Report recommends allowing CECRs to apply for extended funding support

Sustainability remains key issue

The initial success of the Centres of Excellence for Commercialization and Research (CECR) program could be jeopardized unless the government provides more time for the centres to achieve sustainability, concludes a new report industry leaders overseeing its activities. The Private Sector Advisory Board (PSAB) recommends allowing centres that can demonstrate "evidence of economic impact" to apply for an extension or renewal beyond the five-year restriction currently in place.

The CECR program was created by the federal government in the 2007 Budget and it has since grown to encompass 22 centres across a broad spectrum of research disciplines and industry sectors.

Under the management of the Networks of Centres of Excellence (NCE) program, CECRs have received $287 million in federal funding, which has leveraged $138 million from other sources, including $45 million in cash and in-kind from the private sector. Leveraged funding is expected to match the federal contribution over time.

The centres have also helped to establish nearly 300 partnerships with organizations of all stripes and create 55 start-ups and 1,200 jobs. Up to the end of FY10-11, 107 patents have been issues as well as 34 licences with other 101 under negotiation.

But those statistics have not translated into revenue streams sufficient to support the centres at anywhere near their current levels, heightening concerns over the issue of sustainability which have been expressed since the program's inception.

In addition to concerns about sustainability, there is growing anecdotal evidence suggesting that most CECRs are achieving only middling success connecting with and assisting with small- and medium-sized enterprises (SMEs), although data collected for the program on industry interaction don't specify company size. Incoming PSAB chair Nancy Hughes Anthony acknowledged the need to develop more baseline data to better measure performance but she added that it should be recognized that different models employed by the individual centres require different timeframes when measuring impact. The CECR program and its mandate are currently being reviewed.

SMEs remain a challenge

The perspective of SMEs was the focus of a PSAB-member panel discussion at the recent NCE annual meeting in Ottawa, which also addressed the challenge of growing smaller companies while maintaining Canadian ownership.

"SMEs are not as clean as start-ups,"says Donald Lush, president of Mississauga ON-based Environmental Bio-detection Products Inc, noting that SMEs often don't have the resources, personnel or willingness to collaborate with university researchers to develop their products and processes.

Lush said the CECR program could help by boosting efforts to assist companies to de-risk their technology, secure patents, and facilitate a smaller firm's introduction to a larger commercialization environment including the National Research Council's Industrial Research Assistance Program.

Fostering cross-disciplinary business talent, access to risk capital and patent management and protection are other areas where the CECR program can help. Dr Adam Chowaniec, a veteran of several Ottawa-area high tech firms and board chair of BelAir Networks, told the AGM meeting that these are critical components necessary for company success. While he acknowledged that they are becoming increasing difficult to execute in the current business environment, they must be embedded in a company's business plan if it hopes to sustainable success.

"The real question is not how many start-ups but how many sustainable companies did you spin off. What does that sustainability mean in terms of the longevity of what you've got, how these companies can grow out all the way to hopefully one day being a public company," said Chowaniec. "Public companies are the anchor of our tech sector. They provide the ability for the rest of the inclusive structure to function and if we don't create enough of these companies we won't create sustainability in the long run."

The PSAB reports that several models have been developed by individual centres to assist firms in the areas of investment, technology and business acceleration, market pull, technology push and sector strengthening.

For investment, several CECRs are providing companies with direct access to capital by pooling public and private funds including micro loans and innovation funds. Contract research is also provided through fee-for-service arrangements with receptors having first rights to the technology or arranging for large companies to contract an SME to undertake R&D, providing the latter with an initial revenue stream.

Technology and business acceleration models include services such as the pre-screening of technologies, access to scientific expertise or testing facilities, assistance with regulatory approvals, entrepreneurial training and IP management.

One investment model that is best suited for health care-related CECRs is pooled innovation funds. Dr Kevin O'Brien Fehr, principal of Toronto-based consulting firm, Kincora Innovation, told the NCE meeting that pooled funds can be an effective complement to contract research activities and out-licensing to stimulate SME growth, particularly given the lack of venture capital in Canada.

O'Brien Fehr said the Canadian pharmaceutical sector has become "smaller and leaner than in the 1980s and 1990s" as companies opt to expand in developing markets. As big pharma shifts resources from discovery research to Phase III clinical trials, SME must increasingly undertake proof-of-concept and validation of their compounds.

"The bar for partnerships is higher but there is a glimmer of hope," she said, referring to the $50-million, early-stage VC fund recently launched by GlaxoSmithKline (R$, November 29/11).

R$