2. Private Sector Advisory Board Report on Activities and Impacts of the Centres of Excellence for Commercialization and Research NCE Annual General Meeting December 5, 2011

3. Introductions Nancy Hughes Anthony – New PSAB Chair Sue Abu-Hakima Donald Lush Kevin OBrien Fehr Adam Chowaniec

4. Key Elements of PSAB Mandate 1.Provide advice to the NCE Steering Committee, as appropriate, on the implementation, delivery and performance measures of the following three programs: CECR, BL-NCE and CCI and their possible future directions 2.Review the progress and impact of funding of these programs and provide additional guidance, and other advices to the NCE Steering Committee; 3.Provide advice to the NCE Steering Committee on other industry-related initiatives, as required.

5. Snapshot of NCE programs: Networks of Centres of Excellence - 1989 Fund research at virtual centres performing R&D and translation-commercialization activities Focus on broad Canadian issues using multi-disciplinary approaches Required to demonstrate unique value-added HQP training Centres of Excellence for Commercialization and Research – 2007 Fund Internationally recognized centres of commercialization and research Targeted to S&T priority areas Funds for operating and commercialization activities (75% / 50%) cost-shared with partners expected to become self-sustaining Business-Led Networks of Centres of Excellence - 2008 Funds research by not-for-profit private sector consortia responding to private sector S&T needs Must have 50% matching funds from partners 75% of administrative costs from BL-NCE Funds Industrial R&D Internship program - 2008-09 funds 1,000 internships yearly to introduces students and postdoctoral fellows to practical business problems and exposes the private sector to the benefits of S&T

6. CECR Snapshot 2008-2011: 22 active Centres More than $138M in partner contributions 107 patents issued 8 copyrights 34 licenses granted, 101 under negotiation 3786 workshops 310 projects funded* 55 start-ups 230 organizations served* *data only available since 2010-2011

7. 2011 PSAB report: Turning Research into Commerce In 2011, Members of the Private Sector Advisory Board met with all 22 CECRs in two separate 2 day meetings on March 30-31 (Vancouver) and May 16-17 (Toronto). Each centre was asked to prepare a presentation on its objectives, progress to date, and expected impacts. Through these meetings, and through a review of the annual data provided by the Centres, the PSAB has made a number of observations and recommendations summarized in this years report.

8. PSAB Observations – CECR Strengths Strong Partnerships with Industry and other Receptor Organizations (297 partners in total) Flexible business models adapted to each sector or situation (from business accelerator to mentoring to investment capital) Ability to provide operational and financial support for technology start-up firms Sharing of best practices between Centres

9. Investment Models Micro-Loans & Syndicate Funds - OCE-CCR: - seed investment angels proof of concepts - convertible debenture to attract co- investment from VCs Seed Investment & Syndicates MaRS Innovation : - $500K IAF seed funding & management resources help spin-off firms develop business plans & secure syndicate investments. Seed Investment & Strategics - IRICor: -seed investments ~$50K - follow-on ~$150K strategic investment, matched by government, VCs Project Funds: Tecterra $100-$500K Industry investment Programs for projects partnering university researchers with geomatics company or end-user. Pre-seed - C3E - $150M pre-seed fund with other funds designed for early stage clean tech Co. Equity Investments – BIC - portfolio in sustainable technologies, processes and businesses.

10. Micro-Loans & Syndicate Investments: OCE-CCR micro-loans with angels - $50K for technology/product development, commercial demonstrations and initial operations. Embedded Executives to help start-ups/SMEs Follow-on debentures up to $250K co-invested with VCs Debentures converted on Series A, M&A, etc. # of companies supported through micro-loans: 67 Co-investment ratio: 5:1 Follow-on investments: $42 million Leverage ratio: 15:1

11. Seed Investment & Strategic Funding: IRICor Institute for Research in Immunology and Cancer –Seed investments averaging $50K – Follow-on funding $150K in return for revenue sharing. –Some co-funding is provided by companies, government agencies or venture capitalists. –IRICors business model is based on revenue sharing. It licenses mature technologies to biopharmaceutical companies in return for licensing fees and royalties and takes an equity position in new spin-offs.

12. Project-based Investment - TECTERRA Suite of investment programs through partnerships with the Canadian geomatics industry, Alberta university research groups, and the Canadian resource sector. Industry Investment Programs provide $100,000 to $500,000 per project, with each project led by a SME. University R&D Investment Programs provide $100,000 to $500,000 for projects led by an Alberta university research group in partnership with a geomatics company or end-user government agency.

13. $150M Pre-Seed Fund – C3E Centre of Excellence in Energy Efficiency: C3E –one of several investors in the $150-million Cycle-C3E pre-seed fund, designed to help early-stage clean tech companies close the gap between technology demonstration & commercialization. –Other fund contributors include the Quebec government, Rio Tinto Alcan, Lonza, Gas Métro and Systemex. –Average award: between $350K to $400K –Un-secured convertible debenture can be converted into 15% equity and/or carbon credits or royalties flowing back to the CECR

14. Working with SMEs Why SMEs are good, fast return, commercialization partners. –Successful SMEs have an established business infrastructure into which appropriate technologies, products and services can be integrated. –Many SMEs are looking for new technologies, products and services to help them remain competitive. –SME management is generally lean and can make decisions quickly.

15. Why SMEs may NOT be good partners –Most SMEs do not have significant excess cash flow for providing matching funds or time for providing in kind and as such many SME partners are needed to match the contribution of one large partner. –Most SMEs are very busy with the day to day running of the business and do not have a lot of time to put into seeking out CECRs and participating in joint work. They are not plugged into the system. They require work to find appropriate partners

16. SME needs in a Commercialization Context These needs are opportunities for CECRs –Technological help and guidance for de-risking and prototype testing and assistance with integration into the existing business supply and sales distribution chain. –Much like start-ups some may need mentoring and assistance with financing models for integration of technologies/products and services into their business models

17. SME needs in a Commercialization Context Assistance from CECR in developing of complementary SME and larger company networks/ecosystems of supply and sales. –Many SMEs have only proprietary technology or knowhow or a small patent portfolio and are as a consequence leery of sharing this knowledge. Trust barrier must be overcome –SMEs may perceive themselves to be in competition with other SMEs or companies that may be in the network and need to be made to feel comfortable working with them. –Many SMEs do not have an IP strategy and need assistance in developing and funding one.

18. SME needs in a Commercialization Context Assistance with advancement incremental financing for the SMEs business by Assisting the banks in understanding the degree of risk involved so they may extend credit outside of their ordinary comfort zone Helping the SMEs work with IRAP and other assistance programs Introducing the company to the appropriate VCs Having the CECR directly assist in funding

19. SME /CECR commercialization success models Examples such as that provided by TECTERRA –Industry Investment Programs provide $100,000 to $500,000 per project, with each project led by a SME focused on solving a critical commercial need. –Investment supported by Recognition of true partnership model where both parties bringing critical elements to the partnership IP support Mentorship where appropriate Expansion of commercialization network Assistance with follow-on funding if necessary

20. Commercialization Success Metrics At present unlike for start-ups metrics on SME involvement and CECR success in assisting with technology commercialization are not kept. Will require data on –Numbers of SMEs assisted and in what areas - Technology Transfer, Financing Mentorship etc. –Success Metrics from the assisted SMEs with respect to value added – incremental sales domestic and export attributable to assistance

21. SME Summary SMEs can be excellent commercialization partners They require more work than large companies to make the finances of a CECR work An SME network can be excellent receptors for technology getting it quickly to markets Insights into success of SME integration into CECRs is an important metric.

22. Advancing Health Technologies Challenges: Product development cycles –Long –Complex –Expensive Regulatory requirements/validation Reimbursement issues PoC bar for partnerships getting higher Early stage funding difficult

23. Advancing Health Technologies Portfolio Focus on Opportunities: Therapeutics (CDRD, IRICoR) Devices (CSII, ClmTeC) Diagnostic supplies (CPDC) Biomarkers (Cepmed, PROOF) Discovery/development platforms (CCRM)

24. Advancing Health Technologies Meeting the early funding challenge: Pooled innovation funds (CDRD, CQDM) Contract research activities: –Platforms –Discovery –Human, animal, veterinary trials Out-Licensing –Biotech –Multinational pharma, diagnostics, devices Spin-off companies/venture capital

25. Direction for CECRS: Need for Strong Business Plans Different technology sectors have different business outcomes However there are common basics tied to commerce –Focus on business strategy –Understanding of market needs –Adequate funding to achieve goals –Execution risks –Ability to recruit experienced business talent Time lines –Things usually take longer –Contingency planning Strong IP management –Importance of patents as a defence –Licencing and expected results

26. Business Talent Commerce requires experienced business talent –Can you hire it –Can you grow it Successful enterprises require skills in: Finance, Marketing, Sales, Operations, Human Resources, as well as technology skills Inter-disciplinary skills are paramount Are these skill sets adequately represented in business plans

27. Demonstrating Economic Impact What is a realistic time line for analysis? Jobs created –What multiplier should we expect –Is this a meaningful measure New companies –Are they sustainable –Are they adequately funded Interaction with Industry –How to measure leverage Internships –Are they cross-disciplinary Societal impact –What are we looking for

28. How the CECR program can work better Governance and operations –Centres should provide regular updates to Business Plans –New applicants and existing Centres should establish baseline data and relevant performance indicators for measuring CECR impacts and outcomes –Financial sustainability: Should still be a goal, while recognizing the priority should be on the economic sustainability of business enterprises supported

29. How the CECR program can work better Maximizing program impacts: –That the NCE Steering Committee and Federal Government review the mandate of the CECR program and its funding levels with a view to maximizing its impact in Canadas larger innovation system –That the CECR program remain flexible with the types of business models adopted by individual Centres. –That CECRs be encouraged to: Involve all participants in the value-chain Collaborate with each other (Where appropriate) Share best practices between Centres