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2009 Annual Report

a d v a n c i n g d i s c o v e r y ®

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a tradition of innovation• incorporate internal patent group (1984)• build and manage spin-off companies (1988)• consider a public offering (1993)• manage a captive venture fund (1999)• develop mechanisms for employee incentives (2003)• establish a Treasury Division (2006)• create and manage a venture training fund for business students (2006)• host and manage an NCE (2009)

First in Canada to:

• 79 invention disclosures assessed• 95 patent applications filed (including 18 original)• 20 patents issued in nine jurisdictions (U.S., Canada, Europe, Japan, Mexico, Australia, Israel, India, Singapore)• $125 million raised by our spinoffs this year • $910 million raised by our spinoffs since inception• 16 licenses signed• $0.7 million returned to institutions and inventors this year• $27 million returned to institutions and inventors since inception

2009 in numbers:

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Letter from the President and CEO

All companies need to innovate to grow and even to survive. We at PARTEQ are no different, and we continue to innovate in how we manage our business. We have created a culture of creativity through-out our organization, and that flows into how we do our deals and how we build and grow our companies. We also have the flexibility and the risk tolerance to do what we need to do to make commercialization happen.

Creating GreenCentre Canada was a very important event for us this year. This national Centre of Excellence for Commercialization andResearch represents a new model for technology transfer, and a new model for industry engagement. We will use this Centre to show industry, universities, governments and investors that so much more can be done to exploit the value in discoveries from basic research. Until now, this value has not been fully realized because Canadian universities have never aggressively pursued commercialization. Through its collaborations with both industry and the research community, GreenCentre Canada will show how successful commercialization can be done. This model can be extended to other key strategic areas, so it is critically important that we focus energy on getting it right.

At the same time, we at PARTEQ have been able to build a portfolio of opportunities that has the potential to generate significant impact and financial return. We have built a strong, experienced team that is able to work within a structure and culture such that successful commercialization can be achieved. We have begun to spread our wings and are now providing commercialization management services to other institutions.

At a time when universities are experiencing financial challenges, we need to effectively use the discovery asset to demonstrate the value in research and to help develop alternative sources of revenue for operations. The vision and patience shown us by Queen’s over the past 20 or so years has now left us extremely well positioned to do this.

Letter from the Chair of the Board

PARTEQ is one of Canada’s premier technology transfer organizations, and it continues to break new ground. Over the past year, PARTEQ has used new models to leverage investment and structure deals. PARTEQ has also demonstrated excellence in advancing great discoveries – moving innovative ideas and products to market.

Of special note this year was the creation of GreenCentre Canada. Through this new Centre of Excellence for Commercialization and Research, PARTEQ has introduced a new model for university technology transfer in Canada. This is a radical and positive development. It allows PARTEQ to build the deep domain expertise and resources needed to commercialize discoveries in the new and rapidly growing field of Green Chemistry, and it enlists the support and guidance of a broad spectrum of industry players in a meaningful, hands-on way.

Equally significantly, through GreenCentre, all of Canada’s universities will share commercialization opportunities, creating the critical mass needed to support the infrastructure for effectively managing these discoveries.

This innovative approach comes at a critical juncture, when governments are relying on universities to stimulate innovation and economic development. The research discovery base at Queen’s, and across Canada, is very strong and significant in many important areas. We need to find better ways to harness the value in that research, and we at Queen’s are proud that PARTEQ is leading the way with this new initiative.

Queen’s is very proud of its association with PARTEQ and is looking forward to building on its reputation of excellence.

John Molloy, President & CEO Kerry Rowe, Chair, Board of Directors & Vice-Principal (Research), Queen’s University

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bringing solutions to problems...

1. Find licensees

One of the ways that PARTEQ helps discoveries become solutions to problems is by licensing them to external companies. Over the past year, PARTEQ connected 16 companies with innovative solutions generated from research at Queen’s University and Kingston General Hospital. These deals included:

• Green method for destroying toxic agents such as chemical weapons and pesticides (Drs. Stan Brown, Alexei Neverov and Josephine Tsang, Queen’s) – licensed to Modec, Inc. of Denver, CO. Modec has submitted the Queen’s decontamination product to the U.S. Army’s 2009 procurement initiative, with up to one million gallons of the successful product required.

• Wearable device for preventing back injury (Dr. Mohammad Abdoli-Eramaki, now at Ryerson University) - exclusively licensed to PeakWorks Inc., an Ontario-based company specializing in industrial safety products. The Personal Lift Assist Device, as it is called, will also be used in longitudinal studies at a major Ontario automotive plant.

• Canine Factor VIII, a technology for diagnosing a bleeding disorder in dogs (Dr. David Lillicrap’s lab, Queen’s) – licensed to VetGen, LLC of Ann Arbor, MI, a specialist in genetic disease detection services. The technology will be used to develop a DNA test for hemophilia in dogs.

• Endoscopic probe technology that enhances sensory and auditory feedback to surgeons (Dr. Randy Ellis, Queen’s; Dr. Vincent Hayward and Ms. Hsin-Yun Yao, McGill) – exclusively licensed to Intuitive Surgical, Inc., a medical robotics company in Sunnyvale, CA. Intuitive is planning to incorporate the technology into their next-generation medical robots to help surgeons better feel the tissues being manipulated.

• Spinal facet joint implant (Drs. Donald Soboleski, Hotel Dieu Hospital and Daniel Borschneck, Kingston General Hospital and Mr. Gerald Saunders, Queen’s) – exclusively licensed to US Spine of Boca Raton, FL, a manufacturer of devices and implants for the spine. US Spine plans to develop the technology into a minimally invasive treatment for degenerative spinal conditions.

• Multidrug Resistance Protein (MRP), the key 1992 discovery of the gene encoding Multidrug Resistance Proteins (Drs. Susan Cole and Roger Deeley, Queen’s) – this technology for understanding resistance to chemotherapy drugs continues to attract interest, with one drug transport license and six antibody licenses signed.

Commercial Development Group:Back: Davis Hill, Michael Wells, Rui Resendes, Randall North, Stephen Adolph, Jason Hendry, Lucy SuFront: Perry Kim, Anne Vivian-Scott, Marie-France Hétu, Hassan Jaferi

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the solutionDr. John Rudan, an orthopedic surgeon at Kingston General Hospital, the teaching hospital of Queen’s University, developed a patient-specific drill template that enables surgeons, for the first time, to precisely align and, if needed, finely adjust, the placement of the metal implants used in hip resurfacing, without the need for complex operating room computer-assisted surgery equipment. He brought his invention to PARTEQ, which protected the technology and licensed it to DePuy Orthopedics, a division of Johnson & Johnson. Working with Dr. Rudan’s team at Queen’s Human Mobility Research Centre, PARTEQ also funded the development of accompanying software to assist surgeons in preparing the patient-specific computerized “blueprint” needed to guide the surgeon in the operating room.

the problem

the impact

Orthopedic surgeons needed a more accurate way of completing a new type of hip repair called hip resurfacing, in which damaged cartilage on the femur head is replaced with a metal cap. Although a less radical procedure than total hip replacement, the technique is not widely used because of the extreme difficulty in precisely centering the cap’s metal post in the femur, and because failure to do so can cause further damage to the hip bone.

The technology enables surgeons to perform this previously challenging procedure quickly and accurately, reducing operating room time and post-operative complications. And because it removes the need for expensive computer-assisted operating room equipment, surgeons anywhere can perform this surgery. For patients, the procedure preserves more of the bone structure than conventional hip surgery does, offering a more natural range of motion and shorter recovery time. Dr. Rudan’s innovation is now being applied to other types of orthopedic surgery, including knee and ankle replacements.

Hip guide benefits younger patients

we create solutions...Dr. John Rudan (right) performs hip resurfacing procedure.

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bringing solutions to problems...

2. Grow companiesSometimes a research discovery’s unique challenges are best met by forming a spinoff company – an approach that, as one Queen’s University inventor described it, “helps to move a promising technology gently out into the real world.” PARTEQ’s spinoff company highlights over the past year include:

• Novari Health (formerly AdapCS Canada Inc.) – This company’s web-based patient waiting-list management tool is streamlining surgical services at Hôtel-Dieu Grace Hospital in Windsor, Ontario. The novel tool, also used in Eastern Ontario and Nova Scotia hospitals, ensures that vital information about patients’ preparation for surgery is now fully integrated between their surgeons’ offices and the hospital’s operating room services. www.adapcscanada.com

• Bellus Health Limited – Vivimind™, a patented nutraceutical developed by Bellus for enhancing memory function, is now on sale at more than 3,500 outlets across Canada. Vivimind is based on Alzhemed™, a drug candidate that completed Phase III clinical trials for treatment of mild to moderate Alzheimer’s disease. Manuscripts detailing the results of these trials have been accepted for publication. www.bellushealth.com

• Cytochroma Inc. – Focused on developing Vitamin D-based therapeutics for treating chronic kidney disease, Cytochroma completed a $103-million deal with Japan’s Mitsubishi Tanabe Pharma Corp. to move its drug candidates into mid- to late-stage clinical trials. The deal included a $45-million Series C financing. www.cytochroma.com

• DUSA Pharmaceuticals, Inc. – Sales of Levulan® , a topical treatment for precancerous skin lesions, steadily increased, with overall revenue growth of 35 percent over the past year. This product is now in use in North America, Latin America, Argentina, Brazil, Chile, Colombia and Mexico. www.dusapharma.com

• EnerWorks Inc. – This developer of solar hot water heating solutions continues to grow. It completed a $5.1 million financing and solidified a number of major installations, including 640 collectors for the world’s largest solar thermal heating and cooling installation at the Fletcher Business Park in Fletcher, NC. EnerWorks’ collectors also earned the top performance rating under Natural Resources Canada’s ecoACTION program. www.enerworks.com

• Performance Plants Inc. – A leader in the development of stress-resistant crop seed technologies, Performance Plants completed a $13 million financing, enabling it to accelerate development of its portfolio of crop traits, aggressively develop its biofuels business plan, and expand its clean energy business partnerships. www.performanceplants.com

Patent Group: Angela Lyon, Stephen Scribner, Carol Miernicki Steeg, Brenda Dundon

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the solutionPrevious collaborations with other universities and the Ontario Centres of Excellence showed PARTEQ the added value of sharing expertise. These experiences suggested a model that could be used on a broader scale: Why not offer PARTEQ’s expanded commercialization expertise to any institutions that needed it – anywhere?

the problem

the impact

In 2007, Ontario Research Commercialization Program funding enabled PARTEQ to expand its commercial development expertise by recruiting industry experts in life sciences, chemistry and materials, and engineering and information technology. This enhanced organizational capacity, however, created a new challenge: How to generate the greatest impact from this deeper pool of expertise?

PARTEQ is now assisting with the development of technologies generated by Toronto-area institutions as well as Carleton, Trent and Princeton universities. PARTEQ also finalized a collaboration agreement with the Centre for Commercialization of Research (CCR), a new centre of excellence established by the Ontario Centres of Excellence. Internationally, PARTEQ is working with People’s Republic of China Innofund, a non-profit government fund focused on supporting the innovation activities of small and medium sized companies in China.

we create solutions...Merging expertise with opportunity Stephen Adolph, PARTEQ with Carleton University’s Andrew Speirs, Dinesh Kakadia and Dr. Hanspeter Frei

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bringing solutions to problems...

3. Nurture new discoveries

Research breakthroughs have a much better chance of making an impact when they’re helped along by someone who can make the link between a discovery and an industry problem. Thanks to our expanded in-house industry expertise, a number of exciting new technologies are now in the development pipeline, including:

• Electronic ballast and controller for compact fluorescent lightbulbs (CFLs) – (Dr. Praveen Jain and Mr. John Lam, Queen’s) – This unique electronic ballast offers dimmability at lower cost with higher efficiency than today’s household CFLs. The design also eliminates poor power factor, and flickering and buzzing often found in commonly available bulbs.

• Switchable surfactants/solvents (Dr. Philip Jessop, Queen’s) – These Polanyi Award-winning transformative green technologies show potential as clean, energy- and cost-efficient manufacturing process alternatives to existing surfactants and solvents. Working with a Canadian biodiesel manufacturer, PARTEQ has identified two immediate applications for these technologies: reducing several energy-intensive biodiesel processing steps; and recovering and transforming glycerol, a biodiesel waste byproduct, into a commercial product with a significant potential revenue stream.

• Multichannel Nanoelectrospray Emitter (Dr. Richard Oleschuk, Queen’s) – This minuscule "nozzle head" used in mass spectrometry analysis overcomes a clogging problem common to existing emitters. Flintbox™ allowed us to bring samples of these new emitters to end users and to prospective licensees and, at the same time, assess the market opportunity. Feedback has shown these tiny, innovative devices to meet all industry standards and to have unprecedented resistance to clogging.

• NATURE Field Programmable Gate Array (FPGA) integrated circuit technology (Drs. Niraj K. Jha and Wei Zhang, Princeton University and Dr. Li Shang, University of Colorado) – This breakthrough integrated circuit technology being commercialized by PARTEQ with Princeton University promises to dramatically reduce costs for FPGAs by up to 50 times, allowing FPGAs to address a much larger market.

• ANKtide (Drs. Zongchao Jia and Vinay Singh, Queen’s) – a new anti-cancer peptide that also increases the efficacy of anti-cancer drugs. This peptide, which shows promise as a novel chemotherapeutic for metastatic cancers, is currently being optimized and tested in in vivo preclinical models.

Administration Group: Cher Powers, Nancy McIntyre, Paul Vickers, Marilyn Gordon, Lisa Knechtle-Jerkiewicz, Mary Anne Beaudette

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bringing solutions to problems...

4. Share expertise

Economically challenging times often create the best environments for finding new ways to work together. For PARTEQ, the past year was an ideal opportunity to propose a new model of industry-academic collaboration. The result was our successful application for $9.1 million in funding to establish a National Centre of Excellence for Green Chemistry Commercialization, under NSERC’s Centres for Commercialization and Research (CECR) program (see profile, page 21).

Other examples of expertise-sharing include:

• Spinoff companies – PARTEQ provides its expertise in intellectual property (IP) protection and management via consulting, advising and strategic analysis of IP of its spinoff companies, even when intellectual property is created after the spinoff has left the PARTEQ “nest.” • Ontario Centres of Excellence – Expanding on its previous joint work with OCE, PARTEQ finalized a collaboration agreement with OCE’s Centre for Commercialization of Research to leverage mutual strengths including technology development funding, industry and business contacts, intellectual property protection and commercialization.

• Other institutions – Prior to the formation of MaRS Innovation, PARTEQ gave assistance to a number of Toronto institutions. It also continues to work with Carleton, Trent and Princeton universities, among others.

Executive Group: Paul Vickers, Carol Miernicki Steeg, Anne Vivian-Scott, John Molloy

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the solutionAs the long-term licensor of PDS, PARTEQ recognized the value of PDS and its technology, and decided to take a calculated, well-managed risk. Rather than accessing traditional funding mechanisms, it used its in-house Treasury Services, including its own venture fund, with attendant provincial and federal tax credits, to loan PDS $640 K. Buoyed by this momentum, angel investors injected an additional $119 K into the company. The amount and timing of the funding were crucial, as PDS had attracted the inter-est of a major European company.

the problem

the impact

Pathogen Detection Systems, Inc. (PDS), a startup company based on research by Dr. Stephen Brown of Queen’s University, was at a turning point. Its portable, automated system for microbiological testing in water systems was proving to be significantly faster and more reliable than traditional laboratory-based testing. It was in field trials in a variety of applications and had received its first regulatory approval for testing drinking water. However, the company’s promising future looked considerably less certain after a key financing deal collapsed.

In January 2009, Pathogen Detection Systems was successfully acquired, and its technology is now licensed to a major player with the expertise, commercial channels and financial resources to launch the water-testing system into the global market. At the same time, PDS was able to repay all amounts owing, including its loans with interest. This innovative solution ultimately strengthened a local company, saved jobs, and gave the technology a faster, smoother path to market.

we create solutions...When a calculated risk is its own reward

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bringing solutions to problems...

5. Engage globally

PARTEQ’s outreach to China generated a visit this year by a delegation from the People’s Republic of China Ministry of Science and Technology (“Innofund”). During their visit, Innofund signed an agreement with PARTEQ to extend mutual commercialization services to technologies that they believe will benefit from the other’s expertise or resources. These include consulting, funding, intellectual property management, product development and testing, incubation and/or licensing of technologies in respective Chinese or North American markets. PARTEQ also hosted meetings between the Innofund group and representatives of the Ontario and Canadian governments, as well as with venture capitalists and business people.

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Mr. Zhang Weixing, Innofund and John Molloy, PARTEQ

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bringing solutions to problems...

6. Fill the financing gap

Even the most promising technology can be stopped in its tracks without funding to reach development milestones. Two of the avenues PARTEQ uses to help keep companies and technologies on track are proof of principle funds and venture funds:

• PARTEQ’s $900,000 Proof of Principle Fund has helped advance at least 24 technologies further along the development path. Sometimes a relatively small amount of funding can make a big difference. The Personal Lift Assist Device is a case in point. $25,000 in POP funding was sufficient to revise the device, used for the prevention of back injuries, so that it could be used in a pilot study by assembly-line workers in a major Ontario automotive plant. The results of that study were so positive that the technology was subsequently licensed to an Ontario company specializing in worker safety.

• Hard to finance at the best of times, biotechnology discoveries have been especially hard-hit by the global economic meltdown. An example is Nometics Inc., a PARTEQ spinoff company that needed money to fund a pivotal clinical trial using nitroglycerin for the treatment of prostate cancer. PARTEQ was able to use its experience with the Ontario Commercialization Investment Fund program to create a unique, low-risk investment opportunity. It used its biotechnology-focused OCIF, Marsupial Investments, to offer potential investors a short-term return of 70 cents on the dollar by combining Marsupial’s OCIF grant with federal Scientific Research and Experimental Development taxcredits. This risk-mitigating approach resulted in $640,000 being invested in Nometics.

• Having found a unique solution to the biotech funding gap, PARTEQ is now using its tax-leveraging approach as the basis for a new in-house captive venture fund, the PARTEQ Venture Fund II. This fund, seeded with $500,000, will target technologies across a variety of sectors and aims to attract risk-averse investors.

Automotive worker tests the patented Personal Lift Assist Device

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the solutionRecognizing the potential in this rapidly emerging sector, PARTEQ proposed a new model of technology transfer that actively engages industry with researchers and commercial-ization specialists in a one-stop centre for developing, testing and scaling up Green Chemistry discoveries.

the problem

the impact

Canada is home to some of the world’s foremost basic researchers in Green Chemistry. However, the lack of development and testing capability in universities, coupled with industry’s strategic imperative to focus on core technologies, has made it difficult to advance these early-stage yet transformative, clean chemical alternatives beyond the research lab.

In February PARTEQ was awarded $9.1 million in federal funding towards the establishment of a national Centre of Excellence for Green Chemistry Commercialization. Soon to open at Innovation Park at Queen’s University, GreenCentre Canada has attracted the support of more than 10 industry sponsors, and technology transfer offices from across the country have begun submitting invention disclosures. Moreover, the enthusiastic buy-in by industry and research institutions suggests a commercialization model that can be emulated across other technology sectors.

we create solutions...Bringing ‘good chemistry’ to life

Dr. Suzanne Fortier, President of NSERC, announces PARTEQ Centre of Excellence for Green Chemistry Commercialization

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financialsPARTEQ Innovations’ growing and diverse portfolio of revenue-generating technologies resulted in a solid growth of licensing revenue from $1.3 million in 2008 to $1.8 million in 2009. Distributions to inventors and contributors increased correspondingly with revenue, from $0.6 million in 2008 to $1 million in 2009. In 2009 PARTEQ also distributed $0.7 million to Queen’s University. PARTEQ has returned approximately $27 million to its inventors, contributors and to Queen’s University since inception.

During the year, PARTEQ Innovations realized a gain on the disposal of its investment in PARTEQ Internet Venture Fund of nearly $0.6 million. Stronger licensing revenue, prudent expense management combined with additional grant revenue, and the gain on disposal of equities resulted in turning a $1.3 million operating deficit in 2008 to a small operating surplus in 2009.

Licensing revenue

Distributions to inventors and contributors

Operating expenditures

Operating grant revenue

Investment income on equities

Net operating surplus (deficit)

Distribution to Queen’s University

Net deficit

Other

845

2009

$ 1,838

(2,929)

1,406

589

103

(831)

$ 14

(703)

$ (689)

(993) (633)

671

2008

$ 1,304

(2,679)

749

5

(92)

(2,017)

$ (1,346)

(212)

$ (1,558)

Condensed consolidated statement of revenue and expenditures Year ended March 31, 2009, with comparative figures for 2008 in thousands of dollars.

Our Board of DirectorsDr. R. Kerry Rowe (Chair)Mr. David WhitingDr. Elspeth Murray Mr. Bob Shoniker Mr. Kent PlumleyMr. John P. Molloy Ms. Caroline Somers Mr. Brian Gray Dr. Glenville Jones Mr. George Anderson

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