Scott Inwood, Director of Commercialization, Univ of Waterloo

A perspective from the tech transfer coalface

By Scott Inwood

In the April 4/16 issue of Research Money, Dr Ted Hewitt, president of the Social Sciences and Humanities Research Council, suggests that the university's contribution to improving Canada's innovation problem might be found in adopting an open innovation approach to commercializing research outcomes rather than the status quo technology transfer office (TTO) model.

It has been disheartening to note that the commentary of the university role in the innovation system in such recommendations largely lacks any perspective from TTO professionals directly interfacing with the commercialization challenge. Possibly this is partly reflective of a meme that university TTO's are an element of the innovation problem.

Dr Hewitt opined that the collective inability of TTOs to generate revenue beyond their costs might be a proxy suggesting TTO ineffectiveness. It bears noting, however, that evaluating TTO performance solely on licensing revenue inherently overlooks the much more significant economic impact of startup creation.

The US based Kauffman Institute reports that two-thirds of US jobs created are from companies that are one to five years old, and companies less than one year old (i.e., startups) create on average more than one million jobs annually. For those universities focusing on supporting startup creation, near term licensing revenue is often sacrificed in favour of equity compensation that gets monetized at a much later liquidation event such as an acquisition. TTOs often also play a supporting role in the growing institutional investment in student entrepreneurship programs that are contributing significantly to startup creation impact in Canada.

At its core, commercialization is driven by a willingness of technology creators, motivated by favourable risk versus reward conditions, to engage in the process. Startup investors or company licensees almost always require a significant level of inventor involvement to transfer know-how as a key component of early commercialization activity. In a university context, this means campus creators need to be incentivized to invest their spare time in commercialization activities net of their time spent on conducting research and writing proposals, publication, teaching, and administrative activities.

Business negotiation is inherently an adversarial process, leaving open the opportunity for those on the other side of deals to cast TTOs as obstructionist, greedy, and detrimental to the innovation process. To be clear, the motivation of the TTO to negotiate balanced monetary compensation in deals is not to enrich the university's coffers, but rather to provide the necessary incentive for university creators to be motivated to participate in commercialization activity.

Motivating creators

Risk mitigation is the companion variable to incentive in the commercialization equation. From my experience in the trenches, there is very little risk appetite among SMEs or large firms to invest in commercialization of early-stage research outcomes. Open innovation models are most commonly used to facilitate the broad publication of fundamental discoveries, such as genetic information, which in of itself is not patentable subject matter.

Thus, open publication models are an efficient route to inspire future therapeutic development efforts. However, when it comes to actual therapeutic development, we were recently informed by a global pharmaceutical company that they first require us to have filed patent applications supported by deep animal model data. The notion that the private sector is chomping at the bit to access technology that TTO gatekeepers are piously obstructing them from is a myth of enormous proportions.

One only needs to look at the Canadian private sector's continuously deteriorating BERD investment to understand that scrapping TTOs in favour of an open innovation model is not likely to produce the theorized commercialization results. As counter intuitive as it may seem, TTOs assume an important role in reducing the risk gap by acting as "arch angel" investors in early IP protection costs (e.g., patents). In most instances, creating a proprietary IP asset is a requirement to encourage later stage private sector commercialization investment. Additionally, TTOs often secure funding from limited Canadian prototype development programs to further de-risk opportunities, thus increasing the likelihood of securing future private sector investment.

Address gap funding

In my view, Canada's poor innovation performance is significantly linked to the lack of meaningful "gap funding" that is available in leading innovation countries such as the US and Israel. The Canadian Advanced Technology Alliance is advocating for a publically funded US-style Small Business Innovation Research (SBIR) program. The US SBIR program provides $2.5 billion annually in $250,000 to $1 million grants to new US startups to help scale their business quickly. It also includes a government procurement component that provides the startup with its critical first customer.

The US government unabashedly brands the program as America's Seed Fund and is seemingly fearless of potential criticism for providing direct private sector subsidies that we in Canada seem weak kneed to embrace.

To be sure, increasing Canada's innovation performance is a multi-faceted problem of which the TTO is but one cog in a complicated mesh of gears. With the federal government's recent budget announcement of the A More Innovative Canada strategy, input from the TTO community will hopefully be sought on some of these more pragmatic commercialization hurdles that need to be addressed for broader policy and program development.

Scott Inwood is Director of Commercialization at the University of Waterloo.