. Our economic impact analysis indicates that these investments have contributed towards GDP and employment. Investments made further along the innovation life cycle and past the proof-of-principle stage, where additional requirements for highly skilled jobs increase, and other value-added activities such as company formation come into play, will obtain the greatest economic effects.

The Conference Board of Canada ⁴ recently released a report card which gave Canada a "D" grade in innovation. The report underscores the importance of innovation to the Canadian economy, that innovation is the basis for our future productivity and competitiveness. As pointed out, the "D" grade for innovation includes our inability to create and diffuse knowledge, the shortage of skilled people and the impression that Canadian research quickly finds itself owned by others. The report card confirms the results of our interviews and reinforces the role WD can continue to play to develop the cluster. Certainly, the results of the report card support the need for WD to increase the amount of investment available for the life sciences cluster.

WD is actively providing investment support to the life sciences research and development. As such the organization is providing a critical catalytic role linking together projects and parties to achieve beneficial discoveries in a broad cross section of the life sciences spectrum. Next steps for WD are to support the industry with larger investments in the areas of technology adaptation and commercialization. There is also an opportunity to take on a leadership role using its linkages across Canada through the federal network to support Canada's life sciences presence nationally and globally.

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¹ The figure is based on a diagram prepared by Life Sciences BC to illustrate the life cycle of biotechnology innovation.

² Canadian life sciences industry forecast 2006, a vision for the future, PricewaterhouseCoopers LLP and BIOTECanada.

³ Beyond Borders, Global Biotechnology Report 2007, Ernst & Young.

⁴ How Canada Performs: A Report Card on Canada, The Conference Board of Canada, June 2007.