Globe and Mail: Bio + Nano = a whole new sector

The following article was published by the Globe and Mail on March 12.

Nanotechnology (the manipulation of matter on a molecular or smaller scale) and biotechnology (the manipulation of living matter) are both hot fields of innovation. Combine the two, and you have a whole new business sector, according to a new study led by a Simon Fraser University researcher.

From stem cell medicine to biological computers, this combination is a rich breeding ground for new ventures, says lead study author, Elicia Maine, academic director of the management technology MBA program at the Beedie School of Business at Simon Fraser University. The study, done in collaboration with the Massachusetts Institute of Technology and the University of New South Wales, is called Global Bio-Nano Firms: Exploiting the Confluence of Technologies. It identified, classified and analyzed more than 500 of the world’s first companies in the emerging bio-nano sector.

The study found that, between 2005 and 2011, the number of bio-nano firms nearly doubled to 507, with more than 100 of them emerging in North America, according to Simon Fraser University.

“This confluence of technology silos in the emerging bio-nano sector is enabling radical innovation, new products and connections that didn’t exist before. Some of the things we’re talking about are targeted drug delivery, tissue engineering, enhanced medical diagnostics and new therapeutics,” Dr. Maine said in a news release.

One example of a bio-nanotech company is Nanosphere, an Illinois firm that makes a rapid test for a life-threatening infection – sepsis – using nanotechnology and nucleic acids. Past methods of treating the condition usually took at least three days.

“The patient can die over that time period,” Dr. Maine said. Nanosphere’s approach uses nanoparticles to detect the bacteria, cutting down the diagnosis to just a few hours.

The firms engaged in bio-nano research and development range from startups to large, multinational companies. Along with her collaborators, Dr. Maine is working to identify the factors in a company that lead to innovation – or hurt it.

“We notice that … bio-nano ventures – those formed around the integration of these technology fields – often have founders who have dual competencies themselves in these fields,” she said.

“They are small enough to have all of their scientists and engineers work in close proximity and discuss their research.”

Dr. Maine has identified the main challenges companies in this emerging field face, depending on their size.

Small companies: Falling behind on new research

Scientists working in startups not only have to trade away job security, but they also must keep up with their field while simultaneously working a demanding day job.

Funds are scarce in small companies, making travel for a conference hard to justify when there is barely enough money for office rent. Working hours are also long, robbing researchers of spare time to read the journals they kept up with in school.

Most biotechnology and nanotechnology research in Canada happened at universities, according to Dr. Maine’s research. To her, this means that the answers for startups lie no further than the local university.

“I would go to my local university, or the best university within close striking range, and look for labs or institutes that are open to industry collaborations. Usually they do have a yearly event [for companies to participate in], and I think that is often enough.”

Medium companies: Venture capitalist demands

Once a company breaches $5-million in revenues, a funny thing happens. Patents have narrower applications, and the portfolio of patents also tends to shrink. This dip happens around the same time that a lot of companies seek financing to grow.

Dr. Maine says this “adolescent firm” dip – which applies to companies between $5-million and $25-million in sales – may occur as venture capitalists force the firms to narrow the diversity of the portfolio.

As the financial backers are looking for a lucrative exit to their investment, the companies could be directed to shift into fields guaranteed to turn a profit.

“They’re forced to abandon some of their diversity to get financing,” Dr. Maine said.

To counteract this, she recommends that companies split their fields of research into separate branches or even separate companies, and focus on platforms that would cross several industry sectors. This would maintain the narrow focus venture capitalists demand while still allowing for collaboration.

An example is NanoGram Corp., a California company that maintained verticals in medical devices, consumer electronics, telecommunications and solar alternative energy. The firm’s research attracted a purchase from Japan’s Teijin Ltd. in 2010.

Medium and large companies: Lack of funding

Venture capitalists impose external demands on the company, but the money is badly needed. In Canada, however, there isn’t enough of it. And the tough business environment is straining the budgets of funding firms around the world.

Worldwide risk investments in Canada fell 22 per cent in 2012 to $380-million, according to the CVCA, Canada’s venture capital & private equity association, although overall investment held steady with 2011 at $1.5-billion.

Still, the 2011 Review of Federal Support to Research and Development – also known as the Jenkins Report, named after its chair Tom Jenkins – noted that risk capital for research-intensive companies is much smaller in Canada than in the United States.

Canadian companies are therefore often forced into looking for a lucrative buyout – often from a foreigner.

Dr. Maine points to Alberta as being on the right track to provide direct funding for companies in this stage.

Large companies: Keeping innovation alive

Radical innovation, according to Dr. Maine’s patent counts, happen disproportionately often at smaller companies. The large companies may be profitable, but years of shareholder and investor demands – and the sheer size of the firm – often make managers resistant to change.

This and “disruptive innovation” are things that large companies are notoriously bad at, Dr. Maine says.

Yet innovation is quite possible even in multinationals. The development of the transistor in the 1940s partially took place at Bell Labs, a large research arm of AT&T, Dr. Maine points out. It happened because management purposely put people from different research groups in the same room.

“When [senior manager] Jack Morton at Bell Labs said he needed a major breakthrough, he had physicists and material scientists working side by side to explore tacit knowledge and things they couldn’t communicate,” she said.

“Through that new, radical innovation a whole new industry in consumer electronics emerged.”

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