Peter Morand - extended on-line version

Technology commercialization proposal for the National Research Council©

By Dr Peter Morand

CONTEXT

The origins of the National Research Council of Canada (NRC) go back to activities at McGill University that led to its formal establishment in 1916. In the NRC's formative years its main role was as an advisory body to government. Progressively, NRC developed its research capabilities through the creation of research institutes and focussed research centres. Over time, some of these evolved into what are now well-known R&D and research funding agencies of the federal government such as the Communications Research Centre (CRC), the Defence Research Board (DRB), the Medical Research Council (now the Canadian Institutes of Health Research, CIHR), the Natural Sciences and Engineering Research Council (NSERC), Atomic Energy Canada (AECL) and the Canadian Space Agency (CSA).

NRC was a key mover in the 1950s and 1960s when research in science and engineering became an integral part of government policy and economic planning. In tandem with this surge of research activity in the public and private sectors, NRC became more involved in assisting knowledge-based industries through its own research programs and through its Industrial Research Assistance Program (IRAP) and Canadian Technology Network (CTN). Today, NRC has an annual budget of over $700 million (including non-government revenues), a national network of research institutes and technology centres and a highly skilled work force of close to 4,000 employees. NRC has used its resources effectively to help Canada transition to a knowledge-based economy, through collaborative research with the private and public sectors, strategic planning, state-of-the-art facility-based partnerships and innovation-focused management.

During the time NRC was positioning itself as a pioneering and essential player in Canada's new economic landscape, the federal government was investing heavily in the human resources and research infrastructure of Canadian universities. As the government moves forward with its innovation agenda, not unexpectedly, questions are being raised about the return on the investment in research. The gaps in the innovation cycle in Canada are not in the quality of research performed but in the conversion of research results into globally competitive products and services.

The challenge facing NRC is how to enhance its stature as Canada's premier R&D agency and, at the same time, play a leadership role in developing a more effective model for the commercialization of its research results into value-added products and services.

Commercialization at NRC

NRC transfers its technology to the industrial sector through industrial alliances, licensing and the creation of spin-off and start-up companies. Its research institutes and technology centres have a high degree of accountability and autonomy and each has its custom-made approach to commercialization, policy and operations.

Institutes and technology centres have business development personnel charged with various aspects of commercialization (IP protection, agreements with external commercial partners, licensing, identifying the commercialization approach for given IP, developing overall strategy and process for commercialization, etc) and are supported by NRC's corporate services.

Until relatively recently, the rewards for licensing and collaborative agreements far outweighed any benefits associated with involvement in a spin-off company. Other perceived barriers such as loss of key personnel, additional costs and management time consumed in supporting the spin-off for the interim period and smoothing the relationship between spin-off and institute staff helped instil a culture that did not favour spin-offs. NRC management has begun to address some of these issues and has put many initiatives in place to communicate the long term benefits of company creation and to make it easier for researchers to be associated with spin-off companies. As a result there has been a significant increase in technology licensing and NRC spin-off companies in the last few years and some of its institutes have established commercialization incubators (e.g. NRC's Institute for Biodiagnostics in Winnipeg).

This trend constitutes an important contribution to Canada's innovation agenda and is in keeping with the federal government's current S&T Strategy, Mobilizing Science and Technology to Canada's Advantage, which outlines how Canada can do more "...to turn our ideas into innovations that provide solutions to environmental, health, and other important social challenges, and to improve our economic competitiveness." The Science, Technology and Innovation Council's State of the Nation 2008 report points out that Canada has strong foundations on which to build its innovation system but needs to address weaknesses and to find better mechanisms to improve its performance in order to "...be able to compete with the best."

How then can NRC seize on this opportunity to enhance its visibility in the innovation cycle and to demonstrate even more strongly that the investment in NRC's activities is paying huge dividends in the development of the advanced technology sectors that are crucial for Canada's economic well being?

We live in a dynamic and fast-changing technology and business landscape while facing overwhelming challenges in demographic trends, management of the environment and health care capabilities. Those countries that possess the leadership to be creative in the use of knowledge and to anticipate new waves of enabling technologies are the ones that

will survive best. Experience in many countries clearly demonstrates that government sharing in the taking of risks in the early stages of knowledge-based companies contributes significantly to wealth creation. It has been demonstrated that technology-based SMEs nurtured in their early days have a greater survival and growth rate.

The Canadian technological environment is problematic in that our innovation system is spread over more than 7,000 km. This vast geographical expanse increases significantly the challenge of creating critical masses of skills and expertise to optimise the potential for innovative applications, largely emerging from publicly funded research. On the other hand, the situation is mitigated by NRC's nation-wide activities. Through its research institutes and technology centres, NRC has created clusters of specialists supported by state-of-the-art facilities in communities across Canada. These clusters have been particularly well-matched to the existing strengths that are integral to these communities. Add to this the IRAP presence with its network of field offices across Canada and one quickly recognises that NRC is an indispensable part of the infrastructure that Canada needs if it wants to be a global player in the new technology waves that are emerging.

The purpose of this document is to suggest a specific commercialization model for NRC that would build on what already exists at NRC but that would necessarily involve some fundamental organizational changes.

Commercialization Models

Reference has already been made to some of the barriers to the creation of spin-off companies from an organization such as NRC. Is it therefore more feasible:

• to continue to make changes from within to make NRC an R&D/commercialization organization or
• to strengthen NRC's capabilities in strategic R&D areas as well as in industrial collaboration and alliances and leave the commercialization of its research results to a separate organization?

In respect to the first part of the question there are other factors at play, apart from motivation, that make it difficult to move technologies from the laboratory to the marketplace. Very often the advance or discovery that has been made is not at the stage where a potential investor can readily assess the value of the invention. What happens then is that the project is dropped or, if it is carried forward at this "half-baked" stage, the chances of commercial success are greatly diminished. Also, there are sad examples of provincial organizations (e.g. Ontario Research Foundation/ORTECH, now defunct) which ended up in competition with the private sector for R&D contracts.

As for the second part of the question, there are many commercialization models in Canada, Australia, the US and Europe and there is one which seems particularly well suited to overcome some of the problems that have been identified. Founded in 1999 the Medical Research Council Technology (http://mrctdev.mrct-001.vm.brightbox.net/) is the technology transfer company of the UK's Medical Research Council (MRC) and is responsible for commercialization of its biomedical research.

The success of this model is reflected in a report from the UK's National Audit Office released in February 2002 (Delivering the Commercialization of Public Sector Science) that singles out MRC for its innovative approach for accelerating the commercialization of research carried out in its laboratories. The report points out that MRC was "...responsible for a consistent flow of companies ‘spinning out' of MRC science and was instrumental in the creation of MVM Limited, a venture capital company which has launched two funds, in 1998 and 2001, each raising some £40 million, for investing in early stage life science companies." Subsequently, a UK House of Commons science and technology report published in June 2006, commended "...the steps taken by MRC to actively exploit the research resulting from their investment and we urge RCUK (Research Councils UK and the other Councils to follow the example of MRCT where appropriate."

If NRC is intent on introducing a new model to overcome existing barriers and accelerate commercializing of research results from its laboratories, this is the time to do it. Our political leaders are looking for solutions and will certainly respond to any proposals put forward that meet their objectives. Under the visionary leadership of Dr Henry Friesen, the disbanding of the Medical Research Council and legislation for the creation of CIHR took place in a remarkably short time. It should also be possible for NRC to introduce significant changes in the way it operates even if it means making changes to the NRC Act.

The Proposal

The proposal being put forward is for NRC to develop a plan for the creation of a wholly owned company (National Research Council Technologies?) whose primary functions would be to commercialize NRC discoveries, manage the Council's IP portfolio, manage product development and proof of concept activities (possibly in existing and yet to be built incubator facilities), broker collaborations and alliances with industry partners and put in place dedicated seed and venture capital funds. Regarding the latter, the federal government could help by inducing pension funds to participate.

Net revenues from licensing and equity holdings would revert to NRC to be distributed internally in a manner that would encourage technology transfer to occur. The venture capital funds would get a return on investment by direct investments in spin-off companies.

The major impact of moving in this direction would be on the existing business development offices of research institutes and technology centres. These would be downsized and reoriented to play a liaison and co-ordinating role with NRCT. Although there undoubtedly would be some resistance to such an exercise, it would remove some of the inconsistencies in technology transfer across NRC and let the research institutes and technology centres focus on their scientific and engineering research mandate.

In order to succeed, great care would be required to recruit a Board of Directors and other individuals with the proper qualifications and track record to lead the management and operation of NRCT. With the right people in place, NRCT would have a high level of accountability and well-defined goals and objectives from the start.

By creating a separate commercialization entity, NRC would then be poised to play a more dominant role in the coordination of all federal government R&D activities (R$, November 13/08) were it given the mandate to do so.

Next Steps

Should NRC decide to move in the direction being proposed, here are suggestions for next steps, subject to further discussion.

1. Obtain more detailed information about MRCT and related models
2. Form a small steering group with external members to flesh out the rationale for the creation of NRCT (involve a legal expert to advise on possible changes needed to existing legislation related to NRC and possibly someone with experience in creating new structures involving the government sector)
3. Begin discussions internally to obtain buy-in for proposed changes
4. Prepare an operational and business plan for NRCT
5. Initiate discussions at political and DM levels as well as in the private sector to obtain the necessary support
6. Recruit highly qualified personnel to operate NRCT