URGENT: Managing Innovation Assignment

12 T H E P R A C T I C E O F I N N O V A T I O N

The founders of Genesis Genomics first moved

beyond the world of science into the world of business

by doing what comes naturally to serious innovators:

they made an investment. What was that very first

investment? Their Sunday afternoons.

There were seven or eight founders, depending on

whom you ask. Among them were scientists from

Thunder Bay’s Lakehead University, the University of

Newcastle School of Medicine, the Northwestern

Ontario Regional Cancer Centre, and medical practi-

tioners. Each were involved in some aspect of molec-

ular research. One day, in a lab, a group of these

researchers and scientists started throwing guesses

around about a subject all of them were passionate

about: what kind of investment might be needed to

come up with a DNA-related early diagnostic test for

various kinds of cancers, and how long it would take

to do in a normal university research environment.

The consensus was seven to ten years and $77 million

— an amount they all knew was well beyond what they

would ever get access to within the confines of aca-

demic circles. They knew they had good science to

develop, based on their work with mitochondrial DNA

(mtDNA). The group thought they might even have sci-

ence to sell, so when someone said, “Let’s form a

company,” there was general agreement.

GENESIS GENOMICS INC.

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As Bob Thayer, one of those scientists and now

Genesis’s CEO recalls, “It is very questionable now

how serious we really were when we made that state-

ment. But why not? We were confident. Confidence,

of course, is what you have before you understand

a situation.”

None of the group had any business experience. Their

career experiences were all in academia and science.

They were very creative people who had made some

fascinating discoveries, but they had done so within

the confines of what Thayer admits had always been

“a safe setting.”

13 S E V E N C A N A D I A N F I R M S I N P R O F I L E

Gestation

The group started getting together on Sunday after-

noons in the spring of 2000 at Thunder Bay’s

Northwestern Ontario Regional Cancer Centre, pon-

dering how to convert science into commerce. Their

mission? To develop a diagnostic tool for the DNA

level that could revolutionize the battle against cancer

on a global scale.

They found out that Lakehead University had recently

established an Innovation Management Office, which

had a mandate to encourage the transfer of academic

G enesis Genomics Inc. is a cutting-edge biotechnology company originating and operating in Thunder Bay, Ontario, with strategic partners in Europe and the United States. Genesis Genomics’ mission is to develop DNA-based detection

tools with extreme sensitivity to the presence of a myriad of diseases caused by alterations in DNA — the blueprints of life. Its main initial focus and efforts are directed against cancer: specifically, prostate and skin cancer. It is a spin-off company based on research being done at Lakehead University, and the only one of its kind in the world focussed on mitochondrial DNA for cancer detection. For more information, visit www.genesisgenomics.com

“We want to find the IEN cells [precursors to tumor cells] before

these cells even transform into tumor cells.

We want to tell you whether a disease is

stalking you. We want to eradicate the

process of radiation therapy and

chemotherapy as much as possible.”

Bob Thayer, CEO

technology breakthroughs to the private sector.1 The

group invited Barbara Eccles, a lawyer who had been

appointed as the office’s Technology Transfer Officer,

to their next Sunday meeting, and made their scien-

tific pitch, which was, in a nutshell:

■ Mitochondria, which contain enzymes needed for

respiration and energy production, are structures

found in DNA-containing cells.

■ MtDNA is less complex than the DNA found in a

cell’s nucleus — it contains fewer than 17 000 base

pairs instead of 3 billion.

■ MtDNA is, therefore, far less expensive and time-

consuming to analyze than nuclear DNA.

■ Changes in nuclear DNA, such as those that occur

when cancer starts to alter cell structure, are com-

municated at a very early stage to the adjacent

mtDNA.

■ MtDNA, therefore, serves as a shortcut, or an

index, to the workings of the nucleus, and can be

an indicator of the health of nuclear DNA.

■ By studying sequential changes in mtDNA in sam-

ples taken from biopsies, and blood and other

body fluids of volunteers who 1) show no clinical

signs of cancer, 2) are in early stages, and 3) are in

late stages, researchers should be able to detect a

pattern similar to a road map of genetic change.

■ If this road map is accurate, health care practition-

ers should be able to compare a person’s mtDNA

with the road map to discover whether DNA taken

from a patient’s lung, breast, prostate or other body

part is similar to cancer-free mtDNA, precancerous

mtDNA, or mtDNA of more advanced stages

of cancer.

If the assessment is done early enough, doctors may

be able to treat patients before cells become cancer-

ous. That would amount to a “genetic physical” —

testing body fluids in search of changes in a person’s

genetic code, in the hope of pre-empting mutations

into cancerous cells.

In Thayer’s words, “We want to find the IEN cells [pre-

cursors to tumor cells] before these cells even trans-

form into tumor cells. We want to tell you whether a

disease is stalking you. We want to eradicate the

process of radiation therapy and chemotherapy as

much as possible.” This is what Thayer and the others

told Eccles. Their plan was to start with tracking

prostate cancer, and move into other major cancer

fields, including skin, breast, cervical and lung cancer.

Eccles, to their relief, was excited. She foresaw the

promise of the very first commercial science spin-off

nurtured to a significant extent at Lakehead

University. “If the concept works, it has the potential

to change the face of diagnostics around the world,”

says Eccles.

But, if Eccles’ response represented a great moment,

it was a moment that signaled the beginning of years

of hard work. The founders now had to face the

unknown world of business, a world that over the next

two years would sometimes seem almost as difficult

to unravel as DNA itself. Their first job was to turn

scientific theory into something that could be

demonstrated as a workable detection tool.

14 T H E P R A C T I C E O F I N N O V A T I O N

“Mitochondria, which contain enzymes needed for respiration and

energy production, are structures

found in DNA-containing cells.”

1. The Innovation Management Office of Lakehead University was funded in early 2000 with a $1-million grant from the Natural Sciences and Engineering Research Council of Canada’s (NSERC) Intellectual Property Management Program, which is aimed at stimulating the trans- fer of university-based research and development to the marketplace. The program is funded through NSERC, the Social Sciences and Humanities Research Council of Canada, and Canadian Institutes of Health Research. Genesis Genomics was assisted by the office’s Start- Up Company Program.

Eccles’ critical role was to take this group of scien-

tists, help them define the idea, determine what the

product was, evaluate the concept, and assess

whether it was a licensed technology, or whether there

was real potential for a spin-off venture. After that, she

helped them find management, work through the

business planning process, schedule activities and

determine how much financing was needed.

“Genesis is like putting together a puzzle. We know

what we want it to look like in the end, but we need a

lot of pieces to pull together,” says Eccles.

Another important thing Eccles did was help sort out

the intellectual property (IP) ownership issues associ-

ated with the rights of seven or eight researchers and

Lakehead University. The university’s IP policy specifies

that researchers own the IP rights to their research, but

that the university has the right to share in profits from

its commercialization or sale. Instead of exercising that

right with the Genesis Genomics team, the university

chose to become a shareholder in the numbered hold-

ing company in which members of the research team

all vested their individual IP rights. In turn, the holding

company licensed the IP to Genesis Genomics.

Moving Science and Commerce Through Their Start-Up Phases

In the fast-moving world of biochemistry, the Genesis

founders knew that they had to move forward quickly

on both the scientific and business fronts. While incor-

porated in June 2001, Genesis would remain a busi-

ness without a product until it had scientific

“proof-of-concept” — testimony from third-party

peers that it had a product of proven medical value.

This would also prove it had commercial value.

As with most businesses, personal skills were critical,

which is why Thayer was named acting CEO. The

company knew that it would eventually need an expe-

rienced CEO to impress the venture capital commu-

nity, but, in the early going, Thayer had some obvious

qualities that helped the company on both the scien-

tific and business levels.

15

“Genesis is like putting together a puzzle. We know what we want it

to look like in the end, but we need

a lot of pieces to pull together.”

He had represented Canada at the 1968 Olympics in

Mexico City as a wrestler, and had gone on to coach

Canada’s 1976 and 1980 Olympic wrestling teams. He

was the country’s national wrestling coach for two

years, and coached both football and wrestling at the

university level. Here was a man who knew how to

communicate, and motivate.

In the words of Genesis Genomics’ vice-president

Ryan Parr, “Bob is a really good people person.

Whenever he negotiates with physicians, he is able to

engender a lot of excitement and confidence.” Thayer

also had a PhD in kinesiology and biochemistry, and a

research interest in mtDNA mutations associated with

aging and prostate cancer.

Parr, with a PhD in biological anthropology and more

than 20 years of research experience in recovering

and sequencing mtDNA (paleo-DNA), and in the prob-

lems of cancer becoming resistant to drug therapy,

became the vice-president of research. The company

also added two key shareholders and scientists to the

team during the early development stage, to move the

science forward and develop the IP. Mark Birch-Machin,

a biochemist and leading skin cancer researcher from

the United Kingdom and Keith McKenney, a prominent

molecular biologist and bioinformatics specialist from

George Mason University in the United States.

Getting doctors, and their patients, to help out was

crucial. While there was no visible commercial com-

petitor on the horizon focussing on detecting cancer

through the use of mtDNA, the Genesis founders

knew that, in the exploding field of biotechnology,

time was of the essence. Northwestern Ontario doc-

tors from the Thunder Bay Regional Hospital and the

Northwestern Ontario Regional Cancer Centre

responded brilliantly. At the start of 2003, the new firm

had more than 100 patients participating in its initial

sequencing in prostate cancer.

The company also needed labs for its scientists, and

facilities to house its nine employees. Fred Gilbert,

president of Lakehead University, sped up construc-

tion of facilities so the new company could be housed

in the university’s new Northwestern Ontario

Technology Centre, which is next to some of the top

biotechnology research facilities in North America. The

university structured the final phases of the centre’s

construction around the needs of Genesis Genomics.

It also gave Thayer time off from teaching for nine

months to work on developing the spin-off company.

So quickly has the science begun moving from theory

to proof-of-concept that Parr estimates Genesis will

have that proof well before the end of 2003, and could

well have a product ready for the marketplace within

three years.

Parr feels that having a small home town has helped.

“It might have been harder to do what we did in a

small region, but at the same time, it is easier to get

access to business leaders. And we got lots of busi-

ness advice and mentoring from them and attracted

some of their investment,” he says.

The Business Side of Genesis Genomics

“At the end of the day,” says Thayer, “this is a busi-

ness and, as much as we’re committed to the

research, and excited about the research, we’ve got to

be successful as a business in order to survive, in

16 T H E P R A C T I C E O F I N N O V A T I O N

order to accomplish the science. And that’s a pretty

stark reality when you’re used to working in a univer-

sity … we had very limited business skills … . I shouldn’t

say limited — probably none.”

The first biotechnology company in Northwestern

Ontario (and still one of only two), Genesis quickly got

some very helpful people and institutions on its side

from right in Thunder Bay. To start, instead of haggling

over patent rights and how big a share it would take

in the company, Lakehead University settled for a

10-percent ownership. Eccles continued to work

feverishly on the company’s behalf, signing on as

Genesis’s vice-president of corporate affairs. Local

business leaders were also extremely helpful, offering

both advice and contacts that brought in seed invest-

ment money from other parts of Canada and abroad.

Genesis also brought in a retired senior partner from

Ernst & Young, Ken Bruley, as their chief financial offi-

cer, and benefited from the university’s appointment

of Bruce LaBelle, a senior investment advisor from

BMO Nesbitt Burns Inc. and a member of the univer-

sity’s board of governors, as its representative on the

Genesis board of directors. But the company’s lead-

ers knew they would have to go beyond Thunder Bay

for both expertise and to forge alliances.

From the beginning, the founders decided to focus on

what they knew well — sequencing a genetic map —

and get outside help to ensure they ended up with a

top-flight business plan, tight patent protection, and a

marketing ally who could produce the diagnostic

hardware to apply their science in doctors’ offices and

hospitals around the world.

To develop a business plan, Genesis’s founders

worked with Ernst & Young’s Toronto office for about

five months. When they sought advice from a knowl-

edgeable professor on where to seek patent assis-

tance, she pointed them again to Ernst & Young.

Putting the initial patents in place took six months.

Two of Genesis’s principals borrowed $50 000 from a

local bank to finance the $15 000–20 000 cost of the

business plan and to pay for the initial patenting

processes.

As for an international marketing ally who could pro-

vide them with the technology that would make their

data useful, Thayer said that Genesis went hunting

early on. “We started identifying potential partners,

because we really didn’t want to duplicate something

that already existed and we wanted to focus on our

core competence — research in the area of disease

diagnosis, and development of the information data

base.” After more than a year and a half of negotiat-

ing, Genesis entered an agreement to provide German

medical devices giant MWG-Biotech Inc. with the

necessary genomic data to deliver the diagnostic

tools. “They already have the technology in place,”

Thayer says. “We are negotiating to bring it in-house.”

Funding and Managing

Bridging capital was obviously needed to move to the

proof-of-concept breakthrough the company is count-

ing on before the end of 2003 — the company’s target

being spring 2003.

The federal government’s Industrial Research

Assistance Program (IRAP) was one of Genesis’s early

supporters, providing $133 000 in funding following

17 S E V E N C A N A D I A N F I R M S I N P R O F I L E

“We started identifying potential partners, because we really didn’t

want to duplicate something that

already existed and we wanted to

focus on our core competence —

research in the area of disease

diagnosis, and development of

the information data base.”

featuring a chief financial officer, vice-president

research, vice-president business development, vice-

president corporate affairs, and a comptroller, meets

every two weeks and deals with day-to-day issues.

“We want to run ourselves like a publicly traded

company,” says Thayer, “because that’s what we want

to be.”

The Future

The immediate goal for Genesis is to reach the proof-

of-concept stage with its science. Then there’s

attracting the next round of financing to take proof-of-

concept to market. Genesis will be looking to attract

$30 million over the next three years, if its results are

promising. The company also wants to attract a per-

manent CEO with a solid track record in the business

community, and recruit more board members with

business experience.

Finally, it will be important for Genesis to investigate

which would be the best strategic alliances. The deci-

sion on which company Genesis signs up with to pro-

vide a platform for delivering the DNA resequencing

system will be crucial, as will the capacity of any

18 T H E P R A C T I C E O F I N N O V A T I O N

an arduous evaluation process. More important than

the money IRAP provided was a side effect: the

National Research Council Canada (NRC) did due dili-

gence to ensure that an IRAP investment in Genesis

made sense, meaning that Genesis emerged from the

process with the equivalent of an early NRC seal of

approval — always useful for attracting investors.

Genesis also presented its business plan to the board

of directors of Thunder Bay Ventures, a Community

Futures Business Development Corporation, which

came through with $125 000 in equity financing.

FedNor, the regional development agency for

Northern Ontario, put in $875 000 in September 2002,

and 20 private angel investors added more funds.

By October 2002, the company had attracted about

$2.5 million of the $3.3 million it hopes to raise from

investors to get from the science stage to proof-

of-concept.

A management team also had to be put in place to

solicit funding, plan strategies and make day-to-day

company decisions. By early 2003, Genesis had a

board of directors, a scientific advisory board and

a management board. The management board,

“A lot of scientists around the world share our

confidence in the potential

of mtDNA to answer some

very important questions

about diseases. So the risk

is manageable. ”

For a spin-off company, you have to come to the real-

ization that ‘business is war,’ and that’s just part of the

learning process,” says Parr. But, add the two

Genesis founders, without all the support and cooper-

ation they received from the local community, the uni-

versity, local investors, government offices, and local

doctors, the journey may not have been possible.

Genesis Genomics Inc.

1294 Balmoral Street, Suite 310

Thunder Bay ON P7B 5Z5

Canada

Telephone: (807) 346-8100

Fax: (807) 346-8105

Web site: www.genesisgenomics.com

E-mail: [email protected]

partner to market that system. In February 2003, the

firm announced a collaborative venture with NEUREKA

Research, a Sudbury, Ontario research organization

with experience in clinical trial procedures and exper-

tise in coordinating approvals with organizations such

as the United States Food and Drug Administration.

In November 2002, Genesis was named one of the

three most promising businesses in Canada after

being assessed as part of the University of Toronto’s

Innovation Foundation National Innovation Challenge

Business Plan Competition. The forecasted sales

potential for Genesis Genomics is in excess of $3 bil-

lion in the North American, European and Asian mar-

kets. Unlike the false sense of confidence that Thayer

and his colleagues first felt in the lab when they

decided to go commercial, he now feels genuine con-

fidence that Genesis will be able to market the smarts

of its founders. “There is always risk,” he says with a

smile, “but a lot of scientists around the world share

our confidence in the potential of mtDNA to answer

some very important questions about diseases. So

the risk is manageable.”

According to Thayer, universities are full of good

ideas, but unless they break out of the university envi-

ronment they will realize no benefit to the community

or to society. Most university research stays inside uni-

versity confines because faculty are motivated fore-

most by the advancement of their academic careers.

“It’s really invigorating to get out of the university envi-

ronment,” says Thayer. “When you get out of the uni-

versity environment, you can really make things

move.” However, both Thayer and Parr admit that

innovation, for them, has been a very difficult process

of getting other people to believe in their idea and

accessing funding. “We have had lots of setbacks

along the way. The key is not to get discouraged. Lots

of things could put you behind schedule — science

that doesn’t work, experiments that fail,” says Parr.

Thayer and Parr also caution other entrepreneurs not

to be daunted by the day-to-day details of a business.

“It’s important to realize that these things happen to

all businesses and you have to work through them.

19 S E V E N C A N A D I A N F I R M S I N P R O F I L E

“It’s important to realize that these things happen to all businesses and you have to

work through them. For a spin-off company,

you have to come to the realization that

‘business is war,’ and that’s just part

of the learning process.”