Alberta increases support of health research with $500-M boost to AHFMR endowment

Strategic planning exercise underway

The Alberta government has given a $500-million boost to the endowment of the Alberta Heritage Foundation for Medical Research (AHFMR), increasing its current size to slightly more than $1.4 billion. The investment will be made over three years starting in FY05-06 and coincides with the provincial centennial, the Foundation’s 25th anniversary and the launch of a new strategic plan under its recently appointed president and CEO, Dr Kevin Keough.

The January 11 announcement of the new funding was made by premier Ralph Klein as part of a suite of health-related initiatives and follows the recent release of an international review panel report which strongly recommended that the Foundation’s endowment be “increased substantially” (see chart). The increased size of the endowment should also assist in complying with the report’s recommendation to lower expenditures as a percentage of the overall endowment from 6.9% in FY03-04 to between 4.5% and 5.0%.

In FY03-04, the AHFMR drew $50 million from its endowment although the opening balance as of April 1/03 was just $726 million. The endowment was launched in 1980 with an initial investment of $300 million and reached $1.2 billion before the downturn in the financial markets in 2000 and 2001. A significant portion of the endowment’s assets is invested in equity markets. It has since rebounded (prior to the new funding) to $900 million.

“I’m deeply gratified. We’re in better shape with the $500 million although we will still have to make choices on how we spend our money,” says Keough, who was chief scientist at Health Canada until July/04. “ (Previous president and CEO) Matt Spence had approached the government over the last year asking for half a billion and when I came I hoped to make the argument for even more but we may have to wait on that.”

Keough says the government has to clarify how the money will flow over the specified three-year period and, in the meantime, he and the Foundation are concentrating on developing a strategic plan for the next 10 years. The board of trustees is about to select a consulting firm to assist in the exercise and a final plan is expected in about six months.

“Our aim is to maximize return on investment. When the endowment dropped in value, we cut back on activities that were deemed to be less essential in terms of the overall aims of the Foundation,” says Keough. “No major changes are planned for the near future. We should not start playing with individual parts of the Foundation until we finish looking at the whole.”

The strategic plan is one of the recommendations of the report by the 4th International Review Board (IRB) — chaired by Dr Joseph Martin, dean of the faculty of medicine at the Harvard Medical School in Boston MA. The report generally gives the AHFMR high marks for helping to build a significant health research enterprise in the province but raised concerns in several areas.

“Notwithstanding the IRB’s high opinion of what has been accomplished and AHFMR’s continuing progress, there is room for substantial improvement,” states the IRB report. “Very careful attention should be given to establishing a specific collaborative engagement with Alberta’s three universities that focuses on the creation of a small number of centres of international excellence in ways that avoid duplication and redundancy and utilize combined strengths to the full.”

In addition to expressing concern over drawing on the endowment at a higher level than the established norm, the report questioned the Foundation’s direct participation in commercialization activities. The Technology Commercialization Program has been in operation since 1985 and has invested more than $18 million in more than $200 projects. Between 1997 and 2003, 60 projects received $7 million. Successful applicants to the program receive funding in three phases, up to a maximum of $35,000, $150,000 and $500,000 respectively. The IRB argues that managing commercialization is a distraction for the Foundation and could be more effectively conducted by an outside body.

“Financial support for technology commercialization should be reconsidered,” states the report, adding that it favours the California Discovery model whereby participating firms pay for half the direct research costs and accompanying indirect costs. “AHFMR should work hard to transfer the management, review and responsibility for financial support to a different organization with high-tech management and financial expertise.”

Keough is non-committal on this and the other recommendations by the IRB, stressing that no major actions will be taken until the strategic plan is completed.

“We will certainly look at and discuss commercialization,” he says. “We may not accept the recommendation or we may modify it.”

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