Innovation and Commercialization in the Canadian Bioproduct Industry Pamela Laughland John Cranfield David Sparling University of Guelph

Motivation Industrial biotech an growing area of interest – Shift waste into something of value CND’s resource based gives it a competitive advantage vis-à-vis biomass Product development process is complex Gap regarding commercialization and innovation activities and related drivers Information gap to help policy makers understand better firm’s activities, industry structure and characteristics

A changing industry? Number of firms Years in BP Firm size (% S/M/L)66/17/1784/8/8 Average # products Firms w/ collaborations8480 Firms w/ patents53 Cdn, 34 Foreign66 Cdn, 72 US, 43 EU BP R&D exp/BP employee$12,270$20,464 Total BP revenues$3.1B$1.8B BP revenue as % of total46%48% BP revenue/BP employee$398,633$442,443 Source: Statistics Canada, Bioproducts Development Survey, 2003 & 2006

Primary focus of enterprises Source: Statistics Canada, Bioproducts Development Survey, 2003 & 2006

Regional location of enterprises Source: Statistics Canada, Bioproducts Development Survey, 2003 & 2006

Raising capital Source: Statistics Canada, Bioproducts Development Survey, 2003 & 2006

Raising capital, cont Source: Statistics Canada, Bioproducts Development Survey, 2003 & 2006

Conceptual framework Portfolio of products/projects – add or trim? Uncertain of benefits Maximize CE of portfolio of products under development or on the market – Choose level of hard and soft capital allocated to the respective product/project – Subject to a resource constraint on (hard and soft) capital – Non-negativity constraint on hard & soft capital

Conceptual framework, cont FOC equates net marginal benefits Corner versus interior solution Optimal level of hard & soft capital expressed as a share of overall capital

Conceptual framework, cont Resource based theory of the firm: sustained competitive advantage arises from heterogeneous resources and inimitatability Innovation Internal resources External resources Market conditions

Methods & Data Share of (hard and soft) capital allocated to each product is a latent variable – Map to a count of the number of products Negative bionomial count data model of number of products under development or on the market – Variables capturing internal and external resources to the firm (and how these might be deployed strategically), market environment

Methods & Data, cont 2003 & 2006 Bioproducts Development Survey Internal: IP; firm size; age; BP R&D spending per employee; early/late focus; BP share of revenue; benefits, barriers and strategies for development; private firm External: access capital; SR&ED; collaborations Market: sub-sector of predominant focus; region

Benefits, barriers & strategies 2006 resultsCronbach αExplained variation Product/sales benefits0.8239% Cost/environ benefits0.7021% Technology commercialization barriers0.8135% “Bio-product” specific barriers0.7721% Accessing external knowledge & markets0.7737% Developing internal knowledge & markets0.7212% Likert scale response items 1=low importance, 5=high importance Analyzed using PCA (with varimax rotation)

Benefits, barriers & strategies, cont 1=low importance, 5=high importance

Marginal effects – internal factors IPn.s.2.37 ** Small firm-2.03 *** n.s. BP R&D exp/BP employee * *** Late focus-2.70 *** n.s. BP importancen.s.4.12 *** Product/sales benefits0.52 ** n.s. Cost/env benefitsn.s.1.19 *** Accessing external knowledgen.s.0.68 *** Developing internal knowledgen.s * Private firmn.s.2.44 ***

Marginal effects – external factors SRED1.37 *** n.s. Total collaborations0.25 *** 0.12 * Target metn.s ** Target not metn.s.

Marginal effects – market factors Biochem1.70 ** 4.38 ** Biofueln.s ** Biofibren.s *** Atlantic-0.91 * n.s. SK/MB1.88 ** 3.64 * Alberta2.25 ** n.s.

Take home points From 2003 to 2006, more smaller firms with slightly higher count of products Impact of importance of benefits changed: product/sales versus cost/environmental IP, collaborations & BP R&D expenditure positively associated with count of products Large effects associated with sub-sector & some regional variables

Future work Need to be able to link databases to create panels – Link firms to measure performance in more desirable way – Understand industry dynamics better Distribution of BP importance Network effects Non/semi-parametric analysis

THANK YOU Any questions?

Factor analysis: benefits, barriers & strategies BenefitsBarriersStrategies 1) Environmental/ cost benefits Reduced energy consumption Reduced production cost Reduced envt’l damage Community development 1)Bioproduct specific barriers Unreliable quantity & quality of biomass Higher transportation cost of biomass Higher price of biomass 1)Accessing external knowledge & markets Acquired/used knowledge from industry & public Used scientific databases Entered foreign markets Began new R&D project 2) Product/ sales benefits Increased product range Improved product value/performance Developed new market/products Increased sales/mkt share 2) Tech development barriers Inadequate product certification Restrictions on IP rights Lack of financial capital Regulation Difficulty entering market Lack of skilled personnel 2) Developing internal knowledge & resources Developed firm policies for knowledge/ IP protection Conducted IP audit Developed/encouraged staff education/upgrading