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

2. 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

3. A changing industry? 20032006 Number of firms232239 Years in BP12.859.83 Firm size (% S/M/L)66/17/1784/8/8 Average # products4.56.1 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

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

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

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

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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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)

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

15. Marginal effects – internal factors 20032006 IPn.s.2.37 ** Small firm-2.03 *** n.s. BP R&D exp/BP employee-0.002 * 0.0001 *** 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.-0.70 * Private firmn.s.2.44 ***

16. Marginal effects – external factors 20032006 SRED1.37 *** n.s. Total collaborations0.25 *** 0.12 * Target metn.s.-1.73 ** Target not metn.s.

17. Marginal effects – market factors 20032006 Biochem1.70 ** 4.38 ** Biofueln.s.-2.04 ** Biofibren.s.-3.31 *** Atlantic-0.91 * n.s. SK/MB1.88 ** 3.64 * Alberta2.25 ** n.s.

18. 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

19. 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

20. THANK YOU Any questions?

21. 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