The Last Word

Peter Pekos, CEO, Dalton Pharma Services

Faltering in

the CritiCal Step

In the part of Canada where I live, you can always count on the apple blossoms blooming in the first week of May. I look forward to it not only because of the freshness of their beauty but also because of the promise of harvest that they bring.

A few years ago, I asked a friend who is an apple grower and has good reason to be concerned about his harvest, what he worries about most in the cycle from blossom to picking.

“The weather after the blossoms appear is the critical step,” he said. “If it is too cold or rainy the insects won’t be out and the conversion from blossom to tiny fruit will be way down. Once the little apples get started, I can manage everything else until the picking starts”.

Our industry is similar in many ways. The blossoms still come out year after year. As the CEO of a drug development and manufacturing services provider for the global industry, as the chair of one of Ontario’s newest Research and Innovation Centres (Venture Lab, York Region’s Regional Innovation Centre), and as an angel investor (who has won, lost and broke even), I have the privilege of seeing a wide variety of extremely promising opportunities in their early stages. Tragically, we are faltering in the critical step of converting these opportunities into projects far advanced enough for Big Pharma to take over. I don’t know who first called this step the “Valley of Death”, but the term is very appropriate.

At present, Biotech is not able to attract the venture capital on the scale needed to refill the pipeline emptied by the continuing exit of Big Pharma from early stage R&D. Governments have been taking measures to fill the gap, and I applaud these initiatives. A high profile example is British Columbia’s Centre for Drug Research and Development (CDRD), a national Centre of Excellence for Commercialization and Research. CDRD has been able to attract $3 million in funding from Pfizer for an innovation fund to fast-track the commercialization of promising projects. Because organizations of this type are so important in sustaining our industry, I believe that we should do everything possible to maximize their efficiency and their return on public investment. Toward this end, I have put forward four suggestions below:

1. We must look for best practices by studying other countries and global regions. 2. Government support must be non-partisan. 3. Government support should be “non-egalitarian” (focused, not evenly spread). 4. We must encourage early stage funding for new ventures.

I have advocated studies of models in other jurisdictions on many occasions in the past. This should not only be done before a new centre or tech transfer body is created, but also an ongoing exercise of benchmarking and review after it is well established. Models should include both newer initiatives, such as the one in the Australian province of Victoria, and older ones such as Max Planck Innovation, which since 1979 has overseen a total of about 3,300 inventions from various Max Planck Institutes. In 1990, Max Planck Innovation began its professional support of spin-offs, and since then has been involved in 92 spin-offs. Almost half of these have been in the life sciences, including Sugen Inc. (acquired by Pfizer) and U3 Pharma AG (acquired by Daiichi Sankyo).

Removal of partisan politics and egalitarian principles from government involvement is as difficult as it is necessary. The two are of course intertwined and in many ways part of our Canadian culture. Using funding as a political tool is not only a temptation, it is a tradition. How can we develop aligned federal, provincial, and local programs in a system governed by partisan thinking? When political priorities favour the short term, how can we move to the longer time horizons that we need?

Of course spreading public money more or less evenly across federal and provincial regions seems like the fair thing to do. But we want our centres of excellence and bioscience industry clusters to be world class, and this will not happen if government investment is spread too thinly. The practical approach is to focus on the leverage of existing strengths where they are already located, rather than try to develop similar levels of high expertise in areas sprinkled across the country.

To prevent early stage ventures from disappearing forever in the Valley of Death, we must do everything possible to encourage investment by angel investors or mezzanine venture capitalists. In addition to compelling tax incentives, we should create matched equity investment programs that are managed by industry professionals.

In public/private investment intended to fill the early stage gap that we face, choosing winners is an uncertain undertaking at best. My experience is that we need to look at the big picture over the long term, and celebrate and publicize the success of the harvest. This is what encourages new investment. The failures can help us learn, if we let them, by guiding the refinement of government programs. Michael Jordan is one of the most celebrated basketball players of all time. Did he have failures? He once said that in his career he missed more than 9000 shots, lost almost 300 games, and on 26 occasions missed the game winning shot he was trusted to make. “I’ve failed over and over and over again in my life”, he said. “And that is why I succeed.”

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