Inventors seeking Investors
Alberta’s universities do lots of great research, but who’s doing the “development” part of the R&D equation?
by Michael Ganley
Last year Stephanie Yanow, a professor from the University of Alberta’s school of public health, travelled to a remote hospital in Ghana. The staff at the hospital see about 100 people each day suffering from fever, with malaria generally being the prime suspect. Yanow saw a man seated in a small, hot room, staring at blood samples through a microscope, trying to make the required diagnoses. Malaria? Typhoid? Yellow fever? Each sample took him about 15 minutes to view. To see them all, basic math suggests, would take him 25 hours. So the hospital did a form of triage. “They would say, ‘OK, about 30 to 40 per cent of patients will get a test done,’ ” Yanow says. “ ‘The rest, we’re not sure, so we’ll just send you home with a drug. It might not be the drug you need, but it’s a drug.’ ”
Photograph Ashley Champagne
Yanow thinks she and Aquila Diagnostic Systems, a small Edmonton-based startup that germinated through research done at the University of Alberta, might have a solution. The startup has developed a plastic chip with 10 small compartments that can hold the chemicals and reagents needed to perform genetic tests. Yanow has been consulting with Aquila for several years and says the chip could be a useful field tool in the battle against malaria because it needs no refrigeration, is easily administered and provides the kind of immediate and consistent results that are demanded by national and world health bodies. But David Alton, Aquila’s CEO, says the company now faces “the valley of death” – the financial chasm that stands between research and making money from it. “The question is how do we get through it?” It’s a question that has been asked by numerous startups on the path to research commercialization: how to take the nut of a good idea, which has most often been arrived at primarily through public funding, and turn it into a viable business. Plenty of task forces have reported on ways to traverse that distance. “Technology transfer” offices have been set up at universities. Learned treatises have been delivered. But still, many good ideas and policies – things that could help bridge the divide and in turn build viable companies – are being left on the table. And many people are pointing a finger at the very business community that stands to profit from it the most.
Of course it’s not only businesses that stand to profit. More effective technology transfer will allow businesses to innovate, succeed and ultimately grow, contributing to employment, public revenues and the general good. While there is a paucity of empirical data tying technology transfer to, say, tax revenues, there is plenty of anecdotal evidence from company CEOs that innovations, whether scientific or process-oriented, are crucial to their success. And a recent study by the Council of Canadian Academies made the case that R&D is a critical driver of innovation which, in turn, “plays an important role in catalysing productivity gains across the economy, thereby stimulating wealth creation and improving living standards for all Canadians.”
The next year might well determine if Aquila will have the opportunity to contribute to those standards. After $5 million and five years of research by engineers, oncologists, public health officials and materials scientists, among other people, the company needs to raise $500,000 to make it through the coming year. Most of the money to date has come from public sources, including Alberta Innovates Health Solutions, Alberta Innovates Technology Futures and the federal Industrial Research Assistance Program. Alton has some of his own money in the enterprise, and has done a small round of friends-and-family financing. He’s approached venture capitalists and angel investors, but they want to invest in companies that already have revenue, which his doesn’t.
Knowing that there’s no money in the invention of a better malaria diagnostic (one of the criteria for support from the World Health Organization is that each test cost less than $1), Alton and Aquila are also testing the waters of a much more familiar – and hopefully profitable – market: livestock. “There are all kinds of livestock pathogens that are problems for the industry,” says Alton. “There are endemic viruses in certain areas. And one of the great things about our chip is that you can do the test on the spot and make decisions. Normal genetic tests are sent to a lab and can be expensive and time-consuming.” So Alton will continue to beat the bushes, apply for grants and pitch Aquila’s story to anyone who will listen.
He’s hardly alone in his predicament. The money spent on Aquila is but a drop in the bucket when it comes to public spending on research in Canada’s tertiary institutions. In 2011, spending on “higher education research and development,” or HERD, was $11.4 billion, representing 38 per cent of total Canadian R&D spending and 0.7 per cent of GDP. These expenditures have grown more than twice as fast as the overall economy in the past three decades, and compare favourably to numbers in the U.S., where HERD spending represents less than 0.5 per cent of GDP.
Depending on the particular chemical concoction put into the Aquila chip, it can test for any number of different pathogens in the blood. With two of the 10 compartments kept as controls, eight tests can be performed on one chip. And the technology is not just for human blood, either.
But that increased spending has not led to a corresponding rise in commercial success. In fact, the U.S. schools have better records in applying for patents, starting companies and making money from intellectual property than those in Canada. One reason for the discrepancy is simply that successful commercialization ties closely to the overall quality of the university, and the U.S. has considerably more world-leading schools than Canada. The technology transfer organizations at U.S. schools have also been around for a decade longer than their counterparts in Canada, and venture capital is more available south of the border.
But there is another important difference, and Alton says he’s been witness to it. “I don’t think there’s any lack of research coming out of the universities,” he says. “And there are lots of government programs to help. The biggest challenge is getting private capital to invest.”
His experience is backed up by research undertaken for the C.D. Howe Institute. Peter Howitt, a professor emeritus at Brown University who spent 24 years teaching at the University of Western Ontario, recently completed the study for the institute, looking at the commercialization of university research. He discussed the shortcomings described above, but his primary concern was a lack of investment by the private sector. “When it comes to the partnership between academia and business, a lot of the basic research ought to be done by the academic side of the partnership and the development by the business side,” Howitt says. “But we’ve been tilting the subsidies so both the research and the development tend to get done by the academics. To some extent, businesses have been able to take advantage of these programs to have universities solve their problems for them.”
Howitt found that spending on research and development by Canadian businesses is low, particularly when compared to American companies. Expenditures on R&D by Canadian businesses is half that of American companies, and has been falling as a proportion of GDP since 2000 (although a good chunk of that decline stems from the demise of a single company, Nortel, which at one point spent close to half of the business R&D in this country). “It is doubtful that Canada will be able to close the productivity gap with the U.S. in technology transfer until businesses start to play their part instead of relying on universities to do more than their share,” Howitt says.
There are several strategies that could better lay the groundwork for commercialization, ranging from the exceedingly simple to the politically complex. Howitt suggests that an online repository be created to give open access to all publicly funded research projects. Thus far, a great deal of such research remains in obscure, hard-to-find publications or in subscription-based – often very expensive subscription-based – services. This prevents the spread of knowledge and ideas and the creative combustion that can result. Howitt also recommends more robust technology transfer offices and that the primary public funders of university research – the National Sciences and Engineering Research Council (NSERC), the Social Sciences and Humanities Research Council (SSHRC) and the Canadian Institute for Health Research (CIHR) – increase their emphasis on academic excellence over perceived practical utility when allocating grants.
Howitt says Canada should work to attract the best researchers in the world. “Though it may seem paradoxical, the greatest benefit to society will come from scientists for whom practical utility and individual financial reward are minor considerations,” he says. “The best way to attract such scientists to Canada is to redirect our research support towards the problems that are most challenging from a scientific point of view, not towards those that bureaucrats view as most likely to lead to commercial success.” In fact, exactly the opposite has been happening, with the emphasis of Canada’s policy being on financial and commercial viability.
Alberta’s place in all of this, with an economy dominated by oil and gas, involves both strengths and weaknesses. Businesses in this province are spending large sums on R&D, but much of that research is done in-house by the energy sector. That is, the big producers do much of their R&D in the field and on their leases, and they jealously guard the results because their intellectual property is often their competitive advantage. They are hardly about to place it in some open-access portal. The large service companies – firms like Halliburton, Schlumberger and Baker Hughes – have their main research centres outside of Canada. The oil and gas sector also has a dampening effect on other, smaller sectors of the economy. “Oil and gas sucks up a lot of talent,” says Alton. “We’ve had guys come through here for their training in micro-systems; then they’re hired into the oil and gas sector because they can use that platform to do things downhole.”
But Alberta has also had tremendous success in the past bringing together the resources of academics, business and government. The Alberta Oil Sands Technology and Research Authority (AOSTRA) was the organization that brought the strengths and talents of the various sectors together to solve the riddle of separating oil from sand and led to the successful commercialization of the oil sands. And the province has well-established business incubators in Innovate Calgary and TEC Edmonton (which was named the 17th best university business incubator in the world – and best in Canada – by the University Business Incubator Index).
Eddy Isaacs, the CEO of Alberta Innovates Energy and Environment Solutions, the lead public agency for energy and environmental research in the province, says a repeat performance of AOSTRA’s success will be difficult. He says the nature of the problem that AOSTRA was tasked to address was a clear and technical one. “The simplicity of that time was that our conventional crudes were declining and we had a vast oil sands resource that wasn’t being developed,” he says. That’s no longer the case. Now, the primary challenge is to decrease the environmental footprint of that same industry. “If you look at the complexity of today’s world with the number of resources we have, the number of people screaming about dirty oil, the change in social values, it’s much tougher to come up with a solution.”
Isaacs says the best hope lies with better co-ordination between universities, the government and business, visionary leadership and, as Howitt argues, more investment from business.
Aquila and other companies in the biotech space also have to deal with the dismal history of development of similar companies in the province. Some, like BioMS Medical, raised cash and excitement in Alberta before either fizzling out or being sold to a bigger, non-Albertan company. Most have petered out with hardly a mention. “If one of those companies had made it, things would be different,” Alton says.
But neither Alton nor Yanow is giving up on Aquila’s chip. The process to get it approved as a diagnostic tool for malaria will continue with field trials next year. The company has partnered with a Geneva-based non-profit, the Foundation for Innovative New Diagnostics, to run trials in Uganda. If the chip performs as anticipated, it will be considered a medical and technical success. The question is, does that also mean it will be a commercial one?