APPENDIX 1: COMMERCIALIZATION ANALYSIS

1
APPENDIX 1 COMMERCIALIZATION ANALYSIS

• Toronto Region Research Alliance
• Adapted from research and analysis undertaken by
  The Boston Consulting Group

2
DRIVING ECONOMIC GROWTH FROM RESEARCH Draft
Framework and Leverage Points
Limited resources specialization in tech
transfer Valley of death for many ideas seed
money missing Lack of entrepreneurial
commercial VC skills
Limited coordination to enhance infrastructure
and optimize utilization High variance in
institutional research funding levels and focus
Applied Research
Commercial- ization
Basic Research
Limited awareness of region's research
strength Insufficient funding for coordinated
marketing effort
Attracting Companies (Sharks)
3
TORONTO REGION COMMERCIALIZATION PERFORMANCE
4
TORONTO LAGS OTHER REGIONS IN COMMERCIALIZATION
PERFORMANCE
Lower Commercialization Output...
...Contributing (in Part) to Lower VC Investment

• VC Investment by Region

Commercialization Ratio(1) by Region

• VC Investment by Region

2,650
96-02 CAGR
15.6
CDN (M)
2,466
Canada
Other
9.6
Alberta
15.5
British Columbia
15.2
Quebec
14.3
1,033
Rest of Ontario
48.4
Toronto Region
3.8
(1) Gross license income/Research expenditure
(M) Note Canadian institutions research
expenditures does not include indirect
costs Source AUTM 2000 and 2001 Survey
MacDonald Associates BCG analysis
5
CLEAR OPPORTUNITY TO IMPROVE OUR
COMMERCIALIZATION
Toronto region (and Rest of Canada) Has
Significant Room for Improvement
Our Regions Institutional Research Generates
Fewer U.S. Patents
Tech Transfer Offices Commercialization (2000)
U.S. patents issued per 1M research expenditure
(2001)
Licensing revenue per employee (M)
7
Columbia
Univ. of Florida
Stanford
MIT
UPenn
Sherbrooke
Queens
Washington
UofT(1)
Water- loo
Mon- treal
100M Research expenditure
UWO
UBC
Alberta
McGill
McMaster
Sick Kids
Toronto Region Organizations Canadian Research
organizations Leading U.S. organizations
Guelph
UHN
Toronto Region
Total Canada
U.S. Univer.
U.S. Hospitals Research Ins.
Tech Transfer FTEs
(1) 2001 data Source AUTM 2000 2001 Surveys,
Innovations foundation 2000-2001 annual report ,
Interviews, BCG analysis
6
VC INVESTMENT AND COMMERCIALIZATION PERFORMANCE
ARE LAGGING
Investment In Toronto Region Is Low And
Decreasing In Contrary To Other Ontario Regions
Toronto Institutions Are Under Commercializing
Commercialization Ratio(1)

• VC Investment by Region

CAGR ()
CDN (M)
Gross License Income Received US (M)
US Hospital Research Institutions
7.0
2,650
-2.4
Canada
2,466
Other
-7.1
US Universities
3.0
Alberta
-5.8
British Columbia
-6.1
Total Cdn Institutions
2.3
Quebec
-2.9
Rest of Ontario
36.0
TRRA Organizations
0.6
McMaster
Waterloo
U of Toronto
Toronto Region
-19.9
Research Expenditure US (M)
Sick Kids
University Health Network
(1) Gross license income/Research
expenditure Note Canadian institutions research
expenditures does not include indirect
costs Source MacDonald Associates AUTM 2001
Survey BCG analysis
7
BARRIERS TO COMMERCIALIZATION
8
COMMERCIALIZATION PROCESS AND ACTIVITIESWhat Are
Key Gaps Today
Market technology to licensors or assist in
company formation
Establish contact with researchers
Initiate intellectual property process
Evaluate technology and economic potential
Personal meetings with researchers Networking
events Entrepreneurial workshops
Information discloser to research
institution Rights assignment to research
institution Patent filing Revenue sharing
agreement with research institution
Literature research Identification of
competitive products Consultations with
potential partners Revenue and profit
potential Proof of concept
Pre-Seed funding Business plan
development Leads generation
presentations Investment agreement and
governance settings Initiating business
operation including recruiting management or
licensing agreement
Key Activities Issues
Lack of funding
Lack of mentoring and business development support
Focus for TRRA
9
VC INVESTMENTS TRAIL CANADIAN AND US LEVELSEarly
Stage Investment Decreasing
Early Stage Investment in Canada Decreased by 57
Level Of Venture Capital Investment In Toronto
Region Trailing Ontario, Quebec
Canadian VC investments by stage
Venture Capital Investment in 2002 as Percentage
of GSP
Overall 3.8B Early Stage 2.3B
2.5B 1.0B

Other Acquisition/ Buyout
Expansion
Early stage
Clear Shift Towards Less Risky Investments
Note VC investments for 2002, GSP for
2000 Source PWC Money tree, Macdonald
Associates limited, Ontario ministry of finance,
Statistics Canada, US department of commerce, BCG
analysis
10
VC INVESTMENT GROWTH IN TORONTO REGION LAGS IN
ALL SECTORS
96-02 CAGR All Regions
All Sectors
CAGR
Life Science
ICT
Other Technology
Traditional
Canada
BC
Alberta
Quebec
Ontario
Rest of Ontario
Toronto Region
Source PWC Money tree, Macdonald Associates
limited, Ontario Ministry of Finance, Statistics
Canada, U.S. Department of Commerce, BCG analysis
11
TRRA VC INVESTMENTS HEAVILY FOCUSED ON ICTLarger
Portion of Quebec, B.C. Investment Targeting Life
Sciences

• 2002 VC Investment by Research Field

3
3
4
5
2
Other Technologies
19
4
10
19
Traditional
30
6
19
Life Sciences
30
24
13
91
65
53
48
Information and Computer Technology (ICT)
51
Toronto Region 517
Ontario Other Regions 781
Quebec 722
B.C. 251
Alberta 86
VC investment (M)
Source MacDonald Associates BCG analysis
12
INVESTMENT FOCUS ON LIFE SCIENCES START-UPS
TRAILS BRITISH COLUMBIA, QUEBEC AND ALBERTA

• Investment by Sector, Cumulative View 1999-2002

Other Technologies
Traditional
Life Sciences
IT
Source MacDonald Associates BCG analysis
13
ALL TECH TRANSFER OFFICERS INTERVIEWED INDICATE
NEED FOR MORE FUNDING

• I'd say funds directed to tech transfer is the
  1 priority.
• Start-ups are very personnel-intensive. There
  are no resources available for them. This is a
  critical bottleneck.
• We need funding for market analysis, management,
  and the development of business plans, not just
  technology testing and product development.
• We have a very small operation we cannot know
  all the researchers.
• No funding There are educated people but we
  dont have the funds to hire them.

14
COMMERCIALIZATION SUCCESS LIMITED IN TORONTO
REGION
Situation
Opportunities and Challenges
Commercialization ratio (income/research
expenses) is ¼ of the rest of Canada, 1/5 of
comparable U.S. institutions Growth in VC
investment in Toronto region lags rest of
Canada Canadian VC funding continues to trail
US VC industry and entrepreneurial culture
underdeveloped in specific areas

• Increase scale and specialization in
  commercialization support services (tech transfer
  and others)
• Joint education of tech transfer leaders
• Develop a virtual resource base and meeting place
• Improve financial incentives for universities/
  researchers to promote spin-off etc. (address
  their needs)
• Create mechanism to increase pre-seed money and
  bridge commercialization gap (valley of death)
• Create proof-of-principle funds
• Ensure presence of VC skills in priority sectors
• Attract leading VCs to Toronto
• Initiate networking activities and leverage
  existing networks in select fields for
  commercialization
• Align with existing initiatives
• Tie into Ontario Centres of Excellence
• MaRS

Opportunities/ Challenges
Other opportunities/challenges?
15
LOCAL INTELLECTUAL PROPERTY (IP) POLICIES VARY
CONSIDERABLY
High Variability / Complexity
Multiple Revenue Sharing Models

• Inconsistent Approach
• Institutional ownership
• Guelph
• Hospital for Sick Kids
• McMaster
• Researcher ownership
• University of Toronto
• Ryerson
• Waterloo
• UWO
• York
• Complex execution
• Multiple ownership options available
• Policies detailed in complicated collective
  agreements

• U of T
• University 25 - Researcher 75
• Guelph
• lt100K Researcher 75
• gt100K Researcher 25
• York McMaster
• University 50 - Researcher 50
• Ryerson Waterloo
• Researcher 100
• University of Western Ontario
• University 33 - Researcher 67

Source University websites, BCG Interviews
16
BY CONTRAST, QUEBEC AND US HAVE CONSISTENT IP
POLICIES
USA
Quebec
IP Ownership Policy History Revenue
Sharing Compliance Mechanism

• Institutional ownership
• 1980 - Bayh/Dole act unified policies and
  provided research institutions with ownership
• Institutions obliged to share revenues
• Institution specific
• Typical policy 1/3 Researcher - 1/3 Department -
  1/3 University
• Federal funding tied to compliance with policy

• Institutional ownership
• 2001 - Quebec Policy on Science and Innovation
  (QSIP)
• Researcher cedes ownership upon start of
  commercialization
• University cedes ownership if it is not planning
  on commercializing
• Upon agreement between the researcher and the
  institution
• Suggested 50-50
• Provincial funding tied to compliance with policy

While different policies each have their
merits, there is a user-friendliness benefit to
standardization
17
COMMERCIALIZATION ACTION PLAN
18
TRRA SHOULD FOCUS ON BREAKDOWNS IN THE PROCESS
Three Efforts Emerging
Increase scale and specialization in
commercialization support service Develop a
virtual resource base and meeting place Create
mechanism to increase pre-seed money managed
professionally Ensure presence of VC skills in
priority sectors Initiate commercialization
networking activities in select fields
Commercialization Support
Applied Research
Research Capacity Building
Commercial- ization
Develop a strategic capacity building plan for
priority research fields Initiate a shared
platform investment project e.g. super
computing NRC facility
Basic Research
Targeted Marketing

• Coordinate a proactive and centralized marketing
  effort
• Develop and maintain up-to-date fact base
• Identify and target international companies to
  locate in the Toronto region
• Market to U.S. location services agencies
• Secure funding for enhanced marketing effort

Attracting Companies
Source Literature search, Interviews, BCG
analysis
19
TWO PRIORITIES TO IMPROVE COMMERCIALIZATION
SUCCESS
Key priorities
Identified Challenges

• Identify and build support for improvements in
  technology transfer process
• More consistent / user-friendly Intellectual
  Property (IP) policy
• Improved technology transfer process
• specialization
• increased collaboration
• resourcing
• Identify and advance new models to bridge early
  stage financing gap
• Public/private sector risk-sharing model
  (establishment of new early-stage fund)
• Improved VC participation and specialization

Technology Transfer Process
Early Stage Financing Gap
20
EARLY STAGE FINANCING INCREASED VC FUNDING AND
SPECIALIZATION ESSENTIAL
Funding gap emerging as VC investment decreases
Key early stage investment decreasing in Life
science
Regional VC specialization could be enhanced

• More industry specialization required
• Region home to limited number of VCs with
  specific industry familiarity
• Leading regions appear to have VC communities
  that are much more focused on priority fields
• Greater early stage expertise needed
• Specific early stage IP, legal and business build
  experience coupled with required technical
  depth

CAGR 00-02
CAGR 00-02
(M)
(M)
1,973M
-49 -53 -42
-32 -29 -34
874M
517M
219M
109M
101M
of deals 560 393
51 -30
of deals 73 62 44
-22
Note Later stage includes Expansion,
Acquisition/Buyout and turnaround
sub-stages Source Macdonald Associates BCG
analysis
21
CREATION OF A NEW LARGE, JOINT RISK-SHARING FUND
COULD DELIVER SIGNIFICANT BENEFITS FOR TORONTO
REGION
Toronto Region/Ontario Opportunity Fund

• Increase overall funding levels
• Target funds at priority research fields
• Grow local VC community, attract expertise as
  well as capital
• Encourage global leaders to locate offices/people
  in Toronto
• Improve regional/provincial commercialization
  process
• Increase number of research based start-ups, and
  likelihood of survival

Research Institutions (10-15 of Capital)
Ontario/ Federal Governments 25-40 of Capital
Private VC Firms 45-65 of Capital
500M Shared Venture Capital Pool Managed
By VC Community
How could it work? What would it take to deliver?
22
TECHNOLOGY TRANSFER CLEAR OPPORTUNITY TO IMPROVE
TORONTO REGION EXECUTION
Technology Transfer Best Practices
Status-quo Issues/Gaps - Toronto region
Model for Stronger Regional Collaboration

• Develop clear IP revenue sharing policy
• Specialize by industry, leverage network effect
  across institutions
• Easier to build relationships with researchers
  VCs
• Hire experienced staff, with sufficient support
• Maintain simple processes for researchers
• Stay local present on campus (vs. centralized)

Policies vary widely across institutions, also
vary in execution complexity Limited
specialization jack of all trades model more
common Limited resources for tech transfer
offices to fulfill mandate Varying degrees of
trust and perceived user-friendliness among
researchers

• Maintain local tech transfer
• Strengthen existing links with researchers
• Encourage commercialization
• Develop local Centres of Excellence
• Leverage deep expertise and sharpen industry
  relationships
• Each node to provide support within domain for
  all other institutions
• Conduct scaleable activities on a regional level
• e.g. Training, IP legal assistance

Source BCG Interviews with leading US TTOs
MIT, U Penn, Washington University, University of
Florida, UCLA
23
CONSISTENCY IN IP SEVERAL BENEFITS
Commercialization
Research
Collaboration
Support Services
Private Sector Involvement
Researcher Fit

• Opportunity for increased
  cooperation between institutions
• Fewer disputes surrounding benefits sharing

Easier to provide support services (i.e. IP legal
assistance) when all researchers under one IP
policy

• Increased clarity
• Clearly defined responsibility for IP
• Reduces confusion in private sector

• Encourages researchers to locate at university
  with best focus/capability fit
• Removes IP policy as barrier to mobility

Highlighted in VC Interviews
Source FRSQ, FQRNT, FQRSC, Genome Quebec,
Valorisation Recherch Quebec
24
HOW CAN MORE CONSISTENT IP POLICY BE ACHIEVED?
Quebec Experience
Potential Toronto/Ontario Challenges

• Government mandated research innovation policy
  review in 2000
• Quebec funding agencies identified inconsistent
  IP policy as an issue
• Institutional ownership selected as preferred
  model
• Changes implemented by Quebec government
• Recommendations become official policy in 2001
• Quebec government research funding tied to
  compliance with policy
• strong pressure for universities to conform
• Largest challenge was overcoming opposition from
  university researcher unions

• Existing University IP Policies
• Quebec institutional ownership already dominant
  model prior to government change
• Ontario higher degree of in-going variation
• Researcher Union Agreements
• Quebec changes required at few universities
• Ontario most universities would have to
  renegotiate current contracts
• Momentum For Change
• Quebec Broad-based Research and Innovation
  Policy review developed support for IP change
• Ontario Need a similar impetus for change

Would require strong ground-swell of support to
overcome barriers
Source Interview with Dr. Alex Navarre, Director
of McGill Tech Transfer Office