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MaRS Innovation revolutionizes approach to commercialization

 

MaRS Innovation (MI) is attracting global attention—and global investors—for a novel model that solves the three biggest challenges to early-stage commercialization: generating robust deal flow, financing young companies and recruiting experienced entrepreneurs.

“I call it the three ‘Ms’: merchandise, which is the deal flow and intellectual property, the money and experienced management,” says Raphael Hofstein, president and CEO of MI.

MI was launched in 2008 as a Centre of Excellence for Commercialization and Research (CECR) to improve how discoveries from academic institutions in the Greater Toronto Area (GTA)— one of the world’s largest innovation hubs— get translated into new products and services, globally competitive companies and highly skilled jobs. Part technology accelerator and part seed investor, MI’s innovative model has brought $150 million in new investments, 300 new jobs and 40 new companies to Ontario.

“When we dealt with MI it was more like the experience we have with a seed financer or early stage investor. They make doing business with them quite easy,” says Ilan Zipkin, senior investment director at Takeda Ventures, Inc., in Palo Alto, CA, the venture capital arm of Japanese-headquartered Takeda Pharmaceutical Company.

As any angel investor or venture capitalist will tell you, one of the main ingredients for success is a steady flow of promising business opportunities. Coming up with a critical mass of deal flow is a challenge for a single university, even one as large as the University of Toronto which ranks among North America’s leaders in new invention disclosures.

In a good year, a large university may identify 100 promising academic discoveries, with about 10 selected for further development and perhaps a couple maturing to the point where they can be licensed or spun-off into a new company.

“Good luck trying to build a sustainable business around two opportunities a year,” says Dr. Hofstein. “That’s why MaRS Innovation was formed. We’ve found the right balance between quantity and quality. It’s a revolutionary change in addressing the challenges of traditional academic tech transfer and it is a model for others to emulate.” Several international delegations have visited MI to learn about its model, including groups from California, the U.K. and Japan.

MI is the largest commercialization initiative of its kind in Canada, and provides an easy gateway for investors and licensees interested in accessing the most commercially promising intellectual property from 15 Toronto-area universities, hospitals and research institutes. The model creates a robust deal flow and streamlined approach to advancing both the technology and its business case.

MI staff work with academia, industry, venture capitalists, angel investors and government to commercialize inventions with the highest potential, using a technology assessment process backed by solid market analysis, technical knowledge and business acumen. That process includes assessing, filing and protecting intellectual property, and developing and executing a business plan. MI also provides proof of principle funding to prepare the technology for more advanced financing (e.g, a Series A venture capital funding round), and has attracted investment levels typically seen in the U.S.: between $10 million and $30 million, as opposed to the less-than $5 million typically seen in most Series A investments in Canada, particularly for health technologies.

“We have brought the GTA system to the level of the big leaders, comparable to what you would see in the Silicon Valley and Boston clusters,” says Dr. Hofstein.

Proven technologies are either licensed or spun off into new companies, often led by MI staff, with licensing fees, royalties and/or equity returns flowing back to MI and its members. Other inventions are blended or packaged together to make them more attractive to investors.

“You won’t find too many jurisdictions in the world where you have this level of cooperation and collaboration within academia,” says Dr. Hofstein. “It has enabled MaRS Innovation to assess close to 300 inventions each year. In the end, we may end up with 15 that are spun off into companies or licensed annually, which is enough to start building a very powerful portfolio. I truly believe this is the only way commercialization can become meaningful.”

Bridging the financing “valley of death”

A key ingredient to MI’s success has been its ecosystem approach to early-stage financing. For example, its Strategic Industry Partnerships see six major pharmaceutical companies (Johnson & Johnson, GlaxoSmithKline, Pfizer, Merck, Baxter and LifeLabs), together with MI, identify, fund and advance early-stage technologies. In return for their investment, partners receive a “first look” at data from the project to facilitate further licensing discussions. This partner funding can also leverage money from other sources, such as the Ontario government or Genome Canada.

“Our Strategic Industry Partnerships address the shortage of pre-seed financing in Canada—that infamous valley of death between research and market—and helps lower the risk of technology advancement by sharing the costs with industry. It’s also an opportunity to engage industry in what we do in the early stage,” says Dr. Hofstein.

In addition, MI leverages funding and support from other commercialization centres and accelerators, including three CECRs it helped found: the Centre for Commercialization of Regenerative Medicine (CCRM), the Centre for the Commercialization of Antibodies and Biologics (CCAB) and the Accel-Rx Health Sciences Accelerator, a partnership between five CECRs and BDC Capital that provides up to $500,000 in seed capital.

In February, Accel-Rx, BDC Capital, MI and other partners invested $2 million in ScarX Therapeutics, a spin-off of MI and Toronto’s Hospital for Sick Children that is commercializing a topical prescription cream developed by orthopedic surgeon Benjamin Alman. The cream promises to treat and prevent scars following surgery. The investment will allow ScarX to complete a Phase 1 clinical trial of its lead candidate, SCX-001 and position the company for Series A financing.

Since its launch, MI has assessed over 1,500 technology disclosures, invested $22 million in 169 projects, secured $159 million in external investment ($95 million from outside of Canada), created 370 jobs, and launched 41 companies and more than 80 technologies across several sectors, from drug development, molecular diagnostics and medical devices to solar energy, water reclamation and mobile apps. As part of its mandate to achieve self-sustainability, MI takes a 25 percent equity stake in its portfolio companies, equity that will later be converted to revenue to finance MI’s operations and future investments.

Another MI life sciences company is Encycle Therapeutics, a Toronto biotechnology start-up founded by Andrei Yudin of the University of Toronto and developed in partnership with MI and Montréal-based CQDM. The company has developed a unique drug discovery platform that offers a fast, inexpensive and industrialized way to synthesize new orally available macrocycle drugs for attacking “undruggable” diseases such as inflammatory bowel disease and fibrosis.

In 2015, Encycle closed a $3-million financing round that included Takeda Ventures, Accel-Rx, BDC and the MaRS Investment Accelerator Fund.

“Just having the promise of a technology isn’t enough to attract investors,” says Encycle president and CEO Jeffrey Coull, a serial entrepreneur and neuroscientist. “The funding from MaRS Innovation and a few other entities allowed us to collect the data needed for patent protection and to demonstrate to investors that the technology can do what we say it can do.” That seed funding improves Encycle’s chances of attracting an additional $20 million in Series A funding in 2016 to move the technology into human clinical trials.

Dr. Coull also credits MI for its approach to bringing on board experienced managers, something Dr. Hofstein insists is usually “far more significant than even the technology.” Dr. Coull says the centre helps “de-risk the opportunity” by offering executives the chance to lead other MI portfolio companies if the first spin-off doesn’t work out.

“MaRS Innovation really has the right approach,” says Dr. Coull. “It is focused on entrepreneurs and small companies and developing a technology until it’s mature enough to license or transfer to a larger corporation.”

Takeda’s Dr. Zipkin agrees. He says MI made Encycle an even more appealing investment by advancing the technology, protecting the intellectual property and bringing in experienced management.

“Without that initial seed capital, without the physical infrastructure, without the people at MaRS Innovation working with Andrei (Yudin) and the founders to pull together a team, the company may not have happened,” he adds.

Return on investment within reach

MI forecasts that its lead companies and assets will begin generating meaningful revenues in 2019, notably through milestone and royalty payments from major licensees such as GE Healthcare, GS Dunn, 3M, LapCorp and Pfizer. Triphase Accelerator Corp., a biotechnology company in MI’s portfolio developing a lead candidate to treat multiple myeloma, is also positioned to generate revenue within that period through its strategic partnership with global biopharma company Celgene.

Dr. Hofstein says he’s optimistic that continued support from the provincial and federal governments can be secured until MI’s revenues begin to flow.

“Our end goal is to become financially independent, but that will require continued government investment for the next five to ten years,” says Dr. Hofstein. “We now have the deal flow in place and it’s reaching maturation. The model works. We’re proving it every day.”