The Map is not the Territory - Part 1:
Exploring External Economies of Scale in Alberta's Biotech Sector
Biotech is arguably the most complex start-up community one could hope to develop due to the risk, time, and resources needed to create complex biological tools. This post highlights external economies of scale, the first of two economic principles of innovative community building. We overlay this principle on the current realities of our province, and hope to provide a clear sense of what’s next for the sector.
External Economies
The concept of external economies focuses on the benefits of startup concentration to a geographic location. As biotech companies co-locate to a specific region, they require common inputs, including specialized labour pools, infrastructure, suppliers and investment. With more startups concentrated in a geographical area, they can share the costs of these common inputs, creating “external economies of scale” as they reach a critical mass to support their shared services. As more start-ups join, sharing the expenses of specialized services, they lower costs. A great example is the foresight brought by James Whitehead, who built the first biotech innovation hub across the street from the biology building at MIT. It’s no wonder it was easy to recruit grad students to work there. Was it a coincidence that this building was one of two meccas of early biotech?
External economies are growing in Alberta, with reasonably strong support for biotech coming from Hubs, Ecosystem Supporters and Academic Innovation Centres. The startups in the area are starting to reap the benefits, with several ambitious plans for the future in the works. Below are examples of organizations that fuel scaling efforts selected to demonstrate the opportunities and challenges we face as a growing ecosystem.
Biotech Innovation Hubs
Places like BiohubX, Life Sciences Innovation Hub (LSIH) and the Biotechnology Business Development Centre (BBDC) run by Applied Pharmaceutical Innovation (API) operate largely on a membership basis. Memberships allow for shared access to infrastructure and common resources, lowering start-up costs for new biotech companies.
🟢 The LSIH in Calgary’s University Research Park is the most established hub, and has ~30 member companies currently renting space and accessing programs. Amazingly, and as someone who did their PhD at UofC in the Foothills Medical Center, LSIH remains somewhat hidden to the general research community. Lobbying efforts to build a hyperloop to span the 600m gap between LSIH and the main campus have yet to bear fruit… This does, however, highlight a real problem with even small geographical constraints; the collision of ideas and resources is less frequent. Better communication and physical presence at regular events is crucial to continue the momentum in the ecosystem.
🟢 Speaking of places that seem farther than they are, the “under the radar” strength of Edmonton’s biotech ecosystem is finally starting to shine, in particular with API, who secured over $200M as part of Canada’s critical drug initiative organization. API now has 4 facilities, including the BBDC and managing the Health Innovation Hub at UofA with a 5th flagship facility that broke ground in June 2024 - the Critical Medicines Production Center (CMPC). This facility is being built in collaboration with University of Alberta’s Li Ka Shing Applied Virology Institute, arguably the most renowned academic centre in the province. This alignment is promising, as API continues its mission to source talent and resources to staff and build models that will sustain the momentum of biotechnology in Alberta.
🟢 Several planned developments have us excited, all representing massive opportunity to expand the ecosystem and encourage collision of ideas, if done right. The recent provincial budget announced $100M to double the lab space for biology at the U of A, while UCalgary scored $55M to build a 7-story multidisciplinary science hub. The recently opened Cancer Centre in Calgary intersperses clinicians and researchers, with the goal to increase connections and provide advanced infrastructure for research and innovation. The most ambitious of all, apart from the CMPC, is the University Innovation Quarter (UIQ), Calgary’s answer to the Innovation Park in Edmonton. Plans are in place to rebuild the existing land north of main campus, which is owned by the university, but remains a sparse landscape of outdated research facilities and government buildings. This arrangement has seen several large developers make plays for commercial space, with the University providing the land and benefiting from infrastructure that supports the deep tech emerging from its research. Could the UIQ represent the future of biotech research in Calgary, with API supporting manufacturing in Edmonton?
🟢 New investment into the health sector is emerging: Check out the Government of Alberta (GoA) partnership with Siemens Healthineers and the Alberta Cancer Foundation (ACF). The investment represents the largest of its kind in Alberta’s history, dealing a strong hand to improve cancer care in the province with a clear private sector collaboration. This $800M investment, topped up by $175M from Siemens, will see replacement of existing equipment, as well as introduction of new equipment with AI-enabled technology implemented across Alberta hospitals. This is coupled with establishment of centres of excellence focused on oncology training and artificial intelligence and machine learning. Considerably more exciting to us, however, is a medical-research and innovation fund managed by the ACF to identify and fund projects to drive innovation in oncology. The negotiation of this public-private partnership signals that Alberta has the infrastructure and money to back global health partnerships. BlueSky Bio plans to share additional information about the centres and funding structure while continuing their deep dive into Alberta's cancer care transformation.
🔴 Attracting a pharmaceutical anchor has been a longstanding dream of ecosystem builders. Having an ecosystem pharmaceutical anchor allows training opportunities, retainment of highly educated graduates, local partners and expertise to advance start-ups as they grow and occasionally pharma supported innovation hubs like J&J’s JLABS in Toronto. This, however remains a long shot in the eyes of many in part due to a relative lack of mid-to-late career talent and smaller population centres. This chicken and egg scenario has led to a focus on overseas recruitment which to date has had success attracting small and now emerging biotechs.
⚠️ The question remains of WHO is going to occupy the multi-billion dollar buildings that are being built remains open and without a surefire solution. There is certainly not a glut of local talent in Alberta, and despite an opportunity to recruit from recent layoffs in the sector, remote work is not often feasible given the requirement to be in the room with physical experiments. Recruiting top talent from major centres should be a focus, given principal investigators attract top trainees. In the meantime, local education hubs like the Healthineers hub will (we hope) encourage the 80% of graduates who don’t pursue academia, an innovation-focused path here in Alberta.
Local Ecosystem Supports
The majority of local ecosystem supports, like Edmonton Unlimited, Platform Calgary, regional innovation networks, and Alberta Innovates are not solely focused on the life sciences, catering to a broad audience of ambitious entrepreneurs. These organizations continue to contribute to the external economies of scale through access to innovation-focused programing, general expertise and resources, and localized funding support.
Of the local biotech success stories we spoke with, the vast majority had a combination of large academic grants and a small group of educated investors that brought these companies through the valley of death. Many of those companies left the province to expand, given the lack of infrastructure in place as they were growing. Providence Therapeutics, Nanostics, 48Hour Discovery, and a few others have “toughed it out” and are already benefiting from the increased infrastructure, with Nanostics moving into the API-led Biotechnology Business Development Centre (BBDC) in the Edmonton Research Park.
Academic Innovation Centres
Academic innovation centers often start with a group of researchers who haveve identified an applied use for their area of research expertise, and have the bandwidth to raise money through fee-for-service work or philanthropy to further the research from bench to bedside. This combination is highly effective at innovating, but many leaders face an uphill battle balancing academic priorities, fundraising efforts, and university bureaucracy.
The recent establishment of the Riddell Center is one such example, with a core group of scientists collaborating with physicians to steer towards a specific unmet need: cancer immunotherapy. With shared facilities and expertise, the Riddell Centre brings together investigators from multiple sites to drive innovation with a focus on rapid translation into early phase clinical trials. While there are valid challenges to running an academic spinout, we believe that educating academics about innovation earlier in their training could be a nexus for unlocking innovation faster. Check out the work of Nucleate expanding into Alberta for a great example.
Takeaways
➡️ The momentum in the biotech space is real. External economies of scale fundamentally means that as we grow, we all benefit from the shared availability of resources.
Connections from local leaders have already set up the province for a Europe and Asia-focused strategy to recruit companies and talent to the area, starting with Bore Da from Korea, and new partnerships in the UK streamlining and providing a real path forward for the sector. John Lewis’ Trio of companies (Nanostics, Entos, and Oisin) all have roots at the U of A, and are now scaling into global companies, while injecting hundreds of millions of dollars back into the province. Siemens, GoA, and the public-private partnership that brings in over a billion dollars over the next 8 years. This is exciting for the sector and shows just how productive science can be when pointed in the right direction.
The momentum that is taking us across the front lines now needs hundreds of talented and ambitious folks willing to take on big roles, and for existing leaders to demonstrate that we can recruit global talent to a relatively untapped academic support system that has existed for decades.
Our hubs need to offer consistent programming to emerging innovators, our scientists need clear pathways to get through phase 1 trials, and the sector needs to start recruiting local and international talent to support the billions of investment slated to be deployed. As most entrepreneurs will tell you after raising money, the real work starts now.
In our next post, we’ll explore how announcements and communications late into networks and productivity, diving into three sectors (Diagnostics, Manufacturing and Cell Therapy) that represent existing strengths in the ecosystem, and likely represent the key to sustained growth.
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