Biotechnology spinoffs: Transferring knowledge from universities and government labs to the marketplace

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by Charlene Lonmo

When an existing firm decides not to commercially develop a discovery, enterprising entrepreneurs may establish a spinoff organization to pursue the venture. Of the 532 biotechnology firms in Canada in 2005, 179 reported that they were spinoffs from another organization

About this article
Findings
References
About the author

About this article

Spinoffs are firms that have been established by entrepreneurs and have a strong connection to another organization. These entrepreneurs identify discoveries with economic potential that the originating organization chooses not to pursue. The technology may not be pursued because commercialization is outside the mandate of the organization (in the case of universities, hospitals and government labs) or because it is outside the core competence of the organization (in the case of other firms). The Biotechnology Use and Development Survey (BUDS) 2005 defined spinoffs as “new firms created to transfer and commercialize inventions and technology developed in universities, firms or laboratories.”

Findings

Human health sector leads

Of the 532 biotechnology (biotech) firms in Canada in 2005, 179 reported that they were spinoffs from another organization (Table 1). The human health sector had the highest number (132) and the highest proportion (43%) of spinoffs, followed by agriculture and food processing. The vast majority of all biotech spinoff firms originated from public research organizations and not from businesses, biotech or otherwise. These trends mirror data from the BUDS 1999¹ when 34% of 358 biotechnology firms were spinoffs, found primarily in the human health sector and originating from public research organizations.

Table 1
Biotechnology spinoffs, by originating organization and sector

Spinning out

Spinning out divisions of large corporations as technologies or market conditions change is an established practice (Malecki, 1981).  Spinoffs from public research organizations are a more recent phenomenon that seems to have paralleled changes in intellectual property rights to publicly funded research. Today it is not unusual to have small teams of graduate students or professors establishing small firms to try their hand at commercializing their scientific discoveries—or at least moving a discovery toward the market and selling a more developed idea whose potential can be more easily measured.

Spinoffs

Table 2 shows that biotech spinoffs tended to be newer firms, in operation an average age of 8 years, compared with 17 years for non-spinoff firms. The proportion of Canadian-owned and publicly traded firms did not vary significantly between spinoff and non-spinoff firms.

Table 2
Selected characteristics of biotechnology spinoffs and non-spinoffs

Average biotech employment was not strikingly different. Spinoffs averaged a total of 32 part-time and full-time biotech employees, whereas non-spinoffs reported 22. These figures become more interesting when compared with the total employment of these two groups of firms. For spinoff firms, almost all of their employees were biotech employees (32 out of 35), whereas for non-spinoff firms, only 10% of their employees were biotech employees (22 out of 228). This indicates that spinoff firms are much more focused on biotechnology than non-spinoff firms, with a far greater concentration of effort on biotechnology-related activities. This concentration of employees in biotechnology-related activities in spinoffs was also observed in the 1999 data.

Spinoffs were generally less likely to report biotech revenues—and less likely to report any revenues—than non-spinoff firms. Only 59% of all biotech spinoff firms reported biotech revenues, while 73% reported revenues from some other source. Figures for non-spinoffs showed a similar ratio, with 11% of firms reporting only non-biotech revenues, but the overall proportion of firms with revenues was higher at 87%. Average biotech revenues of spinoff firms were equal to their biotech research and development (R&D) expenditures, whereas non-spinoffs’ biotech revenues were more than three times greater than their biotech R&D expenditures.

With average biotech revenues equaling average biotech R&D spending, it is not surprising to see that almost two thirds (63%) of all spinoffs sought financing in 2005 and a similar proportion planned to seek it in 2007. Figures for non-spinoffs were considerably lower, with only 36% seeking funds in 2005 and a similar proportion planning to seek funds in 2007.

Spinoffs differed from non-spinoffs in terms of their rates of collaboration as well. Spinoffs were more likely to collaborate with foreign organizations and more likely to collaborate in general. There was not as large a difference in the proportions collaborating only with Canadian partners (23% of spinoffs versus 17% of non-spinoffs). Finally, the proportion of firms using patents was significantly higher for spinoffs than for non-spinoff firms.

The big picture

Spinoffs tend to be smaller firms, with a concentration of activities related to biotechnology. Many are in a transition period as they shift ideas from public labs to the market. Higher rates of collaboration and patenting may be the result of a need to establish business credibility to counter their lack of years of experience and their tendency to report no revenues. Their average biotech R&D expenditures equaled their average biotech revenues and they were much more likely to be seeking non-revenue funding, perhaps by using patents as valuable assets that can be sold in the market to grant at least some measure of security for those providing funds.

References

Byrd, Craig A. 2002. "Profile of Spinoff Firms in the Biotechnology Sector: Results from the Biotechnology Use and Development Survey – 1999". SIEID Working Paper Series, Statistics Canada Catalogue no. 88F0006XIE (accessed January 25, 2008).

Malecki, E.J. 1981. “Science, technology and regional economic development: Review and prospects.” Research Policy. Vol. 10, no. 4. p. 312–334.

About the author

Charlene Lonmo is with the Science, Innovation and Analysis Division (SIEID), Statistics Canada.  For more information about this article, please contact sieidinfo@statcan.gc.ca.

Note

1. For all data from the Biotechnology Use and Development Survey (BUDS) 1999, see Byrd (2002).