Healthcare Quarterly

Healthcare Quarterly 8(4) October 2005 : 9-10.doi:10.12927/hcq.2005.20361

Opinions: Biotechnology Commercialization: A Poster Child for the Long-Cycle Innovation Challenge

Colin Goodfellow

In regard to Brimacombe's proposal for CIHR's participation in biotech commercialization, and Edelson's response that the government should stick to funding basic research (see Healthcare Quarterly 8(3)), it seems that there are two separate considerations.
  1. Is there a case for government in biotechnology commercialization? If so,
  2. What form should it take?
My interest flows from assisting Dr. Friesen lead the conversion of MRC into CIHR and my subsequent work with a science commercialization company.
A feature of Paul Martin's support for CIHR was the role that a new-knowledge agency could play in an innovation economy. There is little evidence that CIHR will be effective in creating economic value. Ottawa's desire to grow the economy through innovation, then, brings us to question one.

Is there a case for government participation in biotechnology commercialization?

Yes, for three reasons.

  1. To reduce wasted knowledge.
    1. CIHR researchers are at the forefront of knowledge. Unfortunately, the economic fruits of their insight are neglected. Technology transfer functions are a contributing factor in biotech under-performance. An error in tech transfer thinking is that I.P. creation is value-creation. I.P. is a cost in the innovation chain. Having a large inventory of I.P., which Canadian research facilities do, is like having a warehouse full of rotting fruit. Government needs to intervene to reduce inventory wastage.

  2. To learn how to create growth with long-cycle innovation.
    1. Why should government take the burden of reducing wastage?
      1. it's public research dollars being untapped
      2. a desire for prosperity
      3. government has interest in knowing how to make economic growth happen when the time between innovation and the market is long. Biotechnology is a poster child for this long-cycle innovation challenge.

  3. Capital market failure is a barrier to social good.
    1. A classic reason for intervention is when there is social cost to market failure. There is capital-market failure in biotechnology because better returns are always available in other investments. Unfortunately, capital cannot be relied upon to be stupid over the long run. Without government participation, biotechnology innovation is left to rot.

What form should government participation take?

The suggestion that CIHR should participate is a non-starter. It is a research based researcher-led organization and would be distracted from its mission by a market agenda.

Government participation in commercializing should improve the risk profile of biotechnology for private investment. On the taxation side this means:

  1. tax-favoured investment pools rewarding long-cycle capital
  2. rewritten labour-sponsored fund rules to target innovation better
  3. expand tax-favoured investment pools into the wholesale capital market.

On the government expenditure side this means: matching investments in small to medium proof-of-concept and beta development opportunities and refundable tax credits for early-stage investors.

To reduce wasted knowledge and to learn how to commercialize innovation, let's start with what we know. Innovation needs money. Lack of investment capital reflects a risk reward calculation. Change the risk profile until the investment market responds.

About the Author(s)

Colin Goodfellow, CEO, Kemptville District Hospital


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